ANNUAL REPORT & ACCOUNTS 2013
POSITIONED
FOR GROWTH
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POSITIONED FOR GROWTH
WE BELIEVE WE HAVE THE PROVEN OPERATIONAL AND GEOLOGICAL
EXPERTISE, COMPETITIVE COST POSITION, SOLID BALANCE SHEET AND
EXPERIENCED MANAGEMENT TEAM TO NAVIGATE VOLATILE MARKETS
AND DELIVER VALUE ACCRETIVE GROWTH INTO THE FUTURE.
WE ARE A LEADING UNDERGROUND PRECIOUS METALS COMPANY, FOCUSING ON THE
EXPLORATION, MINING, PROCESSING AND SALE OF SILVER AND GOLD IN THE AMERICAS.
With 50 years of experience in the
mining of precious metal epithermal
vein deposits, we are among the lowest
cost primary silver producers in the world,
based on co-product cash costs. We are
headquartered in Lima, Peru, and have
various exploration offices in South
America and Mexico. We currently have
four underground mines in operation,
with three located in southern Peru and
one in southern Argentina. Three of these
mines are among the 13 largest primary
silver mines in the world.
We also have one Advanced Project
that we expect will foster our short and
medium term growth: Inmaculada in
Peru, a large silver and gold project,
which is expected to begin operating
in the fourth quarter of 2014 and
produce approximately 12 million
ounces of silver equivalent per year.
We also have an extensive portfolio
of greenfield exploration projects
across premium geological locations
throughout South America and Mexico.
HOCHSCHILD REMAINS IN
A STRONG POSITION
• Leading Peruvian mining house
with 100-year history
• Strong operational flexibility to
adapt to diverse market conditions
• Set to commence four years of
production growth
• Low risk Inmaculada project
development expected to bolster
cashflow generation and lower
average costs
• Cluster in rich southern Peru
mining region
• Proven ability to replace resources
through brownfield exploration
CASHFLOW OPTIMISATION
PROGRAMME
• Approximately $200m
of annualised savings
• Savings include costs, capex
and expenses
• Reductions in business areas
including Operations, Exploration,
Advanced Projects, Administration
• Focus on most promising
greenfield prospects
PRODUCTION GROWTH
We are set to deliver four years of
production growth
34.7
32.0
28.0
20.5
21.0
13
14
15
16
17
60% PRODUCTION GROWTH
TOTAL SILVER CASH COSTS
We have achieved a significant
improvement in our cost position
TOTAL SILVER CASH COSTS
in 2013.
$/oz Ag co-product
13
12
11
10
09
12.9
14.2
13.0
9.3
7.1
9% 2013 CASH COST REDUCTION
DISCOVER MORE ABOUT
POSITIONED FOR GROWTH ONLINE
• Learn more about our history,
our people and our strategy
• Explore our operations and
extensive project pipeline
• Read more on our approach
to sustainability
www.hochschildmining.com
STRATEGIC REPORT
02
Positioned for Growth:
Inmaculada
04 Key performance indicators
06 Where we operate
08 How we do it
How we are going to get there
10
12
Our market overview
14 Chairman’s statement
16 Chief Executive’s review
18 Operating review
25 Exploration review
29 Financial review
36 Sustainability report
Risk management
50
GOV ERN ANCE
56
Board of Directors and
Senior Management
58 Directors’ report
60 Corporate governance report
72 Supplementary information
76 Directors’ remuneration report
98 Statement of Directors’
responsibilities
99
Independent auditor’s report
FINANCIAL STATEMENTS
102
103
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Parent company statement
of financial position
Parent company statement
of cash flows
Parent company statement
of changes in equity
Notes to the parent company
financial statements
104
105
106
107
164
165
166
167
FURTHER INFORMATION
180 Profit by operation
181 Reserves and resources
187 Production
189 Glossary
190 Shareholder information
www.hochschildmining.com 1
POSITIONED FOR GROWTH:
INMACULADA
THE 100% OWNED INMACULADA PROJECT IS HOCHSCHILD’S FLAGSHIP
GROWTH PROJECT AND IS EXPECTED TO CONTRIBUTE ALMOST 12 MILLION
SILVER EQUIVALENT OUNCES PER ANNUM WITH COMMISSIONING DUE
TOWARDS THE END OF 2014.
OVERVIEW
• Gold-silver project located in
Southern Peru Cluster
• 112km from Pallancata mine
• Expected average annual production:
DEVELOPMENT
• Environmental Impact Statement (EIS)
and construction permit already approved
• Infrastructure and electricity transmission
line almost complete
64% gold/36% silver
• Over 10km of tunnelling already
• Expected to start operations in Q4 2014
• Inmaculada project expected to be
amongst Hochschild’s lowest cost
operations and largest cashflow generator
carried out
• Engineering and contract targets
almost complete
• Plant construction ongoing with most
major equipment already delivered
FUTURE GROWTH
• 150m Ag Eq ounce resource base
• Already identified inferred resources
within main Angela vein almost
doubles life-of-mine
• Further veins already identified in
surrounding Quellopata system
• Significant prospectivity in overall
Inmaculada land package
12M OZ
Ag Eq per annum
Q4 2014
Commissioning starts
150M OZ
Ag Eq resource base
2
Hochschild Mining plc Annual Report 2013
www.hochschildmining.com 3
OUR KEY PERFORMANCE INDICATORS
2013 PROVED TO BE ONE OF THE MOST CHALLENGING IN HOCHSCHILD MINING’S
HISTORY BUT WE ARE CONFIDENT THAT THE NECESSARY MEASURES SO SWIFTLY
IMPLEMENTED BY OUR TEAM HAVE RESULTED IN AN ORGANISATION WITH A
SUSTAINABLE GROWTH STRATEGY AND A LOWER COST, LEANER STRUCTURE
THAT IS APPROPRIATE FOR ALL STAGES OF SUCH VOLATILE PRECIOUS METAL
PRICE CYCLES.
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
13
12
11
10
09
ADJUSTED EBITDA
$m
EARNINGS PER SHARE
$
622
818
988
752
540
13
12
11
10
09
195
(0.15)
13
385
398
563
250
12
11
10
09
0.19
0.28
0.17
PROPOSED TOTAL DIVIDEND
$
TOTAL SILVER CASH COSTS
$/oz Ag co-product
TOTAL GOLD CASH COSTS
$/oz Au co-product
Nil
0.06
0.06
13
12
11
10
09
0.05
0.04
12.9
14.2
13.0
13
12
11
10
09
9.3
7.1
613
535
476
0.49
801
781
ACCIDENT SEVERITY INDEX
COMMUNITY INVESTMENT
$m
2.08
3.33
3.63
3.70
5.22
598
1,058
910
777
13
12
11
10
09
1,485
13
12
11
10
09
3.2*
6.5
7.7
6.7
6.0
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.
* Total social expenditure for 2013
amounted to $10.1 million.
For more information visit
www.hochschildmining.com
4
Hochschild Mining plc Annual Report 2013
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LTIFR
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PRODUCTION: DELIVERING ON TARGETS
We once again met our full-year production target in 2013, producing 20.5 million attributable silver equivalent ounces,
comprised of 13.6 million ounces of silver and 115.7 thousand ounces of gold. In 2013, our gross silver revenue was
$433 million and our gross gold revenue, $226 million.
2013 REVENUE BY PRODUCT
2
1
1. Silver
2. Gold
65%
35%
$622m
2013 ATTRIBUTABLE
PRODUCTION
Silver equivalent moz
RESOURCE BASE
Silver equivalent moz
13
12
11
10
09
1,300
1,100
20.5
20.3
22.6
13
12
11
535
26.4
10
453
28.2
09 342
RECOMMENCING PRODUCTION GROWTH
Following the completion of the International Minerals acquisition in December 2013, we now own 100% of the flagship
Inmaculada project and are embarking on several years of production growth. Over the next four years, Hochschild has
targeted production from our core assets and from our projects to reach almost 35m ounces.
EXPECTED ATTRIBUTABLE PRODUCTION CAPACITY
(millions Ag Eq oz)
34.7
32.0
28.0
20.5
21.0
Core operations
Ageing operations
Inmaculada
Crespo
13
14
15
16
17
Inmaculada
www.hochschildmining.com 5
Strategic reportp2-55
WHERE WE OPERATE
MEXICO
5
PROJECTS
IN MEXICO
3
OPERATIONS
16
PROJECTS
IN PERU
2
5
8 6
1
4
PERU
7
CHILE
1
OPERATION
3
PROJECTS IN
ARGENTINA
8
PROJECTS
IN CHILE
3
ARGENTINA
KEY
Current operations
Advanced projects
Growth projects
For more information visit
www.hochschildmining.com
6
Hochschild Mining plc Annual Report 2013
WE HAVE HALF A CENTURY’S OPERATING EXPERIENCE IN THE AMERICAS AND
HAVE BUILT UP A COMPREHENSIVE PORTFOLIO OF THREE UNDERGROUND
OPERATIONS IN PERU, ONE OPERATION IN ARGENTINA AND A TOTAL OF 38
EXPLORATION PROGRAMMES IN FOUR COUNTRIES ACROSS THE CONTINENT.
CURRENT OPERATIONS1
Arcata
Peru
1
2
3
4
Pallancata
Peru
San Jose1
Argentina
Ares
Peru
ADVANCED PROJECTS2
5
Inmaculada
Peru
GROWTH PROJECTS
Crespo
Peru
6
7
8
Volcan
Chile
Azuca
Peru
GREENFIELD PROJECTS
Peru
Argentina
Mexico
Chile
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.
6.0 moz
1,750 tpd
9.3 moz
3,000 tpd
12.3 moz
1,650 tpd
2.2 moz
1,000 tpd
12 moz
2.7 moz
n/a
3.5 moz
Ibel, Huacullo, Astana, Sipan, Pausi, Santo Tomas, Fresia, Julieta,
Antay (Cu), Alpacocha (Cu), Numa, Carmen Carelli, Suckuytambo
El Mosquito, Pomona, La Flora
Corazon de Tinieblas, Mercurio, Pachuca, Elefante, Riverside JV
Victoria, Valeriano, Encrucijada, Bambu, Medio, Trinchera,
Isla, Miocene Chile
1 The Company has a 51% interest in San Jose.
2 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”).
www.hochschildmining.com 7
Strategic reportp2-55 HOW WE DO IT
WE BELIEVE THAT OUR SUSTAINABLE BUSINESS MODEL AND CORE STRENGTHS
OFFER A UNIQUE INVESTMENT PROPOSITION.
OUR BUSINESS MODEL
C O R P O R A T E GOVERNANCE FRAMEW
ORK
CREATING
VALUE
OPERATIONAL
& GEOLOGICAL
EXPERTISE
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FOCUS ON
EXPLORATION
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SOLID FINANCIAL P O S I T I O N
For more information visit
www.hochschildmining.com
8
Hochschild Mining plc Annual Report 2013
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SOLID FINANCIAL P O S I T I O N
OUR UNIQUE PROPOSITION
WE BELIEVE THAT THE FOLLOWING QUALITIES OF HOCHSCHILD MINING SET US APART:
OPERATIONAL & GEOLOGICAL EXPERTISE
Our Company is more than 100 years old and we have 50 years of experience successfully
operating precious metal mines. We have been able to maintain annual production
targets throughout this period despite significant volatility in precious metal prices as
well as significantly changing political and economic environments. Since 2007, we have
doubled the overall throughput capacity at our operations and have consistently been
able to achieve our annual production targets, increase our resource base and achieve
positive results from our brownfield exploration at existing mines. The operational and
geological experience we have been able to develop over many years and across multiple
operations has made it possible for us to maximise the productivity of our Core Assets,
develop mining projects and find new deposits in the Americas.
FOCUS ON EXPLORATION
We have always placed a strong emphasis on exploration as a key measure to secure the
long-term sustainability of our core producing assets as well as finding new projects for
our portfolio. The goal of our brownfield exploration programme is to continuously seek
to optimise the life-of-mine of our mines and the quality of their resources. Our success
is underpinned by the fact that the Company currently has the largest resource base in
its history. From a greenfield standpoint, we have discovered several mines and acquired
early-stage projects to ensure the long-term sustainability of our business. Prudent capital
allocation, strong technical processes and a high quality team of geologists are key to our
greenfield strategy.
SOLID FINANCIAL POSITION
Workers underground at Arcata
Camp at Jasperoide
Our solid financial position gives us significant flexibility to support commodity price
variations. Our conservative financial management practices are designed to promote
financial robustness even under a volatile commodity price environment. Historically,
we have maintained significant cash positions whilst incurring limited indebtedness.
We believe that the combination of a competitive and flexible cost structure and a
strong financial position with modest leverage is key to supporting our business for
the long term.
Crespo
EXPERIENCED MANAGEMENT TEAM
Our management team has extensive experience in the mining industry and a proven
track record of sustainable mining, developing successful projects and adding economic
mineral resources. We believe this experience has enabled us to manage our operations
efficiently and to maintain profitability through volatile commodity price cycles for
50 years. Our management team has also managed joint venture operations and
successfully integrated several acquisitions and business expansions.
Lima office exterior
COMMITMENT TO SUSTAINABILITY
We seek to achieve successful operations adhering to our historical commitment to
safety as well as social and environmental sustainability, with operational safety being
one of our core values. We consider our surrounding communities our long-term business
partners and commit skilled professionals as well as financial resources to support
programmes in three different categories: health, safety and sustainable development.
As a result, we have been able to operate collaboratively with our neighbours in our
Southern Peru Cluster for 50 years.
Safety
36
For more information please see our Sustainability report on page 36
www.hochschildmining.com 9
Strategic reportp2-55
HOW WE ARE GOING TO GET THERE
OUR STRATEGY IS TO CREATE VALUE FOR ALL OUR SHAREHOLDERS BY OPTIMISING
OUR CURRENT OPERATIONS, FOCUSING ON EXPLORATION AND PURSUING
OPPORTUNISTIC EARLY-STAGE ACQUISITIONS.
OUR STRATEGY
THIS STRATEGY IS UNDERPINNED BY OUR
COMMITMENT TO ALL OF OUR EMPLOYEES’ SAFETY,
TO MANAGE AND MINIMISE THE ENVIRONMENTAL
IMPACT OF OUR OPERATIONS AND TO ENCOURAGE
SUSTAINABILITY BY RESPECTING THE COMMUNITIES
SURROUNDING OUR OPERATIONS. WE INTEND
TO ACHIEVE OUR OBJECTIVES THROUGH THE
FOLLOWING PRINCIPAL STRATEGIES:
OPERATING
RESPONSIBLY
CORE ASSETS
EXPLORATION
ACQUISITIONS
16
For more information on our strategy please see our Chief Executive’s review on page 16
CORE ASSETS
Improve productivity
Optimise life-of-mine
At our Core Assets we are
focused on improving
operational productivity,
reducing costs, optimising
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 expanded our resource
base, not only replacing the
mined resources, but by
consistently increasing our
life-of-mine. This has had a
tangible effect in improving our
mine planning process, a key
step to achieving efficient
operations. We strongly
believe that constantly
improving the efficiency
of our operations is key to
maintaining a competitive
position in the industry, thus
allowing us to support our
business in the long term.
EXPLORATION
Land package
People
Incentives
Budget
We believe that significant
value can be created for our
Company by discovering
economic mineral resources.
In order to be successful, we
have formed a highly reputable
team of geologists to focus on
discoveries in the Americas.
We have developed processes
utilising computer-designed
models to generate geological
theories, which, together with
extensive on-site prospecting,
have allowed us to build a
land package of promising
geological sites totalling more
than one million hectares in
the Americas. Furthermore,
we have developed disciplined
and stringent internal processes
to evaluate and prioritise our
pipeline of projects in order to
adequately allocate
financial resources, based
on our conservative financial
policies, to drill and develop
our exploration projects. We
believe that this disciplined
strategy will allow us to access
attractive mineral resources
for the long term sustainability
of our mining business.
EARLY-STAGE
ACQUISITIONS
Early stage
Geological potential
Highly accretive
Control
Our business development
team is dedicated to pursuing
early-stage opportunities that
demonstrate strong geological
potential, value accretion and
a clear path to control. This
strategy is implemented in line
with our conservative financial
policies. We have a proven
track record of identifying
such opportunities, such as
our acquisition of a controlling
stake in the Inmaculada
Advanced Project and the
acquisition of Andina Minerals,
which added the Volcan
Growth Project to our pipeline.
We believe the recent
acquisition of the remaining
40% of Inmaculada fits our
strategy of adding highly
prospective early-stage projects.
10
Hochschild Mining plc Annual Report 2013
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 FINALLY, OUR PREMIUM LAND
PACKAGE. THE PYRAMID ALSO ILLUSTRATES HOW THESE PROJECTS MOVE UP THE
PIPELINE FROM TARGETS/PROSPECTS, TO DRILL TESTING, TO ADVANCED PROJECTS
THROUGH TO PRODUCING OPERATIONS.
COMPANY MAKERS:
We currently have 12 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 19 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
Encrucijada
Victoria
Valeriano
Mercurio
Pachuca
Antay
Corazon de
Tinieblas
Medio
Trinchera
Isla
Elefante
JV Riverside
Miocene Chile
Central Peru
KERS
A
NY M
MPA
CO
CURRENT
OPERATIONS
ADVANCED PROJECTS
GROWTH PROJECTS
TARGET TESTING
TARGET DELINEATION
M
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Arcata
Ares
Pallancata
San Jose
Inmaculada
Crespo
Azuca
Julieta
La Flora
El Mosquito
Huacullo
Numa
Ibel
Pucanta
Fresia
Pomona
Suckuytambo
Sipán
Carmen-Carelli
Astana
Pausi
Bambu
Santo Tomás
GENERATIVE
(>1 million hectares of prospective land)
LAND PACKAGE
18
For more information please see our Operating review and Exploration review on pages 18-28
www.hochschildmining.com 11
Strategic reportp2-55
OUR MARKET OVERVIEW
GOLD SUMMARY
OVERVIEW
Gold prices rose to historically high levels over the course
of a decade into late 2011. Gold prices have remained at
historically elevated levels since then. Even as prices have
declined from their short-term peaks in 2011, they remain
far higher than most periods before in history. Gold prices
moved between $1,179.40 and $1,697.80 during 2013.
The annual average price of gold was $1,409.43 during
2013, down 15.6% from 2012 after dramatic falls in April
and June. It nonetheless was the third highest annual
average price of gold on record.
Investors purchased a large volume of gold in 2013. Net gold
purchases by investors in 2013 were 29.7 million ounces.
Longer term investors viewed the decline in gold prices
during 2013 as a buying opportunity and were the primary
buyers during the year. These investors were purchasing
gold mainly as a hedge against a variety of long-term
structural problems that the global economy is faced with,
such as growing government debt and trade imbalances.
However, shorter term investors and trend followers reacted
to the decline in gold prices as a reason to sell, using every
price rally as a selling opportunity and moved their funds
into other asset classes such as equities and property that
were showing price strength.
Central banks displayed increased price sensitivity during
2013, pulling back from making fresh purchases during
the second half of the year. One possible explanation is that,
following the decline in gold prices in April and June, central
banks were waiting to see at what level gold prices would
stabilise before making fresh purchases. Between January
and May 2013 central banks purchased 5.11 million ounces
on a gross basis, an average of a little over a million ounces
a month. Contrastingly, purchases between June and
November amounted to only 1.82 million ounces. However,
ongoing Central Bank interest in gold ownership can be seen
in the relatively small amount of metal sold during 2013.
Global gold mine supply is estimated at 82.1 million ounces
in 2013, up 2.8% from 2012 levels. The increase in mine
supply was led primarily by an increase in Chinese output
but also as a result of new projects that were being ramped
up in other countries. Secondary supply of gold declined
sharply to 39.3 million ounces during 2013, down from
47.2 million ounces in 2012. This weakness was in response
to the decline in gold prices and would have declined even
more sharply if it had not been for India, where continuing
restrictions on gold imports resulted in a supply shortage
with secondary supply rising in response.
Gold fabrication demand is estimated to have risen to
90.5 million ounces in 2013, up around 10% from 2012 levels.
Jewellery demand, the largest component of gold fabrication
demand, benefits from softness in gold prices and this helped
push jewellery demand to an estimated 77.2 million ounces
in 2013, up 11.8% from 2012.
POSSIBLE DRIVERS FOR GOLD IN 2014:
• Investment demand is forecast to remain at elevated levels
during 2014, driven by ongoing demand from longer term
buyers and a possible change in sentiment from shorter term
buyers as the year progresses.
• Central banks are expected to continue to diversify their foreign
exchange reserves with gold. A period of relative stability in gold
prices during 2014 is expected to draw these market participants
back into the market.
• Secondary supply of gold is expected to continue declining in 2014,
albeit at a slower pace than in 2013. Mine supply is forecast to
rise at a moderate pace in 2014, driven by the ongoing ramp-up
of new mines.
• Fabrication demand for gold is forecast to continue rising in 2014,
possibly reaching multi-year highs.
2013 GOLD SUPPLY
3
2
2013 GOLD DEMAND
5
4
3
2
1
1. Mine production
2. Secondary supply†
3. Net exports from
transitional economies*
66.5%
31.8%
1.7%
1. Jewellery
2. Electronics
1
3. Official sector purchases
62.5%
8.0%
2.8%
4. Private investment demand
24.0%
5. Dental and medical
2.7%
† 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
productions from countries including the former Soviet Union Republics,
North Korea, Vietnam and Cuba.
Source: CPM Group LLC
12
Hochschild Mining plc Annual Report 2013
SILVER SUMMARY
OVERVIEW
The silver investment market was divided in 2013, with some
investors selling large volumes of silver and others buying larger
amounts with overall volumes of nearly 100 million ounces of
silver bullion and coins purchased in 2013. However, the price
of silver fell sharply in reaction to the first group’s selling, with
prices averaging $23.75 for the year on a nominal basis, down
from annual averages of $31.17 in 2012 and $35.29 in 2011,
which was a record high.
Fabrication demand rose to 838.7 million ounces in 2013, up
2.9% from 2012. The primary driver of silver fabrication demand
in 2013 was an increase in jewellery and silverware demand,
which rose 7.4% from 2012. The decline in silver prices during
2013 helped push silver demand higher with jewellery markets
being price-sensitive. In addition to the decline in prices, demand
for jewellery and silverware was supported by growing consumer
purchases from India. Government import restrictions on gold as
well as a weakening rupee against the US dollar has pushed gold
prices higher in the Indian market, which made silver jewellery
more attractive to consumers.
Demand for silver from the electronics sector, the second
largest source of fabrication demand, declined marginally by
0.21% from 2012. Demand in this sector has been affected by a
shift in consumer demand from desktop and laptop computers
to tablets, which contain a significantly smaller amount of silver
than computers. Silver demand from the photography sector
continued to decline, down 8.6% year-on-year. However, healthy
growth was recorded in a variety of products and manufacturing
processes that use silver, including solar panels, ethylene oxide
catalysts and biocides.
Total supply declined in 2013 to 936.2 million ounces, down
5% from 2012. However, mine supply rose to a record high of
706.2 million ounces in 2013, up 0.7% from 2012 – an increase
of a marginal 4.8 million ounces. This increase was not enough
to offset the weakness in secondary supply, however, which
resulted in the decline in total supply.
POSSIBLE DRIVERS FOR SILVER PRICES IN 2014
• Jewellery demand is expected to grow at a healthy rate.
• Demand growth for silver from solar panels and other
new and emerging applications are expected to grow
strongly year-on-year.
• Growth in mine production is expected to be slightly
stronger in 2014. However, secondary supply is expected
to further decline.
• Investment demand is expected to be lower in 2014 as
investors are expected to continue to add silver to their
portfolios, but at a slower rate, with increased focus on
bargain buying.
2013 SILVER SUPPLY
2
2013 SILVER DEMAND
5
4
3
2
1
1. Mine production
2. Secondary supply†
75.4%
24.6%
1
1. Other industrial uses*
2. Jewellery & silverware
3. Coin fabrication
4. Investment demand,
(excl coins)
46.8%
23.7%
12.8%
9.1%
5. Photography
7.6%
† Secondary supply includes metal recovered from photographic
materials, scrapped electronics, dental alloys, spent chemical catalysts,
solar panels, batteries, old coins, jewellery, 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
www.hochschildmining.com 13
Strategic reportp2-55 CHAIRMAN’S STATEMENT
“ I AM OPTIMISTIC THAT THE ENTIRE ORGANISATION HAS MOVED SWIFTLY IN
INITIATING A COST-CUTTING PROGRAMME THAT IS ALREADY DELIVERING
TANGIBLE RESULTS.”
HIGHLIGHTS FROM 2013
• Acquisition of IMZ
minorities completed
• Strong progress achieved at
Inmaculada project
• Cashflow optimisation
programme delivering
substantial savings
• Long-term fundamentals for
precious metal markets
remain strong
2013 OVERVIEW
2013 proved to be a challenging year
due to the considerable drop in gold
and silver prices but also presented
significant opportunities that we were able
to capitalise on through the acquisition of
International Minerals (“IMZ”). We believe
that the fundamental case for stronger
precious metal prices remains in place due
to the financial difficulties in the world’s
biggest economies continuing to threaten
the confidence in currencies, and our
observation of a growing scarcity of new
world class assets in the precious metals
universe. However, the markets have been
ruthless in imposing a short-term lower
price environment.
In the first half of the year, the industry
was confronted with extreme falls in
precious metals prices that far exceeded
existing market forecasts. In response
and within a very short space of time,
our management team initiated a
comprehensive cashflow optimisation
programme and we have already
seen some very positive results with
improvements in margins ensuring
a better second half of the year and
better prospects for 2014. However,
notwithstanding another year of very
solid operational performance, given the
prevailing market conditions and ahead
of sizeable capital expenditure on our
flagship Inmaculada project, the Board
proposes to not reinstate the dividend until
the Company´s cash position improves.
The price fall provided Hochschild with
a value enhancing opportunity that will
allow us not only to improve our cost
position in the short term, but also to
grow the Company in a precious metals
market in which we truly believe. In
September, we announced the acquisition
of IMZ, a company that owned the 40%
minority stakes in our Pallancata mine
and Inmaculada project. It is my firm
belief that our management has chosen
an opportune stage in the cycle to execute
the acquisition of assets we know
extremely well and already control.
In line with the IMZ transaction,
Hochschild also undertook a broad
corporate refinancing initiative in order
to meet the cost of the acquisition,
fully support the Company’s anticipated
remaining capital expenditure at
Inmaculada and to provide capacity to
satisfy the upcoming convertible bond
maturity towards the end of this year. It
is a great credit to our whole team that,
at a time of unprecedented industry
volatility, we retained the focus to deliver
a complex refinancing package that
places the Company in an excellent
position to capitalise on a period of
opportunistic growth.
In addition, one of the key consequences
of the dramatic price falls was the necessity
to reduce discretionary expenditure and
refocus the exploration programme for the
year, reducing the budget and prioritising
TOTAL SHAREHOLDER RETURN
(INDEXED TO THE HOCHSCHILD MINING PLC SHARE PRICE SINCE START 2009)
£
800
600
400
200
0
2009
FTSE 350 Index
2010
2011
Hochschild Mining plc
2012
2013
14
Hochschild Mining plc Annual Report 2013
San Jose
Exploration
Drilling at Mosquito
Sir Malcolm Field for delaying his retirement
from the Board and for his ongoing support
as Enrico Bombieri succeeds to the role of
Senior Independent Director.
On a final note, I wish to thank the entire
Hochschild team for their contributions
and our shareholders for their continued
support in what will be remembered as a
tough year but one from which I believe
we have emerged in a stronger position.
EDUARDO HOCHSCHILD
Executive Chairman
11 March 2014
the most promising prospects. The Board
remains convinced by the importance of
the ongoing exploration strategy to the
future growth potential of the Company
but recognises the need to adjust the
financial commitment depending on
the stage in the cycle.
Leader initiatives and I am proud that
our flagship Digital Chalhuanca project
has been recognised externally for its
innovation and as an example of
successful public/private collaboration.
Further details of all of these initiatives
are provided in the Annual Report.
OUTLOOK
The short-term outlook for the precious
metals markets remains uncertain.
However, the Company continues to
believe that the long-term fundamentals
for both silver and gold will eventually
reassert themselves. I am confident that,
despite a difficult 2013, we have the proven
operational and geological expertise, an
improving cost position, solid balance sheet
and an experienced management team
to navigate volatile markets and deliver
profitable production into the future.
OPERATING RESPONSIBLY
Our commitment to our people, the
communities and the environment
remains at the core of our business model.
During 2013, the Company produced
its first standalone Sustainability Report
demonstrating our commitment to
informing our stakeholders of our
progress in this area. Our ability to operate
in a way that respects the environment is
supported by our reporting systems which
continue to be certified compliant with
the international standard, ISO 14001.
We have also made further progress
with our key Travelling Doctor and Teacher
In 2013, we made an unprecedented level
of improvement in our safety record with
a 37% reduction in the Group’s accident
frequency rate and a 43% reduction in
the accident severity rate. However, as
impressive as these figures are, we must
continue with our efforts as there were
two fatalities at our operations during
2013. We consider each accident to be
avoidable and for this reason the
management team is in the process of
implementing a behaviour-based safety
programme that will encourage our people
to value safety above all else and continue
improving the safety culture.
BOARD CHANGES
In acknowledgement of the Board’s own
contribution to the cashflow optimisation
programme, we announced in July
reductions in Directors’ remuneration
and the size of the Board. I would like to
convey my gratitude to both Fred Vinton
and Rupert Pennant-Rea for their long-
standing support and commitment.
These changes to the composition of
the Board necessitated a review of our
non-executive succession plans and
I wish to record my appreciation to
ACCIDENT SEVERITY INDEX
13
12
11
10
09
598
1,058
910
777
1,485
Calculated as total number of days lost per million labour hours.
www.hochschildmining.com 15
Strategic reportp2-55 CHIEF EXECUTIVE’S REVIEW
“ I AM CONFIDENT THAT WE ARE IN A STRONGER POSITION WITH A KEY
ACQUISITION COMPLETED, A CLEAN FINANCIAL STRUCTURE, STRONG
GROWTH PROSPECTS AND A FOCUS ON PROJECT DELIVERY.”
STRATEGIC HIGHLIGHTS
FROM 2013
• Acquisition of minorities in
our lowest cost mine and
flagship growth project
• Rapidly initiated major cashflow
optimisation programme
• Corporate refinancing
swiftly completed
POSITIONED FOR GROWTH:
2014 TARGETS
• Delivery of high value, 100%
owned Inmaculada project
• Target further savings in
administration, operations
and exploration
• Manage conservative
balance sheet
• Target further brownfield
exploration upside
2013 presented Hochschild Mining with
an unprecedented level of gold and silver
price declines, prompting the management
team to implement a series of pre-planned
measures throughout the Company. The
actions taken were aimed at conserving
capital and to position the Company to
operate profitably at all stages of the
precious metals cycle whilst delivering our
key growth project in 2014. The strategy
remains focused on creating value for
shareholders by optimising current
operations, focusing on exploration
and pursuing opportunistic, early-stage
acquisitions and is underpinned by our
commitment to operate responsibly.
STRATEGIC PROGRESS
We announced in September a strategic
milestone for Hochschild by consolidating
ownership in Pallancata, currently our
biggest cash flow generator and in
Inmaculada, our most exciting growth
project. The transaction represented an
important low risk opportunity to increase
our exposure to our attractive Southern
Peru Cluster, reduce our overall operating
cost position and to potentially enhance
our cash flow generating potential at no
additional ongoing administrative cost.
At the same time, we announced the
launch of a refinancing process, which we
successfully completed in January 2014
with our inaugural senior note offering
raising approximately $350 million at
a highly competitive rate against a
backdrop of extremely difficult markets
for the mining industry. We remain in a
solid financial position with capacity to
fund the remaining Inmaculada project
capital expenditure as well as the
convertible bond maturity later in 2014
whilst retaining flexibility to continue
to pursue our strategic priorities.
The construction of the Inmaculada project
is clearly the strategic focus for 2014 with
the Company commencing significant
production increases with the aim of
reaching a target of almost 35 million
ounces by 2017. In September, we received,
as expected, the mill construction permit
from the Peruvian government, signalling
the start of the crucial final phase of
this key project’s development. In this
regard, we have made excellent progress
in 2013 with significant steps made in
procurement, infrastructure, engineering
and, importantly, mine development and
commissioning is set to begin at the end
of the year. After a ramp-up period, the
average annual production for the life of
mine is set at approximately 12 million
silver equivalent ounces per annum. Initial
production is scheduled to be sourced from
one single wide vein (Angela) with reduced
dilution and overall operating costs and
sustaining capital expenditure expected
to be the lowest of all of Hochschild’s
operating assets.
As previously announced, the strategy
with regard to the Crespo Advanced Project
was revised in the light of the acquisition
of IMZ, resulting in the decision to delay
the project in order to better sequence
capital allocation with this move postponing
approximately $80 million of remaining
project expenditure.
The key area of operational focus during
the last nine months has been our
organisational reaction to the precious
metal price falls that occurred during H1.
With a plan initially prepared during the
budgeting process towards the end of
2012, we were able to rapidly implement
our cashflow optimisation programme.
This resulted in the identification of almost
$200 million of cash savings within the
business, encompassing operating costs,
sustaining capital expenditure, administrative
costs and a refocused exploration programme.
The overall exploration budget was reduced
from $77 million to approximately
$50 million and the greenfield programme,
in particular, was significantly reduced
with the focus narrowed to the most
promising prospects.
The brownfield exploration programme,
which has been so successful over the last
few years, also continued with the focus
on improvements in our resource base.
Attributable resources increased by 8% to
almost 1.3 billion silver equivalent ounces
16
Hochschild Mining plc Annual Report 2013
Workers at Arcata
Road between Arcata and Selene
Selene
the year end marking a new chapter
of growth for the Company. However,
in order to provide the Company with a
degree of cashflow certainty in a crucial
year of investment and with precious metal
prices remaining volatile, Hochschild has
forward sold four million ounces of silver
equivalent production. This does not reflect
our view of the long-term direction of
precious metal prices but increases our
short-term confidence as we invest in the
future extraction of sustainable low cost
ounces from Inmaculada.
We remain committed to an exploration-
led long-term growth strategy and the
budget of almost $30 million for 2014
reflects a belief that our extensive pipeline
of both brownfield, greenfield projects
and current operations offer not only
optionality but further scope for creating
value at all stages of the investment cycle.
The entire Hochschild organisation
has had to endure a very difficult 2013
with a significant number of job losses
throughout the Company and therefore
the management team is grateful for
the resilience and commitment shown
by all our teams in making an important
contribution to an exciting future for
Hochschild Mining. Although 2014 is
expected to be a transitional year for us,
I am confident that we are in a stronger
position with a key acquisition completed,
a clean financial structure, strong growth
prospects and a focus on project delivery.
IGNACIO BUSTAMANTE
Chief Executive Officer
11 March 2014
with the overall resource life-of-mine now
at a comfortable 10 years. In line with the
reduction in discretionary expenditure, we
have also scaled back exploration work at
the Volcan gold project in Chile although
we can look forward to a new geological
model of the porphyry system early this
year and remain excited by the long-term
potential of this project which already has
almost 10 million ounces of gold resources.
Other key individual initiatives included
significant cuts to administrative and
exploration headcount, renegotiation with
suppliers and contractors, the temporary
suspension of work at the Azuca project
and $33 million of reductions to sustaining
capital expenditure in 2013. As a team,
we are confident that, although the full
annualised effects of the programme will
only be evident through 2014, the strong
improvements already achieved in the
Company’s underlying profitability allied
with the concurrent fall in industry cost
inflation, leave the Company in a much
more robust position to withstand any
further price volatility.
2013 OVERVIEW
It is particularly pleasing that, despite all
the volatility in the industry and the
cashflow optimisation measures in place
within the Company, Hochschild met the
annual production target for the seventh
year in a row, producing 20.5 million silver
equivalent ounces and therefore exceeding
the 20.0 million ounce target. Both
Pallancata in Peru and San Jose in
Argentina enjoyed a very solid operational
performance and, at Arcata, the team has
skilfully handled the complicated flow of
reserve grade material from an increasing
number of stopes and the low grade, low
cost material from the Macarena waste
dam which is now almost exhausted.
Hochschild will continue to adhere to
its policy of mining close to the average
reserve grade at its core operations
throughout the cycle. The two ageing
operations, Ares in Peru and Moris in
Mexico, have now finally reached the end
of their lives with Moris already closed
and Ares scheduled to cease operations
towards the middle of the year.
A number of the cost savings initiatives
from our cashflow optimisation programme
started to have a positive effect on the overall
cost performance of the Company during
the second half of the year. In addition,
although 2013 began with continuing
industry cost inflation, this began to
subside as the year went on and allied to
unanticipated devaluation in both the
Peruvian Sol and the Argentinean Peso,
Hochschild was able to achieve year-on-year
reductions in ‘all-in sustaining costs’ (“AISC”)
at our main operations of around 14%. This is
expected to continue into 2014 with further
reductions forecast although the quantum
is expected to be lower at between 0% and
5% on an AISC basis, notwithstanding any
further major local currency devaluation.
Hochschild has achieved a resilient set of
financial results, in particular in the second
half, with the 30% fall in the average silver
price received in 2013 leading to a decline
in revenue to $622.2m. Pre-exceptional
EBITDA was at $195.5 million but with
the second half much improved by the
Company’s cost savings initiatives and
representing 54% of the total under a
significantly lower average price received.
Pre-exceptional EPS was $(15) cents per
share but, again, the second half saw
Hochschild reduce the loss to only 5 cents
per share. The cash balance is currently
$291.0 million with minority investments
valued at just over $52 million which takes
into account two sales from our non-core
investment in Gold Resource Corporation.
OUTLOOK
Hochschild’s production target for 2014 is
21.0 million attributable silver equivalent
ounces. This increase is explained by
the inclusion of the remaining 40% of
Pallancata following the completion
of the IMZ acquisition, offsetting the
effect of the closure of Moris and the
significant fall in the contribution from
Ares. Management will continue to be
focused on implementing measures to
further optimise costs, expenses and capex.
2014 also promises to be a year of peak
project capital expenditure as we focus our
efforts on beginning commissioning the
now 100% owned Inmaculada project by
www.hochschildmining.com 17
Strategic reportp2-55 OPERATING REVIEW
CORE ASSETS
IN 2013, HOCHSCHILD ONCE AGAIN MET ITS FULL-YEAR PRODUCTION TARGET,
PRODUCING 20.3 MILLION ATTRIBUTABLE SILVER EQUIVALENT OUNCES.
2013 HIGHLIGHTS
• Full-year production of
20.5 million attributable silver
equivalent ounces achieved,
exceeding guidance
• Main operation all-in sustaining
costs reduced by 14% in 2013
• Excellent progress at Inmaculada
Advanced Project with mill
permit received from Peruvian
government and on track for first
commissioning at the end of 2014
Arcata plant
Ramp at Pallancata
CURRENT OPERATIONS
Production
In 2013, Hochschild has once again
successfully exceeded its full year production
target, delivering attributable production
of 20.5 million silver equivalent ounces,
including 13.6 million ounces of silver and
116 thousand ounces of gold. Hochschild’s
production target for 2014 is 21.0 million
attributable silver equivalent ounces. The
increase is explained by the inclusion of the
remaining 40% of Pallancata following the
completion of the IMZ acquisition offsetting
the effect of the closure of Moris and a
significant reduction in the contribution
from the ageing Ares operation, which is
also set to close in H1 2014.
Costs
Although significant industry inflation
persisted in the first few months of the
year, the Company’s all-in sustaining costs
at its main operations were reduced by
14% in 2013 to $18.6 per ounce driven
by operational initiatives resulting from
the cashflow optimisation programme,
devaluation of local operating currencies
and a subsequent fall in industry cost
inflation. Unit cost per tonne at its main
Peruvian operations was reduced to
$74.2 (2012: $75.1). In Argentina, unit
cost per tonne increased by 4% to
$210.0 (2012: $202.2). Please see
page 31 in the Financial Review
section for further details on costs.
OUR CORE ASSET KEY PERFORMANCE INDICATORS
ATTRIBUTABLE SILVER PRODUCTION
moz
ATTRIBUTABLE GOLD PRODUCTION
moz
RESOURCE LIFE-OF-MINE
Years
13
12
11
10
09
13.6
13.6
15.0
17.8
18.8
13
12
11
10
09
116
112
127
144
157
13
12
11
10
09
10.0
9.8
9.7
8.7
7.1
18
Hochschild Mining plc Annual Report 2013
CORE ASSETS
ARCATA
2013 HIGHLIGHTS
SILVER PRODUCTION KOZ
4,984
GOLD PRODUCTION KOZ
16.83
SILVER EQUIVALENT
PRODUCTION KOZ
5,994
The 100% owned Arcata underground
operation is located in the Department of
Arequipa in southern Peru. It commenced
production in 1964.
PRODUCTION AND SALES
Full-year silver equivalent production at
Arcata in 2013 was 6.0 million ounces
(2012: 6.6 million ounces), slightly lower
than 2012 as a result of lower grades
from stopes and developments in line
with the Company’s policy of mining close
to average reserve grade. Tonnage was
higher than that of 2012 due to the
planned increase in volumes processed
from the low grade Macarena waste dam
deposit, facilitated by the 500 tonne per
day capacity expansion at the Arcata plant
(completed in H2 2012). Macarena tonnage
continued in the second half and after the
expected processing of a small volume in
Q1 2014 is now considered to be exhausted
Arcata, Peru
and will be replaced by tonnage from
stopes and developments in 2014. In
addition, production at Arcata included
the decrease in ounces recovered as a
result of processing 100% of Arcata’s
concentrate into Doré.
last year to $81.3 per tonne, despite
continuing industry inflation at the start
of the year. This was mainly due to the
overall effects of the cost savings initiatives
initiated towards the end of the first half
of the year as well as the processing of
higher volumes of low cost Macarena
material and a significant local currency
weakening versus expectations.
RESOURCE LIFE AND
BROWNFIELD EXPLORATION
The resource life of Arcata stands at
11.6 years as at 31 December 2013. In
2013, a total of 10,899 metres of drilling
was carried out at Arcata. The exploration
programme in the first half of the year
focused on the definition of new high-
grade structures from known vein systems
(potential drilling) and a new geological
interpretation of the Ares-Arcata corridor
that identified high-grade structures. In
addition, diamond drilling was conducted
at the Pamela, Blanca 2, Baja 2, Tunel 3,
Ramal Leslie, Tunel 4, Irma and Blanca veins.
Significant intercepts included:
12 mths
2013
12 mths
2012
900,861
773,498
0.74
0.83
217
271
290,226
133,825
0.29
0.30
88
105
610,635
639,673
0.95
0.94
278
306
• Pamela
DDH425-LM13: 1.41m at 7.83 g/t Au & 2,028 Ag
DDH399-GE13: 1.76m at 6.19 g/t Au & 1,479 Ag
DDH389-GE13: 1.00m at 2.84 g/t Au & 1,208 Ag
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)
In 2013, the silver/gold doré from Arcata
was sold to Johnson Matthey, Standard
Bank, HSBC Bank, Argor Heraeus INTL
Commodities and Auramet Trading.
COSTS
In 2013, the unit cost per tonne at Arcata
was materially better than expectations,
decreasing by 6% versus the same period
• Blanca 2
DDH373-EX13: 1.17m at 0.33 g/t Au & 1,295 Ag
• Baja
DDH434-S13: 1.90m at 3.10 g/t Au & 612 Ag
• Baja 2
DDH427-S13: 1.60m at 2.8 g/t Au & 1,901 Ag
• Tunel 3
DDH401-GE13: 0.78m 1.82 g/t Au & 1,213 Ag
• Tunel 4
DDH506-LM13: 1.20m at 1.65 g/t Au & 1,054 Ag
• Irma
DDH492-GE13: 1.18m at 0.75 g/t Au & 5,029 g/t Ag
• Blanca
DDH526-LM13: 1.09m at 3.24 g/t Au & 1,146 g/t Ag
In 2014, the 25,000 metre exploration
and drilling programme at Arcata will focus
on the potential, near mine and inferred
resource exploration, focusing on the
definition of new high-grade structures
from known vein systems.
www.hochschildmining.com 19
Arcata summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)1
All-in sustaining cost ($/oz)
Year ended
31 Dec 2013
900,861
217
0.74
4,984
16.83
5,994
4,924
15.95
81.3
12.7
20.9
Year ended
31 Dec 2012
773,498
271
0.83
5,526
17.27
6,562
5,236
15.94
86.3
14.5
23.9
% change
16
(20)
(11)
(10)
(3)
(9)
(6)
(0)
(6)
(12)
(13)
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.
Strategic reportp2-55 OPERATING REVIEW CONTINUED
CORE ASSETS
PALLANCATA
KEY SITE INFORMATION
SILVER PRODUCTION KOZ
7,628
GOLD PRODUCTION KOZ
27.83
SILVER EQUIVALENT
PRODUCTION KOZ
9,298
The 100% owned Pallancata silver/gold
property is located in the Department of
Ayacucho in southern Peru, approximately
160 kilometres from the Arcata operation.
Pallancata commenced production in
2007 and up until December 2013 was
a joint venture, in which Hochschild held
a controlling interest of 60% with
International Minerals Corporation (“IMZ”).
Following the purchase of IMZ, Hochschild
now owns 100% of the operation. Ore from
Pallancata is transported 22 kilometres to
the Selene plant for processing.
PRODUCTION AND SALES
Overall in 2013, Pallancata enjoyed a very
solid year of production, delivering silver
equivalent production of 9.3 million ounces
(2012: 9.0 million) with higher average
grades the result of a higher proportion
of material from stopes.
Pallancata summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)
All-in sustaining cost ($/oz)
Pallancata, Peru
Selene plant near Pallancata
In 2013, the silver/gold concentrate from
Pallancata was sold to Teck Metals Ltd.,
LS-Nikko Copper Inc and Glencore.
Pallancata during the year to further
delineate inferred resources and to test
new possible vein extensions.
COSTS
Unit cost per tonne at Pallancata also
enjoyed a better 2013 than expected,
increasing by only 2% in 2013 to $68.3
despite continuing industry inflation at
the start of the year. As at Arcata, costs
were positively impacted by the cashflow
optimisation programme as well as the
higher than expected depreciation of the
local currency. Further positive pressure
resulted from lower personnel and supply
costs as a higher proportion of mineral
was extracted using mechanised methods.
RESOURCE LIFE AND
BROWNFIELD EXPLORATION
The resource life of the Pallancata operation
has been increased substantially in 2013 to
8.2 years as at 31 December 2013. During
2013, a total of 20,972 metres of diamond
drilling was carried out over the course of
the year (2012: 50,326 metres). Both infill
and potential drilling were carried out at
Year ended
31 Dec 2013
1,088,712
264
1.13
7,628
27.83
9,298
7,567
26.67
68.3
10.3
16.7
Year ended
31 Dec 2012
1,094,250
256
1.09
7,441
26.23
9,014
7,280
25.07
67.2
11.4
19.5
% change
(1)
3
4
3
6
3
4
6
2
(10)
(14)
The Yurika West vein mapping programme
continued and identified major structural
lineaments trending NE-EW associated
with silicified hydrothermal breccias.
New gold-rich high-grade structures
were identified in the northern part of the
district with resource development drilling
continuing at the Yurika and Charo veins.
Step-out drilling was conducted in the
Teresa vein with strong silicification results
and, towards the end of the year, mapping
campaigns focused on the south side of
Pallancata (at the Sonia, San Angela, Virgen
del Carmen, Lilina and Debora veins) with
total coverage for the whole year of 1,164 ha.
Significant intercepts included:
• Yurika
DLYU-A08: 1.02m at 17.86 g/t Au & 1,702 g/t Ag
DLYU-A16: 2.17m at 11.17 g/t Au & 949 g/t Ag
DLYU-A20: 2.75m at 6.35 g/t Au & 931 g/t Ag
DLYU-A12: 0.91m at 6.72 g/t Au & 539 g/t Ag
• Luisa
DLLU-A134: 1.96m at 1.11 g/t Au & 727 g/t Ag
DLLU-A136: 1.17m at 1.09 g/t Au & 420 g/t Ag
• Yanely
DLYU-A02: 0.82m at 33.91 g/t Au & 326 g/t Ag
• Nine
DLRI-A107: 1.35m at 4.19 g/t Au & 1,026 g/t Ag
In 2014, the 25,000 metre exploration
programme at Pallancata will focus on
increasing life-of-mine through drilling in
the Yurika, Charo, Mercedes and Sonia veins
with potential drilling set to be targeting
the Mercedes, Jacqueline, San Cayetano,
Charo, Paola and Rina veins.
20
Hochschild Mining plc Annual Report 2013
CORE ASSETS
SAN JOSE
KEY SITE INFORMATION
SILVER PRODUCTION KOZ
6,258
GOLD PRODUCTION KOZ
98.83
SILVER EQUIVALENT
PRODUCTION KOZ
12,286
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
2013 has been a strong year for the San Jose
operation with silver equivalent production
up 11% to 12.3 million ounces (2012: 11.1
million) driven by increased tonnages and
increased grades, in particular gold. Higher
tonnage was explained by the 10% plant
capacity increase completed in December
2012 with higher grades resulting from
incorporation of new high-grade reserves
into the mine plan.
San Jose, Argentina
San Jose plant
Workers at San Jose mine
In 2013, the dore produced was sold to
Argor Heraeus and Republic Metals whilst
the concentrate produced at the operation
was sold to Teck Metals Ltd., Aurubis AG,
LS-Nikko Copper Inc, Consorcio Minero
and Glencore.
COSTS
At San Jose, unit cost per tonne rose by only
4% versus 2012 to $210.0. The increase was
slightly below the 2013 revised guidance
of 5-10% due to the impact of the cashflow
optimisation initiatives and a stronger
than expected devaluation of the Argentine
peso offsetting the effects of continuing
high local inflation and a number of brief
stoppages at the mine during the first half.
RESOURCE LIFE AND
BROWNFIELD EXPLORATION
The resource life of San Jose stands at
11.8 years as at 31 December 2013.
The key event in exploration at the
mine was the incorporation of various
surrounding properties, from both
Hochschild and McEwen Mining,
into the Minera Santa Cruz JV.
San Jose summary*
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)
All-in sustaining cost ($/oz)
* The Company has a 51% interest in San Jose.
Year ended
31 Dec 2013
536,937
425
6.42
6,357
98.83
12,286
6,278
94.76
210.0
13.4
19.0
Year ended
31 Dec 2012
509,851
417
5.79
5,953
85.77
11,099
5,897
84.29
202.2
14.4
22.1
% change
5
2
11
7
15
11
6
12
4
(7)
(14)
For much of 2013, the exploration
programme at San Jose focused on the
geological mapping of the district area
and identifying new structures, with
new high-grade structures identified
in the northern part of the district. A
total of 10,529 metres of diamond drilling
was completed during 2013. In addition,
new structures were identified in the
Juanita vein system located in the south
of the property. Drilling was conducted
on the Huevos Verdes, Emilia and Juanita
veins with detailed surface mapping
and sampling being completed over
the Colorado Grande, Juanita, Saavedra
and Tres Colores areas. Significant
intercepts included:
Significant intercepts included:
• Ramal Huevos Verdes
SJD-1387: 0.87m at 70.03 g/t Au & 2060 g/t Ag
SJD-1387: 0.73m at 2.08 g/t Au & 234 g/t Ag
• Emilia
SJD-1393: 5.00m at 40.08 g/t Au & 882 g/t Ag
SJD-1398: 1.50m at 4.28 g/t Au & 152 g/t Ag
• Antonella
SJD-1450: 0.70m at 2.27 g/t Au & 210 g/t Ag
• Kospi SE
SJD-1408: 1.00m at 7.42 g/t Au & 522 g/t Ag
In 2014, the 2,000 metre potential drilling
campaign will focus on the definition of
the new Ayelen, Nuevo 1 and Karina veins
as well as drilling in the Los Pinos area.
www.hochschildmining.com 21
Strategic reportp2-55 OPERATING REVIEW CONTINUED
OTHER OPERATIONS
ARES & MORIS
Moris, Mexico
KEY SITE INFORMATION
SILVER PRODUCTION KOZ
757
GOLD PRODUCTION KOZ
23.40
SILVER EQUIVALENT
PRODUCTION KOZ
2,162
Ares summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
KEY SITE INFORMATION
SILVER PRODUCTION KOZ
27
GOLD PRODUCTION KOZ
8.33
SILVER EQUIVALENT
PRODUCTION KOZ
527
ARES: PERU
The Ares mine, which commenced
production in 1998, is a 100% owned
operation located approximately
25 kilometres from Hochschild’s
Arcata mine in southern Peru.
PRODUCTION AND SALES
The Company’s ageing Ares mine in Peru
continued to operate in 2013, delivering
total silver equivalent production of
2.2 million silver equivalent ounces, a
5% improvement on the 2012 figure
of 2.1 million ounces. Ares is currently
expected to cease production in H1 2014.
The Company continues to monitor
Year ended
31 Dec 2013
329,095
82
2.39
757
23.40
2,162
761
23.25
Year ended
31 Dec 2012
336,423
54
2.65
481
26.28
2,058
473
25.75
% change
(2)
52
(10)
57
(11)
5
61
(10)
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 having ceased
in September 2011, in 2013 continued
leaching of the pads produced a further
527 thousand silver equivalent ounces
(2012: 570 thousand ounces). However,
towards the end of the year the Moris
operation was finally closed and
subsequently transferred to a local
third party.
Moris summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 Dec 2013
Year ended
31 Dec 2012
% change
–
–
–
27
8.33
527
26
7.9
–
–
–
43
8.79
570
42
8.74
–
–
–
(37)
(5)
(8)
(38)
(9)
22
Hochschild Mining plc Annual Report 2013
Ares, Peru
production closely at Ares to ensure the
extraction of profitable ounces during
the last few months of its mine life.
100% of Ares’ production is processed
into dore, all of which was sold to
Johnson Matthey in 2013.
BROWNFIELD EXPLORATION
The exploration programme at Ares in 2013
focused on the exploration of potential
mineralisation in the extensions of known
veins and the definition of new high-grade
structures. In addition, exploration continued
at the Isabel, Paola, Karina and Victoria veins.
In the Paola, Falla Marion and Ares West
veins, surface mapping and sampling was
conducted over an area of 3,567 ha. A new
geophysical survey was also completed.
In 2014, geological work will continue to
generate targets within the Ares-Arcata
corridor and a 2,000 metre drilling
campaign is planned.
In 2013, the gold/silver dore produced at
Moris was sold to Johnson Matthey, INTL
Commodities and Auramet Trading.
BROWNFIELD EXPLORATION
Exploration work at Moris during 2013
continued to focus on identifying new
economic structures and the completion
of the potential geological model of the
property to identify new drill targets.
Two new structures were discovered to
the north of the original mine location
including the Los Alamos area, and
preliminary data suggested significant
mineralisation in the surrounding
extensions of the veins. However, the
final conclusion was that no further
work was needed in the area.
ADVANCED PROJECT
INMACULADA
Inmaculada, Peru
Inmaculada camp
Hochschild started 2013 with one
Advanced Project, Inmaculada and
three Growth Projects, Crespo, Azuca
and Volcan. Following the significant
price declines towards the middle of
the year, the Company renewed its
commitment to the flagship Inmaculada
project. The acquisition of the IMZ
minorities, completed in December 2013,
gave the Company 100% of this project
which is expected to contribute, after a
ramp-up period, almost 12 million silver
equivalent ounces on average per annum
with the start of commissioning due
towards the end of 2014.
INMACULADA
Inmaculada is a 20,000 hectare gold-silver
project located in the Company’s existing
operational cluster in southern Peru and is
100% owned and controlled by Hochschild,
following the acquisition of the remaining
40% from IMZ stake in December 2013.
Following the announcement on
20 September 2013 that the Peruvian
government had approved the mill
construction permit for the Inmaculada
project, work began in Q4 on the
construction of the plant with major
site clearance and earthworks ongoing
throughout the quarter. Procurement of
the main plant equipment is also almost
complete with only lime slakers still to be
delivered. These are expected in March.
The detailed civil and underground
engineering continued throughout the
year and is close to completion with
mine development plans updated in line
with a recently completed and approved
mine schedule. In addition, the detailed
engineering for the electricity transmission
line was also completed during the first
half, and procurement commenced and
was completed in the third quarter. Tests
were also successfully carried out on the
main equipment and electrical substations.
Underground mine development
progressed well during 2013 with almost
5.7km of tunnelling and 1.8km of raised
boring carried out during the year bringing
the total to over 10.4km achieved since the
project’s commencement. In addition, the
project’s infrastructure requirements also
made good progress with construction of
the camp now complete, and the main
access road expected to be finished in
the first quarter of 2014.
The exploration drilling programme in and
around the Inmaculada project continued
in 2013. Surface exploration drilling was
completed, with one drill rig in operation to
test geophysical anomalies and alteration
lineaments parallel to the Mirella vein, and
to test the NE extension of the Martha vein.
In addition, a new potential high-grade
vein, Mayte, was intercepted. In the second
half of the year surface mapping and
sampling campaigns started over the
INMACULADA PROGRESS CHART
Infrastructure & access
0%
75%
Electricity transmission line
87%
Mine development (tunnels)
80%
Engineering
88%
Permitting (water, land, licenses)
100%
EIS approval
100%
Contracts & procurement
89%
Construction (plant, dumps & tailings)
98%
Huarmapata 3 area identifying a high
sulphidation system with advanced
argillic alteration.
During the year, a total of 4,796 metres
were drilled in Shakira, Mirella, Susana,
Angela, Roxana and Mayte veins, with
significant results including:
• Mayte
MIR13001: 1.51m at 2.37 g/t Au & 9 g/t Ag
• Mirella
MIR13-001: 1.53m at 4.21g/t Au & 72 g/t Ag
• Shakira
SHK13003: 1.10m at 4.10 g/t Au & 10 g/t Ag
• Martha
MIR13001: 0.20m at 31.02 g/t Au & 3,269 g/t Ag
• Roxana
MIR13-003: 0.88m at 5.96 g/t Au & 330 g/t Ag
In 2014, the exploration programme
will involve a 5,000 metre programme
consisting of potential drilling in the
Mayte vein corridor as well as near mine
exploration at selected targets, in order to
expand the number of current resources.
50%
25%
13%
20%
12%
11%
Overall progress
51%
49%
Completed
Remaining
www.hochschildmining.com 23
Strategic reportp2-55 OPERATING REVIEW CONTINUED
GROWTH PROJECTS
CRESPO, AZUCA & VOLCAN
Crespo & Azuca, Peru
Volcan, Chile
The strategy with regards to Crespo has
been revised and, in early October 2013,
the Company announced plans to delay
the project in order to better sequence
overall Company capital allocation, with
the focus now firmly on the construction of
the Inmaculada project and the acquisition
of the IMZ minorities. This is expected to
postpone approximately $80 million of
remaining Crespo project expenditure.
Despite the prioritisation of Inmaculada,
Crespo remains an important component
of the Company’s portfolio of development
assets. It is management’s intention that,
in the event that precious metals markets
show sustained improvement, this would
allow the Company to re-allocate capital
to the Crespo project and potentially
re-initiate development sooner than
would be otherwise anticipated.
The Volcan gold project in Chile, acquired
following the acquisition of Andina
Minerals Inc in November 2012, also had its
budgeted exploration capital expenditure
reduced as part of the Company’s cashflow
optimisation programme. However,
Hochschild remains excited by the potential
for this long-term project, which has
almost 10 million ounces of gold resources
and will continue with desktop geological
work in the first part of 2014.
Although a portion of drilling was
completed at Azuca during the first half,
work has since ceased and the project is
now on hold. The Company remains excited
by the potential of this large mineralised
district but capital allocation is now
refocused on more advanced projects.
CRESPO
Crespo is 100% owned by Hochschild
and is located in the Company’s existing
operating cluster in southern Peru. This
has the potential to 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 tonne per day operation with an
average annual production of 2.7 million
silver equivalent ounces.
Work continued on the Crespo project up
until the decision to delay the development
in the third quarter. In the first half of the
year, the detailed integration engineering
continued and was completed in Q3 2013.
Basic and detailed engineering for the mine
also progressed as did construction of the
new access road to the mine site which
was completed in December.
With regards to the permit application
process, the surface land agreement for
the project was approved by the local
community on 11 January 2013 and the
underground water study was approved in
Q2 2013. In addition, in July, the Company
received the Environmental Impact Study
(‘EIS’) permit. Hochschild also submitted
the project’s construction permit
application at the end of February and
received positive feedback from the
Peruvian government and currently
remains under evaluation.
Although exploration work ceased
altogether in the third quarter, in the
first half of the year district surface
exploration was carried out and a new high
sulphidation target, Jackelin, was identified.
Furthermore, surface geochemistry
sampling programmes were completed,
with gold and silver anomalies reported.
VOLCAN
Exploration was not scheduled at the
long-term Volcan project for 2013.
However, work continued throughout the
second half in line with the refocused
exploration budget and comprised
systematic relogging of 56,331 metres of
the Andina Minerals drill core in order to
construct a more robust geological model
of the porphyry system which is expected
to be completed in the first half of this year.
AZUCA
In H1 2013, a total of 13,108 metres of
diamond drilling were completed at
Azuca although these campaigns were
subsequently halted in late April following
the decision to place the project on hold.
Crespo
24
Hochschild Mining plc Annual Report 2013
EXPLORATION REVIEW
WE REMAIN COMMITTED TO AN EXPLORATION-LED LONG-TERM GROWTH
STRATEGY AND A BELIEF THAT OUR EXTENSIVE PIPELINE OF BROWNFIELD
AND GREENFIELD PROJECTS OFFERS OPTIONALITY AND FURTHER SCOPE FOR
CREATING VALUE AT ALL STAGES OF THE INVESTMENT CYCLE.
2013 HIGHLIGHTS
• Strong brownfield exploration
results with attributable resources
increased by 8% to 1.3 billion silver
equivalent ounces
• Overall resource life-of-mine now
stands at 10.0 years, an increase
of 72% since 2008
• 91,429 metres of drilling
completed at the Company’s
brownfield, Advanced Projects
and greenfield projects
• Exploration at main operations
focused on development of
potential resources
POSITIONED FOR GROWTH
• 2014 exploration budget reduced
to $30 million as part of cashflow
optimisation programme
• Greenfield programme
curtailed to concentrate on
most promising prospects
In 2013, investment in exploration
totalled $51.9 million and 91,429 metres
of drilling were completed at the
Company’s brownfield, Advanced and
Growth Projects and greenfield projects.
As part of Hochschild’s cashflow
optimisation programme, initiated as a
response to the volatility in precious metal
prices towards the middle of the year, the
Company conducted a detailed review of
discretionary elements of its exploration
budget with the result that the Company
reduced its 2013 exploration budget
from the original $77 million forecast.
Exploration at the Company’s main
operations focused on the development
of potential resources as opposed to
increasing resource life-of-mine,
reflecting the Company’s confidence in
their long-term sustainability. In addition,
the Company’s greenfield exploration
programme was significantly curtailed
to concentrate only on the Company’s
most promising prospects.
The 2014 budget, representing
63,500 metres, will be split between
exploration work at the Company’s
existing operations, Advanced Projects
and greenfield opportunities in Peru
and Mexico. The main focus will continue
to be brownfield exploration.
In 2014, exploration work at the core
operations will be mainly focused on
identifying new potential and near mine
high-grade areas to further improve the
resource quality whilst at the Inmaculada
Advanced Project, efforts will be focused on
identifying new potential high-grade areas.
Exploration at Company Maker projects
will include continued drilling and further
analysis and at the 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. Hochschild also
aims to continue its generative programme
to conduct further exploration on the
Company’s extensive land package of
premium geological properties.
BROWNFIELD EXPLORATION
Approximately 33% of the exploration
budget was invested in mines and
Advanced and Growth Project
exploration in 2013.
GREENFIELD EXPLORATION
In 2013, approximately 41% of the 2013
exploration budget was invested in the
Company’s greenfield programme, with
the proportion set to be 17% in 2014. In
2013, a total of 27,958 metres was drilled
at the Company’s greenfield projects.
Geologists in Chile
www.hochschildmining.com 25
Strategic reportp2-55 EXPLORATION REVIEW CONTINUED
EXPLORATION
DRILL TARGETS – COMPANY MAKERS
VALERIANO
At the Valeriano Company Maker project,
a total of 6,669 metres was drilled during
2013 to further test at depth the porphyry
copper and gold mineralisation encountered
in the 2012 drilling campaign. The
exploration confirmed the discovery of a
potentially significant porphyry Cu-Au
deposit at depth. However, there are no
plans for further drilling in 2014 until
market conditions improve.
PACHUCA
The Pachuca project is located in Mexico
and was added to the Company’s project
pipeline as a Company Maker project in Q2
2013. The Pachuca property encompasses
approximately 19,000 hectares of mineral
rights in and around the Pachuca silver-gold
mining district. Historic production from
the Pachuca district totals approximately
1.4 billion ounces of silver and over
7.0 million ounces of gold, making it one of
the largest silver-gold districts in the world.
The JV with Solitario Exploration & Royalty
Corp (TSX: SLR) has been focusing on the
northwestern extension of the historical
vein mining district. Following extensive
geological mapping and geochemical
sampling along the vein systems, almost
half of the 5,000 metre programme has
already been drilled during November
and December. The assay results from
the Escondida vein have shown some
significant intersections and a new
reinterpretation of the data has led to
further drilling focus on the Sorpresa
vein, a splay off the Escondida vein, with a
potential extension of 2km. In light of this
progress, a further 3,000 metres of drilling
is scheduled for 2014.
LA FALDA
At the La Falda Company Maker project in
Chile, four holes were completed in the
drilling campaign, totalling 2,605 metres.
Surface exploration was held to identify
new drill targets but no further work has
been scheduled for 2014, or until market
conditions improve.
POTRERO
At the Potrero Company Maker project in
Chile, drilling commenced in January 2013
and centred around known mineralised
structures as well as to the North East along
the projected strike of the mineralisation.
During the first quarter, a total of 2,763
metres of diamond drilling were completed
and significant gold anomalies were
reported. No further drilling campaign has
been scheduled for 2014.
MERCURIO
In 2013, a total of 2,898 metres of drilling
were carried out at the Mercurio Company
Maker project in Mexico focused on the
Barite zone. As a result of the cashflow
optimisation programme, the project area
was significantly refocused to the more
Riverside JV
Baborigame
Mercurio
Pachuca
MEXICO
Julieta
Ibel
Fresia
Cuello Cuello
San
Martin
Farallon
PERU
Potrero
La Falda
Valeriano
CHILE
Geologists in Peru
26
Hochschild Mining plc Annual Report 2013
prospective northwestern Barite area.
Soil sampling has delineated a zone of
Au mineralisation, which will be followed
up by a geochemistry grid over the relevant
area. No further drilling has been scheduled
for 2014.
BABORIGAME
At the Baborigame Company Maker project
in Mexico, exploration drilling commenced
in March 2013. Drilling was carried out on
the Cebolla target to test for mineralisation
following the indication of gold
mineralisation from surface geochemistry.
A total of 4,018 metres of diamond drilling
were completed in the quarter. No further
work has been scheduled for 2014, or until
market conditions improve.
JULIETA
At the Julieta project, Hochschild
completed a 2,000 metres diamond
drill programme during Q4 2013. The
programme was aimed at testing the
hydrothermal breccias found during the
surface reconnaissance of the area. Seven
drill holes were completed in December
2013 employing two rigs. Favourable
alteration was encountered throughout
the volcanic sequence in six of the holes,
some of which show lengthy anomalous
gold intercepts. The seventh hole cut a
wide mineralised hydrothermal breccia
with locally significant gold mineralisation
although the extent of this breccia body
has not been determined. Significant
results from the drill programme are
summarised opposite:
RESULTS
DDHJU-1303: from 145 to 338 //
189m at 0.16 g/t Au
DDHJU-1307: from 182 to 252 //
70m at 0.33 g/t Au
DDHJU-1307: from 195 to 207 //
12m at 1.07 g/t Au
RIVERSIDE JV
Hochschild has supplied Riverside with
additional funding to carry out further
target generation on the Clemente project
in the northern part of the state of Sonora,
Mexico. The funding will be used for further
mapping, geochemistry and trenching work
in order to better delineate drill targets
within the highly prospective mega shear.
This JV agreement continues into 2014.
Geologists in Argentina
www.hochschildmining.com 27
Strategic reportp2-55 EXPLORATION REVIEW CONTINUED
EXPLORATION
DRILL TARGETS – MEDIUM SCALE PROJECTS
Drill rig in Argentina
FARALLON
At the Farallon Medium Scale project in
Peru, the first stage of exploration drilling
was completed in Q1 2013 with three
drill holes and a total of 1,257 metres of
drilling completed. Results have identified
multiple intercepts of quartz veins and
veinlets with sphalerite, galena and
chalcopyrite up to one metre in width,
associated with tensional structures. No
further work has been scheduled for 2014,
or until market conditions improve.
FRESIA
At the Fresia Medium Scale project, a town
hall meeting was held in the project area,
whereby the Company’s plans for the
upcoming drill programme in the area
were presented to the local communities
and authorities. The successful completion
of this process allows the Company to
proceed with filing an application for an
exploration drill permit for the project.
A 1,500 metre programme is scheduled
to begin in Q2 2014.
IBEL
At the Ibel Medium Scale project in Peru,
surface mapping and sampling have
identified at least five distinct exploration
targets, including a large gold-bearing
hydrothermal breccia with consistent
anomalous gold values over an area
measuring 1.5km x 300 metres. No
further work has been scheduled for
2014, or until market conditions improve.
CUELLO CUELLO
At the Cuello Cuello Medium Scale project
in Peru, during H1 2013, a total of 310
metres were drilled. This was the second
drilling programme carried out at the
property and near surface mineralised
structures were again intersected, and
two structural trends were identified.
Metallurgical tests on ore show that
some areas of the deposit are amenable
to cyanide leaching with good recoveries.
The Company is currently evaluating the
economics of the project before defining
the next phase of the exploration
programme although no further work
has been scheduled for 2014.
SAN MARTIN
At the San Martin Medium Scale project
in Peru, a total of 3,003 metres of
exploration drilling were carried out to
explore the continuity of quartz veins
outside the Rhyodacite dome. Drilling
holes intercepted structures with good
mineralisation including sphalerite,
galena, ruby silver and high-grade gold
and silver mineralisation. No further
work has been scheduled for 2014,
or until market conditions improve.
28
Hochschild Mining plc Annual Report 2013
FINANCIAL REVIEW
KEY FINANCIAL HIGHLIGHTS
REVENUE
$m
13
12
11
10
09
622
818
988
752
540
ADJUSTED EBITDA
$m
13
12
11
10
09
195
250
385
398
563
CASH FLOW FROM
OPERATING ACTIVITIES
$m
13
12
11
10
09
65
255
304
201
EARNINGS PER SHARE
$
(0.15)
13
12
11
10
09
0.19
0.28
0.17
0.49
TOTAL SILVER CASH COSTS
$/oz Ag co-product
TOTAL GOLD CASH COSTS
$/oz Au co-product
13
12
11
10
09
12.9
14.2
13.0
13
12
11
10
09
9.3
7.1
613
535
476
464
801
781
KEY PERFORMANCE INDICATORS
(before exceptional items, unless otherwise indicated)
The reporting currency of Hochschild Mining plc is US dollars. In discussions of financial performance, the Group removes the effect of
exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items.
Exceptional items are those items which, due to their nature or the expected infrequency of the events giving rise to them, need to be
disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group
and to facilitate comparison with prior years.
$000 unless otherwise indicated
Net Revenue1
Attributable silver production (koz)
Attributable gold production (koz)
Cash costs ($/oz Ag co-product)2
Cash costs ($/oz Au co-product)
Total all-in sustaining costs ($/oz)
Main operation all-in sustaining costs ($/oz)
Adjusted EBITDA3
(Loss)/profit from continuing operations
(Loss)/profit from continuing operations (post exceptional)
Earnings per share (pre-exceptional)
Earnings per share (post-exceptional)
Cash flow from operating activities4
Resource life-of-mine (years)
Year ended
31 Dec 2013
622,158
13,588
116
12.31
748
19.9
18.6
195,463
(42,103)
(128,677)
(0.15)
(0.36)
64,674
10.0
Year ended
31 Dec 2012
817,952
13,550
112
13.41
735
23.8
21.7
384,791
128,581
126,866
0.19
0.19
254,879
9.8
% change
(24)
–
(4)
(8)
2
(16)
(14)
(49)
(133)
(201)
(179)
(289)
(75)
2
1 Revenue presented in the financial statements is disclosed as net revenue (in this Financial review it is calculated as gross revenue less commercial discounts).
2 Includes Hochschild’s main operations: Arcata, Pallancata and San 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.
3 Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration
expenses other than personnel and other exploration related fixed expenses.
4 Cash flow from operations is calculated as profit for the year from continuing operations after exceptional items, plus the add-back of non-cash items within profit
for the year (such as depreciation and amortisation, impairments and write-off of assets, gains/losses on sale of assets, amongst others) plus/minus changes in
liabilities/assets such as trade and other payables, trade and other receivables, inventories, net tax assets, net deferred income tax liabilities, amongst others.
www.hochschildmining.com 29
Strategic reportp2-55 FINANCIAL REVIEW CONTINUED
REVENUE
Gross revenue
Gross revenue from continuing operations decreased 24% to
$658.2 million in 2013 (2012: $869.1 million) driven by the
significant fall in precious metal prices.
Silver
Gross revenue from silver decreased 28% in 2013 to
$432.5 million (2012: $599.4 million) as a result of lower
prices offsetting the increase in the total amount of silver
ounces sold which rose by 3% to 19,555 koz (2012:18,928 koz).
Gold
Gross revenue from gold decreased 16% in 2013 to $225.6 million
(2011: $269.2 million) also as a result of lower prices although
offset to some extent by a 5% increase in gold sales – the total
amount of gold ounces sold in 2013 at 168.6 koz (2012: 160.0 koz).
Gross average realised sales prices
The following table provides figures for average realised prices and
ounces sold for 2013 and 2012:
Average realised prices
Silver ounces sold (koz)
Avg. realised silver price ($/oz)
Gold ounces sold (koz)
Avg. realised gold price ($/oz)
Year ended
31 Dec 2013
19,555
22.12
168.56
1,338
Year ended
31 Dec 2012
18,928
31.6
159.8
1,684
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 2013, the Group recorded
commercial discounts of $36.1 million (2012: $51.2 million).
This decrease is explained by lower prices and a lower volume
of concentrate sold in 2013, mainly as a result of the Arcata
dore project. The ratio of commercial discounts to gross revenue
in 2013 remained at 6% (2012: 6%).
Net revenue
Net revenue decreased by 24% to $622.2 million (2012: $818.0 million), comprising silver revenue of $405.5 million and gold revenue of
$216.6 million. In 2013, silver accounted for 65% and gold 35% of the Company’s consolidated net revenue compared to 68% and 32%
respectively in 2012.
Revenue by mine
$000 unless otherwise indicated
Silver revenue
Arcata
Ares
Pallancata
San Jose
Moris
Commercial discounts
Net silver revenue
Gold revenue
Arcata
Ares
Pallancata
San Jose
Moris
Commercial discounts
Net gold revenue
Other revenue1
Net revenue
Year ended
31 Dec 2013
Year ended
31 Dec 2012
% change
115,522
17,712
163,394
135,291
650
(27,050)
405,519
22,271
32,650
35,189
123,905
11,597
(9,036)
216,576
63
622,158
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
(30)
21
(30)
(27)
(51)
(34)
(27)
(17)
(24)
(17)
(13)
(21)
(5)
(17)
(88)
(24)
1 Other revenue includes revenue from (i) the sale of energy in Peru and, (ii) administrative services in Mexico.
30
Hochschild Mining plc Annual Report 2013
COSTS
Total pre-exceptional cost of sales increased 11% to $466.8
million in 2013 (2012: $420.3 million). The direct production cost
increased by 3% in 2013, to $311.7 million (2012: $301.5 million),
mainly as a result of an increase in tonnage treated mainly in
Arcata and San José as a result of plant expansions. Depreciation in
2013 was $144.1 million (2012: $121.2 million), with the increase
mainly due to full depreciation of the Ares operation, depreciation
of new tailings dams at Arcata as well as a higher future capex
depreciation resulting from the increasing cost to convert
resources into reserves in all operating units. Other items, which
principally includes workers’ profit sharing, was $7.0 million in
2013 (2012: $15.4 million) and change in inventories which was
$3.9 million in 2013 (2012: $(17.7) million).
$000
Direct production cost
excluding depreciation
Depreciation in
production cost
Other items
Change in inventories
Pre-exceptional cost
of sales
Year ended
31 Dec 2013
Year ended
31 Dec 2012 % change
311,699
301,476
3
144,137
7,004
3,926
121,156
15,401
(17,708)
19
(55)
(122)
466,766
420,325
11
Unit cost per tonne
The Company reported unit cost per tonne at its main operations
of $103.2 in 2013, flat compared to 2012 (2012: $103.2). For
further explanation on the increase in unit cost per tonne, please
refer to page 18 of the Operating review.
Unit cost per tonne by operation (including royalties)1:
Operating unit ($/tonne)
Main operations
Peru
Arcata
Pallancata
Argentina
San Jose
Others
Ares
Total
Year ended
31 Dec 2013
103.2
74.2
81.3
68.3
210.0
210.0
128.3
128.3
106.1
Year ended
31 Dec 2012 % change
–
(1)
(6)
2
4
4
(7)
(7)
(2)
103.2
75.1
86.3
67.2
202.2
202.2
138.4
138.4
107.8
1 Unit cost per tonne is calculated by dividing mine and geology costs by
extracted tonnage and plant and other costs by treated tonnage.
Cash costs
Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included
in cost of sales.
Cash cost reconciliation
$000 unless otherwise indicated
Group cash cost
(+) Cost of sales
(-) Depreciation in cost of sales
(+) Selling expenses
(+) Commercial deductions
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co-product Au
Co-product Ag
By-product Au
By-product Ag
Year ended
31 Dec 2013
387,686
466,766
(144,923)
Year ended
31 Dec 2012
392,825
420,325
(117,627)
% change
(1)
11
23
28,785
37,058
9,065
27,993
622,158
216,576
405,519
63
19,724
168.6
19,555
801
12.9
(272)
8.3
39,460
51,197
9,552
41,645
817,952
259,636
557,786
530
19,088
159.8
18,928
781
14.2
(1,293)
6.5
(27)
(28)
(5)
(33)
(24)
(17)
(27)
(88)
3
6
3
3
(9)
(79)
28
Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal
(allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash
cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.
www.hochschildmining.com 31
Strategic reportp2-55
FINANCIAL REVIEW CONTINUED
ALL-IN SUSTAINING COST RECONCILIATION
All-in sustaining cash costs per silver equivalent ounce1
Year ended 31 Dec 2013
$000 unless otherwise indicated
(+) Production cost
excluding depreciation
(+) Other items in
cost of sales
(+) Operating & exploration
capex for units
(+) Brownfield
exploration expenses
(+) Administrative expenses
(w/o depreciation)
(+) Royalties
Sub-total
Ounces produced (Ag Eq oz)
Sub-total ($/oz)
(+) Commercial deductions
(+) Selling expenses
Sub-total
Ounces sold (Ag Eq oz)
Sub-total ($/oz)
Total cash cost ($/oz Ag Eq)
All-in sustaining costs
($/oz Ag Eq)
Arcata
Pallancata
San José
Main
Operations
Other
Operations
Corporate
& Others
72,706
75,321
112,764
260,791
50,908
(638)
571
7,074
7,007
(3)
–
–
Total
311,699
7,004
43,255
44,356
56,502
144,113
4,715
2,510
151,338
2,052
2,149
1,795
5,996
581
3,201
9,778
6,469
–
123,844
5,994
20.7
920
325
1,245
5,881
0.2
12.2
11,472
1,822
135,691
9,298
14.6
16,788
2,369
19,157
9,167
2.1
10.3
8,589
–
186,724
12,286
15.2
19,335
25,899
45,234
11,963
3.8
13.5
26,530
1,822
446,259
27,578
16.2
37,043
28,593
65,636
27,011
2.4
12.1
2,983
522
59,706
2,689
22.2
15
192
207
2,658
0.1
19.0
20.9
16.7
19.0
18.6
22.3
22,274
–
27,985
–
–
–
–
–
–
–
51,787
2,344
533,950
30,267
17.6
37,058
28,785
65,843
29,669
2.2
12.7
19.9
1 All-in sustaining cash cost per silver equivalent ounce: calculated before exceptional items and includes cost of sales less depreciation and change in inventories,
administrative expenses, brownfield exploration, operating capex and royalties divided by silver equivalent ounces produced using a ratio of 60:1 (Au/Ag). Also
includes commercial discounts and selling expenses divided by silver equivalent ounces sold using a ratio of 60:1 (Au/Ag).
Year ended 31 Dec 2012
$000 unless otherwise indicated
(+) Production cost
excluding depreciation
(+) Other items in
cost of sales
(+) Operating & exploration
capex for units
(+) Brownfield
exploration expenses
(+) Administrative expenses
(w/o depreciation)
(+) Royalties
Sub-total
Ounces produced (Ag Eq oz)
Sub-total ($/oz)
(+) Commercial deductions
(+) Selling expenses
Sub-total
Ounces sold (Ag Eq oz)
Sub-total ($/oz)
Total cash cost ($/oz Ag Eq)
All-in sustaining costs
($/oz Ag Eq)
Arcata
Pallancata
San José
Main
Operations
Other
Operations
Corporate
& Others
Total
65,522
72,101
106,621
244,244
55,002
2,230
301,476
6,691
4,686
–
11,377
52,791
56,871
71,188
180,850
4,467
4,062
5,788
14,317
7,109
–
136,580
6,562
20.8
16,512
2,381
18,893
6,192
3.1
14.1
13,723
3,267
154,710
9,014
17.2
17,398
3,523
20,921
8,784
2.4
10.9
9,957
–
193,554
11,099
17.4
17,287
33,457
50,744
10,955
4.6
14.2
30,790
3,267
484,845
26,676
18.2
51,197
39,361
90,558
25,931
3.5
13.1
4,024
8,322
1,820
3,800
567
73,535
2,628
28.0
–
99
99
2,585
–
22.5
23.9
19.5
22.1
21.7
28.0
–
15,401
604
189,776
6,976
23,113
36,120
–
45,930
–
–
–
–
–
–
–
–
70,710
3,834
604,310
29,304
20.6
51,197
39,460
90,657
28,516
3.2
14.0
23.8
32
Hochschild Mining plc Annual Report 2013
ADMINISTRATIVE EXPENSES
Administrative expenses before exceptional items decreased by
25% to $54.4 million (2012: $73.0 million) primarily due to the
impact of the cashflow optimisation programme. Post-exceptional
administrative expenses in 2013 totalled $56.8 million and include
an expense of $2.4 million due to termination benefits paid to
employees following the restructuring as part of the above
mentioned cashflow optimisation programme.
ADJUSTED EBITDA
Adjusted EBITDA decreased by 49% over the period to
$195.5 million (2012: $384.8 million) driven primarily by
significantly lower silver prices.
Adjusted EBITDA is calculated as profit from continuing operations
before exceptional items, net finance costs and income tax plus
depreciation and exploration expenses other than personnel and
other exploration related fixed expenses.
EXPLORATION EXPENSES
In 2013, pre-exceptional exploration expenses decreased by
34% to $42.9 million (2012: $64.6 million). Post-exceptional
exploration expenses in 2013 totalled $46.3 million and include
an expense of $3.5 million due to termination benefits paid to
employees following the restructuring as part of the Company’s
cashflow optimisation programme.
In addition, the Group capitalises part of its brownfield
exploration, which mostly relates to costs incurred converting
potential resource to the Inferred or Measured and Indicated
category. In 2013, the Company capitalised $1.7 million relating
to brownfield exploration compared to $15.9 million in 2012,
bringing the total investment in exploration for 2013 to
$44.6 million (2012: $80.5 million). In addition, $7.4 million
was invested in the Company’s Advanced and Growth Projects.
SELLING EXPENSES
Selling expenses were lower than 2012 at $28.8 million
(2012: $39.5 million) as a result of lower prices. Selling expenses
mainly consist of export duties at San Jose (export duties in
Argentina are levied at 10% of revenue for concentrate and 5%
of revenue for dore).
OTHER INCOME/EXPENSES
Other income before exceptional items was $4.0 million
(2012: $8.7 million), mainly reflecting a $1.7 million export tax
credit in Argentina. Other expenses before exceptional items
reached $15.6 million (2012: $9.5 million) mainly due to an
increase in mine closure.
PROFIT FROM CONTINUING OPERATIONS BEFORE
EXCEPTIONAL ITEMS, NET FINANCE COSTS, FOREIGN
EXCHANGE LOSS AND INCOME TAX
Profit from continuing operations before exceptional items,
net finance costs and income tax decreased to $17.7 million
(2012: $219.8 million) as a result of the factors detailed above.
$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 2013
Year ended
31 Dec 2012 % change
17,730
3%
219,768
27%
(92)
144,923
117,627
23
2,638
42,871
2,285
64,612
(12,699)
195,463
31%
(19,501)
384,791
47%
15
(34)
(35)
(49)
IMPACT OF INVESTMENT IN ASSOCIATE
The Company’s pre-exceptional share of the profit/(loss) after
tax of associates totalled $5.9 million in 2013 (2012: $6.5 million).
In both 2013 and 2012, the Company’s share of post tax profits/
(losses) in associates reflects profits related to its holdings in Gold
Resource Corporation (‘GRC’).
Since March 2013, the Company no longer recognises this
profit due to the loss of significant influence with regards to
its investment in GRC, and its resulting reclassification from
an associate to an available-for-sale asset.
www.hochschildmining.com 33
Strategic reportp2-55 FINANCIAL REVIEW CONTINUED
FINANCE INCOME
Finance income before exceptional items of $10.7 million
was higher than that of 2012 (2012: $2.0 million) mainly
due to interest received on deposits and liquidity funds
($6.8 million) and dividends received from Gold Resource
Corporation (considered as available-for-sale financial asset
since 27 March 2013 ($3.6 million)).
FINANCE COSTS
Finance costs before exceptional items decreased by 9%
to $11.7 million in 2013 (2012: $12.9 million).
At 31 December 2013, the Group had no outstanding
positions on currency or commodity hedges.
FOREIGN EXCHANGE LOSSES
The Group recognised a foreign exchange loss of $19.8 million
(2012: $1.2 million loss). This loss is principally the result of the
impact of a devaluation of the Peruvian Sol versus the US Dollar
on cash deposits held in Peru. This impact will be more than
offset by the positive effects of the local currency weakening on
the Company’s unit costs and capital expenditure programme.
INCOME TAX
The Company’s pre-exceptional income tax was $45.0 million
(2012: $85.5 million). The reduction is mainly explained by lower
metal prices reflected in a reduced pre-exceptional profit before
income tax ($2.9 million in 2013 vs. $214.1 million in 2012).
This effect was partially offset by the devaluation of the Peru
and Argentina local currencies which generated a negative
impact of $(30.4) million in income tax.
EXCEPTIONAL ITEMS
Exceptional items in 2013 totalled $(86.6) million after tax
(2012: $(1.7) million). The tables below detail the exceptional
items excluding the exceptional tax effect that amounted to
$35.9 million.
34
Hochschild Mining plc Annual Report 2013
Exceptional items in 2013 totalled ($122.5) million before tax
(2012: $1.9 million). This mainly comprises the following items:
Positive exceptional items:
Main items
Other income
Gain on transfer
from investment
accounted for under
the equity method
to available-for-sale
financial assets
$000 Description of main items
2,442 Gain on sale of exploration
concessions in Peru
107,942 Gain on the reclassification of
GRC shares from an investment
accounted for under equity
method to an available-for-sale
financial asset of $107.9 million,
as a result of ceasing to have the
ability to exercise significant
influence over GRC.
2,417 Adjustment of fair value
of International Mineral
Corporation (IMZ) shares as a
result of the IMZ acquisition
Negative exceptional items:
Main items
Termination
benefits
Other expenses
$000 Description of main items
(8,273) Termination benefits paid
to employees between
April and September 2013,
following the restructuring
plan approved by management
during the first half of 2013
(Cost of sales: $2.5 million,
administrative expense:
$2.4 million and exploration
expenses: $3.5 million).
(90,671) Impairment of the San Jose mine
unit of $40.9 million, the Azuca
project of $30.3 million, the
Crespo project $29.1 million,
the Ares unit $3.8million and
$1.0 million of write-off of PP&E;
and reversal of impairment
of the San Felipe property of
$14.4 million.
Finance cost
(136,353) The impairment of investments
in GRC of $105.3 million, IMZ
of $12.9 million and other
Available-for-Sale assets of
$11.4 million. Also includes
$4.7 million of transaction
costs related to the Bridge
Loan Facility and the undrawn
Suyamarca Medium Term loan.
Also includes $7.8 million of loss
on disposal of GRC shares.
CASH FLOW & 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 2013
Year ended
31 Dec 2012
Change
64,674
254,879
(190,205)
(218,113)
(427,869)
209,756
99,830
(94,842)
194,672
(53,609)
(267,832)
214,223
Operating cash flow decreased from $254.9 million in 2012 to
$64.7 million in 2013, mainly due to significantly lower silver
prices. Net cash used in investing activities decreased to
$(218.1) million in 2013 from $(427.9) million in 2012 mainly
due to (i) lower capital expenditures in line with the implementation
of the cashflow optimisation programme during 2013
($(246.6) million vs. $(297.5) million in 2012), (ii) Andina Minerals
Inc acquisition ($90.1 million) in 2012, (iii) proceeds from deferred
income related to the sale of San Felipe ($16.0 million) in 2013
and (iv) proceeds from the sale of Gold Resource Corporation
shares ($33.5 million) in 2013. Finally, cash used in financing
activities increased to $99.8 million from $(94.8) million in 2012,
primarily as a result of the bridge loan facility disbursed in 2013
($270.0 million), proceeds from equity placing ($71.9 million) and
lower dividends paid in 2013 ($18.5 million vs. $62.5 million paid
in 2012). These effects were partially offset by the acquisition
of the IMZ minority interest in 2013 ($271 million). As a result,
total cash generated increased from $(267.8) million in 2012
to $(53.6) million in 2013 ($214.2 million difference).
Working capital
$000 unless otherwise indicated
Trade and other receivables
Inventories
Net other financial assets/(liabilities)
Net Income tax receivable/(payable)
Trade and other payables
and provisions
Working capital
Year ended
31 Dec 2013
179,868
69,556
(2,294)
20,842
Year ended
31 Dec 2012
174,786
76,413
(6,741)
(4,459)
(208,618)
59,354
(252,823)
(12,824)
The Company’s working capital position increased to $59.4 million
in 2013 from $(12.8) million in 2012. This was primarily explained
by higher income tax receivables ($25.3 million) due to lower
tax provision in line with lower prices, and by lower provisions
($(44.2) million) resulting from lower personnel bonus provisions
and workers profit sharing provisions in 2013.
Net cash
$000 unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings
Net cash/(debt)
Year ended
31 Dec 2013
286,435
–
(435,925)
(149,490)
Year ended
31 Dec 2012
358,944
(106,850)
(6,973)
245,121
The Group reported net cash of $(149.5) million as at
31 December 2013 (2012: $245.1 million). This was primarily
driven by the acquisition of International Minerals Corporation
in 2013 and lower cash generated as a result of the drop in
metal prices.
The Company’s short-term borrowings are its convertible bond
that has a current conversion price of £3.80 due in October 2014,
the bridge loan facility ($270.0 million) refinanced in January 2014
with a $350 million 7-year Senior Unsecured bond, and short-term
debt raised in Peru and Argentina.
CAPITAL EXPENDITURE
$000 unless otherwise indicated
Arcata
Ares
Selene
Pallancata
San Jose
Moris
Operations
Inmaculada
Crespo
Volcan
Azuca
Other
Total
Year ended
31 Dec 2013
43,255
3,783
1,364
42,992
56,502
932
148,828
98,614
21,469
4,312
4,741
3,614
281,578
Year ended
31 Dec 2012
52,791
7,476
1,152
55,719
71,188
846
189,172
96,060
17,984
86,631
12,476
18,062
420,385
2013 capital expenditure of $281.6 million (2012: $420.4 million)
includes operating capex of $147.3 million, capitalised exploration
costs of $1.7 million in respect of the Group’s operating mines,
$98.6 million capitalised in Inmaculada, $21.5 capitalised in
Crespo, $9.0 million in Azuca and Volcan, and administrative
capital expenditure of $3.6 million.
Capital expenditure at Arcata was lower in 2013 without the
effect of two important projects completed in 2012: the
plant capacity increase and the Doré project. In addition, the
implementation of the cashflow optimisation programme
also reduced capex. In Pallancata and San Jose, lower capital
expenditure is mainly due to reduced mine development as well
as the above-mentioned cashflow optimisation programme.
www.hochschildmining.com 35
Strategic reportp2-55 SUSTAINABILITY REPORT
DESPITE CHALLENGING CONDITIONS, THE GROUP HAS UNDERTAKEN
SOME GOOD WORK DURING THE YEAR IN RECOGNITION OF OUR
RESPONSIBILITIES TO OUR PEOPLE AND THE SOCIAL LICENCE TO
OPERATE GRANTED TO US BY THE COMMUNITIES.
REDUCTION IN ACCIDENT
FREQUENCY INDEX SINCE 2007
2.08
3.33
3.63
3.70
13
12
11
10
09
08
07
5.22
5.75
7.59
IN THIS SECTION
Safety
see page 40
Health and hygiene
see page 42
Our people
see page 44
Working with our communities
see page 46
Managing our environmental
impact
see page 48
Following feedback received as part of the
2013 Board Evaluation process on the role
of the CSR Committee, I was delighted to
accept the invitation to act as Committee
Chair from 1 January 2014. In this capacity,
I am pleased to be able to introduce the
2013 Sustainability report and would like
to record the appreciation of the Board
to Eduardo Hochschild for his support
in this crucial area.
INTRODUCTION
As stated earlier in the Annual Report, 2013
was a difficult year for the Group due to the
unprecedented volatility in precious metal
prices. This led to management taking a
number of initiatives under the auspices
of the Cash Optimisation Plan.
Due to necessity, management’s actions
were wide-ranging and impacted all
parts of the Group’s costs, which meant
that budgets in the areas that we
traditionally focus on in CSR had to be
more targeted. Inevitably, this has resulted
in difficult decisions being taken, leading
to reductions in personnel and our budget
for sustainability-related activities. We
have sought to communicate with all
those affected transparently and honestly
and have provided, and will continue to
provide, the appropriate level of support as
we manage our way through this difficult
but, hopefully, temporary period.
I would like to reiterate that, whilst
embarking on this cost review
programme, we have not moved our
focus away from ensuring the health
and safety of our people and managing
the impact of our activities on the
environment and our responsibilities
with respect to the local communities.
Despite these challenging conditions,
the Group has undertaken some good
work during the year in recognition of
our responsibilities to our people and
the social licence to operate granted
to us by the communities.
Firstly, I am pleased to report that there
were no cases of occupational illness
registered during the year resulting from
Hochschild Mining activities. We also
made significant progress during 2013
on safety, having achieved a reduction of
38% in the Group’s accident frequency
rate and a 43% reduction in the accident
severity rate. However, we have failed in
our long-term and ongoing objective of
zero fatalities, given the two incidences of
loss of life at our operations during 2013.
Our Operations and safety teams have been
reviewing the causes of fatalities at our sites
over the past few years and, consequently,
a new behaviour-based safety programme
has been designed for imminent
implementation across the Group.
Wildlife surrounding Ares
36
Hochschild Mining plc Annual Report 2013
We do not consider our responsibilities to
our local communities as simply limited to
providing employment opportunities but
we seek to enhance crucial aspects of their
standard of living by focusing on our three
core areas: education, health and socio-
economic development. Details of the
specific initiatives undertaken during the
year can be found on pages 46 to 47.
REPORTING
I am also pleased to report that the
Group produced its first standalone
Sustainability report which is available
on our website. This report has been
prepared with reference to the guidelines
of the Global Reporting Initiative with
reporting declared at Level C.
In compliance with the new reporting
requirements as a UK listed company,
the numerical information on the split
between the number of male and female
employees and the carbon emissions
produced by the Group have been included
in the relevant sections of this report.
I hope you find this report informative.
If you should have any questions or
comments, please do not hesitate
to contact me.
ROBERTO DAÑINO
Chairman, CSR Committee
Countryside close to Arcata
www.hochschildmining.com 37
Strategic reportp2-55 SUSTAINABILITY REPORT CONTINUED
GOVERNANCE OF CSR
THE BOARD HAS ULTIMATE RESPONSIBILITY FOR ESTABLISHING GROUP POLICIES
RELATING TO SUSTAINABILITY AND THE CSR COMMITTEE HAS BEEN ESTABLISHED
WITH THE RESPONSIBILITY OF FOCUSING ON COMPLIANCE AND ENSURING THAT
APPROPRIATE SYSTEMS AND PRACTICES ARE IN PLACE.
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:
• a safe and healthy workplace
• managing and minimising the
environmental impact of our operations
• encouraging sustainability by respecting
the communities of the localities 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:
• comply with all relevant legislation and
leading international standards
• promote continuous improvement of
our management systems with the
aim of incorporating best practices
• adopt a proactive approach to preventing
and managing the risks that may limit
the achievement of our corporate
responsibility objectives
• encourage employees to adopt the
Group’s values through the use of
training and internal communications.
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 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.
Following his appointment as Chairman of
the CSR Committee from 1 January 2014,
Roberto Dañino has Board level responsibility
for sustainability issues.
Following a management re-organisation
during 2013 as part of the Cash
Optimisation Plan, the Vice President of
Legal assumed responsibility for Group
Corporate Affairs, which includes the
functional areas that, collectively, are
responsible for sustainability issues.
A working group of relevant personnel
meets on a periodic basis to support the
work of the CSR Committee and is tasked
to consider, at an operational level, local
health and safety policies, environmental
programmes, community relations and
employee matters. These meetings are,
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.
Arcata leisure club
Workers at Pallancata
38
Hochschild Mining plc Annual Report 2013
GOVERNANCE STRUCTURE FOR SUSTAINABILITY
BOARD OF DIRECTORS
CSR COMMITTEE
HR
WORKING GROUP
LEGAL
COMMUNITY
RELATIONS
ENVIRONMENT
HEALTH & HYGIENE
SAFETY
TERMS OF REFERENCE OF THE
CSR COMMITTEE
Under its terms of reference, the CSR
Committee is responsible for:
• evaluating the effectiveness of the Group’s
policies and systems for identifying and
managing health, safety and environmental
risks within the Group’s operations
• assessing the policies and systems
within the Group for ensuring compliance
with health, safety and environmental
regulatory requirements
• 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
• receiving reports from management
concerning all fatalities and serious
accidents within the Group and actions
taken by management following
each incident
• 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
• reviewing the results of independent
audits commissioned on the Group’s
performance in regard to health, safety,
environmental or community relations
matters and 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.
THE CSR COMMITTEE’S WORK IN 2013
During the year, the CSR Committee:
• approved the 2012 Sustainability report
for inclusion in the 2012 Annual Report
• monitored the execution of the yearly plan
in each of the four key areas of focus
• considered the ongoing progress of
the implementation of a number of
internationally accredited management
information systems to control and
monitor sustainability related risks
• monitored the status of the Group wide
initiatives launched to raise the profile
of safe working practices through
international communication campaigns
and the annual Luis Hochschild Safety
Innovation Competition (see case study
on page 41)
• 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 the two
fatalities that occurred during the year
and the impact of the Cash Optimisation
Plan on the Group’s risk profile including
sustainability risks and the mitigating
actions taken by management as a result.
www.hochschildmining.com 39
Strategic reportp2-55 SUSTAINABILITY REPORT CONTINUED
SAFETY
MINING HAS AN INHERENTLY HIGH RISK PROFILE AND SAFETY
IS OUR HIGHEST PRIORITY.
2013 HIGHLIGHTS
• 43% reduction in accident
severity rate
• 38% reduction in LTIFR
• Luis Hochschild Safety Innovation
Competition held (see opposite)
OUR ACHIEVEMENTS IN 2013
• Continued implementation of the DNV
Safety Management System at all operating
units and Advanced Projects to support the
Group’s proactive approach to safety.
• Compliance with international standard,
OHSAS 18001:2007, was certified in respect
of the Peruvian and Argentinian operations.
The Luis Hochschild Safety Innovation
Competition which, in 2013, received over
180 proposals with suggestions on how
safety could be enhanced.
• In order to implement a Behaviour Based
Safety (BBS) tool, a working group comprised
of members from the Human Resources,
Psychology and Safety teams has been
established with the first stage of training
for safety supervisors already carried out.
THE HOCHSCHILD APPROACH TO SAFETY
Mining has an inherently high risk
profile 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 two
fatalities during the year. In the first
incident, a worker was undertaking
drilling work inside a stope when loose
rock fell from above. The second fatal
accident occurred at the San Jose mine
when a scoop operator was trapped by
the machine when he attempted to
drive it from outside the driver’s cab.
Circumstances leading to these tragic events
have been investigated by management,
reported to the Board and the resulting
recommendations implemented (see
details of the behaviour-based safety
programme below).
After each incident, the Group suspends
operations at the mine to conduct an
internal review of the relevant operation
and safety procedures and carry out
safety briefings.
Group session on Golden Rules of Safety
40
Hochschild Mining plc Annual Report 2013
HOW WE PERFORMED AGAINST OUR 2013 OBJECTIVES
Target
5% reduction in LTIFR
20% reduction in accident severity rate
Status
Commentary
A 38% reduction was achieved.
A 43% reduction was achieved.
Achieve the following levels of implementation of
the DNV International Sustainability Rating System
(ISRS) 6th Ed:
Ares – Level 6
Ares – Level 6
Arcata & Pallancata/Selene – Upper Level 7
Partial
Arcata & Pallancata/Selene – Level 7
San Jose – Upper Level 6
San Jose – Level 7
Inmaculada Project – Upper level 3 (internal certification)
Partial
Inmaculada – Level 3 (internal certification)
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
2
49
2.08
598
1.24
2012
4
81
3.33
1058
3.52
2011
3
81
3.63
910
3.30
2010
2
66
3.70
777
2.88
2014 TARGETS
• 2.5% reduction LTIFR
• 25% reduction in accident severity index
• All supervisors to be trained in ‘5 Steps Observation Methodology’ under the Behaviour Based Safety programme
• To have undertaken a full impact assessment of moving from DNV ISRS 6th edition to DNV ISRS 8th edition as the principal form
of appraising the Group’s Safety Management Information System
Winners of the competition with Senior Management
www.hochschildmining.com 41
Strategic reportp2-55CASE STUDY: LUIS HOCHSCHILD SAFETY INNOVATION COMPETITIONThe Annual Luis Hochschild Safety Innovation Competition was held during 2013 for which 184 suggestions were received from across the Group. The first prize of US$25,000 was won by workers at Selene who designed a metal structure that could be used to protect workers during the inspection process of the processing plant.
SUSTAINABILITY REPORT CONTINUED
HEALTH & HYGIENE
UNDERLINING THE IMPORTANCE WE PLACE ON OUR PEOPLE AND THEIR
WELLBEING, THE GROUP’S HEALTH AND HYGIENE DEPARTMENT IS TASKED
WITH PROVIDING AN INTEGRATED APPROACH TO EMPLOYEE WELFARE.
2013 HIGHLIGHTS
• Zero incidence of
occupational illness
• Inmaculada Advanced Project
benefits from the Group’s Health
and Hygiene’s SAP module
THE HOCHSCHILD APPROACH TO
HEALTH AND HYGIENE
Underlining the importance we place on
our people and their wellbeing, the Group’s
Health and Hygiene department 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 looks to reinforce the importance of
the quality of life at work and seeks to work
in the prevention of occupational illness.
Given the nature of the work, and the
two-week shift patterns which result in
frequent periods of absence from 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 Health & Hygiene teams undertake
their work in line with the following
guiding principles:
• Prevention comes first.
• Maximising quality of life.
• Adopting measures for the long-term
benefit of our people.
• Taking a proactive stance so that hazards
are identified and controlled at source.
These principles adopted by the Health
& Hygiene team inform the approach it
takes in the provision of medical services,
occupational health, industrial hygiene
and occupational psychology.
OUR ACHIEVEMENTS IN 2013
• Review of new health and safety legislation
to ensure the Group’s ongoing compliance.
• Conducting corporate prevention
campaigns on health issues (common
and occupational diseases).
• A review was conducted of the
organisational structure of the
industrial hygiene function.
Travelling Doctor Vehicles (see page 46 for further details)
42
Hochschild Mining plc Annual Report 2013
HOW WE PERFORMED AGAINST OUR 2013 OBJECTIVES
Target
To redefine health services provided
at San Jose
Status
To be prepared to ensure continued
compliance with relevant requirements
in light of the new health and hygiene
regulations expected to come into force
in Peru in 2013
To implement the Health and Hygiene’s
SAP module at the Inmaculada project
Commentary
A new organisational structure for the medical function was
established with a doctor specialising in occupational health
as the team leader. This new team structure is better aligned
with our corporate standards.
Our health team has actively participated in ascertaining the
requirements of the new regulations.
The team has participated in discussions at a national level
to agree best practice on complying with the new regulations
in Occupational Health and Safety in Peru.
This was implemented in August 2013. Now Inmaculada
shares the same status with regards to health software as
our other operations.
HEALTH INDICATORS
Indicator
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
2012
2011
2010
3,614
3,376
3,065
2,961
14
475
18
441
32
396
26
237
2014 TARGETS
• To improve data storage facilities at our mine sites
• To constantly review and update, as necessary, the structure of the Health & Hygiene department to best meet the needs
of the organisation
• To establish a health referral network in major cities near our mines
www.hochschildmining.com 43
Strategic reportp2-55 SUSTAINABILITY REPORT CONTINUED
OUR PEOPLE
THE QUALITY OF OUR PEOPLE IS KEY TO THE SUCCESS OF THE BUSINESS IN
ACHIEVING ITS STRATEGIC OBJECTIVES AND OUR ONGOING OBJECTIVE IS
THEREFORE TO ATTRACT AND RETAIN THE BEST PEOPLE.
2013 HIGHLIGHTS
• Percentage of workforce trained
– 79%
• Average number of hours of
training per year per employee
– 31 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 our ongoing
objective is therefore 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, labour relations and
human rights
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 60% of our total
workforce is represented by a trade
union or similar body.
As a signatory of the Global Compact of
the United Nations, Hochschild Mining
respects the human rights of all of the
Company’s stakeholders including those
of our employees, our contractors and
suppliers, as well as our local communities.
The importance placed by the Company
on human rights is reflected in the Group’s
training programme which seeks to ensure
that all employees are aware of their rights
and the Company’s commitments.
ACTIVITIES IN 2013
The Group’s team of HR professionals
actively participated in the Company’s
restructuring process, the Cash
Optimisation Programme, during
2013 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
Driven in part by the cash optimisation
process, budgets have been globally
adjusted for all HR programmes, having
to prioritise training and development in
key areas and positions.
In order to achieve greater efficiency,
we have further implemented an online
platform which not only delivers training
through virtual means, but also forms part
of the Group’s official records in monitoring
employees’ participation, particularly with
respect to compulsory safety training.
Managing our talent
We carried out our People Review
process focused on the mapping of talent
in the organisation, which identifies key
employees and the succession plans for
our critical positions.
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 identify opportunities for
further development. The survey held in
2010 resulted in over 360 recommendations
with the aim of improving the overall
working environment.
The Company commissioned the 2012 OCS
in collaboration with the Hay Group and it
showed an overall increase in employee
satisfaction of 8%.
44
Hochschild Mining plc Annual Report 2013
HOW WE PERFORMED AGAINST OUR 2013 OBJECTIVES
Objectives
Implement improved talent identification process and continue with the implementation
of development plans
Continue with the entire leadership programme for all levels of management
Implement the leadership programme for operational management
Establish alliances with leading universities as part of the Group’s recruitment strategy
* Following the implementation of the Cash Optimisation Plan, these initiatives did not proceed.
Status
*
*
PEOPLE INDICATORS
General
2013
2012
2011
2010
Average number of Group employees and contractors
Gender diversity statistics
6,853
7,557
6,395
5,776
Number of employees*
Male
Female
Number of senior managers**
Male
Female
Number of Board Members
Male
Female
Training
4,080
276
23
2
8
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
30.77
79%
52.03
90%
37.86
90%
16.86
87%
15.5
7
28
1
* as at 31 December 2013.
** defined as those who qualify under the relevant statutory definition of ‘senior manager’ as at 31 December 2013.
During 2013, various action plans
were carried out to ensure continuous
improvement of our working environment.
For example, events were held in Peru
and Argentina entitled ‘Open Dialogue’ in
which the Executive Chairman, CEO and
Vice Presidents in the case of Peru, and
the General Manager and HR in Argentina
all participated.
Embedding a safety first culture
Working in conjunction with the Safety
and Psychology teams, the HR team has
been supporting the implementation of
a Behaviour Based Safety Programme to
tackle the root cause of recent fatalities
at the Group’s mine sites.
Resourcing for the future
We concluded the ‘junior engineers’
programmes which aimed to identify
outstanding students from different
universities and train them in different
areas of our Company’s operations.
Twenty-one of these participants will
assume positions of responsibility within
the Company from January 2014, after
18 months in the programme.
www.hochschildmining.com 45
Strategic reportp2-55 SUSTAINABILITY REPORT CONTINUED
WORKING WITH OUR COMMUNITIES
HOCHSCHILD MINING SEEKS TO DEVELOP AND MAINTAIN AN OPEN AND
HONEST RELATIONSHIP OF TRUST WITH LOCAL COMMUNITIES.
2013 HIGHLIGHTS
• Continued focus on Education,
Health and Socio-economic
development
• Digital Chalhuanca project
won several awards
THE HOCHSCHILD APPROACH TO
WORKING WITH OUR COMMUNITIES
Hochschild Mining seeks to develop and
maintain an open and honest relationship
of trust with local communities by:
• ensuring that we comply with all relevant
commitments including agreements with
the communities
• prioritising training and recruitment of
community workers
• facilitating efficient programmes promoting
community development
• promoting the participation of other key
stakeholders in the development and
sustainability of rural communities.
Our commitment to respecting human
rights forms the foundation of our
approach to community engagement
and development. As a signatory of the
United Nations Global Compact,
Hochschild Mining has a duty to behave
in a way that respects the human rights
of host communities and points of best
practice are integrated into the Group’s
Code of Conduct to ensure that we adhere
to this commitment across all our activities.
COMMUNITY RELATIONS STRATEGY
Continuing with our medium to long-term
vision of our relationship with the local
communities, this year we continued to
focus our efforts on the core areas of
education, economic development and
health, as well as enhancing life skills
and employment opportunities.
We have also placed a greater focus
on encouraging sustainability in our
communities rather than being driven
by a shorter-term approach to
satisfying objectives.
In light of the budgetary challenges
faced in the Cash Optimisation Plan, we
developed our social initiatives to ensure
continuity and maximise their impact.
OUR ACHIEVEMENTS IN 2013
We undertook a number of practical
initiatives during the year aimed at making
a measurable improvement to the quality
of life of the communities living close to
our operations as summarised below.
Education
Maestro Líder – This umbrella programme
launched in 2012 was designed to
develop primary and secondary education
programmes by using the teacher as a
factor of change. These teachers received
training and certification in basic skills
programmes, entrepreneurship, leadership
and digital inclusion.
Elementary Education – Aimed at
17 schools and 665 students from first
to sixth grade, these sessions sought to
improve basic literacy and numeracy skills.
In 2013, we paid particular attention to
direct teaching, with the use of technology
as appropriate.
Secondary Education – Motivated by
a need to give young people the tools
they need to face their future, the Project
Life programme was implemented in
partnership with the Vision Partnership
Institute. This series of sessions to over 300
teenagers focused on positive thinking and
securing ways to achieve their ambitions.
Digital Inclusion – We continued to
promote the use of technology as a means
of enhancing education to both teachers
and students alike. In 2013, 117 teachers
were trained in the use of ICT and, to date,
over 2,000 students have benefited from
this programme.
Health
Medico de Cabecera (the Travelling Doctor
programme) – In 2013, we joined efforts
with the Ministry of Health to establish
cooperation agreements with the aim
of extending the reach of the Travelling
Doctor programme to more communities.
In addition, we increased the scope of the
medical services provided.
46
Hochschild Mining plc Annual Report 2013
HOW WE PERFORMED AGAINST OUR 2013 OBJECTIVES
Target
To continue making improvements to the literacy skills
of primary and secondary schoolchildren
To increase the level of engagement between the
Group’s mining operations and local businesses
Status
Commentary
The Group redesigned its strategy and, as a result,
achieved improved academic results.
We have developed business plans and provided
technical training as well as infrastructure to
promote local development.
For further details, see the ‘Socio-economic development’
section below
COMMUNITY RELATIONS INDICATORS
Community investment1
Production days lost as a result of community conflict
2013
$3.2m
0
2012
$6.5m
0
2011
$7.7m
1
2010
$6.7m
0
2009
$6.0m
1.5
1 These figures represent only the portion of administrative expenditure (excluding corporate support) on social and community welfare activities
surrounding the Company’s operating units. Total social expenditure by the Group in 2013 amounted to $10.14 million.
2014 TARGETS
• Continue the development of our socio-economic programmes
• Maximising employment opportunities to members of the community
• Enhance sustainability in the communities living close to our Inmaculada project
Socio-economic development
Digital Chalhuanca – This year, we have
been able to enhance and further
strengthen the Group’s flagship project
where free internet access has been
installed in the city of Chalhuanca to
promote education and economic
development in the surrounding area.
This project has already won several awards
for the great results achieved. In particular,
the project has been hailed as a successful
example of partnership between private
companies, the state and community
(see case study opposite);
Development of local trading skills
In order to promote a self-sustaining
economy in our areas of influence, we
have facilitated technical training and
compiled business plans for those wishing
to embark on a career or to commence
their own businesses. This also requires
the formation of partnerships with local
governments who jointly fund these
community development projects.
CASE STUDY: DIGITAL CHALHUANCA
The Digital Chalhuanca project, which aims to provide free internet access, has completed
its second year of implementation and has focused on training in information technology
and communication (ICT) to all interested parties, as well as the use of technology as a
teaching tool for teachers and students alike from nearby schools.
Significantly, the project works by bringing digital resources to rural and semi rural
populations, primarily for education and training with the active participation of local
and regional government. The project has received several awards in recognition of the
project’s significant impact and benefits.
This year, the Digital Centre was boosted by the provision of 25 computers as a result of
high demand. The next stage, in the coming years, will be to achieve the sustainability
of the project through its beneficiaries.
Local child using the project’s IT facilities
Recognised for innovative use of technology
www.hochschildmining.com 47
Strategic reportp2-55 SUSTAINABILITY REPORT CONTINUED
MANAGING OUR ENVIRONMENTAL IMPACT
WE ARE COMMITTED TO ENSURING THE SUSTAINABILITY OF THE ENVIRONMENT
IN WHICH WE DEVELOP OUR OPERATIONS AND NEW PROJECTS.
2013 HIGHLIGHTS
• ISO 14001 Certification at
Peruvian and Argentinian
operations maintained
• Group Compliance Performance
Indicator of 84% (vs target of 80%)
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. Our environmental
management system has been established
on a corporate level in order to apply the
best international practices available, and
is backed by the continued ISO 14001
certification of our operations. In addition,
as the most valuable resource, water usage
and discharge are subject to strict protocols
and procedures in order to comply with
local and international regulations.
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 affected
by the operations.
OUR ACHIEVEMENTS IN 2013
• Following the approval of the Inmaculada
Project’s Environmental Impact Assessment,
we obtained the building permit with
construction now in progress.
• Approval of Crespo and Matarani
Environmental Impact Studies.
• Maintained ISO 14001 certification for
the Group’s operations in Ares, Arcata,
Selene, Pallancata and San Jose.
• Group Compliance Performance Indicator
(CPI) reached 84.5% (vs a target of 80%).
HOCHSCHILD ENVIRONMENTAL TEAM
VP LEGAL & CORPORATE AFFAIRS
ENVIRONMENTAL
SUPERINTENDENT
FOR PROJECTS AND
EXPLORATIONS
ENVIRONMENTAL
SUPERINTENDENT
FOR OPERATIONS
ENVIRONMENTAL
SUPERINTENDENT
FOR CLOSURE AND
REHABILITATION
ENVIRONMENTAL
CHIEF FOR PERMITS
The environmental department functions
within our mining operations and projects
and alongside the Community Relations,
Legal, Permitting and Finance teams,
thereby assuring continuity of operations.
Through this structure, dedicated
personnel in the environmental team
provide the services described below:
• Operations: Implementing standards,
procedures and best practice.
• Permitting and new projects: Assuring
compliance with local and international
regulations along the mine life cycle.
• Social work: Communications, training,
support and facilitating participation
of communities in environmental works.
• Explorations: Implementing
environmental controls in greenfield
and brownfield projects.
• Closure: Rehabilitation and remediation
of disturbed areas where mining activity
has ceased.
48
Hochschild Mining plc Annual Report 2013
HOW WE PERFORMED AGAINST OUR 2013 OBJECTIVES
Target
Approval of Crespo EIS
Implementation of improved environmental Compliance
Performance Indicators (‘CPI’)
Maintain ISO 14001 certification for Ares, Arcata, Selene,
Pallancata and San Jose
Status
Commentary
Obtained in July 2013.
Established new environmental CPI structure
with improved evaluation criteria.
This was achieved during the year.
ENVIRONMENTAL INDICATORS1
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 operations4
Estimated volume of water withdrawn per day
(cubic metres)
Estimated proportion of recycled water used
Estimated volume of water discharged per day
(cubic metres)
Greenhouse gas emissions data 3 (tonnes of CO2e)
Emissions from combustion of fuel and operation
of facilities (tCO2e)
Emissions from purchased electricity (tCO2e)
Emissions intensity, per thousand ounces of total silver
equivalent produced (CO2e/k oz)4
2013
20122
2011
2010
0.15
0.18
0.24
0.21
2009
0.63
82.75
88.69
53.29
57.75
53.32
1.18
1.53
1.29
0.97
1.23
0
0
0
0
0
15,538
55%
15,925
60%
32,424
69%
30,628
32%
29,668
27%
32,878
30,773
37,979
37,538
35,606
2013
2012
2011
2010
2009
56,234
72,946
4.89
–
–
–
–
–
–
–
–
–
–
–
–
1 Includes data for operations in Ares, Arcata, Selene, Pallancata and San Jose.
2 From 2012, figures are based on guidelines and information gathered for the Company’s 2012 GRI Sustainability Report published during
the year. Data for previous years was calculated using different criteria and is therefore not directly comparable with subsequent years.
3 Includes data for operations in Ares, Arcata, Selene, Pallancata, San Jose, Inmaculada, Matarani, Moris and office locations.
4 Total production includes 100% of all production, including attributable to joint venture partners at San Jose and Pallancata.
2014 TARGETS
• Update mine closure schedules for Ares, Arcata, Selene, Pallancata and Sipan. Additionally, present site closure plan for Matarani
• Obtain ISO 14001 recertification for Arcata, Selene, Pallancata, Ares and San Jose
• Initiate the mine closure process for the Ares and Moris mining operations
www.hochschildmining.com 49
Strategic reportp2-55 RISK MANAGEMENT
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.
RISK PROFILE
This year, the perceived change in
the profile of each of the Group’s
principal risks relative to 2012
has been described to assist the
reader in assessing how the risk
has evolved during the course of
the year under review.
INTRODUCTION
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 affect 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
effectiveness of controls in support of the
Company’s business objectives. It meets
four times a year and more frequently if
required. The Risk Committee comprises
the CEO, the Vice Presidents and the head
of the internal audit function. A ‘live’ risk
matrix is compiled and updated at each
Risk Committee meeting and the most
significant risks 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.
The key business risks affecting the Group
set out in this report differ from those
disclosed in the 2012 Risk Management
report in that counterparty credit risk
with respect to defaulting customers and
liquidity risk have been removed as they
are no longer considered to be principal
risks for the Group.
This year, the perceived change in the
profile of each of the Group’s principal
risks relative to 2012 has been described
to assist the reader in assessing how the
risk has evolved during the course of the
year under review.
RISK MANAGEMENT METHODOLOGY
GROUP
OBJECTIVES SET
Board approves the
Group’s strategic
objectives
INHERENT RISKS
IDENTIFIED AND
ANALYSED
Risks associated with the
Group’s objectives are:
• Identified
• Analysed
• Categorised according
to their impact and
probability
MONITORING
• Risk Committee
analyses risks and
monitors progress
on implementing
action plans
• Audit Committee
considers principal
risks and actions taken
EXISTING CONTROLS
IDENTIFIED AND
EVALUATED
• Controls that mitigate
risks are identified
• Evaluation of
the effectiveness
of controls
ACTION PLANS
DESIGNED TO
MITIGATE RISKS
• Plans to mitigate
relevant residual
risks are designed
• Plans are prioritised
and implemented
LEVEL OF RESIDUAL
RISK DETERMINED
Depending on the
effectiveness of the
controls, the residual
risks are analysed to
determine whether
additional controls
are required
50
Hochschild Mining plc Annual Report 2013
FINANCIAL RISKS
Risk
Impact
Mitigation
2013 Commentary
COMMODITY
PRICE
Change in risk profile
vs 2012: HIGHER
Adverse movements in
precious metals’ prices
could have a material
impact on the Group’s
results of operations.
• Constant focus on maintaining low
cost base and low leverage policy
• Initiatives identified for
implementation in the event of
a low price environment (included
within the Cash Optimisation Plan
– see 2013 Commentary)
• Conservative, but flexible hedging
policy that allows the Company to
approve hedges to mitigate the effect
of price movements on specific
projects and transition periods
See Market Overview on pages 12 and 13
for further details
This risk became much more pronounced
during 2013 given the unprecedented
steep falls in precious metal prices. In
response, the Company implemented the
Cash Optimisation Plan, a pre-designed
series of initiatives to counter the impact
on profitability by conserving capital and
optimising cash flow.
The Cash Optimisation Plan sought to:
• reduce operating and administrative costs
• minimise sustaining capital expenditure
• refocus the Group’s exploration strategy.
COUNTERPARTY
CREDIT RISK
Change in risk profile
vs 2012: UNCHANGED
The Group may lose
financial resources
through the failure of
financial institutions.
• Surplus cash invested with a
diverse list of select highly rated
financial institutions within
investment limits set by the Board
Management has continued to operate
its policy with oversight by the Board
without any change during the year.
OPERATIONAL RISKS
Risk
Impact
Mitigation
2013 Commentary
OPERATIONAL
PERFORMANCE
Change in risk profile
vs 2012: HIGHER
Failure to meet
production targets
and manage the cost
base could adversely
impact the Group’s
profitability.
• Close monitoring by management
of operational performance, costs
and capital expenditure
• Negotiation of long-term supply
contracts where appropriate
• Exploration to increase high
quality resources
As stated in the Operating and Financial
reviews, unit costs trended downwards
during 2013, primarily as a result of the
financial benefits of the cost savings
initiatives implemented under the Cash
Optimisation Plan and the devaluation
of local currencies.
www.hochschildmining.com 51
Strategic reportp2-55 RISK MANAGEMENT CONTINUED
OPERATIONAL RISKS CONTINUED
Risk
Impact
Mitigation
2013 Commentary
DELIVERY OF
PROJECTS
Change in risk profile
vs 2012: HIGHER
Unanticipated delays
in delivering projects
could have negative
consequences
including delaying
cash inflows and
increasing capital
costs, which
could ultimately
reduce profitability.
• Teams comprising specialist personnel
and world class consultants and
contractors are involved in all aspects
of project planning and execution
including the commissioning of an
independent feasibility study and the
securing of permits and financing
• Project teams meet on a weekly basis
to monitor ongoing progress against
project schedules with a Procurement
Committee ensuring timely sourcing
of materials and services to meet
project schedules
BUSINESS
INTERRUPTION
Change in risk profile
vs 2012: UNCHANGED
Assets used in
operations may
break down and
insurance policies
may not cover
against all forms
of risks.
• Adequate insurance coverage
• Management reporting systems
to support appropriate levels
of inventory
• Annual inspections by insurance
brokers and insurers with
recommendations addressed in
order to mitigate operational risks
• Availability of contingency power
supplies at all operating units
EXPLORATION AND
RESERVE AND
RESOURCE
REPLACEMENT
Change in risk profile
vs 2012: HIGHER
The Group’s operating
margins and future
profitability depend
upon its ability
to find mineral
resources and to
replenish reserves.
• Implementing and maintaining an
annual exploration drilling plan
• An ongoing strategy to retain and
incentivise world class geologists
• Ongoing evaluation of acquisition
and joint venture opportunities to
acquire additional ounces
See Mitigating steps for Personnel risks for
further information
52
Hochschild Mining plc Annual Report 2013
Notable developments at Inmaculada
include:
• completion of detailed civil engineering
and underground engineering
• construction of the camp and
exploration tunnels
• the approval of the construction permit
• procurement of the main
plant equipment
• the continued construction of
the necessary infrastructure for
a dedicated electricity supply
The perceived increase in the profile
of this risk is to reflect the fact that the
Group acquired a 100% interest in the
Inmaculada Advanced Project during the
year and hence the higher impact on the
Group of any delay in its commissioning.
The risks associated with the delivery of
projects also include those risks relating
to Community Relations and the Political,
Legal and Regulatory environment.
See how we mitigate these risks in the separate
sections of this report
Insurance advisors conducted site visits
and completed a full review of operational
risks to ensure that adequate property
damage and business interruption risk
management processes and insurance
policies are in place at our 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 implementation of the Cash
Optimisation Plan resulted in a reduction
in the 2013 exploration budget from
$77 million to $50 million.
The Group’s 2014 exploration budget
has been set at $30 million and is focused
on brownfield exploration at current
operations and Inmaculada.
The 2013 drilling plan was revised
on a quarterly basis with exploration
targets continually evaluated and new
targets incorporated.
OPERATIONAL RISKS CONTINUED
Risk
Impact
Mitigation
2013 Commentary
Reserves stated in
this Annual Report
are estimates.
• Develop internal expertise and
processes in managing mineral
reserves and resources
• Engagement of independent experts
to undertake annual audit of mineral
reserve and resource estimates
The Group engaged P&E Consultants to
undertake the annual audit of mineral
reserve and resource estimates.
See page 181 for further details
EXPLORATION AND
RESERVE AND
RESOURCE
REPLACEMENT
(continued)
Change in risk profile
vs 2012: UNCHANGED
PERSONNEL:
RECRUITMENT
AND RETENTION
Change in risk profile
vs 2012: HIGHER
• The Group’s approach to
recruitment and retention provides
for the payment of competitive
compensation packages, well-defined
career plans and training and
development opportunities
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.
PERSONNEL:
LABOUR
RELATIONS
Change in risk profile
vs 2012: UNCHANGED
Failure to maintain
good labour relations
with workers and/or
unions may result
in work slowdown,
stoppage or strike.
• A tailored labour relations strategy
focusing on profit sharing, working
conditions, management style,
development opportunities,
motivation and communication
Due to the extent of the lower price
environment, the implementation of the
Cash Optimisation Plan necessitated a
significant headcount reduction across
the Group. To mitigate the impact of this,
the Group has identified a number of
initiatives to improve the retention of
key employees during this period. Such
initiatives include the Deferred Bonus Plan,
which is being proposed to shareholders
for approval at the forthcoming AGM
(see Directors’ Remuneration Report for
further information).
In addition to the Long Term Incentive
Plans, the Group has adopted an
Exploration Incentive Plan which provides
additional rewards for geologists based
on the significant discovery of mineral
content at a given project that proceeds
to commercial production.
The reduced level of profitability resulting
from the precious metal price falls in 2013
means that the levels of statutory profit
share payable to Peruvian mineworkers
will be significantly lower than in 2012.
Management has therefore ensured
that monthly meetings with workers
and unions continued during 2013 to
ensure the Company had a complete
understanding of their requirements and
concerns and to keep all parties updated
on the Group’s financial performance.
See pages 44 and 45 of the Sustainability
report for specific examples of how the Group
has invested in its people and plans to develop
its recruitment strategy
www.hochschildmining.com 53
Strategic reportp2-55 RISK MANAGEMENT CONTINUED
MACRO-ECONOMIC RISKS
Risk
Impact
Mitigation
2013 Commentary
• Local specialised personnel
continually monitor and react,
as necessary, to policy changes
• Active dialogue with
governmental authorities
• Participation in local
industry organisations
POLITICAL, LEGAL
AND REGULATORY
Change in risk profile
vs 2012: HIGHER
Changes in the legal,
tax and regulatory
landscape could
result in significant
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.
The year saw a sustained programme
of legislative measures enacted by the
Peruvian Government impacting the
mining sector including with respect
to health & safety, the environment
and labour relations.
In addition, there remains some
uncertainty as to the operation of
new laws enacted after the Peruvian
Government’s election in 2011, including
laws that require the prior consultation
of indigenous communities in the mine
planning process and the designation of
new protected nature reserves.
In Argentina:
• the province of Santa Cruz created
a new tax on mining companies,
levying a charge equal to 1% of the
market value of its mineral reserves.
As reported earlier in the year, the
Company is challenging the
constitutionality of this tax
• at a national Federal Government level,
foreign exchange controls remained
in place during the year affecting the
Company’s ability to access and remit
hard currency abroad
SUSTAINABILITY RISKS
Risk
Impact
Mitigation
2013 Commentary
HEALTH AND
SAFETY
Change in risk profile
vs 2012: UNCHANGED
Group employees
working in the mines
may be exposed to
health and safety risks.
Failure to manage
these risks may result
in occupational illness,
accidents, a work
slowdown, stoppage
or strike and/or may
damage the
reputation of the
Group and hence its
ability to operate.
• Health & Safety operational policies
and procedures reflect the Group’s
zero tolerance approach to accidents
and occupational illnesses
• Use of world class DNV safety
management systems
• 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
• Rolling programme of training,
communication campaigns and
other initiatives promoting safe
working practices
• Use of reporting and management
information systems to monitor
the incidence of accidents and
enable preventative measures
to be implemented
During the year, the Group achieved a
reduction of about 38% in the accident
frequency rate and a 43% reduction in the
accident severity rate. Furthermore, there
were no incidences of occupational illness.
In addition, the Group retained the same
sustainability rating levels of the DNV
safety management information system
across the operations and San Jose
achieved a Level 7 rating.
The internal competition for the Luis
Hochschild Safety Innovation Award
was held in 2013.
A working group comprising representatives
from the HR, Occupational Psychology and
Safety teams has been formed to develop
a behaviour-based safety tool for
implementation across the Group.
54
Hochschild Mining plc Annual Report 2013
SUSTAINABILITY RISKS CONTINUED
Risk
Impact
Mitigation
2013 Commentary
ENVIRONMENTAL
Change in risk profile
vs 2012: HIGHER
COMMUNITY
RELATIONS
Change in risk profile
vs 2012: HIGHER
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
fines and/or penalties.
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. 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.
• The Group has a dedicated and
specialised team of professionals
with an allocated budget for
environmental management
• Robust procedures and policies have
been adopted to monitor and limit
the Group’s environmental impact
• Investment in leading environmental
management information systems
• The Group conducts annual reviews
of its mine closure plans for its
operating units
During the year, the Peruvian
Government established a new
regulator for environmental affairs
which, amongst other things, established
a new scale of fines for non-compliance
with environmental requirements.
During the year, the Company:
• succeeded in recertifying the operations
in Peru and Argentina as compliant
with ISO 14001
• obtained the approval of the
Environmental Impact Study for
the Crespo Growth Project
• Constructive engagement and
management of relationships
with local communities
• Community Relations strategy
focuses on promoting education,
health and nutrition, and sustainable
development
• Allocation of budget and personnel
for the provision of community
support activities
• Policy to actively recruit workers
from local communities
Despite the reduction of budgets for
the Group’s community welfare activities
as part of the Cash Optimisation Plan,
the Group continued to pursue a
number of initiatives benefiting the
communities including:
• ‘Maestro Líder’, a training programme
for community teachers
• Digital Inclusion, a programme
promoting the use of technology
as an educational tool to teachers
and students
• Medico de Cabecera, a scheme
providing healthcare to the rural
communities, progressed through
partnerships established with the
Ministry of Health with a view to
extending the programme’s reach
Further details on the Group’s activities to
mitigate sustainability risks can be found in
the Sustainability report on pages 36 to 49
Further information on financial risks can be found in note 36 to the Consolidated Financial Statements.
The Strategic Report, as set out on pages 2 to 55 has been reviewed and approved by the Board of Directors and signed on its behalf by
IGNACIO BUSTAMANTE
Chief Executive Officer
11 March 2014
www.hochschildmining.com 55
Strategic reportp2-55
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
THE BOARD’S ROLE IS TO PROVIDE LEADERSHIP TO THE SENIOR MANAGEMENT
TEAM THROUGH THEIR COLLECTIVE EXPERIENCE AND TO MONITOR PROGRESS
AGAINST THE GROUP’S STRATEGIC OBJECTIVES WITHIN A PRUDENT
FRAMEWORK OF CONTROLS AND A MANAGED LEVEL OF RISK.
BOARD OF DIRECTORS
EXECUTIVE DIRECTORS
NON-EXECUTIVE DIRECTORS
Eduardo Hochschild
Executive Chairman
Ignacio Bustamante
Chief Executive Officer
Roberto Dañino
Deputy Chairman
Enrico Bombieri
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.
Committee membership
Nominations Committee
(Chairman)
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
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
Nominations Committee
Roberto Dañino 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, amongst
various other boards. He is a
graduate of Harvard Law
School and Universidad
Católica.
Committee membership
CSR Committee (Chairman)
SENIOR MANAGEMENT
Isac Burstein
Vice President, Exploration
and Business Development
Isac Burstein joined the
Group as a geologist in 1995.
Prior to his current position,
Isac served as Manager for
Project Evaluation,
Exploration Manager for
Mexico, and Exploration
Geologist. Isac assumed
responsibility for the Group’s
exploration activities in
February 2014. Isac 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.
Ramón Barúa
Chief Financial Officer
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.
Dr Graham Birch joined the
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
CSR Committee
Eduardo Landin
Chief Operating Officer
Eduardo Landin was
appointed COO of Hochschild
Mining on 25 March 2013,
having previously served as
General Manager of the
Company’s operations in
Argentina. In 2011, he became
General Manager of Projects
with direct responsibility over
the development of
Inmaculada and Crespo.
Before joining the Company,
Eduardo held the position
of Corporate Development
Manager at Cementos
Pacasmayo and, prior to that,
he served in the Government
of Peru’s Ministry of Energy
and Mines. Eduardo holds a
B.Eng in Mechanical
Engineering from Imperial
College London and an
Executive MBA from the
Universidad de Piura, Peru
56
56
Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
Sir Malcolm Field
Non-Executive Director
Jorge Born Jr.
Non-Executive Director
Nigel Moore
Non-Executive Director
TENURE OF INDEPENDENT
NON-EXECUTIVE DIRECTORS
2
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.
Committee membership
Nominations Committee
Remuneration Committee
(Chairman)
Nigel Moore joined the Board
in 2006. He is a Chartered
Accountant and currently
serves as Chairman of JKX Oil
& Gas plc. He also serves
currently as a Non-Executive
Director of The Vitec Group
plc and Ascent Resources plc,
where he is also Chairman of
the Audit Committee. Nigel
was a Partner at Ernst &
Young from 1973 to 2003,
during which time he was
responsible in particular for
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
Audit Committee (Chairman)
Remuneration 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
Remuneration Committee
Nominations Committee
José Augusto Palma
Vice President, Legal &
Corporate Affairs
Eduardo Villar
Vice President,
Human Resources
CULTURAL DIVERSITY OF
THE BOARD
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.
José Augusto Palma joined
Hochschild in July 2006 after
a 13-year legal career in the
United States, where he was
a partner at the law firm of
Swidler Berlin, and
subsequently at the World
Bank. He also served two
years in the Government of
Peru. José has law degrees
from Georgetown University
and the Universidad
Iberoamericana in Mexico
and is admitted to practise as
a lawyer in Mexico, New York
and the District of Columbia.
Prior to his current role, José
served as Senior Adviser to
the Executive Committee.
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1. 0-3 Years
2. 4-8 Years
40%
60%
1. British
2. Italian
3. Peruvian
4. Argentine
37.5%
12.5%
37.5%
12.5%
2
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Governance p56-101
DIRECTORS’ REPORT
The Directors present their report for the year ended
31 December 2013.
DIVIDEND
The Directors did not declare any dividend in respect of the
year ended 31 December 2013 and a final dividend is not
being recommended (2012 total dividend: $0.06 per share).
The trustee of the Hochschild Mining Employee Share Trust
(‘the Employee Trust‘) has waived the right to dividend payments
on shares held by the Employee Trust.
DIRECTORS
The names, functions and biographical details of the Directors
serving at the date of this report are given on pages 56 and 57.
With the exception of Rupert Pennant-Rea and Fred Vinton who
stepped down from the Board on 31 July 2013, all Directors were
in office for the duration of the year under review.
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’ AND OFFICERS’ LIABILITY INSURANCE
The Company’s Articles of Association 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 his duties as Director
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.
GREENHOUSE GAS EMISSIONS
Disclosures relating to the Group’s greenhouse gas emissions
can be found in the Sustainability report on page 49.
ESSENTIAL CONTRACTUAL AND OTHER ARRANGEMENTS
The Directors consider that the following are the contractual
and other arrangements with customers and suppliers, or
contracts to which Group companies are a party and which are
considered to be essential to the business:
the mining concessions and operating permits granted
by governmental authorities in the jurisdictions of the
Group’s operations
the collective agreements with trade unions in respect of
the workers at the Group’s mines in Peru
RELATIONSHIP AGREEMENT
Prior to the Company’s IPO, Pelham Investment Corporation,
Eduardo Hochschild and the Company (amongst others)
entered into a relationship agreement to regulate the ongoing
relationship between them (‘the Relationship Agreement’).
The principal purpose of the Relationship Agreement is to ensure
that the Group is capable of carrying on its business for the
benefit of the shareholders of the Company as a whole, 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 61 and, with regard to the right to
appoint Directors to the Board, are set out on page 63.
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 judgment
is given against him.
The Company has purchased and maintains liability insurance for
its Directors and officers as permitted by law.
POLITICAL AND CHARITABLE DONATIONS
The Company does not make political donations. During the year,
the Group expended $3.22 million1 on social and community
welfare activities surrounding its mining units (2012: $6.5 million).
CORPORATE GOVERNANCE STATEMENT
The requirements for a Corporate Governance Statement are
fulfilled by the Corporate Governance report on pages 60 to 71.
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.
1 Figure represents only the portion of administrative expenditure (excluding
corporate support) on social and community welfare activities surrounding
the company’s operating units. Total social expenditure in 2013 amounted to
$10.14 million.
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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.
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.
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,
bolstered by the proceeds of the equity placing undertaken in
October 2013 and the issue of $350 million Senior Notes subsequent
to the year end, and its long-term relationships with a number of
customers and suppliers across different geographic areas. These
factors provide the Directors with reassurance that the Company is
well placed to manage its business risks successfully.
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 cash flow
forecasts presented by management which, amongst other
things, reflect the Group’s key financial commitments including
the capital expenditure requirements of the Inmaculada project
and the maturity of the Company’s Convertible Bonds.
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 eighth AGM of the Company will be held at 9.30 am on
22 May 2014 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 WITH RESPECT TO THE ANNUAL
REPORT AND FINANCIAL STATEMENTS
As required by the UK Corporate Governance Code, the Directors
confirm that they consider that the Annual Report, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors confirm that to the best of their knowledge:
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation
taken as a whole
the Management report (which comprises the Strategic report,
this Directors’ report and the other parts of this Annual Report
incorporated therein by reference) 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.
On behalf of the Board
RAJ BHASIN
Company Secretary
11 March 2014
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Governance p56-101
CORPORATE GOVERNANCE REPORT
IN THIS REPORT
The Board, its workings and
how it performed in 2013
see page 61
Audit committee
see page 64
Nominations committee
see page 68
Corporate social
responsibility committee
see page 69
Remuneration committee
see page 70
The terms of reference for each Board
Committee are available for inspection
on the Company’s website at
www.hochschildmining.com
DEAR SHAREHOLDER
Effective corporate governance remains vital to the Group’s
ability to operate successfully. Hochschild Mining has a well
established framework of policies and processes to support its
governance objectives including our Code of Conduct, which
sets out our corporate values and is key to the way we work,
both in respect of our relationships between colleagues and
with our customers and suppliers. The importance of this is
demonstrated by our strategy described earlier in this Annual
Report which is underpinned by our commitments as a
Responsible Operator.
The Board is responsible for overseeing the Group’s long-term
success and, as Chairman, it is my role to lead the Board in this
crucial endeavour.
For this reason, I value the annual Board evaluation process that
we have developed in-house and which is led by our Senior
Independent Director. As every year, it has resulted in a number
of insightful recommendations on how the Board and the
Committees can improve their performance. Details of the
process and the key actions to be implemented can be found
on pages 63 and 64 of this report.
This year’s report incorporates additional information,
particularly with respect to audit matters, as a result of the
revision of the UK Corporate Governance Code which now
applies to the Company. I refer to my colleague Nigel Moore’s
section of the report who, as Chair of the Company’s Audit
Committee, is responsible for overseeing the Group’s relationship
with the Auditors.
I trust you find this report informative. If you should have any
comments, I would welcome your feedback.
EDUARDO HOCHSCHILD
Executive Chairman
11 March 2014
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Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
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’) (2012
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 71 to 75.
The Board confirms that, in respect of the year ended 31 December
2013, the Group has complied with the provisions contained in the
Code except that:
(i) contrary to the Main Principle of Section D, a significant part
of the Executive Chairman’s remuneration is not
performance-related. As previously reported, 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.
(ii)
for the reasons set out in the section of this report entitled
‘External Board Evaluation’, the Board has not undertaken
an externally facilitated Board evaluation in the past three
years as recommended by Code Provision B.6.2.
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.
THE BOARD
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 six
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 2013 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 ensures
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
During the year under review, Sir Malcolm Field acted as the
Senior Independent Director and, as such, acted as a sounding
board for the Chairman as necessary.
Sir Malcolm was available to meet with major shareholders
during the year if their concerns were not resolved by the
executive management team. Following Sir Malcolm’s decision to
reduce his commitments, Enrico Bombieri was appointed to the
role of Senior Independent Director from 1 January 2014.
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.
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Governance p56-101
CORPORATE GOVERNANCE CONTINUED
Independence of the Non-Executive Directors
The Board considers that all of the Non-Executive Directors are
independent of the Company with the exception of 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.
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:
Enrico Bombieri’s employment, until February 2010, with
JP Morgan, an affiliate of the Company’s corporate broker
JP Morgan Cazenove
Dr Graham Birch’s previous positions 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
Dr Graham Birch and Sir Malcolm Field both serve on the
Board of Petropavlovsk Plc
Board Meetings held in 2013
There were ten Board meetings held in 2013. Five of these
meetings were scheduled Board meetings and the remainder
comprised of ad hoc meetings convened in connection with
the acquisition of International Minerals Corporation and the
related financing.
Attendance at these meetings is summarised in the following table:
Eduardo Hochschild
Roberto Dañino
Dr Graham Birch
Enrico Bombieri
Jorge Born Jr.
Ignacio Bustamante
Sir Malcolm Field
Nigel Moore
Rupert Pennant-Rea*
Fred Vinton*
Maximum
possible
attendance
Actual
attendance
10
10
10
10
10
10
10
10
3
3
9
9
7
9
6
10
9
10
3
3
* Rupert Pennant-Rea and Fred Vinton stepped down from the Board on
31 July 2013.
Directors receive a full pack of papers for consideration at least
five working days in advance of each scheduled Board meeting
and, in the event a Director is unable to attend, comments are fed
back to the Chairman who ensures that all views are represented
when considered at the meeting.
Senior executives of the organisation are invited to attend Board
meetings and to make presentations on their areas of responsibility.
In addition to the regular updates from across the business, the
principal matters considered by the Board during 2013 were:
Financial
the recommendations from the Audit Committee to adopt the
2012 Annual Report and Accounts and the 2013 Half-Yearly
Report
the implementation of the Cash Optimisation Plan in
response to the fall in precious metal prices and updated
financial forecasts
financial benchmarking versus the Company’s peers
the financing in connection with the acquisition of
International Minerals Corporation comprising a share placing,
a bridge loan and an issue of $350 million Senior Notes
the 2014 Budget
Strategy
the Group’s strategic plan
Acquisitions
the final stages of the acquisition of Andina Minerals
the acquisition of International Minerals Corporation
and related matters including the shareholder circular
convening the requisite Extraordinary General Meeting
Business performance
updates on the development of the Inmaculada and
Crespo Advanced Projects and the subsequent proposal to
delay the latter
the principal sources of growth for the Company
Risk
reviews of the strategic risks faced by the Group including the
country risk arising from the Group’s presence in Argentina and
the risks resulting from the Cash Optimisation Plan
presentations from specialist commentators on the economics
and outlook for silver and gold
Governance
various changes to the governance structure including Board
and Committee composition and the role of Senior
Independent Director
regular updates from the Company Secretary on relevant
developments in corporate governance including the
regulatory framework governing listed companies
an update on the implementation of the 2012 Board evaluation
recommendations, the outcome of the 2013 Board evaluation
process and the form of the 2014 Board evaluation process
the annual reviews of Directors’ conflicts of interest and the
independence of Non-Executive Directors
Operating responsibly
detailed reports on the two fatalities that occurred during the
year including the recommended actions to be taken
In between Board meetings, Directors are kept abreast of latest
developments through monthly reports on the Company’s
operations, exploration activity and financial situation.
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Appointments and re-election of Directors
Board nominations are recommended to the Board by the
Nominations Committee.
In addition, during the year, the Board received presentations
from specialist commentators on the economics of gold and silver
and the outlook for precious metals.
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 can be found on pages 56 and 57.
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.
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 knowledge and 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.
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 area of corporate
governance. In addition, the Directors have ongoing access to the
Company’s officers and advisers.
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 2012 Board evaluation
A number of actions were taken during the year as a consequence
of the findings from the 2012 Board evaluation process.
These actions included:
the delivery of presentations by specialists on the pricing trends
and economics of precious metals
the scheduling of presentations on specific group functions
and an annual in-depth review on investor relations
more frequent comparative analysis of the Group’s
performance relative to its peers both in relation to operational
performance and strategic development
enhancements to the reporting of the value created by the
Group’s exploration strategy
the participation of a small group of Non-Executive Directors in
the planning of the annual strategic review
2013 BOARD EVALUATION
In keeping with past practice, the 2013 Board evaluation process was undertaken through one-to-one interviews conducted
by the Senior Independent Director assisted by the Company Secretary. Enrico Bombieri participated in the process as part
of his induction to the role of Senior Independent Director, which he assumed with effect from 1 January 2014.
The interviews were structured to seek Directors’ views on a number of subject areas.
The Board
The composition of the Board, focusing in particular on the
Looking at specific aspects of each Committee’s functions
skills required to fulfil its responsibilities
in seeking areas of improvement
Board process and dynamics
Risk management process and governance
The Committees
Composition and general workings
Specific matters arising during the year
The implementation of the Cash Optimisation Plan
The process of the acquisition of International
Minerals Corporation
Identifying scope for innovation to enhance their roles
In addition to the above, Directors were requested to provide
feedback on the performance of fellow Board members.
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CORPORATE GOVERNANCE CONTINUED
2013 Board evaluation
Evaluation of the Board and Committees
The findings relating to the evaluation of the Board and the
Committees were considered collectively by the Chairman, Sir
Malcolm Field and Enrico Bombieri (as the outgoing and incoming
Senior Independent Director respectively), and the resulting
recommendations were discussed and, where appropriate,
approved by the Board.
Evaluation of the Chairman
The outcome of the Chairman’s performance evaluation was
collated by Sir Malcolm Field and Enrico Bombieri and considered
by the Non-Executive Directors collectively before being relayed
to the Chairman.
Outcome
The principal recommendations arising from the 2013 Board
evaluation process are:
enhancements to the functions of the CSR Committee through:
enabling it to take a more proactive role in overseeing the
Group’s strategy in this area
changes to its composition (see the CSR Committee report for
further information)
for the Nominations Committee to commence the process of
drawing up a candidate profile, taking into account the benefits
of gender diversity, and agreeing a timetable for the
appointment of Non-Executive Directors to ensure an orderly
succession in the medium term
detailed reporting on the impact of the Cash Optimisation Plan
changes to the regular reporting of business development
projects to assist the Board in identifying those with the
most potential
the scheduling of presentations on:
commodity markets and market risk
the Group’s exploration culture and strategy
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. As reported
last year, the Board acknowledges the benefits of a periodic
external evaluation as recommended by the Code and, to this
end, a number of Directors including the Chairman met with
firms early in 2013 to discuss their approach to the matter.
However, given the extent of the steps taken by management
during the year to mitigate the impact of falling precious metal
prices including a significant number of redundancies, the Board
felt that the cost of an externally led evaluation did not justify the
expected level of additional benefits. As a result, the Board has
deferred a third party led evaluation for the time being until the
appropriate time.
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
I am pleased to introduce the report of the Audit Committee
for 2013.
This year, the Audit Committee’s report has been produced in
compliance with the recommendations of the 2012 edition of
the UK Corporate Governance Code, which places greater focus
on the Audit Committee's relationship with the external Auditors
and their review of financial statements. I hope you will find this
additional information helpful.
The Code also requires the Company to state for the first time
whether it anticipates tendering its external audit. Ernst & Young
were appointed as Auditors in 2006 in preparation for the
Company’s Initial Public Offering. Consequently, the transitional
arrangements suggested by the Financial Reporting Council
would apply such that Hochschild would not be required to
tender its external audit until after completion of the 2020 year-
end audit.
The Company recognises that these arrangements are not
binding and will consider putting the audit contract out to tender
earlier than indicated under these arrangements if Ernst &
Young’s performance does not meet expectations or it is
otherwise felt appropriate to do so.
The EU regulations on mandatory tendering are expected to be
approved later in 2014 but it is not anticipated that they will result
in a mandatory tender for the Group’s audit contract until 2026
at the earliest, subject always to the Auditors performing to the
satisfaction of the Audit Committee and Company management.
If the final EU requirements are in place by the time of my next
report to you, I will set out the impact they have on the Company.
As reported elsewhere, if the depressed pricing environment for
precious metals continues, 2014 will be a challenging year. The
Committee will also maintain its focus on the Group’s risk
management process, ensuring that it continues to identify and
mitigate any weaknesses in the internal control environment that
may arise, particularly following implementation of the Group’s
Cash Optimisation Plan. I look forward to reporting to you on the
outcome in 2015.
NIGEL MOORE
Committee Chairman
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Members
Nigel Moore
(Committee Chairman)
Dr Graham Birch
(Non-Executive Director)
Enrico Bombieri
(Non-Executive Director)
Sir Malcolm Field
(Non-Executive Director)
Fred Vinton1
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
5
5
5
5
2
5
5
5
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2
1 Fred Vinton served as a member of the Committee until 31 July 2013.
There were five meetings of the Audit Committee during the year,
four of which were scheduled and the fifth was convened to
consider matters relating to the financial statements for the nine-
month period ended 30 September 2013 prepared specifically in
connection with the issue of Senior Notes.
Key roles and responsibilities
To monitor the integrity of the Company’s financial statements
To monitor the effectiveness of the Company’s internal
controls and risk management systems
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
Oversight of the Internal Audit function and review of its
annual work plan
To oversee the relationship with the Company’s
external Auditors
To review the effectiveness of the external audit process
To report to shareholders annually on the Committee’s
activities including details of the significant audit issues
encountered during the year and how they have
been addressed
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 where he was
responsible for services to a number of significant companies,
including audit responsibilities. In addition, Nigel has been acting
as Audit Committee Chairman for a number of other listed
companies for the last ten years.
Fred Vinton stepped down from the Board and thereby ceased to
act as a member of the Committee on 31 July 2013.
All Committee members are considered to be independent
Directors. Their biographical details can be found on pages
56 and 57.
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 amongst those considered by
the Committee during the year:
Financial reporting – The 2012 Annual Report and
Accounts and the 2013 Half-Yearly Report were reviewed by the
Committee before recommending their adoption by the Board.
In addition, the Committee considered the Group’s financial
statements for the nine-month period ended 30 September
2013 compiled in connection with the offer of Senior Notes.
In its review of these financial reports, the Audit Committee
reviewed accounting policies, estimates and judgements
applied in preparing the relevant statements and the
transparency and clarity of disclosures contained within them.
Review/audit plans – In line with its usual practice, the
Committee considered reports from the external Auditors
on the scope and structure of the review of the half-yearly
results and audit of the annual results.
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 50 to 55 for a description of the principal risks
and uncertainties faced by the Group during the year.
Internal audit – The Audit Committee continued to
oversee and challenge the Group’s adoption of a risk-based
approach to internal audit.
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.
Whistleblowing – The Audit Committee reviewed the adequacy
of the Group’s Whistleblowing Policy, taking into account the
reports received through the various online and offline
channels established by the Group.
Fraud & Bribery Act – The Audit Committee continued to
review and challenge the actions taken by management to
promote ethical and transparent working practices.
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 letters, and reviewed and agreed audit fees.
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CORPORATE GOVERNANCE CONTINUED
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 result in an action plan, the execution of which
is assessed in the following year’s auditor evaluation.
Towards the end of 2013, the Committee commissioned
a review of the method by which the feedback is obtained
and will be reflected in the evaluation of the Auditors’
performance in the 2013 full-year results audit.
Committee objectives – The Committee has continued its
initiative of setting specific objectives for management with a
view to ensuring the diligent fulfilment of its responsibilities.
The objectives for 2013 resulted in:
a review of the Group’s internal audit function by KPMG, Peru.
The review resulted in findings relating primarily to the (i)
documentation of internal audits, (ii) planning of resourcing
requirements for specific projects and (iii) establishment of a
formally approved internal audit charter. As a result of this
review, a series of steps have been taken to enhance the
workings of the internal audit function
a review of the Group’s tax efficiency by PwC, which
encompassed consideration of the Group’s tax policies
and corporate structure to identify opportunities where
efficiencies could be achieved
consideration of an updated Assurance Map, which was
designed to identify the source and quality of the assurances
provided to the Committee in the discharge of its responsibilities
maintaining the ongoing monitoring and challenging of anti-
bribery and anti-fraud procedures
reviewing the specific areas raised by the recent revisions to the
UK Corporate Governance Code and ensuring that appropriate
changes are incorporated into the 2013 Annual Report and
Accounts and related processes
During the year, the Committee members held meetings
with the external Auditors without executive management
to discuss matters relating to the 2012 annual audit and the 2013
half-yearly report.
SIGNIFICANT AUDIT ISSUES
In compliance with the recommendations of the 2012 edition
of the UK Corporate Governance Code, the following is a
summary of the significant issues considered by the Committee
in relation to the 2013 financial statements and how these issues
have been addressed.
Impairments
Having previously considered impairments to the value of the
San Jose, Azuca and Ares assets at the half-year stage and the
recording of an impairment loss at 30 September 2013 in relation
to the Crespo Growth Project following the decision to delay that
project, the Committee considered management’s assessment
on the presence of factors that may require an impairment to
be made to the valuation of the Group’s assets at the year end.
Such factors include the outlook for silver and gold prices, market
interest rates and other relevant economic considerations.
The Committee considered management’s assessment that there
were no further indicators of impairment as at 31 December 2013
and concurred with that conclusion.
Available-for-Sale Assets (‘AFS assets’)
The Committee considered management’s calculations of the
fair value of the Group’s AFS assets and the treatment of any
gains or losses on the fair value to ensure that they have been
recorded in the statement of changes in equity or the income
statement as appropriate.
More specifically, the Committee reviewed the circumstances
resulting in the reclassification, during the year, of the Group’s
investment in Gold Resource Corporation from an associate to
an AFS asset from the point at which the Group lost significant
influence. As a result, a gain of $108 million was recognised
representing the difference between the equity accounted
carrying value and its fair value. The decline in this fair value
between the reclassification date and the half year resulted in
an impairment charge of $62 million and a further impairment
of $43 million at the full year.
The Audit Committee concurred with this treatment.
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Accounting for the IMZ acquisition
General
In connection with the acquisition of IMZ, which was
completed before the end of the year, the Committee considered
the accounting for the transaction including the acquisition
accounting for a non-controlling interest (NCI) in Pallancata and
Inmaculada (which is treated as an equity transaction and
therefore has no impact on the income statement). In addition,
the Committee has considered the accounting of transaction
costs which are treated in the same manner as the acquisition
consideration and were therefore recorded in reserves
Accounting for the bridge loan
The Audit Committee considered the accounting treatment for
the $270 million bridge loan entered into prior to the year end in
part to finance the acquisition of IMZ. The accounting is reflective
of management’s view that:
(i) as at year end, the bridge loan was considered to be
a short-term financing arrangement to be replaced
by a bond
(ii) the associated transaction costs should be expensed over the
loan period and shown as an exceptional item.
As previously reported, a $350 million senior unsecured bond
was subsequently issued by the Company and completed on
23 January 2014.
Under IFRS, the effective interest charge must be recognised
over the expected life of the bridge loan facility. Given that it
was management’s intention to replace the bridge loan with
a bond early in 2014 and the infrequent nature and size of the
transaction costs, the Audit Committee has considered the
appropriateness of:
Revenue recognition
Revenue recognition is widely regarded as an area of fraud risk,
the extent of which depends on a number of factors including
the number of sales contracts concluded and the complex terms
under which title, risk and rewards pass to the customer. The
Committee has accordingly considered whether the approach
taken by management correctly recognises revenue generated
during the year to ensure it has been accounted for in line with
the Group’s revenue recognition policy. The Committee’s
enquiries concluded that revenues have been correctly recorded.
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.
Policy on the use of Auditors for non-audit services
This policy lists those non-audit services that the external
Auditors may provide (in the absence of any threat to their
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 Auditors). 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:
any permitted assignment over $100,000 may only be awarded
(i) the use of the actual repayment date for establishing the
after competitive tender.
effective interest charge
six-monthly reports to the Audit Committee from the Auditors
(ii) the recognition of the associated costs on a straight-line
analysing the fees for non-audit services rendered.
basis, with a portion charged in 2013 and the balance in 2014
(iii) the categorisation of transaction costs as an exceptional item
and the intention to apply the same treatment for the 2014
portion of these costs.
After consideration, the Audit Committee concurred with
management’s proposed treatment.
an annual assessment, by the Committee, of the Auditors’
objectivity and independence in light of all relationships
between the Company and the audit firm.
2013 Audit and non-audit fees
Details of fees paid to the external Auditors are provided in
note 31 to the Consolidated Financial Statements.
Adequacy of tax provisions
The Committee considered management’s assessment with
regards to potential tax contingencies arising from tax authority
reviews in Peru, Argentina and Mexico. The Committee
considered the presence of any facts that would indicate a
different categorisation and concluded that a provision would not
be required, given that the risk of exposure is considered ‘possible’
rather than ‘probable’. The Committee concurred with this view.
With the agreement of the Chairman of the Audit Committee,
the external Auditors were considered best placed to undertake
(i) the review of the Group’s financial results for the nine-month
period ending 30 September 2013 in connection with the issue
of the Group’s Senior Notes and (ii) the Working Capital review
in connection with the acquisition of International Minerals
Corporation, in the necessary timescale. Accordingly, these
assignments were not put out to competitive tender.
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NOMINATIONS COMMITTEE
Dear Shareholder
During 2013, 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 Born
(Non-Executive Director)
Sir Malcolm Field
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
3
3
3
3
3
3
* for the year ending 31 December 2013.
Key roles and responsibilities
Identify and nominate candidates for Board approval.
Make recommendations to the Board on composition
and balance.
Oversee the succession planning of Board and senior
management positions.
Review the Directors’ external interests with regards to actual,
perceived or potential conflicts of interest.
Membership
There were no changes to the membership of the Committee
during 2013.
Enrico Bombieri was appointed a member of the Committee with
effect from 1 January 2014.
The Company Secretary acts as Secretary to the Committee.
CORPORATE GOVERNANCE CONTINUED
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.
Internal controls are managed by the use of formal procedures
designed to highlight financial, operational, environmental and
social risks and provide appropriate information to the Board
enabling it to protect effectively the Company’s assets and,
in turn, maintain shareholder value.
The process used by the Audit Committee to assess the
effectiveness of risk management and internal control
systems includes:
reports from the Head of the Internal Audit function
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
review of budgets and reporting against budgets
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.
Audit Committee’s assessment
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.
Board’s assessment
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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Activity during the year
The principal matters considered during the year were:
Board evaluation process
the format of the 2013 Board evaluation process. As explained
earlier in this report, it was decided that, given the extent of the
cost reduction initiatives being taken across the Group
following the significant falls in precious metals prices, an
externally led evaluation was not considered appropriate. The
Committee therefore recommended that an externally led
evaluation be deferred until an improvement in trading
conditions
CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
Dear Shareholder
The Group has continued to demonstrate its commitment as a
responsible operator throughout 2013 despite the difficult trading
environment. Significant progress has been made in the areas of
Health & Safety where the Group recorded a 38% reduction in the
accident frequency rate for the year, exceeding the Group’s most
stretching target. We have also continued with a range of
initiatives with our local communities, focusing on the core areas
of education, health and economic development. Further details
of the work we have done during the year can be found in the
Sustainability report on pages 36 to 49.
the findings of the 2013 Board evaluation process (see earlier
section of the Corporate Governance report on Board
development)
ROBERTO DAÑINO
Committee Chairman
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Composition of the Board and Committees
changes to the composition of the Board following the
implementation of the Cash Optimisation Plan
recommending changes to the composition of the CSR
Committee (see page 38 for further information)
Succession planning
succession to the roles of Senior Independent Director
and Chairman of the Remuneration Committee as a
result of Sir Malcolm Field’s decision to reduce his professional
commitments
non-executive succession planning following a review
of the Board’s skills matrix
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, taking into account the
challenges and opportunities facing the Company.
The benefits of Board diversity, including gender diversity, are
acknowledged by the Directors who are pleased that the current
Board composition is reflective of a cultural diversity that is
relevant to the Group’s business.
Decisions on appointments to the Board will continue to be taken
on merit and, for this reason, the Board does not consider the
setting of specific measurable targets to be appropriate.
Members*
Eduardo Hochschild
(Committee Chairman)
Sir Malcolm Field
(Non-Executive Director)
Roberto Dañino
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
4
4
4
4
4
4
* for the year ending 31 December 2013.
Key roles and responsibilities
Evaluate the effectiveness of the Group’s policies for identifying
and managing health, safety and environmental risks within
the Group’s operations.
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.
Receive reports from management concerning all fatalities and
serious accidents within the Group and actions taken
by management following each incident.
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
With effect from 1 January 2014, the membership of the
Committee was changed by the appointment of Roberto Dañino
as Chairman of the Committee, and the appointment of Dr
Graham Birch and Ignacio Bustamante as members of the
Committee. Eduardo Hochschild and Sir Malcolm Field stepped
down as members of the Committee from that date.
During the year under review, the CEO and Vice President of
Operations attended 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
36 to 49.
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CORPORATE GOVERNANCE CONTINUED
REMUNERATION COMMITTEE
Dear Shareholder
We seek to implement a simple and transparent remuneration
policy that is aligned with the successful achievement of the
Group’s strategic objectives. This alignment does not only seek
to reward profitable production but reflects our commitments
as a responsible operator. This year, we are seeking shareholder
approval that will enable the Company to pay all or part of the
CEO’s annual bonus in newly issued shares after a holding period
of up to two years. Further details can be found in the Directors’
remuneration report on page 76.
JORGE BORN JR.
Committee Chairman
Members*
Sir Malcolm Field
(Committee Chairman)
Jorge Born Jr.
(Non-Executive Director)
Nigel Moore
(Non-Executive Director)
Rupert Pennant-Rea1
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
3
3
3
1
3
2
3
1
* for the year ending 31 December 2013.
1 Rupert Pennant-Rea served as a member of the Committee until 31 July 2013.
Key roles and responsibilities
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.
Regularly review the ongoing appropriateness and relevance
of the remuneration policy.
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.
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.
Review and note annually the remuneration trends across
the Company or Group.
Membership
Rupert Pennant-Rea served as a member of the Remuneration
Committee until 31 July 2013. With effect from 1 January 2014, Jorge
Born assumed the Chairmanship of the Remuneration Committee.
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 76 to 97.
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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 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.
2013 AGM
Notice of the 2013 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 the inside back cover and on the Company’s
website at www.hochschildmining.com
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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 2013
The following table summarises the principal means by which
management communicated with investors during the year:
Date
Event
January, April,
July, October
Conference calls following the Quarterly
Production Reports (and Interim Management
Statements, when appropriate)
February
March
May
August
September
December
BMO Global Metals & Mining Conference
2012 Annual Results presentation
UK, European and North American Roadshow
BoA Merrill Lynch Global Metals, Mining and
Steel Conference
Annual General Meeting
2013 Half-Yearly Results presentation
UK, European and North American Roadshow
Extraordinary General Meeting in connection
with the acquisition of International Minerals
Corporation
An extensive Investor Relations schedule resulted in management
holding over 70 investor meetings during the year.
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Current share repurchase authority
The Company obtained shareholder approval at the AGM held
in May 2013 for the repurchase of up to 33,810,135 ordinary shares
which represented 10% of the Company’s issued share capital at
that time (‘the 2013 Authority‘). Whilst no purchases were made
by the Company pursuant to the 2013 Authority, it is intended
that shareholder consent will be sought on similar terms at this
year’s AGM when the 2013 Authority expires.
Additional share capital information
This section provides additional information as at 31 December 2013.
(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.
SUPPLEMENTARY INFORMATION
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 2013 was
338,085,226 ordinary shares of 25 pence each (‘shares’). During
2013, a total of 29,016,126 shares were issued as detailed in the
following table:
Reason for Share issue
Conversion of convertible bonds
Equity placing
Number of
Shares issued
16,126
29,000,000
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 2013, the Company had been notified of the
following interests in the Company’s ordinary share capital in
accordance with Chapter 5 of the Financial Conduct Authority’s
Disclosure Rules and Transparency Rules:
Number of
ordinary shares
199,320,272
39,666,795
Percentage
of voting
rights
(indirect)
Percentage
of voting
rights (direct)
–
–
54.30%
10.81%
22,277,961
0.18%
6.07%
12,003,175
3.55%
n/a
Eduardo Hochschild
Vanguard Group Inc.
Prudential plc
Group of Companies*
Altima Global Special
Situations Master
Fund Limited**
* 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.
** 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 11 March 2014.
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(c) Transfer of shares
The relevant provisions of the Articles state that:
registration of a transfer of an uncertificated share may
be refused in the circumstances set out in the CREST
Regulations and where, in the case of a transfer to joint holders,
the number of joint holders to whom the uncertificated share
is to be transferred exceeds four
the Directors may, in their absolute discretion, decline to
register any transfer of any share which is not a fully paid share.
The Directors may also decline to recognise any instrument of
transfer relating to a certificated share unless the instrument of
transfer: (i) is duly stamped (if required) and is accompanied by
the relevant share certificate(s) and such other evidence of the
right to transfer as the Directors may reasonably require; and
(ii) is in respect of only one class of share. The Directors may, in
their absolute discretion, refuse to register a transfer if it is in
favour of more than four persons jointly
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:
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
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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 FCA 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.
(a) Convertible bonds due 2014
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.
In summary, a change of control occurs if (i) an offer is made to
all (or as nearly as may be practicable all) shareholders other than
the offeror and/or any of its 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 offeror and/or an associate (as defined) of the
offeror; or (ii) the right to cast more than 60% of the Voting
Rights has or will become unconditionally vested in the ultimate
controlling shareholder of the Company at the time of issue
and/or an associate (as defined); or (iii) the right to cast more than
50% of the Voting Rights has or will become unconditionally
vested in any person or persons acting together by reason of the
acquisition of the Company’s ordinary shares or Voting Rights
from the ultimate controlling shareholder of the Company at the
time of issue. Condition 6(d) of the terms and conditions of the
bonds gives bondholders an early redemption option (early
repayment at face value plus accrued interest) upon a change of
control occurring.
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SUPPLEMENTARY INFORMATION CONTINUED
(b) Senior Notes due 2021
Under the terms and conditions of the $350 million 7.75% Senior
Notes due 2021 issued subsequent to the year-end, upon the
occurrence of a change of control followed by a ratings
downgrade which results in a change of control repurchase event
(as defined in the indenture), the Company may be required by
each holder of the notes to offer to purchase the notes at a price
equal to 101% of the principal amount of the notes, plus accrued
and unpaid interest and additional amounts, if any, to the
purchase date.
In summary, a Change of Control means the occurrence of one or
more of the following events: (1) the disposition (other than by
way of merger or consolidation) of all or substantially all of the
assets of the Company and its subsidiaries taken as a whole to
any person other than (i) to the Company or one of its subsidiaries
or (ii) to a Permitted Holder (being Eduardo Hochschild or a
permitted transferee); (2) the consummation of any transaction
(including any merger or consolidation) the result of which is that
(i) any person other than a Permitted Holder becomes the
‘beneficial owner’ of more than 50% of the Company’s
outstanding Voting Stock (as defined) or (ii) the Permitted Holders
cease to be the beneficial owners, directly or indirectly, of at least
a majority of the outstanding Voting Stock of the Company; (3)
the Company consolidates with, or merges with or into, any
person, or any person consolidates with, or merges with or into,
the Company, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of the Company or
such other person is converted into or exchanged for cash,
securities or other property, other than any such transaction
where the shares of the Voting Stock of the Company
outstanding immediately prior to such transaction constitute,
or are converted into or exchanged for, a majority of the Voting
Stock of the surviving person immediately after giving effect to
such transaction; (4) the first day on which the majority of the
members of the Board of Directors of the Company cease to be
Continuing Directors (as defined); (5) the Company shall for any
reason cease to be the beneficial owner (as defined) of 100% of
the Voting Stock of Compania Minera Ares S.A.C.; or (6) the
adoption of a plan relating to the liquidation or dissolution of
Compania Minera Ares S.A.C.
(c) Long Term Incentive Plans
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.
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-á-vis
the counterparty.
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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
their 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.
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 grounds
of mental disorder; (v) he is absent without permission of the
Directors from meetings of the Board for six months and the
Directors resolve that his office be vacated; (vi) his resignation
is requested in writing by not less than three-quarters of the
Directors for the time being; or (vii) in the case of a Director other
than the Chairman and any Director holding an executive office, if
the Directors shall resolve to require him to resign and within
30 days of being given notice of such notice he so fails to do.
In addition, under the terms of the Relationship Agreement:
for as long as the Major Shareholder has an interest of
30% or more in the Company, it is entitled to appoint
up to two Non-Executive Directors and to remove such
Directors so appointed
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
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DIRECTORS’ REMUNERATION REPORT
DEAR SHAREHOLDERS
Sir Malcolm Field, as the Remuneration Committee Chairman
during 2013, and I, as the current Committee Chairman, are
pleased to present the Directors’ remuneration report for 2013.
As mentioned earlier in the Annual Report, 2013 was an extremely
challenging year for the Company, dominated by steep falls in
precious metal prices and increased volatility. This prompted a
comprehensive review across the Group to identify cost saving
measures which incorporated a review of the structure and
remuneration of our Board. In addition to resulting in a reduction
in the number of Non-Executive Directors on the Board, the
Chairman’s salary and the fees of the Non-Executive Directors
were reduced by 30% and senior management pay, including that
of the CEO, was reduced by 10%.
Despite the challenging market conditions, we have continued
with our approach of implementing a simple and transparent
remuneration policy that is aligned with the successful
achievement of the Group’s strategic objectives. It is important to
note that this alignment does not only seek to reward profitable
production but reflects our commitments as a responsible
operator and, for this reason, the Committee maintains the
discretion to reduce bonuses and claw back vesting under the
long-term incentive schemes, should there be failures in this
crucial area.
At the forthcoming AGM, we propose to put to shareholders for
their approval a deferred bonus plan which will enable the
Company to pay all or a part of the annual bonus to the CEO in
shares issued by the Company which, subject to continued
employment, will vest over two years. The Committee considers this
proposal to be in line with market practice and will further align the
interests of senior management with those of our shareholders.
We note that a large part of the wider debate on executive
remuneration in recent years focused on the extent of the
discretion exercised by Remuneration Committees. We confirm
that, with respect to 2013, the Committee has applied its
judgement to reduce downward the level of bonus payable to the
CEO resulting from his performance against his 2013 objectives in
light of the Company’s trading performance. As set out later in
this report, the Committee considers that a bonus entitlement
does nevertheless arise in recognition of, amongst other things,
management’s considerable efforts in combating the impact of
lower commodity prices and the successful completion of the
acquisition of International Minerals Corporation.
In relation to bonuses generally, the Committee re-initiated a
review of the CEO’s remuneration and, as explained in this report,
felt that, with effect from the 2014 bonus, an increase in his
maximum bonus opportunity from 125% to 150% of base salary
was considered justified. Please see page 94 for further details.
The Company is a willing proponent of stakeholder engagement,
including with regards to executive remuneration and, therefore,
please feel free to contact either of us if you wish to discuss
further any aspect of this report.
JORGE BORN JR
Chairman,
Remuneration
Committee
11 March 2014
SIR MALCOLM FIELD
Member, Remuneration
Committee (Chairman until
31 December 2013)
11 March 2014
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DIRECTORS’ REMUNERATION POLICY (UNAUDITED)
Compliance statement
This report has been prepared according to the requirements of the Companies Act 2006 (the Act), Regulation 11 and Schedule 8 of the
Large and Medium–Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and other relevant
requirements of the FCA Listing Rules. In addition, the Board has applied the principles of good corporate governance set out in the UK
Corporate Governance Code, and has considered the guidelines issued by its leading shareholders and bodies such as the Association of
British Insurers and the National Association of Pension Funds.
The principal objectives of the Remuneration Committee’s agreed remuneration policy are to:
Attract, retain, and motivate the Group’s executives and senior management.
Provide management incentives that align with and support the Group’s business strategy.
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 an annual performance-related bonus,
which rewards 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). There is an additional incentive 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.
This section of the report sets out the remuneration policy for Directors, which shareholders are asked to approve at the 2014 AGM. The
Committee intends that this policy will formally come into effect from approval at the 2014 AGM.
Remuneration paid to Executive Directors and Non-Executive Directors in 2013 and remuneration arrangements proposed for 2014 are
set out later in this report. There are no material changes to the remuneration policy which applied in 2013.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE
Objective
Details
Opportunity
Performance metrics
Base salary
To support
recruitment
and retention
Salary is reviewed annually,
usually in March, or
following a significant
change in responsibilities.
Any salary increases
re applied in line with
the outcome of the
annual review.
None
Salary levels are targeted to
be competitive and relevant
to the global mining sector,
with reference to the relative
cost of living.
The Committee also takes
into consideration general
pay levels for the wider
employee population.
Benefits
To provide benefits
in line with market
practice in relevant
geographies
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.
To avoid setting
expectations of Directors
and other employees, no
maximum salary is set under
the remuneration policy. In
respect of existing Executive
Directors, it is anticipated
that any salary increases
will be in line with the wider
employee population over
the term of this policy. In
exceptional circumstances
(including, but not limited
to, a material increase in
job size or complexity), the
Committee has discretion
to make appropriate
adjustments to salary
levels to ensure they
remain competitive.
None
For the profit share, an
amount equal to 8% of the
Company’s taxable income
for the year is distributable
to all employees. This
amount is mandated by
Peruvian law, and any
increases are not within the
control of the Company. The
amount receivable by each
Executive Director is
determined with reference
to annual base salary (plus
the annual bonus, if any) and
the number of days worked
during the calendar year.
The value of the other
benefits vary by role and
individual circumstances;
eligibility and cost are
reviewed periodically.
The Committee retains the
discretion to approve a
higher cost of benefits in
exceptional circumstances
(for example relocation) or
in circumstances where
factors outside the
Company’s control have
changed materially (for
example increases in
insurance premiums).
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Objective
Details
Opportunity
Performance metrics
For Executive Directors, the
maximum annual bonus
opportunity in 2013 is 125% of
salary and, for subsequent
years, 150% of salary.
For 2014 onwards, the bonus
earned is 67% of maximum
for threshold level
performance and 83% for
target performance.
Performance measures,
targets and weightings are
set at the start of the year.
At the end of the year, the
Committee determines the
extent to which targets have
been achieved, taking into
account the individual
performance of each
Executive Director.
Bonus payments are
normally delivered in cash.
The Committee has
discretion to defer all or a
portion of the bonus, payable
in cash or Hochschild shares,
under the Deferred Bonus
Plan for up to three years.
The Executive Chairman
does not currently
participate in the annual
bonus plan.
Annual bonus
To achieve
alignment with the
Group’s strategy
and commitment
to operating
responsibly
Maximising core
assets
To optimise life-of-
mine and
production
Exploration and
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
To be responsible
corporate citizens
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Performance is determined by the Committee
on an annual basis by reference to Group
financial measures, e.g. Adjusted EBITDA ,
as well as the achievement of personal or
strategic objectives, for example production
and social responsibility.
The financial and strategic/personal objectives
are typically weighted between 70% and 80%
and 20% and 30% of maximum, respectively.
The Committee retains discretion to vary the
weightings +/- 20% for individual measures
within the financial element, to ensure
alignment with the business priorities for
the year. Performance targets are generally
calibrated with reference to the Company’s
budget for the year.
Each objective in the scorecard has a
‘threshold’, ‘target’ and ‘maximum’
performance target, achievement of which
translates into a score for each objective.
The Committee uses its judgement to
determine the overall scorecard outcome
based on the achievement of the targets and
the Committee’s broad assessment of
Company performance.
A review of the quality of earnings is
conducted by the Committee 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.
The Committee has the discretion to reduce
bonus payments on the occurrence of an
adverse event related to health and safety, the
environment and community relations.
Details of the measures, weightings and
targets applicable for the financial year under
review are provided in the Annual Report on
Remuneration, unless they are considered to
be commercially sensitive.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE CONTINUED
Objective
Details
Opportunity
Performance metrics
The 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).
The equivalents of these
upper limits also apply to
annual awards, that is an
annual grant limit of no
more than 200% of salary
in normal circumstances.
Long Term
Incentive
Plan (LTIP)
To directly
incentivise
sustained
shareholder value
creation through
operational
performance and
to support the
recruitment of
senior positions
and longer-
term retention
Executive Directors may be
granted awards annually
as determined by the
Committee. The vesting of
these awards is subject to
the attainment of specific
performance conditions.
Awards are in the form of
cash. Awards made under
the LTIP have a performance
and vesting period of at least
three years. If no entitlement
has been earned at the end
of the relevant performance
period, awards lapse.
The CEO is required to invest
at least 20% of vested LTIP
awards into Hochschild
shares until such time as
he has accumulated a
shareholding with a value
of 200% of salary.
The Executive Chairman
does not currently
participate in the LTIP.
Vesting of LTIP awards is subject to continued
employment and the Company’s performance
over a three-year performance period.
Vesting is based on the Company’s TSR
performance relative to specific sector-based
comparator groups.
Vesting of 70% of awards is based on the
Company’s TSR rank relative to a tailored
comparator group. Vesting for threshold
performance is 25% of maximum, with 75%
for upper tercile performance and 100% for
upper quintile performance.
Vesting of 30% of awards is based on the
Company’s TSR outperformance of the
FTSE350 Mining Index. Vesting for threshold
performance is 25% of maximum, with 100%
for stretch performance.
The Committee reviews, and may adjust,
the comparator groups against which
performance is measured, and their
weightings, from time to time to ensure
they remain appropriate. More generally,
the performance measures applied to LTIP
awards are reviewed periodically to ensure
they remain aligned with shareholder
interests.
The Committee can reduce or prevent vesting
if 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.
Details of the comparator groups and targets
used for specific LTIP grants are included in
the Annual Report on Remuneration.
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Hochschild Mining plc Annual Report 2013
Objective
Details
Opportunity
Performance metrics
Enhanced Long-
Term Incentive
Plan
To support
retention for the
CEO over a longer-
term horizon and
to achieve stronger
alignment with
shareholder
interests through
the use of
conditional shares
An award in the form of
conditional shares was
made to the CEO in 2011
to reinforce his alignment
with shareholder interests
and to ensure his total
remuneration package
remained competitive.
Awards vest based on the
Company’s TSR performance
compared with a tailored
comparator group over
four, five and six years.
The CEO is required to
retain 50% of the after-tax
vested Enhanced LTIP shares
until such time as he has
accumulated a shareholding
with a value of 200%
of salary.
The Executive Chairman
does not participate in
the Enhanced LTIP.
The Enhanced LTIP award
in 2011 was over shares with
a face value on the date of
grant equivalent to 600%
of the CEO’s salary.
The CEO received an award
of 362,196 conditional shares
in 2011.
In line with the approval
granted by shareholders
at the 2011 AGM, the
Committee will make a
second Enhanced LTIP award
to the CEO in 2014 of up to
600% of his salary1.
Dividend equivalents are
payable over the vesting
period in respect of the
shares that vest.
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Awards vest based on the Company’s TSR
performance compared with a tailored
comparator group over four, five and six
years.The vesting on the Enhanced LTIP
award is based 100% on the Company’s TSR
rank compared with a sector peer group.
25% of the award vests on four-year TSR
performance, 25% on five-year TSR
performance, and 50% on six-year TSR
performance.
The vesting for threshold (median)
performance is 25% of maximum, with 75
for upper quartile performance and 100%
for upper decile performance.
The Committee can reduce or prevent vesting
if 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.
Details of the tailored comparator group are
included in the Annual Report on Remuneration.
1 The award under the Enhanced LTIP award to the CEO will have a face value of 600% of the salary before it was reduced with effect from 1 July 2013 (see page 91).
In addition to the above elements of remuneration, the Committee may consider it appropriate to grant an award under a different
structure in order to facilitate the recruitment or retention of an individual, exercising the discretion available under Listing Rule 9.4.2 R
(which provides for awards outside the normal long-term incentive structure provided the ‘arrangement is established specifically to
facilitate, in unusual circumstances, the recruitment or retention of the relevant individual’).
The Committee also retains discretion to make non-significant changes to the policy without going back to shareholders.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
NOTES TO THE POLICY TABLE
Payments from existing awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the
remuneration policy detailed in this report, that is before 22 May 2014.The only award which falls into this category is the 2011 LTIP
award, for which vesting is based on the Company’s TSR rank vs. a single sector-based peer group, and the vesting schedule differs
slightly in that threshold performance results in vesting of 25% of maximum, with 75% for upper quartile performance and 100%
for upper decile performance; all other aspects of this award are consistent with those in the table above.
Performance measurement selection and approach to target setting
The measures used under the annual bonus are selected annually to reflect the Group’s main strategic objectives for the year and
reflect both financial and non-financial priorities.
Performance targets are set to be stretching and achievable, taking into account the Company’s strategic priorities and the economic
environment in which the Company operates. Targets are set taking into account a range of reference points including the Group’s
strategic and operating plan.
The Committee considers relative TSR to be the most appropriate measure of long-term performance for the Company and together
with the annual bonus measures, provide a balance between absolute and relative performance, between short-term and long-term
performance measures, and between external and internal measures of performance. TSR aligns with the Company’s focus on
shareholder value creation and rewards management for outperformance of sector peers, and is transparent, visible and motivational
to executives. The currency basis for the TSR calculation will be determined by the Remuneration Committee prior to grant at its
discretion, however, the current intention is for TSR for both the LTIP and the Enhanced LTIP to be based on the average of TSR
calculated in common currency and TSR calculated in the currency of listing. The Committee has discretion to vary the performance
condition for certain events to ensure it continues to be fair, reasonable and no more or less difficult to satisfy - for example, in the
event of M&A activity amongst the comparator group during a performance period, the Committee may make adjustments to the
comparator group (for example, replacing that company with the acquiring company, including a substitute for that company, or
tracking the future performance of that company by reference to the median of the remaining comparators).
Remuneration policy for other employees
The Committee takes into consideration the remuneration arrangements for the wider employee population in making its
decisions on remuneration for senior executives. The Company’s approach to annual salary reviews is consistent across the
Group, with consideration given to the scope of the role, level of experience, responsibility, individual performance and pay levels
in comparable companies.
In general, the remuneration policy and principles which apply to other senior executives are consistent with those set out in this report
for Executive Directors. Generally, remuneration is linked to Company and individual performance in a way that is ultimately aimed at
reinforcing the delivery of shareholder value.
Senior employees above a specific grade are eligible to participate in an annual bonus scheme with a similar design to that for eligible
Executive Directors. Opportunities and specific performance conditions vary by organisational level with business area-specific metrics
incorporated where appropriate.
All Peruvian employees participate in the statutory profit share scheme whereby an amount equal to 8% of the Company’s taxable
income for the year is distributable to all employees. The amount receivable by each employee is determined with reference to seniority
and length of service.
Other executives participate in the LTIP on the same basis as the CEO. Other executives in receipt of LTIP awards granted from 2011 are
required to invest between 0% and 15% of the cash amount received on vesting in the Company’s shares until a holding equivalent to
between 50% and 100% of salary (depending on seniority) has been acquired.
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Hochschild Mining plc Annual Report 2013
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PAY SCENARIO CHARTS
The charts below provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split
between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’.
Potential reward opportunities are based on Hochschild’s remuneration policy, applied to base salaries as at 1 January 2014.
EXECUTIVE CHAIRMAN
EXECUTIVE CHAIRMAN
(USD $0001)
(USD $0001)
0
0
500
Minimum
Minimum
On-Target
On-Target
Maximum
Maximum
CEO
(USD $0001)
0
1000
1,500
1000
500
1500
1,523
1,523
1,523
1,000
Minimum
On-Target
Maximum
526
1,523
526
1,523
526
1,523
CEO
(USD $0001)
2000
3000
0
1,000
2,000
3,000
579
505
Minimum
On-Target
695
Maximum
2,019
526
526
526
579
505
695
2,019
Note: numbers are rounded to nearest $1000
Note: numbers are rounded to nearest $1000
Note: numbers are rounded to nearest $1000
Note: numbers are rounded to nearest $1000
Salary, pension and benefits
Salary, pension and benefits
Single-year variable
Single-year variable
Multi-year variable2
Multi-year variable2
1 Converted from PEN to US dollars using the 12-month average exchange rate over 2013 of US$1 = PEN 2.702.
2 For the CEO, the 2011 and 2014 Enhanced LTIP awards have been annualised over the vesting period and are calculated to have an equivalent face value of 235%
of salary in 2014.
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 US dollar value shown in the chart above.
The ‘Minimum’ scenario shows base salary, pension and benefits (that is, fixed remuneration). These are the only elements of the
Executive Directors’ remuneration packages which are not at risk.
The ‘On-Target’ scenario reflects fixed remuneration as above, plus a target payout of 80% of the annual bonus and threshold vesting
of 25% of the maximum award under the LTIP and Enhanced LTIP.
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of all incentives.
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Governance p56-101
DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
APPROACH TO RECRUITMENT REMUNERATION
External appointments
In the cases of hiring or appointing a new Executive Director, the Committee may make use of any of the existing components
of remuneration, as follows:
Component
Base salary
Benefits
Annual bonus
LTIP
Approach
Maximum annual grant value
The base salary will be determined by reference to external
data which takes into account the new appointee’s duties
and responsibilities, as well as internal relativities and their
current remuneration. Where new appointees have initial
base salaries set below market rates, any shortfall may be
managed with phased increases over a period of three
years, subject to the executive’s development in the role.
New appointees will be eligible to receive compensation
for time services and profit share, both of which are
provided for by Peruvian law, and allowances which may
include (but are not limited to) medical insurance, the use
of a car and driver, and personal security.
The scheme described in the policy table will apply to new
appointees with the relevant maximum being prorated
to reflect the proportion of the year employed. Targets
for the personal element will be tailored to the role of
the appointee.
150% of salary
New appointees will be granted awards under the LTIP
on the same terms as existing Executive Directors, as
described in the policy table.
200% of salary in normal
circumstances or 267% of salary
in exceptional circumstances
In determining the appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant
factors (including the nature of remuneration and where the candidate was recruited from) to ensure that arrangements are in the
best interests of Hochschild and its shareholders.
The Committee may also make an award in respect of a new appointment to ‘buy out’ incentive arrangements forfeited on leaving a
previous employer. In doing so, the Committee will consider relevant factors including any performance conditions attached to these
awards and the likelihood of those conditions being met. The Committee will use the components of the remuneration policy when
suitable but may also avail itself of Listing Rule 9.4.2 R if appropriate in relation to such buy-out awards.
INTERNAL PROMOTION
In cases of appointing a new Executive Director by way of internal promotion, the Committee will determine remuneration in line
with the policy for external appointees as detailed above. Where an individual has contractual commitments made prior to his
promotion to the Board, the Company will continue to honour these arrangements. Incentive opportunities for below Board
employees are typically no higher than for Executive Directors, but measures may vary to provide better line of sight. For more
details on the remuneration policy for other employees, see page 82.
NED RECRUITMENT
In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table on page 86. A base fee in line
with the stated policy would be payable for Board membership, with additional fees payable for those acting as Chairman of the
Audit and Remuneration Committees and Senior Independent Director as appropriate.
SERVICE CONTRACTS AND EXIT PAYMENT POLICY
Executive Director
Eduardo Hochschild
Ignacio Bustamante
Date of service contract
16 October 2006
1 April 2007
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee. 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.
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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. In addition to these
provisions and to reflect Peruvian market practice, the Committee has discretion to award Ignacio Bustamante up to an additional
12 months’ base salary on termination (other than for the prescribed reasons outlined above). The prevailing circumstances will be
taken into consideration at the time of termination.
When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders
and participants. The table below summarises how the awards under the annual bonus, LTIP and Enhanced LTIP are typically treated
in specific circumstances, with the final treatment remaining subject to the Committee’s discretion:
Annual cash bonus
Reason for leaving
Timing of vesting
Treatment of awards
Retirement, ill health, disability, death or any
other reasons the Committee may
determine in its absolute discretion
or
Change of control
Any other reason
No bonus is paid
Normal payment date, although the
Committee has discretion to accelerate
Cash bonuses will only be paid to the extent
that Group and personal objectives set at
the beginning of the year have been
achieved. Any resulting bonus will be pro-
rated for time served during the year
Not applicable
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LTIP and Enhanced LTIP
Reason for leaving
Timing of vesting
Treatment of awards
Retirement, ill-health, disability, redundancy,
injury or any other reasons the Committee
may determine in its absolute discretion
Normal vesting date, although the
Committee has discretion to accelerate
Death
On date of event
Change of control
On date of event
Any outstanding LTIP awards will be
pro-rated for time and performance
Any outstanding LTIP awards will be
pro-rated for time and performance
Any outstanding LTIP awards will be
pro-rated for time and performance
In the event of a change of control,
Hochschild awards may alternatively be
exchanged for new equivalent awards
in the acquirer where appropriate
Any other reason
Awards lapse
Not applicable
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
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.
Details of the terms of appointment of the Company’s Non-Executive Directors serving during the year are shown in the table below.
The appointment and reappointment and the remuneration of Non-Executive Directors are matters reserved for the full Board.
Non-Executive Director
Jorge Born Jr.
Sir Malcolm Field
Nigel Moore
Fred Vinton1
Roberto Dañino2
Dr Graham Birch
Rupert Pennant-Rea1
Enrico Bombieri
Letter of Appointment dated
Anticipated expiry of present term of appointment
(subject to annual re-election)
16 October 2006
16 October 2006
16 October 2006
9 July 2009
11 January 2011
20 June 2011
30 August 2011
20 October 2012
16 October 2015
16 October 2015
16 October 2015
n/a
11 January 2017
20 June 2014
n/a
20 October 2015
1 Fred Vinton and Rupert Pennant-Rea stepped down from the Board on 31 July 2013.
2 A fee is 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.
The Non-Executive Directors are not eligible to participate in the Company’s performance-related incentive plans and do not receive
any pension contributions.
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.
Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Function
Operations
Opportunity
Performance
measures
To attract and retain
Non-Executive
Directors of the
highest calibre with
broad commercial
and other experience
relevant to the
Company
Fee levels are reviewed from time to time,
with any adjustments effective from 1 March
each year.
The fee paid to the Chairman is determined by
the Committee, and fees to Non-Executive
Directors are determined by the Board.
Additional fees are payable for acting as
Chairman of the Audit and Remuneration
Committees and as Senior Independent Director.
Fee levels are reviewed by reference to FTSE-
listed companies of similar size and complexity.
Time commitment, level of involvement
required and responsibility are taken into
account when reviewing fee levels.
Fees for the year ending 31 December 2013 are
set out in the Annual Report on Remuneration
on page 90. Jorge Born and Enrico Bombieri
have waived the supplement payable to them
following their appointments to the position
of Chairman of the Remuneration Committee
and Senior Independent Director respectively
from 1 January 2014.
None
Non-Executive Director fee increases are
applied in line with the outcome of the
fee review.
Other than reinstating NED fees to their
levels prior to 1 August 2013 at the
discretion of the Board, it is expected that
NEDs’ fees will only be increased during
the term of this policy in line with general
market levels of NED fee inflation.
In the event that there is a material
misalignment with the market or a
change in the complexity, responsibility
or time commitment required to fulfil a
Non-Executive Director role, the Board
has discretion to make an appropriate
adjustment to the fee level.
The maximum aggregate annual fee for
all Directors provided in the Company’s
Articles of Association is £3 million p.a.
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Hochschild Mining plc Annual Report 2013
EXTERNAL APPOINTMENTS POLICY
The Board recognises that Executive Directors may be invited to serve as directors of other companies, which can bring benefits to
the Group. Executive Directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is
sought and granted. The policy is that fees may be retained by the Director, reflecting the personal risk assumed in such appointments.
Details of external appointments and the associated fees received are included in the Annual Report on Remuneration.
CONSIDERATION OF CONDITIONS ELSEWHERE IN THE COMPANY
The Committee does not currently consult with employees specifically on the effectiveness and appropriateness of the executive
remuneration policy and framework. However, the Company seeks to promote and maintain good relationships with employee
representative bodies as part of its employee engagement strategy and consults on matters affecting employees and business
performance as required in each case by law and regulation in the jurisdictions in which the Company operates. Although the
Committee does not consult directly with employees on executive remuneration policy, the Committee takes into consideration
the remuneration arrangements for the wider employee population in making its decisions on remuneration for senior executives.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes into account views of shareholders and best practice guidelines issued
by institutional shareholder bodies. The Committee is always open to feedback from shareholders on remuneration policy and
arrangements, and commits to undergoing shareholder consultation in advance of any significant changes to remuneration policy.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the
structure of the executive remuneration remains appropriate.
Further details on the votes received on the 2012 Directors’ remuneration report and the Committee’s response are provided in
the Annual Report on Remuneration.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
ANNUAL REPORT ON REMUNERATION
The following section provides details of how Hochschild’s remuneration policy was implemented during the financial year ending
31 December 2013.
Remuneration Committee membership
The Remuneration Committee is chaired by Jorge Born and its other members are Sir Malcolm Field and Nigel Moore. Rupert
Pennant-Rea served on the Committee until he stepped down from the Board on 31 July 2013 and Sir Malcolm Field relinquished
the Chairmanship of the Committee on 31 December 2013.
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.
The Remuneration Committee met three times during the year (details of members’ attendance at meetings are provided in the
Corporate Governance section on page 70) and undertook the items of business noted below.
March 2013
Considered the 2012 performance evaluations of the CEO and approved the associated bonus payments. In addition, the Committee
noted the performance of, and bonus payments to, the Group’s Vice Presidents.
Approved the 2012 Directors’ remuneration report.
Considered and approved the 2013 objectives for the CEO and CFO (who is not an Executive Director).
Approved the vesting outcome of 2010 LTIP awards.
Approved the grant of 2013 LTIP awards.
Approved the implementation of an Exploration Incentive Plan (EIP) for below-Board participants.
Considered whether the remuneration policy satisfied the required talent recruitment and retention needs of the Company.
August 2013
Considered the impact of the Group’s Cash Optimisation Plan on remuneration arrangements including the reduction in the
salaries of the CEO and Executive Chairman by 10% and 30% respectively, with effect from 1 July 2013.
Considered feedback from UK institutional investor bodies on executive remuneration.
December 2013
Considered provisional assessments with respect to the performance of the CEO and CFO against their 2013 objectives.
Considered the position with regards to the remuneration of the CEO and CFO in light of the Cash Optimisation Plan.
Considered a provisional assessment of the vesting outcome of the 2011 LTIP award and of the status of the vesting of the
2012 and 2013 LTIP awards.
Considered the latest proposals with respect to the grant of 2014 LTIP awards and Enhanced LTIP award to the CEO.
Considered the 2014 objectives for the CEO and CFO.
Considered an update on the Exploration Incentive Plan.
Considered a draft of the 2013 Directors’ remuneration report.
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Hochschild Mining plc Annual Report 2013
Advisers
Kepler Associates Partnership LLP (Kepler) provided independent advice to the Committee relating to executive remuneration and
benefits during the year.Kepler is a member of the Remuneration Consultants Group and is a signatory to the Code of Conduct for
consultants to Remuneration Committees of UK-listed companies, details of which can be found at:
www.remunerationconsultantsgroup.com. Kepler adheres to this Code of Conduct.
In 2013, Kepler provided independent advice on remuneration for executives, TSR performance updates, and support in drafting the
Directors’ remuneration report. Kepler reports directly to the Chairman of the Committee and provides no other services to the
Company. It’s total fees for the provision of remuneration services to the Committee in 2013 were £19,216 on the basis of time and
materials, excluding expenses and VAT.
The Committee undertakes due diligence periodically to ensure that Kepler remains independent of the Company and that the
advice provided is impartial and objective. The Committee is satisfied that the advice provided by Kepler is independent.
Summary of shareholder voting at the 2013 AGM
The following table shows the results of the advisory shareholder vote on the 2012 Remuneration report at the 2013 AGM:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
Total number of votes
% of votes cast
287,213,380
5,038,252
292,251,632
20,769,554
313,021,186
98.3%
1.7%
100%
6.6%
Note: Votes withheld are not included in the final proxy figures as they are not recognised as votes in law.
Whilst the Company is not aware of the specific reasons for the level of abstentions, the Company can only surmise that they could
be in connection with one or more of the following issues noted by certain investor voting agencies in advance of the 2013 AGM:
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the level of remuneration payable to the Executive Chairman
the level of the award granted to the CEO under the Enhanced LTIP
the use of cash rather than shares to satisfy regular LTIP awards
the disclosures in the 2012 Directors’ remuneration report in relation to bonus payments
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.
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Governance p56-101
DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended
31 December 2013 and the prior year:
Eduardo Hochschild
Ignacio Bustamante
Base salary1
Taxable benefits2
Pension3
Single-year variable4
Multiple-year variable5
Profit share6
Total
2013
US$000
931
553
194
n/a
n/a
0
1,678
2012
US$000
1,100
477
200
n/a
n/a
8
1,785
2013
US$000
515
24
0
460
0
0
999
2012
US$000
532
25
0
560
725
10
1,852
1 Base salary includes compensation for time services.
2 Taxable benefits include: use of a car and driver (Eduardo Hochschild – 2013 $30,557; 2012 $20,385. Ignacio Bustamante – 2013 $22,353; 2012 $20,629), personal
security (Eduardo Hochschild – 2013 $518,072; 2012 $448,372), and medical insurance.
3 During the year Eduardo Hochschild received a cash supplement in lieu of pension.
4 Payment for performance during the year under the annual bonus plan. See following sections for further details.
5
Includes any LTIP awards based on the value at vesting of cash award vesting on performance over the three-year period ending in the relevant financial year.
No LTIP shares were due to vest for any Executive Director for 2013. 98% of 2010 LTIP awards vested based on the Company’s Total Shareholder Return for the
performance period between 1 January 2010 and 31 December 2012 on 25 May 2013. The vesting schedule was the same as for the 2011 LTIP (detailed on page 93),
with common currency TSR performance measured against the 2011 LTIP comparator group excluding African Barrick Gold, Centamin Egypt plc, Fresnillo plc
and Randgold Resources Ltd.
6 All-employee profit share mandated by Peruvian law.
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended
31 December 2013 and the prior year:
Non-Executive Director
Jorge Born Jr.
Sir Malcolm Field
Nigel Moore
Fred Vinton3
Roberto Dañino
Dr Graham Birch
Rupert Pennant-Rea3
Enrico Bombieri
Base fee
US$000
Additional fees
US$000
Benefits-in-kind
US$000
Total
US$000
2013
137
137
137
91
137
137
91
137
2012
158
158
158
158
158
158
158
158
2013
–
271
272
–
2404
–
–
–
2012
–
321
322
–
2384
–
–
–
2013
2012
–
–
–
–
425
–
–
–
–
–
–
–
545
–
–
–
2013
137
164
164
91
419
137
91
137
2012
158
190
190
158
450
158
158
158
1 Sir Malcolm Field’s additional fee relates to his role as Chairman of the Remuneration Committee.
2 Nigel Moore’s additional fee relates to his role as Chairman of the Audit Committee.
3
In addition to the amounts disclosed above, Fred Vinton and Rupert Pennant-Rea each received $39,000, being the equivalent of three months’ fee under the
terms of their Letters of Appointment, having stepped down from the Board on 31 July 2013.
4 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.
5 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,
which include transportation and out-of-pocket expenses.
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Hochschild Mining plc Annual Report 2013
SALARY AND FEE ADJUSTMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 (UNAUDITED)
The recent volatility in precious metals prices prompted a comprehensive review across the Group to identify cost saving measures. This
incorporated a review of the structure and remuneration of our Board during the year. As a result, with effect from 1 July 2013, reductions
of 30% to the Chairman’s salary and a reduction of 10% to the CEO’s salary were made. This resulted in the following salaries:
Executive Director
Eduardo Hochschild
Ignacio Bustamante2
Base salary1 from 1 March 2013
US$000
Base salary1 from 1 July 2013
US$000
1,100
558
770
502
Percentage decrease
-30%
-10%
1
2
Includes compensation for time services (‘CTS’).
Ignacio Bustamante’s salary is denominated in PEN. From 1 March 2013, his salary (inclusive of CTS) was PEN1,471,333 and, from 1 July 2013, his salary (inclusive
of CTS) was PEN1,324,201.
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. All
Non-Executive Directors receive a base fee, and additional fees are paid for the role of Chairman of the Remuneration Committee
and Chairman of the Audit Committee.
In addition to the changes to the Executive Director salaries, it was decided to reduce the Non-Executive Director fees (both base
and additional fees) by 30% from 1 August 2013. This resulted in the following director fees which are set in pounds:
Non-Executive Director fee
Base fee
Additional fees1
Fee from 1 January 2013
£000
Fee from 1 August 2013
£000
100
20
70
14
Percentage decrease
-30%
-30%
1 On assuming their positions of Chairman of the Remuneration Committee and Senior Independent Director respectively with effect from 1 January 2014,
Jorge Born and Enrico Bombieri waived their right to the additional fee.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
INCENTIVE OUTCOMES FOR THE YEAR ENDED 31 DECEMBER 2013 (AUDITED)
Performance-related annual bonus in respect of 2013 performance
Objectives for the 2013 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 December Committee meeting, which was confirmed in March 2014.
Further details of the bonuses paid for 2013, including the specific performance metrics, weightings and performance against each
of the metrics, are provided in the table below:
Objective
KPI Target weighting
Production and
financial results
Business growth
Production
EBITDA
Brownfields
exploration
Business
development
Project development Project milestones
Safety
Frequency rate
Severity rate
20%
17%
12%
10%
15%
20%
7%
Threshold
Targets
Target
Maximum
Performance assessment
20m Oz Ag Eq
Maximum: 20.5m Oz Ag Eq
US$142m
US$146m
US$154m
Maximum: US$200m
Not Disclosed
Not Disclosed
Not Disclosed
2012 rate
2012 rate
-45%
2012 rate
+2.5%
2012 rate
-20%
Maximum
Maximum
Target
2012 rate
-5%
2012 rate
-80%
Maximum: 2012 rate -31%
Between threshold and
target: 2012 rate -40%
Some of the performance targets have not been disclosed in this year’s report as they are considered commercially sensitive by the
Board, given the close link between performance targets and business strategy. The Committee will keep this under review, and targets
will be disclosed at a point in the future when they are no longer considered sensitive.
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, and is translated into a bonus outcome of between 0% and 125% of salary for the CEO,
which is used in the Committee’s judgement in determining the actual bonus awarded.
The Committee assessed performance against the scorecard and the CEO’s performance in 2013. In light of market conditions, the
Committee determined that there should be a downward revision of the formulaic outcome, which resulted in an entitlement to
102% of salary.
As stated in the policy table, for 2013 a portion of the total annual bonus outcome will be deferred into Hochschild shares for up to
two years. The Committee determined that, for the CEO, 78% of the bonus for 2013 will be deferred into shares, 50% of which will vest
in March 2015 and the remaining 50% in March 2016.
Details of Ignacio Bustamante’s performance against his 2012 objectives can be found on page 88 of the 2012 Annual Report and Accounts.
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Hochschild Mining plc Annual Report 2013
2011 LTIP VESTING
On 28 April 2011, Ignacio Bustamante was granted an award under the LTIP with a face value of $900,000. Vesting was dependent
on three-year relative TSR performance against a tailored peer group. There was no retesting of performance.
Subsequent to the year end, the Committee considered the extent to which the performance condition attached to the 2011 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 2011 and 31 December 2013 ranked 17th amongst the companies in the relevant comparator
group (equivalent to 27th percentile), which results in nil vesting. Further details, including vesting schedules and performance against
targets, are provided in the table below.
Performance measure
Relative TSR performance vs.
tailored peer group1
Total LTIP vesting
Performance targets
Actual performance
Vesting outcome
(% of maximum)
Upper decile (90th percentile): Full vesting
Upper quartile (75th percentile): 75% vesting
Median (50th percentile): 25% vesting
Straight-line vesting between these points
27th percentile
NIL
NIL
1 African Barrick Gold plc, Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold Ashanti Ltd, Barrick Gold Corp, Centamin Egypt Limited, Cia des Minas Buenaventura SA,
Couer d’Alène Mines Corp, Eldorado Gold Corp, Fresnillo plc, 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, Randgold Resources Ltd and Silver Standard Resources Inc.
SCHEME INTERESTS AWARDED IN 2013 (AUDITED)
On 13 March 2013, Ignacio Bustamante was granted an award under the LTIP with a face value of $1 million, in the form of cash.
Vesting is dependent on three-year relative TSR from 1 January 2013 to 31 December 2015, with 70% of the award based on TSR
performance against a tailored peer group and 30% of the award based on TSR performance against the constituents of the FTSE350
Mining Index. Awards vest on the third anniversary of the date of grant, subject to continued employment, and are subject to
potential clawback if, before vesting, the Committee determines either that (i) the overall underlying businessperformance 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. Awards are settled in cash. Further details, including vesting schedules,
are provided in the table below.
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Executive Director
Eduardo Hochschild
Ignacio Bustamante
Performance measure
Relative TSR1 performance vs.
tailored peer group2
Relative TSR1 performance vs.
constituents of the FTSE350 Mining Index
Grant date
Performance period
Face value of award
at grant
US$000
Award value for minimum
performance
US$000
13.03.13
01.01.13 – 31.12.15
1,000
250
Does not participate in the LTIP
Weighting
70%
30%
Performance targets
Upper quintile: Full vesting
Upper tercile: 75% vesting
Median: 25% vesting
Straight-line vesting between these points
Median TSR+10% p.a : Full vesting
Median TSR: 25% vesting
Straight-line vesting between these points
1 TSR is calculated on the average of local and common currencies.
2 African Barrick Gold plc, Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold Ashanti Ltd, Barrick Gold Corp, Centamin Egypt Limited, Cia des Minas Buenaventura SA,
Couer d’Alène Mines Corp, Eldorado Gold Corp, Fresnillo plc, Gold Fields Ltd, Goldcorp Inc, Hecla Mining, Highland Gold Mining Ltd, Iamgold Corp, Kinross Gold Corp,
Newmont Mining Corp, PAN American Silver Corp, Petropavlovsk Plc, Polymetal, Randgold Resources Ltd and Silver Standard Resources Inc.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
EXIT PAYMENTS MADE IN THE YEAR (AUDITED)
Rupert Pennant-Rea and Fred Vinton each received £25,000 (US$39,000) representing payments in lieu of notice under the terms
of their Letters of Appointment.
PAYMENTS TO PAST DIRECTORS (AUDITED)
No payments were made to past Directors in the year.
IMPLEMENTATION OF REMUNERATION POLICY FOR 2014
2014 remuneration arrangements will be implemented in line with the approved remuneration policy. The following changes
to specific remuneration arrangements within the remuneration policy will be implemented:
ANNUAL CASH BONUS
Recognising its duty to ensure that senior executives are adequately incentivised, the Remuneration Committee re-initiated a review
of the CEO’s bonus opportunity. Taking into consideration the overall low positioning of the CEO’s remuneration package relative to
the Company’s peers, which has been exacerbated by the reduction in his base salary during 2013, the Committee has decided to
increase Ignacio Bustamante’s maximum bonus opportunity from 125% to 150% of base salary from 2014 onwards.
Bonuses will be based on broadly the same measures as those used in 2013 a number of which, have not been detailed in this report
due to their commercial sensitivity. Full disclosure will be made in the Company’s 2014 Directors’ Remuneration Report.
LTIP
The Committee will make awards in 2014 within the maximum limits described in the Policy Report. The performance condition will
be the same as for 2013 awards.
ENHANCED LTIP
The Committee intends to make an award in 2014 to the CEO as described in the Policy Report. The performance condition will be
the same as for 2011 awards with TSR measured relative to the same tailored peer group as for the 2013 LTIP.
PERCENTAGE CHANGE IN CEO REMUNERATION
The table below shows the percentage change in CEO remuneration from the prior year compared with the percentage change
in remuneration for all other employees.
Base salary2
Taxable benefits
Single-year variable
2012
532
25
560
CEO
2013
515
24
460
% change
-3.2%
-4.4%
-17.9%
Other employees1
% change
6.4%
n/a
-14.1%
1 “Other employees” comprise full-time salaried employees in Peru.
2
Includes compensation for time services.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (that is dividends
and share buybacks) from the financial year ended 31 December 2012 to the financial year ended 31 December 2013.
DISTRIBUTION TO SHAREHOLDERS
US$000
EMPLOYEE REMUNERATION
US$000
2013
NIL
2012
$20,278
% change
–
2013
$175,933
2012
$198,324
% change
-11.3%
The Directors are not recommending the payment of a final dividend for the year ended 31 December 2013 (2012: $0.03 per share).
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Hochschild Mining plc Annual Report 2013
PAY FOR PERFORMANCE
The following graph shows the TSR (Total Shareholder Return) for the Company compared to the FTSE350 Index, assuming £100
was invested on 31 December 2008. 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. The table below
details the CEO’s single figure remuneration and actual variable pay outcomes over the same period.
£100 INVESTED IN HOCHSCHILD AND FTSE350 INDEX ON 31 DECEMBER 2008
600
500
400
300
200
100
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
FTSE 350 Index
Hochschild Mining plc
Ignacio Bustamante1
CEO single figure of remuneration ($000)
Annual bonus outcome (% of maximum)
LTI vesting outcome (% of maximum)
Miguel Aramburú2
CEO single figure of remuneration ($000)
Annual bonus outcome (% of maximum)
LTI vesting outcome (% of maximum)
1
Ignacio Bustamante was appointed on 1 April 2010.
2 Miguel Aramburú resigned on 31 March 2010.
2009
–
–
–
2009
1,228
100%
0%
2010
1,525
100%
47%
2010
1,019
46%
0%
2011
1,120
100%
0%
2012
1,852
90%
98%
2013
999
81%
0%
2011
2012
2013
–
–
–
–
–
–
–
–
–
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DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ INTERESTS (AUDITED)
The interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2013 are detailed in the
table below.
The CEO is required to invest 20% of vested LTIP awards and retain 50% of the after-tax vested Enhanced LTIP shares until such time
as he has accumulated a shareholding with a value of 200% of salary.
Shares held
Owned outright or
vested at 31 Dec 2012
Owned outright or
vested at 31 Dec 20131
182,415,206
26,944
199,320,272
62,219
0
14,285
14,285
25,000
200,000
10,000
7,000
0
0
14,285
26,434
25,000
200,000
10,000
7,000
0
Vested but
subject to
holding
period
Unvested and
subject to
performance
conditions
Shareholding
requirement
(% of salary)
Current
shareholding
(% of
salary/fee)
Requirement
met?
0
0
–
–
–
–
–
–
–
–
0
362,196
–
200%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33%2
–
–
–
–
–
–
–
–
–
No
–
–
–
–
–
–
–
–
Eduardo Hochschild
Ignacio Bustamante
Jorge Born Jr.
Sir Malcolm Field
Nigel Moore
Fred Vinton3
Roberto Dañino
Dr Graham Birch
Rupert Pennant-Rea3
Enrico Bombieri
1 Or date of resignation, if earlier.
2 Using Company’s share price as at 31 December 2013 of 141.25p.
3 Fred Vinton and Rupert Pennant-Rea stepped down from the Board on 31 July 2013.
There have been no changes to Directors’ shareholdings since 31 December 2013.
Details of Directors’ interests in shares and options under Hochschild’s long-term incentives are set out in the section overleaf.
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Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
DIRECTORS’ INTERESTS IN SHARE OPTIONS, SHARES AND CASH AWARDS IN HOCHSCHILD LONG-TERM INCENTIVE PLANS
AND ALL EMPLOYEE PLANS
Date of
grant
Share price at
grant
Exercise price
at grant
Ignacio Bustamante
Enhanced LTIP1
Enhanced LTIP1
Enhanced LTIP1
2011 LTIP2
2012 LTIP3
2013 LTIP
28.04.11
28.04.11
28.04.11
28.04.11
31.03.12
13.03.13
428p
428p
428p
n/a
n/a
n/a
Nil
Nil
Nil
n/a
n/a
n/a
Number
of shares
awarded
90,549
90,549
181,098
n/a
n/a
n/a
Face value
at grant
£387,550
£387,550
£775,099
$0.9m
$0.9m
$1m
Performance period
Vesting Date
01.01.11 – 31.12.14
01.01.11 – 31.12.15
01.01.11 – 31.12.16
01.01.11 – 31.12.13
01.01.12 – 31.12.14
01.01.13 – 31.12.15
28.04.15
28.04.16
28.04.17
28.04.14
31.03.15
13.03.16
1 Performance conditions are as stated in the Policy Report, with TSR measured relative to the same tailored peer group as for the 2013 LTIP (excluding Hecla Mining).
2 As stated earlier in the report, the performance condition attached to the 2011 LTIP award was not satisfied and, accordingly, will not vest.
3 Performance conditions are the same as for the 2013 LTIP, with the same comparator group excluding Hecla Mining.
OTHER INTERESTS
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts
of the Group.
EXTERNAL APPOINTMENTS IN 2013 (UNAUDITED)
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
Fees received
Banco Crédito del Peru
Inversiones Pacasmayo SA and affiliated companies
Pacifico Peruano Suiza Cia. de Seguros
PEN 269,433 (US$99,716)
PEN 8,252,467 (US$3,054,207)1
PEN 116,235 (US$43,018)
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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Signed on behalf of the Board
SIR MALCOLM FIELD
Director and Member of the Remuneration Committee
11 March 2014
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STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law
the Directors have prepared the financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted
by the EU. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Parent Company and of their profit or loss for that period. In preparing those
financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial
statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to
ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance statement that comply with that law and those regulations. The
Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
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Hochschild Mining plc Annual Report 2013
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 2013 which comprise, the
Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company
Statements of Financial Position, the Consolidated and Parent Company Statements of Cash Flows, the Consolidated and Parent
Company Statements of Changes in Equity, and the related Notes to the Consolidated Financial Statements 1 to 37 and Notes to the
Parent Company Financial Statements 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 Statement of Directors’ Responsibilities set out on page 98, 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
to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become
aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
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In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December
2013 and of the Group’s loss for the year then ended;
the consolidated financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
consolidated financial statements, Article 4 of the IAS Regulation.
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INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HOCHCHILD MINING PLC CONTINUED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF HOCHSCHILD MINING PLC
OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT
We identified the following risks that we believe to have had the greatest impact on our audit strategy and scope:
Assessment of the carrying value of the Group’s mining assets;
Loss of significant influence on the Group’s stake in Gold Resource Corp;
Tax contingencies; and
Revenue recognition.
OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy, we set materiality for the Group at US$3.1 million, representing approximately 0.5% of
revenue. We determined this to be the magnitude of uncorrected misstatements that would be material for the financial statements
as a whole. This provides a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing
the risk of material misstatement and determining the nature, timing and extent of further audit procedures.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement is that
overall performance materiality for the Group should be 50% of materiality, namely US$1.6 million. Our objective in adopting this
approach is to ensure that total detected and undetected audit differences do not exceed our materiality of US$3.1 million for the
financial statements as a whole.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of US$0.2 million, as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
In assessing the risk of material misstatement to the consolidated financial statements, our Group audit scope focused on two primary
operating locations. Seven subsidiaries were subject to audit for the year ended 31 December 2013. Together with the Group functions,
which were also subject to audit, these locations represent the principal business units of the Group and account for 98% of the
Group’s revenue. Audits of these locations are performed at a materiality level calculated by reference to a proportion of Group
materiality appropriate to the relative scale of the business concerned.
The Group audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory
Auditor visits each of the primary operating locations where the Group audit scope was focused at least once every two years and the
most significant at least once a year. For all full scope entities in addition to the location visit the Group audit team reviewed key
working papers and participated in the component team’s planning including the component team’s discussion of fraud and error.
Our response to the risks of material misstatement identified above included the following procedures:
Assessment of the carrying value of the Group’s mining assets
We challenged management’s assessment of whether impairment indicators exist for its mining CGUs and where they did, we
challenged the assumptions used by management in the impairment model, including specifically the cash flow projections,
discount rates, and production figures used.
Loss of significant influence on the Group’s stake in Gold Resource Corp
We analysed management’s assessment of the date on which significant influence in Gold Resource Corp was lost.
We recalculated the gain recognised on the date that significant influence was lost, as the difference between the carrying value of
the equity-method investment and the fair value of the company’s shareholding with reference to Gold Resource Corp’s publicly
available share price.
Tax contingencies
We analysed management’s assessment with regards to potential tax contingencies arising from tax authority reviews in Peru,
Argentina, and Mexico. We separately assessed the likelihood of an unfavourable outcome for the Group with regards to these
contingencies and have concluded that the absence of a recognised provision is appropriate as the risk of exposure is considered
‘possible’ rather than ‘probable.’
Revenue recognition
We carried out testing relating to controls over revenue recognition, including the timing of revenue recognition.
We have performed substantive procedures assessing the appropriateness of revenue recognition for a sample of transactions
selected from throughout the year.
We performed analytical procedures related to the quantities, clients, prices and type of minerals sold in comparison with
prior periods.
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Hochschild Mining plc Annual Report 2013
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
materially inconsistent with the information in the audited financial statements; or
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of
performing our audit; or
is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during
the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the
annual report appropriately discloses those matters that we communicated to the audit committee which we consider should
have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
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with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, set out on page 59, in relation to going concern; and
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.
STEVEN DOBSON
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor, London
11 March 2014
Notes:
1 The maintenance and integrity of the Hochschild Mining plc web site 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 web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
www.hochschildmining.com
101
www.hochschildmining.com 101
Governance p56-101
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2013
Year ended 31 December 2013
Year ended 31 December 2012
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Notes
3,5
6
622,158
(466,766)
622,158
(469,232)
817,952
(420,325)
–
(2,466)
(2,466)
(2,351)
(3,456)
–
2,442
–
155,392
(54,425)
(42,871)
(28,785)
3,974
(15,555)
7
8
9
11
11
152,926
(56,776)
(46,327)
(28,785)
6,416
(15,555)
397,627
(72,995)
(64,612)
(39,460)
8,733
(9,525)
–
–
(90,671)
(90,671)
Total
US$000
817,952
(420,325)
397,627
(72,995)
(64,612)
(39,460)
9,832
(9,525)
(245)
–
–
–
–
–
–
1,099
–
(245)
17,730
(96,502)
(78,772)
219,768
854
220,622
11,18
11,12
5,921
10,675
–
2,417
5,921
13,092
6,456
1,988
(1,376)
–
5,080
1,988
11,12
–
(11,697)
(19,753)
107,942
(136,353)
–
107,942
(148,050)
(19,753)
–
(12,870)
(1,212)
–
(1,334)
–
–
(14,204)
(1,212)
2,876
(44,979)
(122,496)
35,922
(119,620)
(9,057)
214,130
(85,549)
(1,856)
141
212,274
(85,408)
13
(42,103)
(86,574)
(128,677)
128,581
(1,715)
126,866
(50,345)
8,242
(72,738)
(13,836)
(123,083)
(5,594)
(42,103)
(86,574)
(128,677)
64,830
63,751
128,581
(1,759)
44
63,071
63,795
(1,715)
126,866
14
(0.15)
(0.21)
(0.36)
0.19
–
0.19
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income
Other expenses
Impairment and write-off of assets net
Profit/(loss) 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
for under equity method
Finance income
Gain on transfer from investment accounted
for under the equity method to available-for-
sale
financial assets
Finance costs
Foreign exchange loss
(Loss)/profit from continuing
operations before income tax
Income tax (expense)/benefit
(Loss)/profit for the year from continuing
operations
Attributable to:
Equity shareholders of the Company
Non-controlling interests
Basic and diluted (loss)/earnings per ordinary
share from continuing operations for the year
(expressed in
US dollars per share)
102 Hochschild Mining plc Annual Report 2013
102
Hochschild Mining plc Annual Report 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2013
(Loss)/profit for the year
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Exchange differences on translating foreign operations
Change in fair value of available-for-sale financial assets
Recycling of the loss on available-for-sale financial assets
Deferred income tax relating to components of other comprehensive income
Other comprehensive gain/(loss) for the period, net of tax
Total comprehensive (expense)/income for the year
Total comprehensive (expense)/income attributable to:
Equity shareholders of the Company
Non-controlling interests
Notes
Year ended 31 December
2012
US$000
126,866
2013
US$000
(128,677)
19
13
(842)
(125,932)
130,286
–
3,512
268
(9,269)
266
615
(8,120)
(125,165)
118,746
(119,571)
(5,594)
54,951
63,795
(125,165)
118,746
www.hochschildmining.com 103
www.hochschildmining.com 103
Financial statementsp102-179
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
ASSETS
Non-current assets
Property, plant and equipment
Evaluation and exploration assets
Intangible assets
Investments accounted for 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
Deferred income tax liabilities
Current liabilities
Trade and other payables
Other financial liabilities
Borrowings
Provisions
Income tax payable
Total liabilities
Total equity and liabilities
As at
31 December
2013
US$000
As at
31 December
2012
US$000
Notes
15
16
17
18
19
20
28
21
20
22
23
27
27
27
24
25
26
24(3)
28
24
22
25
26
873,477
204,643
43,683
–
51,658
12,128
2,416
636,555
396,557
43,903
78,188
30,609
8,613
856
1,188,005
1,195,281
69,556
167,740
22,156
–
286,435
76,413
166,173
23,023
150
358,944
545,887
624,703
1,733,892
1,819,984
170,389
396,021
(898)
(211,143)
511,492
865,861
104,375
158,637
395,928
(898)
(214,946)
720,011
1,058,732
264,518
970,236
1,323,250
174
–
79,649
22,000
93,505
195,328
119,222
2,294
435,925
9,573
1,314
568,328
–
106,850
76,550
–
95,715
279,115
149,585
6,891
6,973
26,688
27,482
217,619
763,656
496,734
1,733,892
1,819,984
These financial statements were approved by the Board of Directors on 11 March 2014 and signed on its behalf by:
IGNACIO BUSTAMANTE
Chief Executive Officer
11 March 2014
104 Hochschild Mining plc Annual Report 2013
104
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2013
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
Purchase of intangibles
Acquisition of subsidiary
Dividends received
Dividends received from associates
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
Transaction costs of borrowings
Acquisition of non-controlling interest
Proceeds from issue of ordinary shares
Dividends paid
Capital contribution from non-controlling interests
Cash flows generated/(used) in financing activities
Net decrease in cash and cash equivalents during the year
Exchange difference
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended 31 December
2012
US$000
2013
US$000
Notes
32
26
116,084
6,236
(10,292)
(4,781)
(42,573)
344,119
2,614
(9,987)
(3,667)
(78,200)
64,674
254,879
4(b)
24(3)
29
(248,335)
(10,781)
(1,625)
(14,615)
2,423
3,385
17,593
33,498
344
(297,537)
(46,903)
–
(96,332)
–
8,454
4,000
–
449
(218,113)
(427,869)
440,010
(116,701)
(9,145)
(272,127)
71,916
(18,503)
4,380
53,500
(93,221)
–
–
–
(62,467)
7,346
99,830
(94,842)
(53,609)
(18,900)
358,944
(267,832)
(705)
627,481
23
286,435
358,944
www.hochschildmining.com 105
www.hochschildmining.com 105
Financial statementsp102-179
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2013
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
US$000
Notes
Other reserves
Unrealised
gain/
(loss) on
available-
for-sale
financial
assets
US$000
Bond
equity
component
(note 25(b))
US$000
Cumulative
translation
adjustment
US$000
Share-
based
payment
reserve
US$000
Merger
reserve
US$000
Total
Other
reserves
US$000
Retained
earnings
US$000
Capital and
reserves
attributable
to
shareholders
of the Parent
US$000
Non-
controlling
interests
US$000
Total
equity
US$000
Balance at
1 January 2012
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
Dividends paid to non-
controlling interests
Balance at
31 December 2012
Other comprehensive
(loss)/income
Loss for the year
Total comprehensive
income/(loss)
for 2013
Capital contribution
from non-controlling
interest
Purchase of shares
from non-controlling
interest
–
–
–
–
4(b)
–
Issuance of shares
27
11,752
Transfer to retained
earnings
CEO LTIP
Expiration of dividends
Dividends
Dividends paid to non-
controlling interests
Balance at
31 December 2013
29
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
268
–
268
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
291
–
–
–
29
29
(8,120)
–
(8,120)
–
(8,120)
–
63,071
63,071
63,795
126,866
(8,120)
63,071
54,951
63,795
118,746
–
291
–
–
–
–
–
–
–
39,568
39,568
291
–
–
733
291
733
(20,278)
(20,278)
–
(20,278)
–
–
(34,877)
(34,877)
158,637 395,928
(898)
(3,330)
8,432
(10,447)
(210,046)
445
(214,946)
720,011
1,058,732
264,518
1,323,250
–
–
–
–
–
93
–
–
–
–
–
–
–
4,354
–
–
4,354
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(842)
–
(842)
–
–
–
–
–
–
–
–
–
–
–
–
–
60,071
(60,071)
–
–
–
–
–
–
–
–
–
–
–
3,512
–
3,512
–
3,512
–
(123,083)
(123,083)
(5,594)
(128,677)
3,512
(123,083)
(119,571)
(5,594)
(125,165)
–
–
–
–
4,380
4,380
(135,368)
(135,368)
(148,185)
(283,553)
60,071
–
71,916
–
71,916
(60,071)
60,071
291
291
–
–
–
–
–
–
–
291
–
–
–
(38)
–
291
(38)
–
–
(10,139)
(10,139)
–
(10,139)
–
–
(10,706)
(10,706)
170,389 396,021
(898)
1,024
8,432
(11,289)
(210,046)
736
(211,143)
511,492
865,861
104,375
970,236
106 Hochschild Mining plc Annual Report 2013
106
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 (a) Pelham Investment Corporation, a Cayman Islands company;
and (b) Inversiones Pacasmayo S.A., a Peruvian registered Sociedad Anónima.
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 11 March 2014.
The Group´s subsidiaries are as follows:
Company
Hochschild Mining (Argentina) Corporation S.A.
(formerly Hochschild Mining (Argentina) Corporation)
MH Argentina S.A.
Minera Santa Cruz S.A.
1737140 Alberta Ltd. (formerly 1710503 Alberta Ltd.)1
Andina Minerals Inc.1
Quintovac Mining Company Ltd.1
Andina Holdings Inc.1
HOC Holdings Canada Inc.2
International Minerals Corporation2
Hochschild Mining Chile S.A.
Minera Hochschild Chile S.C.M.
(formerly Minera MH Chile Ltda.)
Andina Minerals Chile Ltd.
Sociedad Contractual Minera Victoria
Southwest Minerals (Yunnan) Inc.
Hochschild Mining Holdings Limited
Hochschild Mining Ares (UK) Limited
Skyfall Jersey Limited 3
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
Holding company
Exploration office
Production of gold
& silver
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Exploration office
Exploration office
Exploration office
Exploration office
Holding company
Administrative office
Administrative office
Exploration office
Exploration office
Holding company
Service company
Exploration office
Production of gold
& silver
Country of
incorporation
Argentina
Argentina
Argentina
Canada
Canada
Canada
Canada
Canada
Canada
Chile
Chile
Chile
Chile
China
England & Wales
England & Wales
Jersey
Mauritius
Mauritius
Mexico
Mexico
Mexico
Mexico
Equity interest at
31 December
2012
%
100
2013
%
100
100
51
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
86.7
86.7
86.7
–
–
100
100
86.7
60
100
100
100
–
100
100
100
100
100
100
107 Hochschild Mining plc Annual Report 2013
www.hochschildmining.com 107
Financial statementsp102-179
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 Tarpuy4
Number Company S.A.C. (formerly 0848818 BC Ltd) 5
Southwestern Gold (Bermuda) S.A.C. (formerly
Southwestern Gold (Bermuda) Limited) 6
Minera Suyamarca S.A.C.2
Minera Oro Vega S.A.C. 2
Minera Qorihuayta S.A.C. 2
Empresa de Transmisión Aymaraes S.A.C. 7
Inmaculada Holdings S.A.C.
Liam Holdings S.A.C.
Minera del Suroeste S.A.C.
Hochschild Mining (US) Inc. (formerly MH Nevada, Inc.)
Principal activity
Holding company
Country of
incorporation
Peru
2013
Equity interest at
31 December
2012
%
100
%
100
Production of gold & silver
Production of gold & silver
Power transmission
Not-for-profit
Holding company
Holding company
Production of gold & silver
Exploration office
Exploration office
Power transmission
Holding company
Holding company
Exploration office
Holding company
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
USA
100
99.1
100
–
100
100
100
100
100
50
100
100
100
–
100
99.1
100
–
100
100
60
–
–
50
100
100
100
100
1 On 15 April 2013, 1710503 Alberta Ltd absorbed Andina Minerals Inc, Andina Holdings Inc and Quintovac Mining Company Ltd; and changed its name to 1737140
Alberta Ltd. On 25 October 2013 the company 1737140 Alberta Ltd. was dissolved.
2 On 20 December 2013, the Group purchased the 40% non-controlling interest of Minera Suyamarca S.A.C. through its subsidiary HOC Holdings Canada Inc.
Following the acquisition, International Minerals Corporation, Minera Oro Vega S.A.C. and Minera Qorihuayta S.A.C. became subsidiaries of the Group.
3 Skyfall Jersey Limited was incorporated on 23 September 2013.
4 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 community and social welfare activities located close to its mine units. Accordingly, the Group consolidates this entity.
5 0848818 BC Ltd was redomiciled in Peru and changed its name on 24 May 2013.
6 Southwestern Gold (Bermuda) Limited was redomiciled in Peru and changed its name on 27 May 2013.
7 Although the Group’s interest in this company does not exceed 50%, it remains considered as a subsidiary in accordance with IAS 27 as its financial and operating
policies are governed by the Group.
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 basis of preparation and accounting policies used in preparing the consolidated financial statements for the years ended
31 December 2013 and 2012 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 2014 or later periods but which the Group has not previously adopted.
Those that are applicable to the Group are as follows:
IFRS 9 ‘Financial Instruments: Classification and Measurement’, not yet endorsed by the EU
The standard has been issued as the IASB completes each phase of its project to replace IAS 39. The first elements of IFRS 9 were issued
in November 2009 and October 2010 to replace the parts of IAS 39 that relate to the classification and measurement of financial
instruments. In November 2013 an amendment was issued to address hedge accounting and to remove the previously determined
effective date of 1 January 2015. Instead, the IASB proposes to set the effective date of IFRS 9 when it completes the impairment phase of
the project. The Group will assess IFRS 9’s full impact and will determine the date to adopt IFRS 9 once it is endorsed for use in the EU.
108 Hochschild Mining plc Annual Report 2013
108
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
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. These amendments have no
impact on the Group’s financial position or performance.
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. The application of this new standard has no impact on the
Group´s financial position or performance.
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. The
application of this new standard has no impact on the Group’s financial position or performance.
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 financial statement disclosure only and has no impact on the Group’s financial position or performance.
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. The amendment has no impact on the
Group´s financial position or performance.
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. No material impact is expected.
IAS 36 ‘Impairment of Assets’ – recoverable amount disclosures
The amendment to the standard was issued in May 2013 and becomes effective for financial years beginning on or after 1 January 2014.
The amendment removes the requirement to disclose recoverable amounts when there has been no impairment or reversal of
impairment. Further to that, the disclosure requirements have been aligned with those under US GAAP for impaired assets.
The Group does not intend to take advantage of the possibility of an early adoption and will review its arrangements in place
in order to evaluate the potential impact.
IFRIC Interpretation 21 Levies (IFRIC 21), not yet endorsed by the EU
IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant
legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should
be anticipated before the specified minimum threshold is reached. The new interpretation applies to annual periods beginning on or
after 1 January 2014. The interpretation has not yet been endorsed by the EU and the effective date is not yet known. The Group does
not expect that IFRIC 21 will have material financial impact in future financial statements.
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39, not yet endorsed by the EU
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging
instrument meets certain criteria. The Group has not novated its derivatives during the current period. However, these amendments
would be considered for future novations.
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2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(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:
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.
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.
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 and evaluation and exploration assets.
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.
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:
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.
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 earning
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.
Recognition of evaluation and exploration assets and transfer to development costs – note 2(g).
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2 SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
Significant influence – note 18.
An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy
decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels.
It could also occur as a result of a contractual agreement.
The presumption of significant influence may be overcome if the investor has failed to obtain representation on the investee’s board
of directors, the investee is opposing the investor’s attempts to exercise significant influence, the investor is unable to obtain timely
financial information or cannot obtain more information or a group of shareholders that holds the majority ownership of the investee
operates without regard to the views of the investor.
(c) Changes in accounting policy and disclosures
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied in the
preparation of the consolidated financial statement for the year ended 31 December 2012, except for the adoption of the following
standards and interpretations:
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. The amendment affects disclosure but has no impact on the Group’s financial position and performance. Refer to
note 2(ab) for the additional disclosures on fair value measurement.
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.
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. The application of this new
standard has no impact on the Group’s financial position or performance.
IFRIC 20 “Stripping costs in the production phase of a surface mine”, applicable for annual periods beginning on or after 1 January 2013
This interpretation applies 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 inventoryand
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 is 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 recognises 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.
“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.
The Group made an assessment of the changes and determined there is no significant impact in its financial position and performance.
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2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Basis of consolidation
The consolidated financial statements set out the Group’s financial position, performance and cash flows as at 31 December 2013 and
31 December 2012 and for the years then ended, respectively.
Subsidiaries are those entities 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, affecting retained
earnings. 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.
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.
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2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Currency translation
The functional currency for each entity in the Group is determined by the currency of the primary economic environment in which
it operates. For the holding companies and operating entities this currency is US dollars and for the other entities it is the local
currency of the country in which it operates. The Group’s financial information is presented in US dollars, which is the Company’s
functional currency.
Transactions denominated in currencies other than the functional currency of the entity are initially recorded in the functional currency
using the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
remeasured at the rate of exchange ruling at the statement of financial position date. Exchange gains and losses on settlement of
foreign currency transactions which are translated at the rate prevailing at the date of the transactions, or on the translation of
monetary assets and liabilities which are translated at period-end exchange rates, are taken to the income statement. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at
the foreign exchange rate prevailing at the date of the transaction. Exchange differences arising from monetary items that are part of
a net investment in a foreign operation are recognised in equity and transferred to income on disposal of such net investment.
Subsidiary financial statements expressed in their corresponding functional currencies are translated into US dollars by applying the
exchange rate at period-end for assets and liabilities and the 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:
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.
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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 2012 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 was 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 was 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 was included in the carrying
amount of the investment and was not amortised or separately tested for impairment. The income statement reflected 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 issued 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 recognised its share of any changes and disclosed 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 were eliminated to the extent of the interest in the associate.
The share of profit of associates was shown on the face of the income statement. This was the profit attributable to equity holders of
the associate and therefore was profit after tax and NCI in the subsidiaries of the associate.
The financial statements of the associate were prepared for the same reporting period as the parent company. Where necessary,
adjustments were made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determined whether it was necessary to recognise an additional impairment loss
on the Group’s investment in its associates. The Group determined at each statement of financial position date whether there was
any objective evidence that the investment in the associate was impaired. If this was the case the Group calculated the amount of
impairment as the difference between the recoverable amount of the associate and its carrying value and recognised the amount in
the income statement.
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2 SIGNIFICANT ACCOUNTING POLICIES (continued)
An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy
decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels.
It could also occur as a result of a contractual agreement.
The presumption of significant influence may be overcome if the investor has failed to obtain representation on the investee’s board
of directors, the investee is opposing the investor’s attempts to exercise significant influence, the investor is unable to obtain timely
financial information or cannot obtain more information or a group of shareholders that holds the majority ownership of the investee
operates without regard to the views of the investor.
Upon loss of significant influence, the Group determines the fair value of the investment, recognising the effect in the consolidated
income statement as an exceptional item. The balance of the investment is then reclassified as an available-for-sale financial asset.
(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 of transmission line
Transmission line costs represent 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.
Legal rights
Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work,
development and production. 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.
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(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:
costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore;
depreciation of property, plant and equipment used in the extraction and processing of ore; and
related production overheads (based on normal operating capacity).
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
(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. In the case the excess above par value is available for distribution, it is classified as merger reserve and then
transferred to retained earnings.
(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.
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FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(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).
(q) Contingencies
Contingent liabilities are not recognised in the financial statements and are disclosed in notes to the financial information unless their
occurrence is remote.
Contingent assets are not recognised in the financial statements, but are disclosed in the notes if their recovery is deemed probable.
(r) Revenue recognition
The Group is involved in the production and sale of gold and silver from 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(t) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent
that it relates to items charged or credited directly to equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the statement of
financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, with the following exceptions:
where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not
a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or
the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the statement of
financial position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Judgement is required in determining whether deferred tax assets are recognised on the statement of financial position. Deferred tax
assets, including those arising from unutilised tax losses require management to assess the likelihood that the Group will generate
taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future taxable income are based on
forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows
and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the
statement of financial position date could be impacted.
Additionally, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain
tax deductions in future periods.
(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.
118 Hochschild Mining plc Annual Report 2013
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FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market,
do not qualify as trading assets and have not been designated as either fair value through profit and loss or available-for-sale. Such assets
are carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised
in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not classified as loans
and receivables, held-to-maturity investments or financial assets at fair value through profit and loss. After initial recognition, available-
for-sale financial assets are measured at fair value with unrealised gains or losses being recognised as a separate component of equity
until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss
previously reported in equity is included in the income statement.
Loans and borrowings
Borrowings are recognised initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest rate method.
Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at
least 12 months after the statement of financial position date.
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 more than 12 months. In addition, the Group analyses any case taking into account the portfolio of projects of the
investee, the key technical personnel and the viability of the investee 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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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:
the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows
in full without material delay to a third-party under a ‘pass-through’ arrangement; and either: (a) the Group has transferred
substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and
has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new
asset is recognised to the extent of the Group’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the original
carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
A financial liability is generally derecognised when the contract that gives rise to it is discharged or cancelled or expires. Where an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the
recognition of a new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred
are recognised in profit or loss.
(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 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:
impairments of assets, including goodwill, assets held for sale, property, plant and equipment and evaluation and
exploration assets;
gains or losses arising on the disposal of subsidiaries, investments or property, plant and equipment;
fair value gains or losses arising on financial instruments not held in the normal course of trading;
loan issue costs written-off on facility refinancing;
any gain or loss resulting from any restructuring within the Group; and
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.
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
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FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
(ab) Fair value measurement
The Group measures financial instruments, such as, derivatives, and non-financial assets at fair value at each balance sheet date.
Also, fair values of financial instruments are measured at amortised cost.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset
or transfer the liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using
the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure
fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers
have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
The Group determines the policies and procedures for both recurring fair value measurement and unquoted AFS financial assets, and
for non-recurring measurement.
External valuers are involved for valuation of significant assets and significant liabilities. Involvement of external valuers is decided
upon annually by the Group after discussion with and approval by the Company’s audit committee. Selection criteria include market
knowledge, reputation, independence and whether professional standards are maintained. Valuers are normally rotated every three
years. The Group decides, after discussions with the external valuers, which valuation techniques and inputs to use for each case.
At each reporting date, the Group analyses the movements in the values of assets and liabilities which are required to be re-measured
or re-assessed as per the Group’s accounting policies. For this analysis, the Group verifies the major inputs applied in the latest
valuation by agreeing the information in the valuation computation to contracts and other relevant documents.
The Group, in conjunction with its external valuers, where applicable, also compares each the changes in the fair value of each asset
and liability with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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:
Operating unit – Ares, which generates revenue from the sale of gold and silver
Operating unit – Arcata, which generates revenue from the sale of gold, silver and concentrate
Operating unit – Pallancata, which generates revenue from the sale of concentrate
Operating unit – San Jose, which generates revenue from the sale of gold, silver, concentrate and dore
Operating unit – Moris, which generates revenue from the sale of gold and silver
Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the 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
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), Empresa de Transmisión Aymaraes S.A.C. (a power generation company), 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 CONTINUED
(a) Reportable segment information
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 2013
Revenue from
external customers
Inter segment revenue
50,362
–
136,968
–
181,795
–
240,723
–
Total revenue
50,362
136,968
181,795
240,723
12,247
–
12,247
–
–
–
63
8,796
–
(8,796)
8,859
(8,796)
622,158
–
622,158
Segment profit/(loss)
Others2
Profit from continuing
operations before
income tax
Other segment
information
Depreciation3
Amortisation
Assets
Capital expenditure
Current assets
Other non-current
assets
Total segment assets
Not reportable assets4
Total assets
(3,515)
31,710
49,357
44,142
1,430
(50,894)
4,037
1,547
(8,723)
–
(31,044)
–
(50,222)
–
(52,790)
(1,300)
(1,757)
–
(1,927)
(441)
(3,151)
–
3,783
43,255
44,356
56,502
932
119,671
13,079
13,211
14,009
34,735
73,844
1,269
1,874
316
1,328
142,618
149,057
217,344
12
582,113
29,331
14,539
156,627
183,792
291,188
1,281
583,987
29,647
–
–
–
–
–
–
472,831
14,539
156,627
183,792
291,188
1,281
583,987
502,478
–
–
–
–
–
–
–
–
77,814
(197,434)
(119,620)
(149,614)
(1,741)
281,578
139,258
1,121,803
1,261,061
472,831
1,733,892
‘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.
1
2 Comprised of administrative expenses of US$56,776,000, other income of US$6,416,000, other expenses of US$15,555,000, impairment and write-off of assets
of US$90,671,000, share of gains of associates and joint ventures of US$5,921,000, gain on transfer from onvestments accounted under the equity method to
available-for-sale financial assets of US$107,942,000, finance income of US$13,092,000, finance expense of US$148,050,000, and foreign exchange loss of
US$19,753,000.
Includes US$28,000, US$613,000 and US$1,158,000 of depreciation capitalised in San Jose mine unit, the Crespo project and the Inmaculada project respectively.
3
4 Not reportable assets are comprised of available-for-sale financial assets of US$51,658,000, other receivables of US$110,166,000, income tax receivable of
US$22,156,000, deferred income tax assets of US$2,416,000 and cash and cash equivalents of US$286,435,000.
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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 from
external customers
Inter segment revenue
57,580
–
175,802 257,725
–
–
310,384
15,931
–
–
Total revenue
57,580
175,802 257,725
310,384
15,931
–
–
–
530
6,501
–
(6,501)
817,952
–
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
Current assets
Other non-current
assets5
Total segment assets
Not reportable assets6
Total assets
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
12,569
14,374
54,078
72,605
7,459
3,239
524
–
164,848
11,035
127,091
156,199
251,813
839
500,599
23,604
141,465 210,277
324,418
8,298
503,838
29,439
29,963
–
–
–
–
–
–
578,121
23,604
141,465
210,277
324,418
8,298
503,838 608,084
– 1,077,015
– 1,241,863
–
578,121
– 1,819,984
Includes the asset acquisition of Andina Minerals Group (refer to note 4(a)).
‘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.
1
2
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.
124 Hochschild Mining plc Annual Report 2013
124
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
3 SEGMENT REPORTING (continued)
(b) Geographical information
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
Mexico
Korea
Japan
Total
Inter-segment
Peru
Mexico
Total
Year ended 31 December
2012
US$000
2013
US$000
148,201
91,781
53,664
4,901
149,452
38,697
–
135,100
362
622,158
118,409
63,769
104,509
75,202
154,200
40,664
480
260,719
–
817,952
3,122
5,674
1,324
5,177
630,954
824,453
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:
LS Nikko
US$000 % Revenue
22%
135,100
Year ended 31 December 2013
Segment
Pallancata and
San Jose
Argor Heraus
105,730
17%
Ares, Arcata and
San Jose
US$000
234,066
% Revenue
29%
Year ended 31 December 2012
Segment
Pallancata
and San Jose
121,122
15%
San Jose
Johnson Matthey Inc.
70,547
11% Ares, Arcata and Moris
25,194
3%
Teck Metals Ltd. (formerly
Teck Cominco Metals Ltd)
53,664
9%
Pallancata and
San Jose
104,509
13%
Ares, Arcata,
Moris and San Jose
Pallancata
and San Jose
www.hochschildmining.com 125
www.hochschildmining.com 125
Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3 SEGMENT REPORTING (continued)
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
2013
US$000
746,211
217,415
40,591
117,466
120
1,121,803
51,658
12,128
2,416
251,935
27,075
113,387
78,335
1,155,203
30,609
8,613
856
1,188,005
1,195,281
4 ACQUISITIONS AND DISPOSALS
(a) Acquisition of Non-controlling interest
Minera Suyamarca S.A.C.
On October 2013, Hochschild Mining entered into a binding agreement to acquire the 40% interest held by International Minerals
Corporation (“IMZ”) in Minera Suyamarca S.A.C., which holds the Pallancata mine and Inmaculada Advanced Project in Peru (the
“Peruvian Assets”). The transaction was executed by way of a court-approved Plan of Arrangement under the Business Corporations
Act (Yukon) (the “Canadian Act”). Prior to the Acquisition, Hochschild held a 60% interest in the Peruvian Assets.
IMZ was a Canadian public company headquartered in Scottsdale, Arizona, with interests in gold and silver properties, both producing
and under development, in Peru and the USA. The company was listed on the Toronto and Swiss stock exchanges under the symbol
“IMZ” and quoted on the Frankfurt stock exchange under the symbol “MIW”. 117,636,376 common shares were issued and outstanding,
of which 3,755,746 shares (3.2%) were owned by Hochschild.
As a condition to the completion of the acquisition, IMZ transferred all of its assets (other than the Peruvian Assets) and all of its
liabilities (other than the liabilities related to the Peruvian Assets), to Chaparral Gold. The IMZ internal re-organisation was effected
pursuant to the terms of a master re-organisation agreement among IMZ, Chaparral Gold and the directly-held, non-Peruvian
subsidiaries of IMZ.
In connection with the acquisition, each IMZ shareholder (other than Hochschild or its affiliates) received a cash payment of $2.38 per
IMZ share (for aggregate cash consideration of $271 million) and each IMZ shareholder (including Hochschild and its affiliates) received
one common share of Chaparral Gold Corp ("Chaparral Gold") per IMZ share.
Hochschild (through a newly established Canadian acquisition subsidiary, HOC Holdings Canada Inc.) acquired 100% of the shares of
IMZ (which, at the point of acquisition, held only the Peruvian Assets and liabilities related to the Peruvian Assets) that it did not already
own by way of the plan of arrangement under the Canadian Act. IMZ was delisted on 20 December 2013.
IMZ is 100% owner of Minera Oro Vega S.A.C. (“MOV”). MOV is 40% owner of Minera Suyamarca S.A.C and 100% owner of Minera
Qorihuayta S.A.C., all registered in Peru.
In compliance with the Group´s accounting policy, the difference between the consideration paid and the carrying value of the non-
controlling interest at the acquisition date has been recognised in retained earnings as follows:
Cash and cash equivalents (US$2.38 per share)
Cash and cash equivalents (transaction costs paid)
Transaction costs pending of payment
Available-for-sale financial assets (note 19)
Net assets received from Minera Oro Vega S.A.C
Total consideration
Non-controlling interest
Retained earnings
126 Hochschild Mining plc Annual Report 2013
126
Hochschild Mining plc Annual Report 2013
US$000
(271,036)
(1,091)
(4,264)
(8,939)
1,777
(283,553)
148,185
(135,368)
FINANCIAL STATEMENTS CONTINUED
4 ACQUISITIONS AND DISPOSALS (continued)
(b) Acquisition of assets
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 its shareholders vote in favour of the transaction.
Andina’s major asset, the 100% owned Volcan project, includes the Dorado area.
Andina was based in Alberta, Canada and was the 100% owner of Quitovac Mining Company Limited and Andina Holdings Inc, both
based in Canada. Andina Holdings Inc owned 99.99% of Andina Minerals Chile Limitada, based in Santiago, Chile. The Chilean company
owned two properties: Encrucijada and Volcan and 50% of Sociedad Contractual Minera Pampa Buenos Aires.
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 (86.7% on a basic basis). 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 therefore
consolidated it as a subsidiary undertaking from that date. The transaction was recognised as an asset acquisition, and the fair value
of the net assets acquired was US$115,388,000.
The outstanding balance at 31 December 2012 of US$13,787,427 was paid between January 2013 (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.
During 2013, the Group´s 50% interest in Sociedad Contractual Minera Pampa Buenos Aires was transferred to Iron Creek Chile (BVI) Ltd.
and all the Canadian companies were dissolved.
www.hochschildmining.com 127
www.hochschildmining.com 127
Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5 REVENUE
Gold (from dore bars)
Silver (from dore bars)
Gold (from concentrate)
Silver (from concentrate)
Services
Total
Year ended 31 December
2012
US$000
124,581
153,509
2013
US$000
112,855
179,773
103,721
225,746
63
135,055
404,277
530
622,158
817,952
Included within revenue is a loss of US$29,866,952 relating to provisional pricing adjustments representing the change in the fair
value of embedded derivatives (2012: loss of US$4,015,265) 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 (note 10 and 11(1))
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)
2013
US$000
146,918
124,834
8,293
3,926
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
2013
US$000
28,445
5,553
3,216
1,925
1,342
834
3,044
2,638
1,092
1,083
243
7,361
56,776
72,995
128 Hochschild Mining plc Annual Report 2013
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Hochschild Mining plc Annual Report 2013
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 (note 10 and 11(1))
Others
Total
Year ended 31 December
2012
US$000
2013
US$000
2,052
452
600
2,149
1,795
129
7,177
1,459
294
3,504
12,696
17,953
3,502
53
1,157
330
5,042
12,302
3,853
46,327
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
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 practicable to separate the liabilities related to the exploration activities of these companies from their
operating liabilities.
Liabilities related to exploration activities
Cash flows on exploration activities are as follows:
Payments
As at 31 December
2012
US$000
2,082
2013
US$000
1,636
As at 31 December
2012
US$000
27,285
2013
US$000
23,441
www.hochschildmining.com 129
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
9 SELLING EXPENSES
Transportation of dore, concentrate and maritime freight
Sales commissions
Personnel expenses (note 10)
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
Year ended 31 December
2012
US$000
5,745
2,264
2013
US$000
4,256
1,050
210
3,256
16,596
3,417
374
3,918
23,323
3,836
28,785
39,460
Year ended 31 December
2012
US$000
129,208
2013
US$000
128,225
(737)
24,641
7,860
(1,127)
10,487
6,584
18,487
21,084
7,600
7,891
975
13,079
175,933
198,324
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$124,834,000 (2012: US$121,775,000), US$28,445,000 (2012: US$40,006,000), US$12,302,000 (2012: US$13,865,000), US$210,000
(2012: US$374,000) and US$10,142,000 (2012: US$22,304,000) respectively.
Average number of employees for 2013 and 2012 were as follows:
Peru
Argentina
Mexico
Chile
United Kingdom
Total
As at 31 December
2012
3,011
1,226
135
40
12
2013
3,226
1,227
122
38
12
4,625
4,424
130 Hochschild Mining plc Annual Report 2013
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Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
11 PRE-TAX EXCEPTIONAL ITEMS
Cost of sales
Termination benefits1
Total
Administrative expenses
Termination benefits1
Total
Exploration expenses
Termination benefits1
Total
Other income
Termination benefits2
Gain on sale of property, plant and equipment
Total
Impairment and write-off of assets (net)
Impairment and write-off of assets3
Reversal of write-off and impairment of assets4
Total
Share of post-tax losses of associates and joint ventures accounted under equity method5
Total
Finance income
Gain from changes in the fair value of financial instruments6
Total
Gain on transfer from investment accounted under the equity method to available-for-sale
financial assets7
Total
Finance costs
Amortisation of transaction costs on secure bank loans8
Transaction costs on bank loans9
Loss from changes in the fair value of financial instruments10
Loss on sale of available-for-sale financial assets11
Total
Year ended
31 December
2013
US$000
Year ended
31 December
2012
US$000
(2,466)
(2,466)
(2,351)
(2,351)
(3,456)
(3,456)
–
2,442
2,442
(105,071)
14,400
(90,671)
–
–
2,417
2,417
107,942
107,942
(1,072)
(2,577)
(124,899)
(7,805)
(136,353)
–
–
–
–
–
–
1,099
–
1,099
(484)
239
(245)
(1,376)
(1,376)
–
–
–
–
–
–
(1,334)
–
(1,334)
1 Termination benefits paid to workers between April and September 2013 following the restructuring plan approved by management during the first half of 2013,
amounting to US$8,273,000.
2 Reversal of the provision of termination benefits for the workers of the Moris mine of US$1,099,000. At 30 September 2012 the restructuring plan agreed at 31
December 2011 was not in effect, and Moris was still in operation.
3 As at 31 December 2013 corresponds to the impairment of the San José mine unit of US$40,869,000, the Azuca project of US$30,290,000, the Crespo project of
US$29,150,000 and the Ares unit of US$3,771,000, and to the write-off of assets of US$991,000. As at 31 December 2012 mainly corresponds to the write-off of
assets in Compañía Minera Ares of US$471,000.
4 As at 31 December 2013 corresponds to the reversal of the impairment of San Felipe property of US$14,400,000. As at 31 December 2012 corresponds to the reversal
of the write-off recorded in 2010 related to the 100% dore project at the San Jose mine.
5 Corresponds to the loss from dilution related to Gold Resource Corp. investment (note 18).
6 Corresponds to the recycling of the unrealised gain generated by the shares of International Minerals Corporation, due to the acquisition (refer to note 4(a)) .
7 Gain on the reclassification of Gold Resource Corp (‘GRC’) shares from an investment accounted for under the equity method to an available-for-sale financial
asset of US$107,942,000 as a result of the Company ceasing to have the ability to exercise significant influence (refer to note 18).
8 Corresponds to the attributable issue cost of the syndicated loan granted to Compañía Minera Ares S.A.C. (note 25), disclosed as an exceptional item as a
significant one-off expense.
9 Corresponds to the write-off of transaction costs related to bank loans facilities never drawn by Minera Suyamarca S.A.C. , disclosed as an exceptional item as it
is a significant one-off expense.
10 As at 31 December 2013 corresponds to the impairment of investments in Gold Resource Corp. of US$105,298,000, International Minerals of US$12,920,000,
Pembrook Mining Corp. of US$5,745,000, Mariana Resources Ltd. of US$281,000, Northern Superior Resources Inc. of US$422,000, Iron Creek Capital Corp. of
US$207,000, Empire Petroleum Corp. of US$22,000 and Brionor Resources of US$4,000. As at 31 December 2012 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.
11 Corresponds to the loss on sale of part of the Group’s holding in Gold Resource Corp. (“GRC”) of US$7,805,000. The Group sold 3,375,000 and 1,800,000 GRC
shares on 11 July 2013 and 12 December 2013, respectively.
www.hochschildmining.com 131
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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
Dividends
Other
Total
Finance costs
Interest on secured bank loans (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
13 INCOME TAX EXPENSE
Year ended
31 December
2013
Before
exceptional
items
US$000
Year ended
31 December
2012
Before
exceptional
items
US$000
6,751
–
6,751
3,551
373
10,675
(4,633)
(4,594)
(9,227)
(1,267)
(220)
(983)
1,429
123
1,552
–
436
1,988
(1,924)
(8,956)
(10,880)
(731)
–
(1,259)
(11,697)
(12,870)
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
Year ended 31 December 2013
Year ended 31 December 2012
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
10,971
2,344
905
(641)
13,579
(752)
–
–
–
(752)
10,219
2,344
905
(641)
12,827
48,285
3,834
4,256
1,571
57,946
–
–
–
–
–
Total
US$000
48,285
3,834
4,256
1,571
57,946
31,400
(35,170)
(3,770)
28,627
(141)
28,486
–
31,400
44,979
–
(35,170)
(35,922)
–
(3,770)
9,057
(1,024)
27,603
85,549
–
(1,024)
(141)
(141)
27,462
85,408
The weighted average statutory income tax rate was 28.5% for 2013 and 32.4% for 2012. 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.
132 Hochschild Mining plc Annual Report 2013
132
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
13 INCOME TAX EXPENSE (continued)
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
2013
US$000
–
–
(615)
(615)
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:
Loss/(profit) from continuing operations before income tax
At average statutory income tax rate of 28.5% (2012: 32.4%)
Expenses not deductible for tax purposes
Non-taxable income1
Utilisation of losses in respect of deferred tax not previously recognised
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
Withholding tax
Special mining tax and mining royalty2
Foreign exchange rate effect3
Other
At average effective income tax rate of -11.8% (2012: 40.2%)
Taxation charge attributable to continuing operations
Total taxation charge in the income statement
As at 31 December
2012
US$000
212,274
2013
US$000
(119,620)
(34,140)
2,685
(1,366)
(2,214)
(1,377)
15,262
(4,246)
–
(641)
3,249
30,366
1,479
9,057
9,057
9,057
68,814
4,163
(275)
(1,024)
(1,181)
6,795
(2,481)
615
1,571
8,090
(1,303)
1,624
85,408
85,408
85,408
1 Mainly corresponds to dividends received from Gold Resource Corp. and International Minerals Corporation (2012: Mainly corresponds to the reversal of accrued
non deductible personnel expenses recorded in 2011 ).
2 Corresponds to the impact of the new mining royalty and special mining tax in Peru (note 35).
3 Mainly corresponds to the foreign exchange effect from converting tax bases and monetary items from local currency to the functional currency.
www.hochschildmining.com 133
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14 BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE
(Loss)/earnings per share (‘EPS’) is calculated by dividing profit for the year attributable to equity shareholders of the Company by
the weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2013 and 2012, EPS has been calculated as follows:
Basic (loss)/earnings per share from continuing operations
Before exceptional items (US$)
Exceptional items (US$)
Total for the year and from continuing operations (US$)
Diluted (loss)/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
2013
(0.15)
(0.21)
(0.36)
(0.15)
(0.21)
(0.36)
0.19
–
0.19
0.19
–
0.19
Net (loss)/profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived
as follows:
(Loss)/profit for the year from continuing operations (US$000)
Less non-controlling interests (US$000)
(Loss)/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)
(Loss)/profit from continuing operations before exceptional items attributable to equity holders
of the parent (US$000)
Interest on convertible bond (US$000)1
Diluted (loss)/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 (loss)/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
126,866
(63,795)
63,071
1,759
2013
(128,677)
5,594
(123,083)
72,738
(50,345)
–
64,830
–
(50,345)
64,830
As at 31 December
2012
338,022
–
2013
345,225
–
345,225
338,022
1 The potential ordinary shares related to the convertible bond have not been included in the calculation of diluted EPS for 2013 and 2012 as they have an
antidilutive effect.
134 Hochschild Mining plc Annual Report 2013
134
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT
Year ended 31 December 2013
Cost
At 1 January 2013
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 2013
Accumulated depreciation
and impairment
At 1 January 2013
Depreciation for the year
Write-offs
Disposals
Impairment2
Transfers from evaluation and
exploration assets
Transfers and other movements
Foreign exchange
At 31 December 2013
Net book amount at 31 December 2013
Mining
properties
and
development
costs
US$000
Land and
buildings
US$000
Plant and
equipment
US$000
Vehicles
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
US$000
Total
US$000
540,324
179,940
141,504
–
–
(321)
–
(50)
188,323
–
2,823
–
–
(57)
–
37,377
313,457
49,700
–
(724)
(7,089)
–
15,611
–
–
–
124
5,360
67,356
119,381
1,225,818
323
–
(43)
(150)
–
1,021
–
–
–
(1,481)
–
–
8,487
–
–
–
73,421
–
–
–
–
(56,419)
267,771
(1,481)
(767)
(7,617)
8,487
(2,460)
–
–
188,323
124
869,780
220,083
371,079
6,511
74,362
136,383
1,678,198
306,443
96,862
(41)
–
42,080
7,418
15
–
87,679
20,377
(9)
–
5,883
–
6,993
–
146,823
29,316
(5,567)
(351)
8,520
–
(3,350)
62
2,574
989
(110)
(14)
204
–
2
–
452,777
417,003
120,923
175,453
99,160
195,626
3,645
2,866
44,808
2,070
–
–
1,547
–
–
–
48,425
936
–
–
–
3,899
–
(1,337)
–
3,498
25,937
132,885
589,263
149,614
(5,727)
(365)
62,133
7,418
2,323
62
804,721
873,477
1 The carrying value of plant and equipment held under finance leases at 31 December 2013 was US$539,627 (2012: US$991,230). Additions during
the year included US$Nil (2012: US$Nil) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.
2 There were borrowing costs capitalised in property, plant and equipment amounting to US$5,736,000 (2012:US$Nil). The capitalisation rate used was 9.45%.
3 The Group recorded an impairment of US$450,000 with respect to the Azuca project, US$22,535,000 with respect to the Crespo project, US$35,377,000 with
respect to the San Jose mine unit and US$3,771,000 with respect to the Ares mine unit. These impairment charges arose primarily as a result of decreases in the
prices of silver and gold and were determined using the fair value less costs to dispose (FVLCD) methodology. FVLCD was determined using a discounted cash flow
model to estimate the amount that would be paid by a willing third party in an arm's length transaction. Any variation in the key assumptions would either result
in further impairment or a reduction of the impairment.
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT (continued)
Mining
properties
and
development
costs
US$000
Land and
buildings
US$000
Plant and
equipment
US$000
Vehicles
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
US$000
Total
US$000
382,556
143,764
264,948
4,614
63,185
148,148
–
–
–
–
455
9,165
–
4,337
–
(62)
–
–
31,901
34,469
–
(5,135)
(1,289)
–
20,429
–
–
–
35
98
–
(314)
(31)
–
991
–
2
688
–
–
3,483
–
–
–
70,836 929,903
103,319
290,371
–
688
–
–
–
(54,774)
(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
–
–
–
306,443
70,750
16,975
–
(46)
–
87,679
92,261
118,832
31,974
(811)
(3,190)
18
146,823
166,634
2,091
701
(18)
(200)
–
2,574
2,786
42,637
2,171
–
–
–
44,808
936
–
–
–
–
468,349
125,161
(829)
(3,436)
18
936
589,263
22,548
118,445
636,555
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
Net book amount at 31 December 2012
233,881
136 Hochschild Mining plc Annual Report 2013
136
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
16 EVALUATION AND EXPLORATION ASSETS
Azuca
US$000
Crespo
US$000
Inmaculada
US$000
San Felipe
US$000
Dorado
US$000
Others
US$000
Total
US$000
Cost
Balance at 1 January 2012
Additions
Foreign exchange
Transfers from/to property, plant and
equipment
58,353
12,326
–
125
65,418
108,677
55,950
1,777
276
144
8,085
–
–
–
–
–
Balance at 31 December 2012
70,804
67,615
116,762
55,950
Additions
Foreign exchange
Write-off
Transfers from/(to) property plant and
equipment
4,736
–
–
–
179
(512)
–
965
–
–
(38,106)
(117,727)
–
–
–
–
–
86,301
–
28,156
21,525
–
316,554
130,014
276
–
(8,509)
(8,240)
86,301
4,300
–
(26)
41,172
2,006
–
(4)
438,604
12,186
(512)
(30)
–
(32,490)
(188,323)
Balance at 31 December 2013
75,540
29,176
Accumulated impairment
Balance at 1 January 2012
Balance at 31 December 2012
Impairment2
Transfers from property, plant and
equipment
Balance at 31 December 2013
Net book value as at 31 December 2012
Net book value as at 31 December 2013
22
22
29,840
9,904
9,904
5,507
–
(6,281)
29,862
70,782
45,678
9,130
57,711
20,046
1 There were no borrowing costs capitalised in evaluation and exploration assets.
–
–
–
–
–
–
116,762
–
55,950
90,575
10,684
261,925
30,950
30,950
(14,400)
16,550
25,000
39,400
–
–
–
–
–
1,171
1,171
1,706
(1,137)
1,740
42,047
42,047
22,653
(7,418)
57,282
86,301
40,001
396,557
90,575
8,944
204,643
2 The Group recorded an impairment with respect to the Azuca project of US$29,840,000 , the Crespo project of US$5,507,000 and the San Jose mine unit of
US$1,706,000, and partially reversed the impairment of the San Felipe project of US$14,400,000. These impairment charges arose primarily as a result of decreases
in the prices of silver and gold and were determined using the fair value less costs to dispose (FVLCD) methodology. FVLCD was determined using a discounted cash
flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. Any variation in the key assumptions would either
result in further impairment or a reduction of the impairment.
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
17 INTANGIBLE ASSETS
Cost
Balance at 1 January 2012
Additions
Transfer
Balance at 31 December 2012
Additions
Transfer
Balance at 31 December 2013
Accumulated amortisation
Balance at 1 January 2012
Amortisation for the year4
Balance at 31 December 2012
Amortisation for the year4
Impairment of the period5
Balance at 31 December 2013
Net book value as at 31 December 2012
Net book value as at 31 December 2013
Goodwill
US$000
Transmission
line1
US$000
Water
permits2
US$000
Software
licences
US$000
Legal
rights3
US$000
Total
US$000
2,091
22,157
–
–
–
–
–
26,583
–
2,091
22,157
26,583
–
–
–
–
–
–
2,091
22,157
26,583
–
–
–
–
2,091
2,091
2,091
–
5,686
1,452
7,138
1,213
1,671
10,022
15,019
12,135
–
–
–
–
–
–
26,583
26,583
1,260
5
72
1,337
–
11
1,348
1,050
77
1,127
87
24
1,238
210
110
–
25,508
–
–
–
1,621
4,783
26,588
72
52,168
1,621
4,794
6,404
58,583
–
–
–
441
1,108
1,549
6,736
1,529
8,265
1,741
4,894
14,900
–
43,903
4,855
43,683
1 The transmission line is amortised using the units of production method. At 31 December 2013 the remaining amortisation period is 10 years.
2 Corresponds to the acquisition of water permits of Andina Minerals Group (“Andina”) (refer to note 4(b)). They have an indefinite life according the Chilean law.
3 Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production.
At 31 December 2013 the remaining amortisation period is 12 years.
4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
5 The Group recorded an impairment in relation to all of the goodwill of US$2,091,000 and other intangibles of US$1,695,000 related to the San Jose mine unit,
and US$1,108,000 related to the Crespo project. These impairment charges arose primarily as a result of decreases in the prices of silver and gold and were
determined using the fair value less costs to dispose (FVLCD) methodology. FVLCD was determined using a discounted cash flow model to estimate the amount
that would be paid by a willing third party in an arm's length transaction. Any variation in the key assumptions would either result in further impairment or a
reduction of the impairment (not in the case of the goodwill).
The carrying amount of goodwill and water permits is reviewed annually to determine whether it is in excess of its recoverable amount.
In the case of the goodwill, the fair value less cost of disposal is determined at the cash-generating unit level, in this case being
San Jose, by discounting the expected cash flows estimated by management over the life of the mine.
(a) Goodwill:
The calculation of fair value less cost of disposal is most sensitive to the following assumptions:
Commodity prices – Commodity prices of gold and silver are based on prices considered in the Group’s 2013 forecast (2012: 2013
budget) and external market consensus forecasts. The prices considered in the 2013 (2012) impairment tests were:
Year
2013 – Gold – US$/oz
2013 – Silver – US$/oz
2012 – Gold – US$/oz
2012 – Silver – US$/oz
2013
1,343.9
21.2
1,823.0
35.0
2014
1,405.9
25.0
1,723.0
31.0
2015
1,379.3
23.5
1,550.0
29.0
2016
1,319.3
20.7
1,411.0
26.0
2017
1,272.1
22.3
1,411.0
26.0
2018
1,272.1
22.3
1,411.0
26.0
2019
1,272.1
22.3
1,411.0
26.0
2020-2024
1,272.1
22.3
1,411.0
26.0
Estimation of reserves and resources – Reserves and resources are based on management’s estimates using appropriate exploration
and evaluation techniques;
Production volumes and grades – Tonnage produced was estimated at plant capacity with 12 days of maintenance per year
(2012: 12 days);
Capital expenditure – The cash flows for each mining unit include capital expenditures to maintain the mine and to convert
resources to reserves;
Operating costs – Costs are based on historical information from previous years and current mining conditions;
138 Hochschild Mining plc Annual Report 2013
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Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
17 INTANGIBLE ASSETS (continued)
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 2013 impairment test was 23.77% (2012: 25.59%).
As at 31 December 2012, management believed that the following changes to the main assumptions would have caused the carrying
value of the cash generating unit (including the goodwill) to equal its recoverable amount. Therefore, any higher deviation would have
caused the carrying value of goodwill to exceed its recoverable amount resulting in the recognition of an impairment provision. As
goodwill has been fully impaired during the year ended 31 December 2013, no such analysis has been prepared as at 31 December 2013.
Assumption
Gold price
Silver price
Reserves and resources
Costs
Discount rates
2012
Variation
(19.3)%
(15.5)%
(109.6)%
17.7%
99.4%
Cash flows used for impairment tests were based on the annual 2013 forecast. The starting point in all cases was January 2013.
Individual cash flows are based on the annual 2013 forecast 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
forecast. Future capital expenditure is based on the 2013 forecast, excluding one-off expenses and considering the Operations team’s
view of developments and infrastructure, according to the estimated set of reserves and resources.
The period approved by management to project the cash flows was 10 years (2012:12 years).
Headroom for the 2012 impairment test was US$92,349,000.
(b) Water permits:
In the case of the water permits the Group applied a value in situ methodology, which applies a realisable ‘enterprise value’ to
unprocessed mineral resources. The methodology is used to determine the fair value less costs of disposal of the Andina cash-
generating unit, which includes the water permits held by the Group. The enterprise value used in the calculation performed at 31
December 2013 was US$13.60 per gold equivalent ounce of resources . The enterprise value figures are based on observable external
market information.
Headroom for the 2013 impairment test was US$14,172,000.
A change in key assumptions on which the recoverable amount of the Andina cash-generating unit was determined could cause the
unit´s carrying value to exceed its recoverable amount.
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
18 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD
Gold Resource Corp.
The Group has an interest in Gold Resource Corp.(“GRC”), which is involved in the exploration for and production of gold and silver in
Mexico. The company is incorporated 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.
On 27 March 2013 equity accounting for the investment was discontinued as a result of developments during the period which resulted
in the Group concluding that it no longer had the ability to influence significantly that company´s strategic, operational and financial
direction. The investment in GRC was reclassified as an available-for-sale financial asset. As of 27 March 2013 the Group had a 27.77%
interest in GRC.
The following table summarises the financial information of the Group’s investment in GRC:
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
2013
US$000
–
–
–
–
–
–
17,872
51,002
(3,742)
(11,300)
53,832
24,356
11,750
5,921
–
33,737
5,080
78,188
1 Share of the associate’s profit in 2013 includes (1) a pre-exceptional gain from the Group’s share of GRC´s results for the period in which it exercised significant
influence of US$5,921,000 (2012: US$6,456,000) and (2) an exceptional loss from dilution of US$Nil (2012: US$1,376,000).
19 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Beginning balance
Additions1
Impairment
Fair value change recorded in equity
Reclassification from investments accounted under the equity method2
Disposals3
Other4
Ending balance
Year ended 31 December
2012
US$000
40,769
–
(891)
(9,269)
–
–
–
2013
US$000
30,609
1,119
–
(125,932)
189,418
(33,498)
(10,058)
51,658
30,609
1 Represents 3,755,746 shares of Chaparral Gold Corp. received due to the Group´s 3.2% interest in International Minerals Corporation(refer to note 4(a))
2 Reclassification of the Group’s Gold Resource Corp. shares from an associate accounted for under the equity method to an available-for-sale financial asset on
27 March 2013. Equity accounting of the investment was discontinued as a result of developments during the period which resulted in the Company concluding
that it no longer had the ability to influence significantly that company's strategic, operational and financial direction. Consequently, the asset is recognised as an
available-for-sale asset at fair value.
3 Sale of 3,375,000 and 1,800,000 share of Gold Resource Corp on 11 July 2013 and 12 December 2013 respectively.
4 In connection with the acquisition of the non-controlling interest of Minera Suyamarca S.A.C. the Group disposed of its 3,755,746 shares of International Minerals
Corporation (IMZ) and received 3,755,746 class A shares of IMZ, which was recognised as an investment in a subsidiary and consequently eliminated on
consolidation (refer to note 4(a))
140 Hochschild Mining plc Annual Report 2013
140
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
19 AVAILABLE-FOR-SALE FINANCIAL ASSETS (continued)
Available-for-sale financial assets include the following:
Equity securities – quoted Canadian companies
Equity securities – quoted US companies1
Equity securities – quoted British companies
Equity securities – unquoted2
Total
1 Primarely includes Gold Resource Corp shares of US$42,817,000 (2012: US$Nil).
Includes Pembrook Mining Corp and ECI Exploration and Mining Inc. shares.
2
Year ended 31 December
2012
US$000
17,800
2013
US$000
2,030
42,883
745
6,000
51,658
23
777
12,009
30,609
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 less any
recognised impairment losses 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
2013
US$000
8,030
42,883
745
51,658
2012
US$000
29,809
23
777
30,609
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Financial statementsp102-179
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
Non-current
US$000
–
–
5,776
–
–
2,030
–
–
2,638
–
10,444
755
929
12,128
As at 31 December
2013
Current
US$000
69,702
22,667
–
–
111
909
600
294
19,115
(5,084)
108,314
11,602
47,824
167,740
Non-current
US$000
–
–
5,609
–
–
2,276
–
–
102
–
2012
Current
US$000
88,435
17,916
2,578
2,224
1,017
1,608
85
361
6,575
(3,819)
7,987
116,980
626
–
10,237
38,956
8,613
166,173
The fair values of trade and other receivables approximate their book value.
1 Corresponds to an amount receivable from Iron Creek Capital Corp.
2
Includes the provision for impairment of trade receivable from a customer in Peru of US$1,108,000 (2012: US$1,108,000), the impairment of deposits in Kaupthing,
Singer and Friedlander of US$294,000 (2012: US$361,000) and other receivables of US$3,682,000 (2012: US$2,350,000) that mainly relates to an exploration project
that would be recovered through an ownership interest if it succeeds.
3 This includes an amount of US$17,807,000 (2012: US$18,736,000) 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$10,639,000 (2012: US$6,388,000), Compañía Minera Ares S.A.C. of
US$11,005,000 (2012: US$8,574,000) and Minas Santa María de Moris of US$3,108,000 (2012: US$2,445,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
At 1 January 2012
Provided for during the year
Released during the year
At 31 December 2012
Provided for during the year
Released during the year
At 31 December 2013
Individually
impaired
US$000
2,406
1,567
(154)
3,819
1,485
(220)
5,084
As at 31 December, the ageing analysis of financial assets classified as receivables net of impairment is as follows:
Year
2013
2012
Past due but not impaired
Neither past
due nor
impaired
US$000
118,758
Total
US$000
118,758
124,967
124,967
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
–
–
142 Hochschild Mining plc Annual Report 2013
142
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
21 INVENTORIES
Finished goods
Products in process
Raw materials
Supplies and spare parts
Provision for obsolescence of supplies
Total
As at 31 December
2012
US$000
4,874
28,162
2013
US$000
7,871
21,246
2
47,118
76,237
(6,681)
69,556
1
49,021
82,058
(5,645)
76,413
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 2013 included in products in process is US$697,000 (2012: US$9,370,000).
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$94,235,000 (2012: US$85,651,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$1,832,000 (2012: US$3,608,000) and the
reversal of US$Nil relating to the sale of supplies and spare parts, that had been provided for (2012: US$504,000).
The amount of income relating to the reversal of the inventory provision is US$90,000 (2012: US$Nil).
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
2013
US$000
–
–
–
2,294
2,294
1
149
150
6,891
6,891
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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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
2013
US$000
454
8,751
62,259
214,971
61,654
224,165
286,435
358,944
The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities
available in the future for operating activities or capital commitments.
1 The liquidity funds are mainly invested in certificates of deposit, commercial papers and floating rate notes with a weighted average maturity of 8 days as at
31 December 2013 (2012: average of 5 days). In addition, liquidity funds include US Treasury bonds amounting to US$Nil (2012: US$49,967,000) (note 36(g)).
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of 27 days (2012: Average of 36 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 2013 is US$29,112,000 (2012: US$25,452,000), 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
Non-current
US$000
–
–
–
–
–
–
–
–
–
–
174
174
As at 31 December
2013
Current
US$000
73,339
18,620
4,584
8,264
–
7,266
840
–
–
16
6,293
119,222
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
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
2013
US$000
17,885
152
583
18,620
2012
US$000
26,404
581
4,950
31,935
3 Deferred income represents non-refundable advance receipts in respect of an option granted to a third party to acquire the Group´s San Felipe project in Mexico.
In August 2013 the Group signed an amendment to extend, to 31 October 2015, the option for the third party to purchase the San Felipe project. Due to the
significance of the amount advanced, the Group deemed it appropriate to disclose the amount separately on the face of the consolidated statement of financial
position for 2013. A further payment of US$22,000,000 is expected to be made by the third party under the terms of the option agreement in order to acquire a
full interest in the project.
4 Amount payable to complete the purchase of Andina Minerals Inc non-controlling shareholders’ interest (note 4(b)).
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FINANCIAL STATEMENTS CONTINUED
25 BORROWINGS
Secured bank loans (a)
Pre-shipment loans in Minera Santa Cruz
(note 21)
Pre-shipment loans in Minera Suyamarca
S.A.C.(note 21)
Leasing agreement with Banco de Crédito
del Peru
Leasing agreement with Banco
Interamericano
de Finanzas
Syndicated loan
Convertible bond payable (b)
Total
(a) Secured bank loans:
Leasing agreements:
Effective
interest rate
Non-current
US$000
–
–
–
–
25.26%
8.26%
–
–
–
–
–
–
–
As at 31 December
2013
Current
US$000
24,122
30,053
–
–
265,877
115,873
435,925
Effective
interest rate
Non-current
US$000
–
–
3.5%
6%
–
8.26%
–
–
–
–
–
106,850
106,850
2012
Current
US$000
–
–
336
24
–
6,613
6,973
The following table demonstrates the present value and maturity of future minimum lease payments as at 31 December 2013 and 2012:
Not later than one year
Between 1 and 2 years
Between 2 and 5 years
Total
As at 31 December
2012
US$000
360
–
–
2013
US$000
–
–
–
–
360
The following table reconciles the total minimum lease payments and their present values as at 31 December 2013 and 2012:
Present value of leases
Future interest
Total minimum lease payments
The carrying amount of net lease liabilities approximate their fair value.
Syndicated loan:
As at 31 December
2012
US$000
360
4
2013
US$000
–
–
–
364
Loan facility with a syndicate of lenders with Bank of America acting as the Administrative Agent. Total secured term loan facility of
US$340,000,000 that accrued an effective interest rate of 25.26% and is guaranteed by a group of subsidiaries headed by Hochschild
Mining plc. The balance at 31 December 2013 is comprised of the carrying value of US$265,560,000 determined in accordance with the
effective interest method plus accrued interest payable of US$317,000. The loan was repaid on 23 January 2014.
Upon initial recognition, the syndicated loan was recorded at a value of US$263,432,000, representing a principal of US$270,000,000
less transaction costs of US$6,568,000.
(b) Convertible bond payable
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 Group expect to settle the convertible bond in cash. 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
25 BORROWINGS (continued)
The following information has to be considered for conversion of the bonds into ordinary shares:
Conversion Price: GBP 3.80;
Fixed Exchange Rate: US$1.59/GBP 1.00.
The balance at 31 December 2013 is comprised of the carrying value of US$113,118,000 determined in accordance with the effective
interest method plus accrued interest payable of US$2,755,000.
Upon initial recognition, the convertible bonds were recorded at a value of US$ 103,827,000, representing a principal of US$115,000,000
less transaction costs of US$2,741,000 and the bond equity component of $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
2013
US$000
–
–
–
–
–
–
106,850
The carrying amount of current borrowings differs their fair value only with respect to differences arising under the effective interest
rate calculations described above. 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
2013
US$000
–
–
–
2012
US$000
–
106,850
106,850
Fair value
as at 31 December
2012
US$000
–
112,867
2013
US$000
–
–
–
112,867
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Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
26 PROVISIONS
At 1 January 2012
Additions
Accretion
Change in discount rate
Change in estimates5
Payments
Amounts transferred to payables
Foreign exchange
At 31 December 2012
Less current portion
Non-current portion
At 1 January 2013
Additions
Accretion
Change in discount rate
Change in estimates
Payments
Amounts transferred to payables
Foreign exchange
At 31 December 2013
Less current portion
Non-current portion
Provision
for mine closure1
US$000
73,625
–
123
769
3,362
(3,667)
–
2
74,214
(4,105)
70,109
74,214
–
224
(1,481)
14,0055
(4,781)
–
(32)
82,149
(6,311)
75,838
Workers’
profit
sharing2
US$000
29,831
18,487
–
–
–
(30,893)
–
1,124
18,549
(18,549)
–
18,549
–
–
–
(427)
(17,645)
–
(103)
374
(374)
–
Long Term
Incentive
Plan3
US$000
3,655
Contingent
consideration4
US$000
32,378
7,322
–
–
–
–
(4,950)
–
6,027
(1,211)
4,816
6,027
–
–
–
(2,960)
(651)
(537)
–
1,879
–
1,879
–
–
–
–
(32,222)
–
(156)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
US$000
3,373
1,041
–
–
–
–
–
34
4,448
(2,823)
1,625
4,448
1,171
–
–
–
(83)
–
(716)
4,820
(2,888)
1,932
Total
US$000
142,862
26,850
123
769
3,362
(66,782)
(4,950)
1,004
103,238
(26,688)
76,550
103,238
1,171
224
(1,481)
10,618
(23,160)
(537)
(851)
89,222
(9,573)
79,649
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 2013 and 2012 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. The discount rates used range from 0.29% to 0.56%.
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 2013 is: (i) Legal US$374,000 (2012: US$5,788,000), (ii) Voluntary US$Nil (2012: US$12,761,000).
3 Corresponds to the provision related to awards granted under the Long Term Incentive Plan to designated personnel of the Group. Includes the following benefits:
(i) 2013 awards, granted in March 2013, payable in March 2016 (ii) 2012 awards, granted in March 2012, payable in March 2015. Only employees who remain in the
Group’s employment on the vesting date will be entitled to a cash payment, subject to exceptions approved by the Remuneration Committee of the Board. The
provision represents the discounted values of the estimated cost of the long-term employee benefit. In 2013 there is a provision of US$-2,960,000 (2012:
US$7,322,000) that is disclosed under administrative expenses US$-1,698,000 (2012: US$5,420,000), exploration expenses US$-244,000 (2012: US$843,000) and
capitalised as evaluation and exploration expenses US$-1,018,000 (2012: US$1,059,000). The amount of US$537,000 corresponds to the Exploration Incentive Plan
award and was transferred to salary and wages payable as the performance period ended on 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 2013 and 2012 internal review of mine rehabilitation budgets, an increase of US$14,005,000 (2012: US$3,362,000) was recognised.
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Financial statementsp102-179
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 2013 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2012 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
367,101,352 £91,775,338
Issued
Number
Amount
338,085,226 £84,521,307
At 31 December 2013 and 2012, all issued shares with a par value of 25 pence each were fully paid (2013: weighted average of
US$0.464 per share, 2012: 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.
On 2 January 2013 the Group issued 16,126 ordinary shares following the conversion of 1 Convertible bond with a nominal value
of US$100,000.
On 2 October 2013 a share placement was completed and 29,000,000 shares with an aggregate nominal value of US$11,745,000 were
issued for a cash consideration of US$71,816,010 net of transaction costs of US$1,002,990. The share placement was effected through
a cash box structure which resulted in the excess of the net proceeds received over the nominal value of the share capital issued being
transferred to retained earnings.
The changes in share capital are as follows:
Shares issued as at 1 January 2012
Shares issued as at 31 December 2012
Conversion of 1 convertible bond on 2 January 2013 (note 25)
Shares issued and paid pursuant to the placing of shares on 2 October 2013
Shares issued as at 31 December 2013
Number of
shares
338,085,226
Share Capital
US$000
158,637
Share premium
US$000
395,928
338,085,226
158,637
395,928
16,126
29,000,000
367,101,352
7
11,745
93
–
170,389
396,021
(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 during 2012 and 2013.
(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.
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FINANCIAL STATEMENTS CONTINUED
27 EQUITY (continued)
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
As at 31 December
2012
US$000
(68,152)
(27,462)
2013
US$000
(94,859)
3,770
–
–
(91,089)
615
140
(94,859)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.
The movement in deferred income tax assets and liabilities before offset during the year is as follows:
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Financial
instruments
US$000
Others
US$000
Total
US$000
Deferred income tax liabilities
At 1 January 2012
Income statement charge/(credit)
Net deferred income tax from unrealised gain
on available-for-sale financial assets
Foreign exchange
At 31 December 2012
Income statement (credit)/charge
At 31 December 2013
31,987
(105)
73,350
35,210
–
–
31,882
2,582
34,464
–
(140)
108,420
(17,237)
–
2,724
(615)
–
2,109
1,185
(751)
106,522
37,078
–
–
434
2,584
3,018
(615)
(140)
142,845
(12,071)
130,774
91,183
2,109
Deferred income tax assets
At 1 January 2012
Income statement credit/(charge)
Net deferred income tax from
unrealised loss on available-for-sale
financial assets
At 31 December 2012
Income statement credit/(charge)
At 31 December 2013
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
17,333
6,082
10,101
1,079
23,415
(4,989)
18,426
11,180
1,652
12,832
Tax
losses
US$000
Interest
payable
US$000
Financial
instruments
US$000
Others
US$000
Total
US$000
643
92
735
(95)
640
–
–
–
–
–
2,109
1,039
8,184
1,324
38,370
9,616
3,148
(754)
2,394
9,508
(4,115)
5,393
47,986
(8,301)
39,685
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Financial statementsp102-179
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
2013
US$000
2,416
(93,505)
(95,715)
As at 31 December
2012
US$000
2013
US$000
2,134
2,134
2,449
2,449
1,033
1,993
3,706
4,260
106,075
117,067
119,516
1,414
3,511
184,613
189,538
191,672
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
2013
US$000
39,086
(4,320)
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 reversal of impairment of San Felipe project (2012:impairment of the San Felipe project recognised in 2010).
Unrecognised deferred tax liability on retained earnings
At 31 December 2013, there was no recognised deferred tax liability (2012: nil) for taxes that would be payable on the unremitted earnings
of certain of the Group’s subsidiaries, or its associate or joint venture as the intention is that these amounts are permanently reinvested.
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Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
29 DIVIDENDS PAID AND PROPOSED
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2012: US$0.03 (2011: US$0.03)
Interim dividend for 2013: US$Nil (2012: US$0.03)
Dividends declared to non-controlling interests: US$0.03 and US$0.05 (2012: US$0.18 and 0.08)
Dividends declared and paid
Dividends declared to non-controlling interests: US$0.03 (2012: US$0.08)
Dividends declared and not paid
Total dividends declared
Final dividend for 2013: US$Nil (2012: US$0.03)
2013
US$000
2012
US$000
10,139
–
6,197
16,336
4,509
4,509
20,845
–
10,139
10,139
32,690
52,968
2,187
2,187
55,155
10,139
Dividends per share
A final dividend in respect of the year ended 31 December 2012 of US$0.03 per share, amounting to a total dividend of US$10,139,237
was approved by shareholders at the Annual General Meeting held on 30 May 2013. The Directors of the Company are not
recommending a dividend in respect of the year ended 31 December 2013.
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 2013 and 2012. 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
2013
US$000
2012
US$000
Accounts payable
as at 31 December
2012
US$000
2013
US$000
111
–
111
139
878
1,017
16
–
16
–
–
–
As at 31 December 2013 and 2012, 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)
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.
Year ended
2013
US$000
2012
US$000
2,633
10,093
(164)
(164)
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Financial statementsp102-179
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
2013
US$000
5,781
77
(434)
–
1
5,425
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$4,410,956 (2012 US$5,467,700),
out of which US$193,831 (2012: US$199,606) relates to pension payments.
(c) Participation in placing by Inversiones Pacasmayo S.A. (“IP SA”)
IP SA, a company controlled by Eduardo Hochschild, participated in a placing of the Company’s Ordinary Shares (“Shares”) in October
2013 by subscribing for 16,905,066 Shares at a price of 155p per Share.
31 AUDITOR’S REMUNERATION
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2013 and 2012 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
2013
US$000
1,046
76
25
67
436
1,650
2012
US$000
1,372
160
44
118
–
1,694
Amounts paid
to others
in the year ended
31 December
2012
US$000
20
–
–
–
2013
US$000
7
–
–
–
–
7
–
20
1 The total audit fee in respect of local statutory audits of subsidiaries is US$607,000 (2012: US$909,000).
In 2013 and 2012, all fees are included in administrative expenses, with the exception of 2013 fees related to the issuance of the bond by
Compañía Minera Ares S.A.C. (US$167,500) and the acquisition of a non-controlling interest of Minera Suyamarca S.A.C. (US$268,000).
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FINANCIAL STATEMENTS CONTINUED
32 NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of (loss)/profit for the year to net cash generated from operating activities
(Loss)/profit for the year
Adjustments to reconcile Group (loss)/profit to net cash inflows from operating activities
Depreciation (note 3(a))
Amortisation of intangibles
Write-off of assets (net)
Impairment of assets (net)
Impairment of available-for-sale financial assets
Loss on sale of available-for-sale financial assets
Gain from changes in the fair value of financial instruments
Gain on transfer from investment accounted for under the equity method to available-for-sale
financial assets
Gain on sale of property, plant and equipment
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
Other financial assets and liabilities
Inventories
Trade and other payables
Provisions
Cash generated from operations
As at 31 December
2012
US$000
2013
US$000
(128,677)
126,866
149,586
125,143
1,741
991
89,680
124,899
7,805
(2,417)
(107,942)
(2,442)
1,832
(5,921)
5,516
(10,675)
11,697
9,057
22,883
477
(4,447)
5,025
(31,246)
(21,338)
116,084
1,529
491
–
1,334
–
–
–
1,631
3,608
(5,080)
(4,171)
(1,988)
12,870
85,408
155
3,869
(6,239)
(26,989)
29,540
(3,858)
344,119
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Financial statementsp102-179
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
2013
US$000
1,484
16,250
(i) 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 2013 the Group had invested US$1,131,000 in the project.
(ii) 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 2013 the Group had invested US$125,000.
(iii) 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 2013 the Group had invested US$1,170,000.
(iv) Compañía Minera Aurifera M & RM S.A (Ore Body 3)
On 28 January 2013, the Group entered into a purchase option agreement with Compañía Minera Aurifera M & RM S.A. to explore and
develop minerals and to earn the right to purchase 100% of the properties in ‘Ore Body 3’ located in Ayacucho, Peru. Upon signing the
purchase option agreement the Group paid US$150,000 to Compañía Minera Aurifera M & RM S.A.
In order to exercise the option, the Group is required to make a total payment of US$2,500,000 within five years by 28 June 2018. The
Group is entitled to withdraw from the agreement at any time. At 31 December 2013 the Group had invested US$173,000.
(v) Minera Tamborapa S.A.C. (Jellosora)
On 22 August 2013, the Group entered into an exploration and purchase option agreement with Minera Tamborapa S.A.C. to explore
and develop minerals in ‘Jellosora 2007’ properties located in Ayacucho, Peru. Upon signing the purchase option agreement the Group
paid US$20,000 to Minera Tamborapa S.A.C.
In order to exercise the option, the Group is required to make a total payment of US$1,020,000 and incur exploration expenditure of
US$2,000,000 within five years by 22 August 2018. 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 2013 the Group had invested US$47,000.
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FINANCIAL STATEMENTS CONTINUED
33 COMMITMENTS (continued)
(vi) Solitario Mexico S.A. (Pachuca Norte)
On 25 June 2013, the Group entered into an exploration and purchase option agreement with Solitario Mexico S.A. to explore and
develop minerals in ‘Pachuca Norte Properties’ properties located in Idalgo State, Mexico.
In order to exercise the option, the Group is required to incur exploration expenditure of US$10,000,000 within five years by 25 June
2018. The Group is entitled to withdraw from the agreement at any time after incurring the first year commitments (US$1,500,000).
A provision was recorded in June. At 31 December 2013 the Group had invested US$1,015,000.
(b) Operating lease commitments
The Group has a number of operating lease agreements, as a lessee.
The lease expenditure charged to the income statement during the years 2013 and 2012 are included in production costs
(2013: US$10,287,000, 2012: US$9,688,000), administrative expenses (2013: US$1,925,000, 2012: US$1,510,000), exploration
expenses (2013: US$2,216,000, 2012:US$Nil) and selling expenses (2013: US$13,507, 2012: US$115,000).
As at 31 December 2013 and 2012, the future aggregate minimum lease payments under the operating lease agreements are as follows:
Not later than one year
Later than one year and not later than five years
(c) Capital commitments
Peru
Argentina
For the year ended
31 December
2012
US$000
7,630
2,224
2013
US$000
5,149
258
For the year ended
31 December
2012
US$000
64,603
11,907
76,510
2013
US$000
151,362
6,767
158,129
34 CONTINGENCIES
As at 31 December 2013, 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 2013, the
Group had exposures totalling US$38,630,000 (2012: US$42,245,000) 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.
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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 sold, 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 additional
tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.
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.
d) In the case of the Arcata mine unit, the company quit the tax stability agreement, but has mantained the agreement for the mining
royalties, such that the Arcata unit, is liable for the new SMT but the mining royalties remain payable at the same rate as they were,
before the modification in 2011.
As at 31 December 2013, 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$389,000 (2012: US$835,000), US$629,000 (2012:
US$1,089,000), and US$148,000 (2012: US$1,051,000) 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$1,784,000 (2012: US$3,224,000) representing the former mining royalty, classified as cost of sales,
US$2,344,000 (2012: US$3,834,000) of new mining royalty and US$905,000 (2012: US$4,256,000) of SMT, both classified 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. Since November 2012
Minera Santa Cruz S.A. has been paying and expensing the increased 3% royalty although it has filed an administrative claim against
the new law. As at 31 December 2013, the amount payable as mining royalties amounted to US$451,000 (2012: US$795,000). The
amount recorded in the income statement was US$6,509,000 (2012: as cost of sales of US$6,448,000).
On 13 June 2013, the congress of the Province of Santa Cruz passed Law No. 3318, which created a tax on mining reserves. Accordingly,
the owners of mining concessions located in the Province of Santa Cruz must pay a tax on mining reserves at a rate of 1%, calculated
at the end of each year and determined according to the international price of metals at that date. This law was later regulated by the
Provincial Government Decree No. 1252/2013 and by the Provincial Tax Authority Disposition No. 084/2013. According to these
regulations, the tax applies only on “measured reserves” and certain deductions (related to the production cost) apply. Minera Santa
Cruz S.A. (an affiliate of Hochschild Mining plc) is affected by this tax, and therefore, has been paying it. On 20 December 2013, Minera
Santa Cruz S.A. filed before the Argentine Supreme Court a legal claim against the tax on mining reserves. Such legal claim challenges
the legality of the tax on mining reserves arguing its unconstitutionality on the grounds that it violates the Federal Mining Policy
created by national law No. 24.196. As at 31 December 2013, the amount payable as tax on mining reserves was US$1,381,000 recorded
as ‘Trade and other payables’. The amount recorded in the income statement was US$2,453,000 as other expenses.
156 Hochschild Mining plc Annual Report 2013
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FINANCIAL STATEMENTS CONTINUED
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
2013
2012
Increase/
decrease price of
ounces of:
Gold +/-10%
Silver +/-10%
Gold +/-10%
Silver+/-10%
Effect on
profit before tax
US$000
+/-831
+/-2,155
+/-48
+/-354
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in pounds
sterling, Peruvian nuevos soles, Canadian dollars, Argentinian pesos and Mexican pesos. Accordingly, the Group’s financial results
may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-term relationship between
commodity prices and currencies in the countries in which the Group operates provides a certain degree of natural protection. The
Group does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their respective
currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group’s profit
before tax and the Group’s equity.
Year
2013
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
2012
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
Increase/
decrease in
US$/other
currencies’ rate
Effect
on profit before
tax
US$000
Effect
on equity
US$000
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
-/+10
+/-2,708
+/-1,922
-/+483
+/-1,223
-/+265
+/-36
-/+2,622
+/-358
+/-4,107
+/-1,006
+/-677
+/-75
–
–
–
+/-765
–
+/-78
–
–
–
+/-2,942
–
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
36 FINANCIAL RISK MANAGEMENT (continued)
(c) Credit risk
Credit risk arises from debtors’ inability to make payment of their obligations to the Group as they become due (without taking into
account the fair value of any guarantee or pledged assets). The Group is primarily exposed to credit risk as a result of commercial
activities and non-compliance, by counterparties, in transactions in cash which are primarily limited to cash balances deposited in
banks and accounts receivable at the statement of financial position date.
Counterparty credit exposure based on commercial activities, including trade receivables, embedded derivatives and cash balances
in banks as at 31 December 2013 and 31 December 2012:
As at
31 December
2013
US$000
29,087
9,045
7,434
5,185
4,826
4,577
4,011
3,945
1,108
59
–
–
425
69,702
As at
31 December
2013
US$000
(696)
(645)
(393)
(282)
(227)
(36)
(27)
(17)
29
(2,294)
Credit
rating or %
collected as
at 11 March
2014
A1
84%
61%
26%
100%
BBB
100%
63%
0%
1%
–
–
–
Credit
rating or %
collected as
at 11 March
2014
BBB
61%
A1
26%
100%
84%
1%
63%
100%
As at
31 December
2012
US$000
32,001
–
14,261
7,077
–
16,186
12,975
–
1,108
–
4,591
78
158
88,435
As at
31 December
2012
US$000
(1,844)
(1,279)
(2,963)
(99)
–
–
–
–
(706)
(6,891)
Credit
rating or %
collected as
at 11 March
2013
A1
–
85%
71%
–
BBB
100%
–
0%
–
100%
100%
–
Credit
rating or %
collected as
at 11 March
2013
BBB
85%
A1
71%
–
–
–
–
100%
Summary commercial partners – Trade receivables
LS Nikko
Glencore Peru S.A.C.
Consorcio Minero S.A.
Aurubis AG (formerly Nordeutsche Affinerie AG)
Republic Metals Corporation
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Argor Heraus S.A.
Glencore International AG
Doe Run Peru S.R.L.
Sumitomo Corporation
Standard Bank
MRI Trading AG
Others
Summary commercial partners – Embedded derivatives
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Consorcio Minero S.A.
LS Nikko
Aurubis AG (formerly Nordeutsche Affinerie AG)
Republic Metals Corporation
Glecore Peru S.A.C.
Sumitomo Corporation
Glencore International AG
Argor Heraus S.A.
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FINANCIAL STATEMENTS CONTINUED
36 FINANCIAL RISK MANAGEMENT (continued)
Financial counterparties
JP Morgan
Citibank
Banco de Crédito del Peru
Banco Bilbao Vizcaya Argentaria
ICBC
Morgan Stanley
Banorte
HSBC
US Treasury bonds
Royal Bank of Canada
Others (including cash in hand)
Total
1 The long-term credit rating.
As at
31 December
2013
US$000
175,673
43,426
18,822
18,771
9,356
7,848
1,312
–
–
–
11,227
286,435
Credit
rating1
A
A-
BBB+
BBB-
A
A-
BBB
–
–
–
NA
As at
31 December
2012
US$000
43,716
49,502
64,690
89,094
–
–
1,940
40,552
49,967
3,046
16,437
358,944
Credit
rating1
A
A-
BBB
BBB
–
–
BBB
A+
–
LTLC
NA
To manage the credit risk associated with commercial activities, the Group took the following steps:
Active use of prepayment/advance clauses in sales contracts.
Delaying delivery of title and/or requiring advance payments to reduce exposure timeframe (potential delay in sales recognition).
Obtaining parent guarantees or contracting directly with parent company to shore up the credit profile of the customer
(where possible).
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:
Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and to
diversify credit risk.
Limiting exposure to financial counterparties according to Board approved limits.
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.
(d) Equity risk on financial instruments
The Group acquires financial instruments in connection with strategic alliances with third parties. The Group constantly monitors
the fair value of these instruments in order to decide whether or not it is convenient to dispose of these investments. The disposal
decision is also based on management’s intention to continue with the strategic alliance, the tax implications and changes in the
share price of the investee.
The following table demonstrates the sensitivity to reasonable movements in the share price of available-for-sale financial assets and
derivative financial instruments (excluding embedded derivatives from provisionally priced sales), with all other variables held constant:
Year
2013
2012
Increase/
decrease in
prices
+25%
-25%
+25%
-25%
Effect on
profit before
tax
US$000
–
-242
–
-9,285
Effect
on equity
US$000
+428
-186
+7,652
-3,757
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Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
36 FINANCIAL RISK MANAGEMENT (continued)
(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 2013 and 2012, 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
Bonds
Liabilities measured at fair value
Embedded derivatives (note 22(1))
31 December
2013
US$000
51,658
–
–
Level 1
US$000
45,658
–
–
Level 2
US$000
–
–
–
Level 3
US$000
6,000
–
–
(2,294)
–
–
(2,294)
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)
During the period ending 31 December 2013 and 2012, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Balance at 1 January 2012
Gain from the period recognised in revenue (note 22(1))
Fair value change through equity
Balance at 31 December 2012
Gain from the period recognised in revenue (note 22(1))
Impairment through profit and loss (finance costs)
Fair value change through equity
Balance at 31 December 2013
Embedded
derivatives
liabilities
US$000
(12,831)
5,940
–
(6,891)
4,597
–
–
(2,294)
Equity
shares
US$0001
11,841
–
168
12,009
–
(5,745)
(264)
6,000
1 Pembrook Mining Corp (‘Pembrook’): Macroeconomic uncertainty has been putting downward pressure on commodity prices over the past few months.
Furthermore, the Group is concerned that Pembrook will run out of funds by the end of the year under their existing agreements and believes that under the
present market conditions they may be unable to obtain funding. Therefore, a 50% decrease in the acquisition price of the investment has been applied to fair
value the shares as of 31 December 2013. The decrease was calculated based on available observable market data of similar peers.
160 Hochschild Mining plc Annual Report 2013
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FINANCIAL STATEMENTS CONTINUED
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
2013 the Group maintained uncommitted short-term bank lines for approximately US$180,000,000.
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 2013
Trade and other payables
Embedded derivative liability
Borrowings
Provisions
Total
At 31 December 2012
Trade and other payables
Embedded derivative liability
Borrowings
Provisions
Total
Less than
1 year
US$000
103,692
2,294
448,355
–
554,341
130,183
6,891
6,978
1,211
145,263
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
174
–
–
4,937
5,111
–
–
112,129
3,353
115,482
–
–
–
–
–
–
–
–
1,552
1,552
–
–
–
–
–
–
–
–
–
–
103,866
2,294
448,355
4,937
559,452
130,183
6,891
119,107
6,116
262,297
www.hochschildmining.com 161
www.hochschildmining.com 161
Financial statementsp102-179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
36 FINANCIAL RISK MANAGEMENT (continued)
(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. As of December 2013, interests from a
US$270,000,000 bridge loan facility drawn in December 2013 to complete International Minerals Corporation acquisition are
calculated at a variable rate (Libor + spread). All other 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)
Secured bank loans (note 25)
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)
Within
1 year
US$000
454
214,971
–
(54,175)
(115,873)
8,751
(265,877)
Within
1 year
US$000
322
224,165
49,967
(360)
As at 31 December 2013
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$000
454
214,971
–
(54,175)
(115,873)
8,751
(265,877)
As at 31 December 2012
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
–
–
(6,613)
(106,850)
22,836
–
–
–
–
–
–
–
–
–
–
–
–
322
224,165
49,967
(360)
(113,463)
–
22,836
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.
162 Hochschild Mining plc Annual Report 2013
162
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
36 FINANCIAL RISK MANAGEMENT (continued)
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 2013 and 2012 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
2013
2012
Increase/
decrease
interest
rate
+/-50bps
+/-50bps
Effect
on profit
before tax
US$000
+/-1,394
+/-114
(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 the company targets to maintain low indebtedness ratios, in 2013 management decided to increase its long term debt
to finance the acquisition of Hochschild´s joint venture partner in Pallancata and Inmaculada, International Minerals. In addition,
management reserves the right to use of short-term pre‑shipment financing (financing of commercial accounts receivables and
finished goods inventory).
Management also retains the right to fund operations (fully owned and joint ventures) with a mix of equity and joint venture
partners’ debt.
37 SUBSEQUENT EVENTS
On 1 January 2014, following the acquisition of International Minerals Corporation (note 4(a)), the Group proceeded to merge
Compañía Minera Ares S.A.C. with Minera Suyamarca S.A.C.
On 23 January 2014, the Group completed an offering of US$350,000,000 of Senior Notes with a coupon rate of 7.750% due for
repayment in 2021 via its wholly owned subsidiary, Compañía Minera Ares S.A.C. The Notes were offered only to qualified
institutional buyers under Rule 144A under the Securities Act and to non-U.S. persons outside the United States in reliance on
Regulation S of the Securities Act. The Notes are guaranteed by Hochschild Mining plc and certain of its subsidiaries. The net
proceeds from the sale of the Notes were used to repay the outstanding borrowings under the Syndicated Loan (see note 25) in
full, plus accrued and unpaid interest, and to pay related fees and expenses.
On 28 February 2014 the Group sold its interest in Minas Santa María de Moris, S.A. de C.V. (“Moris”) to Exploraciones y Desarrollos
Regiomontanos, S.A. de C.V. (“EDR”) and Arturo Préstamo Elizondo (“APE”). The terms of the transaction stipulate that:
– the Group is entitled to a 1% net smelter return over the Moris concessions; and
– EDR and APE will assume all costs associated with the mine and plant rehabilitation obligations.
The transaction does not include the cash balances of Moris, which will be transferred to the Group.
The transaction resulted in a loss of US$2,963,000.
On March 2014 the Group signed agreements with Citibank N.A., Goldman Sachs International and JP Morgan to hedge the sale of
1,000,000 ounces of silver at US$22 per ounce, 1,000,000 ounces of silver at US$22 per ounce and 3,300 ounces of gold at US$1,338.45
per ounce, during the period from March to December 2014.
www.hochschildmining.com 163
www.hochschildmining.com 163
Financial statementsp102-179
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
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
2012
US$000
2013
US$000
Notes
4
5
120
147
1,343,000 2,319,649
1,343,120 2,319,796
6
7
8
8
8
10
11
9
10
1,058
71,797
72,855
13,995
3,466
17,461
1,415,975 2,337,257
170,389
416,247
(898)
347,915
135,167
158,637
416,154
(898)
1,324,273
100,819
1,068,820 1,998,985
–
128
128
106,850
219
107,069
231,154
115,873
347,027
347,155
224,590
6,613
231,203
338,272
1,415,975 2,337,257
The financial statements on pages 164 to 179 were approved by the Board of Directors on 11 March 2014 and signed on its behalf by:
IGNACIO BUSTAMANTE
Chief Executive Officer
11 March 2014
164 Hochschild Mining plc Annual Report 2013
164
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
PARENT COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2013
Reconciliation of loss for the year to net cash used in operating activities
Loss for the year
Adjustments to reconcile Company loss to net cash outflows from
operating activities
Depreciation
Impairment on investment in subsidiary
Finance income
Finance costs
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 generated from/(used in) operating activities
Interest received
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Acquisition of subsidiary
Loans to subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Proceed of borrowing
Proceeds from issue of ordinary shares
Dividends paid
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
2013
US$000
Notes
(992,233)
(17,348)
4
5
27
976,649
(250)
9,439
437
37
8,738
200
3,044
357
(6,607)
(3,206)
(7)
(238)
(245)
10,542
71,816
(10,139)
72,219
68,768
(437)
3,466
71,797
13
7
29
–
(116)
8,980
349
193
(3,461)
387
(10,987)
9
(6,612)
(17,590)
–
(10,178)
(10,178)
50,190
–
(20,278)
29,912
2,144
(349)
1,671
3,466
www.hochschildmining.com 165
www.hochschildmining.com 165
Financial statementsp102-179
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2013
Equity
share
capital
US$000
Notes
Share
premium
US$000
Treasury
Shares
US$000
Bond equity
component
US$000
Share-
based
payment
reserve
US$000
Merger
reserve
US$000
Total other
reserves
US$000
Retained
earnings
US$000
Total equity
US$000
Other reserves
Balance at
1 January 2012
Other comprehensive
income
Loss for the year
Total comprehensive loss
for 2012
CEO LTIP
Dividends
Balance at
31 December 2012
Other comprehensive
income
Loss for the year
Total comprehensive loss
for 2013
Issuance of shares
Transfer to retained
earnings
CEO LTIP
Dividends
Balance at
31 December 2013
13
13
158,637
416,154
(898)
8,432
154
1,315,396
1,323,982
138,445
2,036,320
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
291
–
–
–
–
–
–
–
–
–
–
(17,348)
(17,348)
–
(17,348)
(17,348)
291
–
291
–
(20,278)
(20,278)
158,637
416,154
(898)
8,432
445
1,315,396
1,324,273
100,819
1,998,985
–
–
–
11,752
–
–
–
–
–
–
93
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
291
–
–
–
–
–
–
–
–
(992,233)
(992,233)
–
(992,233)
(992,233)
60,071
60,071
–
71,916
(1,036,720)
(1,036,720)
1,036,720
–
–
291
–
–
(10,139)
(10,139)
–
291
170,389
416,247
(898)
8,432
736
338,747
347,915
135,167
1,068,820
166 Hochschild Mining plc Annual Report 2013
166
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2013
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 (a) Pelham Investment Corporation, a Cayman Islands company;
and (b) Inversiones Pacasmayo S.A., a Peruvian registered Sociedad Anónima.
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 2013 and 31 December 2012. 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:
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.The amendment affects disclosure but has no impact on the Company’s financial position and 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 2014 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.
167 Hochschild Mining plc Annual Report 2013
www.hochschildmining.com 167
Financial statementsp102-179
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2013
2 SIGNIFICANT ACCOUNTING POLICIES (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.
(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.
168 Hochschild Mining plc Annual Report 2013
168
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(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. In the
case the excess above par value is available for distribution, it is classified as merger reserve and then transferred to retained earnings
(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 169
www.hochschildmining.com 169
Financial statementsp102-179
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2013
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:
where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that
is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or
the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the statement of
financial position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(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’.
170 Hochschild Mining plc Annual Report 2013
170
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
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$992,233,000 (2012: loss of US$17,348,000).
4 PROPERTY, PLANT AND EQUIPMENT
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
Year ended 31 December 2013
Cost
At 1 January 2013 and 31 December 2013
Accumulated depreciation
At 1 January 2013
Depreciation
At 31 December 2013
Net book value at 31 December 2013
Office
building
US$000
Equipment
US$000
Total
US$000
277
267
102
28
130
147
277
130
27
157
120
266
1
267
–
267
267
–
267
–
544
368
29
397
147
544
397
27
424
120
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Financial statementsp102-179
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2013
5 INVESTMENTS IN SUBSIDIARIES
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
Year ended 31 December 2013
Cost
At 1 January 2013
Additions
Disposals
At 31 December 2013
Accumulated impairment
At 1 January 2013
Impairment loss
At 31 December 2013
Net book value at 31 December 2013
Total
US$000
2,319,649
2,319,649
–
–
2,319,649
2,319,649
10,274
(10,274)
2,319,649
–
(976,649)
(976,649)
1,343,000
The Company tested its investment in subsidiary for impairment in light of decreases in the prices of gold and silver, as well as
decreases in the Company’s publically listed share price, which were determined to be an indicator of impairment. As a result of
this test, the Company recognised an impairment of the investment in Hochschild Mining Holdings Ltd. Of US$976,649,000.
This impairment reflects the reduction in value of these investments since recognition. The recoverable value of the investment
in Hochschild Mining Holdings Ltd. was determined using a fair value less cost to sell approach. The fair value less cost to sell was
determined with reference to the market capitalisation of the Group at 31 December 2013, as adjusted for the net debt held directly
by the Company. Any variation in the key assumptions would either result in further impairment or a reduction of the impairment.
The breakdown of the investments in subsidiaries is as follows:
Name
Hochschild Mining Holdings Limited
Country of
incorporation
England &
Wales
Equity
interest %
As at 31 December 2013
Carrying
value
US$000
100% 1,343,000 England &
Wales
Country of
incorporation
As at 31 December 2012
Carrying
value
US$000
100% 2,319,649
Equity
interest %
Total
1,343,000
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.
On 29 March 2013, the Company subscribed for 10,442,624 shares of C$1 each in 1710503 Alberta Ltd through capital contributions paid
by compensating the account receivable from that entity amounting to C$10,442,624.
On 10 April 2013, the Company sold 10,442,624 shares of 1710503 Alberta Ltd to Hochschild Mining Holdings Limited for a total
consideration of US$10,274,080.
172 Hochschild Mining plc Annual Report 2013
172
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
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
2013
US$000
892
66
289
100
1,347
(289)
1,058
330
133
14,325
(330)
13,995
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$289,000 accrued in 2008 and partially recovered
in 2012 (2012: US$330,000).
Movements in the provision for impairment of receivables:
At 1 January 2012
Amounts recovered
At 31 December 2012
Amounts recovered
At 31 December 2013
As at 31 December, the ageing analysis of other receivables is as follows:
Total
US$000
421
(91)
330
(41)
289
Past due but not impaired
Neither
past
due nor
impaired
US$000
1,058
13,995
Total
US$000
1,058
13,995
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
–
–
–
–
–
Year
2013
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 2 days (2012: 1 day).
Year ended 31 December
2012
US$000
588
2,878
2013
US$000
402
71,395
71,797
3,466
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Financial statementsp102-179
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2013
8 EQUITY
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2013 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2012 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
367,101,352 £91,775,338
Issued
Number
Amount
338,085,226 £84,521,307
At 31 December 2013 and 2012, all issued shares with a par value of 25 pence each were fully paid (2013: weighted average of
US$0.464 per share, 2012: 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.
On 2 January 2013 the Company issued 16,126 ordinary shares following the conversion of 1 Convertible bond with a nominal value
of US$100,000.
On 2 October 2013 a share placement was completed and 29,000,000 shares with an aggregate nominal value of US$11,745,000
were issued for a cash consideration of US$71,816,010 net of transaction costs of US$1,002,990. The share placement was effected
through a cash box structure which resulted in the excess of the net proceeds received over the nominal value of the share capital
issued being transferred to retained earnings.
The changes in share capital are as follows:
Shares issued as at 1 January 2012
Shares issued as at 31 December 2012
Number of
shares
338,085,226
Share Capital
US$000
158,637
Share premium
US$000
416,154
338,085,226
158,637
416,154
Conversion of 1 convertible bond on 2 January 2013 (note 25)
Shares issued and paid pursuant to the placing of shares dated 2 October 2013
16,126
29,000,000
7
11,745
93
–
Shares issued as at 31 December 2013
367,101,352
170,389
416,247
(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 and 2013.
(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. The merger
reserve was realised in 2013 as a result of the impairment of the investment in subsidiary recorded in the period (note 5).
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.
174 Hochschild Mining plc Annual Report 2013
174
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
9 TRADE AND OTHER PAYABLES
Trade payables
Payables to subsidiaries (note 12)
Remuneration payable
Taxes and contributions
Total
Non-current
US$000
–
–
–
–
–
As at 31 December
2013
Current
US$000
991
229,994
–
169
231,154
Non-current
US$000
–
–
–
–
–
2012
Current
US$000
1,710
222,216
430
234
224,590
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
Non-current
US$000
–
As at 31 December
2013
Current
US$000
115,873
Non-current
US$000
106,850
–
115,873
106,850
2012
Current
US$000
6,613
6,613
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:
Conversion Price: GBP 3.80
Fixed Exchange Rate: US$1.59/GBP 1.00
The balance at 31 December 2013 is comprised of the carrying value of US$113,118,000 determined in accordance with the effective
interest method plus accrued interest payable of US$2,755,000.
Upon initial recognition, the convertible bonds were recorded at a value of US$ 103,827,000, representing a principal of US$115,000,000
less transaction costs of US$2,741,000 and the bond equity component of $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
2013
US$000
–
–
–
The carrying amount of current borrowings differs from their fair value only with respect to differences arising under the effective
interest rate calculations described above. 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
2012
US$000
2013
US$000
Fair values
As at 31 December
2012
US$000
2013
US$000
–
–
106,850
106,850
–
–
112,867
112,867
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Financial statementsp102-179
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2013
11 PROVISIONS
Beginning balance
Increase in provision
At 31 December
Less current portion
Non-current portion
As at 31 December
2012
US$000
123
96
2013
US$000
219
(91)
128
–
128
219
–
219
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 awards, granted in March 2013, payable in March 2016, and (ii) Long Term Incentive Plan awards, granted in March 2012, payable in
March 2015. 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 2013 and 31 December 2012.
As at 31 December 2013
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
As at 31 December 2012
Accounts
payable
US$000
US$000
Subsidiaries
Compañía Minera Ares S.A.C.1
HOC Holdings Canada Inc.2
Southwestern Gold (Bermuda) S.A.C. (formerly Southwestern Gold
(Bermuda) Limited) 3
Minera del Suroeste S.A.C. 3
1710503 Alberta Ltd4
Andina Minerals Inc 5
Hochschild Mining Holdings Ltd.6
Other subsidiaries
Total
124
223
–
–
–
488
57
892
775
–
122
–
1,218
–
–
600
–
–
228,594
25
–
–
4,632
5,635
3,361
42
600
–
–
–
220,373
25
229,994
13,792
222,216
1 Mainly relates to the services performed by Compañía Minera Ares S.A.C. to Hochschild Mining plc during 2013 of US$775,000 (2012: US$1,258,000).
2 Relates to the payments made by Hochschild Mining plc on behalf of HOC Holdings Canada Inc., for the acquisition of International Minerals Corporation
shares (4(a))
3 During 2013 Southwestern Gold (Bermuda) S.A.C. transferred its receivable to Minera del Suroeste S.A.C.
4 During 2013 the Company received shares of 1710503 Alberta Ltd in payment of the receivable (note 5).
5 During 2013 the Company transferred its receivable from Andina Minerals Inc to 1710503 Alberta Ltd and 1710503 Alberta Ltd paid the obligation through the
issuance of shares (note 5).
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.
(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$1,641,176
(2012: US$1,811,894), out of which US$33,989 (2012: US$39,935) relates to cash supplements in lieu of pension contributions.
Compensation of key management personnel (including directors)
Short-term employee benefits
Termination benefits
Long Term Incentive Plan
Total compensation
176 Hochschild Mining plc Annual Report 2013
176
Hochschild Mining plc Annual Report 2013
As at 31 December
2012
US$000
1,521
–
2013
US$000
1,273
77
291
291
1,812
1,641
FINANCIAL STATEMENTS CONTINUED
13 DIVIDENDS PAID AND PROPOSED
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2012: US$0.03 (2011: US$0.03)
Interim dividend for 2013: US$Nil (2012: US$0.03)
Dividends paid
Proposed for approval by shareholders at the AGM
Final dividend for 2013: US$Nil (2012: US$0.03)
2013
US$000
2012
US$000
10,139
–
–
10,139
10,139
20,278
10,139
Dividends per share
A final dividend in respect of the year ended 31 December 2012 of US$0.03 per share, amounting to a total dividend of US$10,139,237
was approved by shareholders at the Annual General Meeting held on 30 May 2013. The Directors of the Company are not
recommending the payment of a dividend in respect of the year ended 31 December 2013.
14 FINANCIAL RISK MANAGEMENT
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas to
facilitate risk assessment.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling and
Canadian dollars. Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company
does not use derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity of financial
assets and liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible change in the US dollar
exchange rate, with all other variables held constant, of the Company’s profit before tax and the Company’s equity.
Year
2013
Pound sterling
Canadian dollar
2012
Pound sterling
Canadian dollar
Increase/
decrease in
US$/other
currencies
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/-10%
+/-10%
-/+32
–
+/-10%
+/-10%
-/+566
+/-951
–
–
–
–
(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:
increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and to
diversify credit risk;
investing cash (to the extent possible) with counterparties with whom the Company has debt outstanding;
investing cash in short-term, highly liquid and low risk instruments (money market accounts);
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.
www.hochschildmining.com 177
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Financial statementsp102-179
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2013
14 FINANCIAL RISK MANAGEMENT (continued)
(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 2013 of US$71,797,000 (2012: US$3,466,000)
and US$113,472,000 (2012: US$90,849,000) 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 2013
Trade and other payables
Borrowings
Provisions
At 31 December 2012
Trade and other payables
Borrowings
Provisions
Less than
1 year
US$000
230,985
123,202
–
224,356
6,613
–
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
332
–
112,129
145
–
–
–
–
–
79
–
–
–
–
–
–
230,985
123,202
332
224,356
118,742
224
(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 2013
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
–
–
–
–
–
–
–
402
71,395
(115,873)
As at 31 December 2012
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Within
1 year
US$000
402
71,395
(115,873)
Within
1 year
US$000
588
2,878
(6,613)
–
–
(106,850)
–
–
–
–
–
–
588
2,878
(113,463)
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.
178 Hochschild Mining plc Annual Report 2013
178
Hochschild Mining plc Annual Report 2013
FINANCIAL STATEMENTS CONTINUED
14 FINANCIAL RISK MANAGEMENT (continued)
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 2013 and 2012 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
2013
2012
Increase/
decrease in
interest rate
+/-50bps
+/-50bps
Effect on
profit before
tax US$000
–
–
(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.
www.hochschildmining.com 179
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Financial statementsp102-179
Ares
50,362
(53,684)
647
(54,331)
Arcata
136,968
(104,933)
1,253
(106,186)
Pallancata
181,795
(130,034)
(2,821)
(127,213)
(42,521)
(9,029)
3
(2,784)
(3,322)
–
–
(193)
–
(73,128)
(32,038)
638
(1,658)
32,035
–
–
(325)
–
–
–
–
–
–
–
–
–
–
–
(75,934)
(50,142)
(571)
(566)
51,761
–
–
(2,404)
–
49,357
–
–
–
–
–
San Jose
240,723
(170,682)
3
(170,685)
(114,053)
(51,173)
(7,074)
1,615
70,041
–
–
(25,899)
–
44,142
–
–
–
–
–
Moris
12,247
(10,817)
–
(10,817)
(8,529)
(1,755)
–
(533)
1,430
Consolidation
adjustment
and others Total/HOC
622,158
(469,232)
63
918
918
–
–
–
–
–
981
–
(469,232)
(314,165)
(144,137)
(7,004)
(3,926)
152,926
(56,776)
(46,327)
(28,785)
(9,139)
–
–
–
–
(56,776)
(46,327)
36
(9,139)
1,430
(111,225)
11,899
–
–
–
–
–
(90,671)
5,921
121,034
(148,050)
(19,753)
(90,671)
5,921
121,034
(148,050)
(19,753)
(3,515)
31,710
49,357
44,142
1,430
(242,744)
(119,620)
–
–
–
–
–
(9,057)
(9,057)
(3,515)
31,710
49,357
44,142
1,430
(251,801)
(128,677)
Operating profit before impairment
(3,515)
31,710
FURTHER INFORMATION
1
PROFIT BY OPERATION
(Segment report reconciliation) as at 31 December 2013
Company (US$000)
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
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.
180 Hochschild Mining plc Annual Report 2013
180
Hochschild Mining plc Annual Report 2013
RESERVES AND RESOURCES
ORE RESERVES AND MINERAL RESOURCES ESTIMATES
Hochschild Mining plc reports its mineral resources and reserves estimates in accordance with the Australasian Code for Reporting
of Exploration Results, Mineral Resources and Ore Reserves 2004 edition (‘the JORC Code’). This establishes minimum standards,
recommendations and guidelines for the public reporting of exploration results and mineral resources and reserves estimates. In
doing so, it emphasises the importance of principles of transparency, materiality and confidence. The information on ore reserves
and mineral resources on pages 182 to 186 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 2013, 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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181
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Further informationp180-190 FURTHER INFORMATION CONTINUED
RESERVES AND RESOURCES CONTINUED
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2013
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)
803,568
1,205,831
2,009,399
1,742,995
1,121,338
2,864,332
484,606
440,167
924,773
3,031,169
2,767,336
5,798,505
76,997
19,085
96,082
3,840,000
3,960,000
7,800,000
6,948,166
6,746,421
13,694,587
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
324
304
312
251
241
247
597
426
515
326
298
312
148
184
155
106
134
120
202
201
202
0.9
0.8
0.9
1.2
1.1
1.1
7.8
6.2
7.0
2.2
1.8
2.0
2.1
1.6
2.0
3.4
3.3
3.4
2.9
2.7
2.8
8.4
11.8
20.1
14.1
8.7
22.8
9.3
6.0
15.3
31.7
26.5
58.2
0.4
0.1
0.5
13.1
17.0
30.1
45.2
43.6
88.9
23.7
32.7
56.4
64.9
39.6
104.5
121.8
87.1
208.9
210.5
159.4
369.9
5.2
1.0
6.2
424.7
424.5
849.2
640.4
584.8
1,225.2
9.8
13.7
23.5
18.0
11.1
29.0
16.6
11.2
27.9
44.4
36.1
80.4
0.7
0.2
0.9
38.6
42.5
81.1
83.6
78.7
162.4
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.
182
182
Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2013
Pb
(%)
Resource category
Tonnes
(t)
Ag
(g/t)
Au
(g/t)
Zn
(%)
MAIN OPERATIONS
Arcata
Measured
Indicated
Total
Inferred
Pallancata
Measured
Indicated
Total
Inferred
San Jose
Measured
Indicated
Total
Inferred
Main
operations total
Measured
Indicated
Total
Inferred
OTHER OPERATIONS
Ares
Measured
Indicated
Total
Inferred
Other operations
total
Measured
Indicated
Total
Inferred
ADVANCED/ GROWTH
PROJECTS
Inmaculada1
Measured
Indicated
Total
Inferred
1,451,282
2,233,235
3,684,517
3,489,726
3,384,579
1,307,053
4,691,631
3,943,208
777,207
1,465,734
456
368
403
309
340
293
327
284
640
448
1.35
1.31
1.32
1.14
1.57
1.34
1.50
1.41
8.85
6.71
2,242,941
515
7.45
944,372
455
7.23
5,616,068
412
2.52
5,006,022
372
2.90
10,619,090
393
2.70
8,377,307
314
1.95
523,206
152,060
675,266
414,112
523,206
152,060
675,266
414,112
184
5.82
199
3.02
187
5.19
171
3.74
184
5.82
199
3.02
187
5.19
171
3.74
3,283,431
3,782,818
128
159
4.10
4.05
7,066,249
144
4.07
4,937,776
152
3.91
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
G
o
v
e
r
n
a
n
c
e
p
X
X
-
X
X
Cu
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
537
446
482
377
434
374
417
369
1,171
850
962
889
563
546
555
431
533
380
499
395
533
380
499
395
374
402
389
387
21.3
26.4
47.7
34.7
37.0
12.3
49.3
36.0
16.0
21.1
37.1
13.8
74.3
59.9
134.1
84.5
3.1
1.0
4.1
2.3
3.1
1.0
4.1
2.3
13.5
19.3
32.8
24.2
63.0
25.1
93.7
32.0
156.7
57.1
127.9
42.4
170.6
47.3
56.2
15.7
226.8
63.0
179.0
46.7
221.1
29.3
316.0
40.1
537.2
69.3
219.6
27.0
454.8
101.6
466.0
87.8
920.7
189.4
526.5
116.1
97.9
14.8
9.0
1.9
112.6
10.8
49.7
5.3
97.9
14.8
9.0
1.9
112.6
10.8
49.7
5.3
432.8
39.4
492.3
48.9
925.1
88.3
620.0
61.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
Inmaculada resources as published in the Feasibility Study released on 11 January 2012. Prices used for resources calculation: Au: $1,100/oz and Ag: $18/oz.
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183
www.hochschildmining.com 183
Further informationp180-190
FURTHER INFORMATION CONTINUED
RESERVES AND RESOURCES CONTINUED
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2013 (continued)
Ag
(g/t)
Tonnes
(t)
Resource category
Au
(g/t)
Zn
(%)
Cu
(%)
Pb
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
ADVANCED/GROWTH
PROJECTS CONTINUED
Crespo2
Measured
Indicated
Total
Inferred
Azuca
Measured
Indicated
Total
Inferred
Volcan3
Measured
Indicated
Total
Inferred
Advanced/Growth
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
Measured
Indicated
Total
Inferred
5,211,058
17,298,228
22,509,286
775,429
47
38
40
46
0.47
0.40
0.42
0.57
190,602
244
0.77
6,858,594
187
0.77
7,049,197
188
0.77
6,946,341
170
0.89
105,918,000
–
0.738
283,763,000
– 0.698
389,681,000
41,553,000
–
–
0.709
0.502
114,603,091
311,702,641
426,305,732
6
8
8
0.82
0.72
0.75
54,212,547
36
0.86
–
–
–
12,187,270
–
–
–
–
–
–
–
0.32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,393,716
69
0.02
7.12
1,354,261
2,747,977
1,257,731
82
76
84
0.06
6.14
0.04
6.64
0.05
6.18
1,393,716
69
0.02
7.12
1,354,261
2,747,977
82
76
0.06
6.14
0.04
6.64
13,445,001
8
0.30
0.58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.10
2.73
2.92
2.26
3.10
2.73
2.92
0.21
122,133,081
26
0.91
0.08
0.04
318,214,983
440,348,064
14
18
0.76
0.03
0.80
0.04
76,448,966
62
0.90
0.10
0.01
0.02
0.04
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
75
62
65
80
290
233
234
223
44
42
43
30
56
52
53
88
–
–
–
1.32
147
0.39
0.31
0.35
0.19
0.39
0.31
0.35
1.22
0.00
0.00
0.00
0.21
315
295
305
283
315
295
305
160
84
61
67
140
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
161.2
5.5
4.2
9.7
2.3
5.5
4.2
9.7
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
150.7
6,367.0
382.0
8,878.0
532.7
671.0
40.3
22.9
81.5
104.3
63.2
3,027.1
204.5
7,250.6
516.5
10,277.6
721.0
1,504.7
153.5
–
–
–
–
–
–
126.8
57.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.1
3.6
6.7
3.4
3.1
3.6
6.7
3.4
0.9
2.4
3.3
1.9
0.9
2.4
3.3
14.1
99.3
43.1
12.9
83.2
37.0
27.0
182.4
80.1
11.5
77.8
28.5
14.1
99.3
43.1
12.9
83.2
37.0
27.0
182.4
80.1
128.6
69.0
77.8
28.5
163.6
103.3
145.9
249.2
153.4
3,580.6
329.2
99.3
43.1
7,733.8
619.0
83.2
37.0
11,314.3
948.2
182.4
80.1
5.5
4.2
9.7
2,209.6
343.9
77.8
28.5
163.6
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.
184
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Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
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/Growth Projects total
Jasperoide
San Felipe
Other projects total
TOTAL
G
o
v
e
r
n
a
n
c
e
p
X
X
-
X
X
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
2012
Production1 Movements2
December
2013
Net
difference
% change
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
48.8
48.9
–
103.0
–
572.9
–
874.5
48.8
57.6
–
38.5
–
96.0
–
–
7.6
–
11.6
–
14.0
–
33.2
–
2.4
–
2.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6.9)
5.5
(1.0)
3.7
(0.8)
19.8
(8.7)
28.9
0.3
0.6
0.3
0.6
–
32.3
–
–
–
–
–
–
–
32.3
–
–
–
–
–
–
99.4
23.5
109.7
29.0
188.9
54.6
398.0
107.2
16.1
0.9
16.1
0.9
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
(6.9)
(2.1)
(1.0)
(7.9)
(0.8)
5.8
(8.7)
(4.2)
0.3
(1.8)
0.3
(1.8)
–
32.3
–
–
–
–
–
–
–
32.3
–
–
–
–
–
–
(6.5)
(8.2)
(0.9)
(21.4)
(0.4)
11.9
(2.1)
(3.8)
1.7
(67.9)
1.7
(67.9)
–
66.1
–
–
–
–
–
–
–
66.1
–
–
–
–
–
–
1,393.1
162.9
–
35.5
(8.5)
61.8
1,384.6
189.1
(8.5)
26.3
(0.6)
16.1
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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185
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Further informationp180-190
FURTHER INFORMATION CONTINUED
RESERVES AND RESOURCES CONTINUED
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Category
Percentage
attributable
December
2013
December
2012
Att.1
December
2013
Att.1
Net
difference
% change
Arcata
Pallancata
San Jose
Main operations total
Ares
Other operations total
Inmaculada
Crespo
Azuca
Volcan
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Advanced/Growth Projects total
Resource
Jasperoide
San Felipe
Other projects total
TOTAL
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
100%
106.4
100%
51%
100%
100%
100%
100%
100%
100%
100%
25.6
66.4
37.0
96.8
24.9
269.5
87.5
15.8
2.6
15.8
2.6
89.8
48.8
48.9
–
103.0
–
572.9
–
814.6
48.8
57.6
–
38.5
–
96.0
–
1,196.0
138.9
99.4
23.5
109.7
29.0
96.3
27.9
305.5
80.4
16.1
0.9
16.1
0.9
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
1,292.1
162.4
(6.9)
(2.1)
43.3
(7.9)
(0.4)
3.0
35.9
(7.1)
0.3
(1.8)
0.3
(1.8)
59.9
32.3
–
–
–
–
–
–
(6.5)
(8.2)
65.2
(21.4)
(0.4)
11.9
13.3
(8.1)
1.7
(67.9)
1.7
(67.9)
66.7
66.1
–
–
–
–
–
–
59.9
32.3
7.3
66.1
–
–
–
–
–
–
–
–
–
–
–
–
96.1
23.4
8.0
(9.8)
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
186
186
Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
PRODUCTION
2013 TOTAL GROUP PRODUCTION1
Silver production (koz)
Gold production (koz)
Total silver equivalent (koz)
Total gold equivalent (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 December
2013
Year ended
31 December
2012 % change
19,754
175.22
30,267
504.45
19,555
168.56
19,443
164.34
29,304
488.40
18,928
159.8
2
7
3
3
3
5
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
2013
Year ended
31 December
2012 % change
13,588
115.7
20,528
342.13
13,550
111.82
20,260
337.7
–
3
1
1
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
2013
Year ended
31 December
2012 % change
900,861
217
0.74
4,984
16.83
5,994
4,924
15.95
773,498
271
0.83
5,526
17.27
6,562
5,236
15.9
16
(20)
(11)
(10)
(3)
(9)
(6)
–
Year ended
31 December
2013
Year ended
31 December
2012 % change
329,095
82
336,426
54
2.39
757
23.40
2,162
761
23.25
2.65
481
26.28
2,058
473
25.8
(2)
52
(10)
57
(11)
5
61
(10)
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181
www.hochschildmining.com 187
Further informationp180-190
FURTHER INFORMATION CONTINUED
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)
Year ended
31 December
Year ended
31 December
2013
2012 % change
1,088,712
264
1.13
7,628
27.83
9,298
7,567
26.67
1,094,250
256
1.09
7,441
26.23
9,014
7,280
25.1
(1)
3
4
3
6
3
4
6
1 Until 20 Dec 2013 the Company had a 60% interest in Pallancata. Following completion of the International Minerals acquisition the Company now
Year ended
31 December
Year ended
31 December
2013
2012 % change
536,937
425
6.42
6,357
98.83
12,286
6,278
94.76
509,851
417
5.79
5,953
85.77
11,099
5,897
84.3
5
2
11
7
15
11
6
12
Year ended
31 December
Year ended
31 December
2013
–
–
–
27
8.33
527
26
7.93
2012 % change
–
–
–
42
8.79
570
42
8.7
–
–
–
(37)
(5)
(8)
(38)
(9)
owns 100% of 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)
182
188
Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
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.
ALL-IN SUSTAINING COSTS (AISC)
All-in sustaining cash cost per silver equivalent ounce is a non-
IFRS measure. It is calculated before exceptional items and
includes cost of sales less depreciation and change in inventories,
administrative expenses, brownfield exploration, operating capex
and royalties divided by silver equivalent ounces produced using
a ratio of 60:1 (Au/Ag). Also includes commercial discounts and
selling expenses divided by silver equivalent ounces sold using a
ratio of 60:1 (Au/Ag).
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
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
G
o
v
e
r
n
a
n
c
e
p
X
X
-
X
X
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
www.hochschildmining.com
83
www.hochschildmining.com 189
Further informationp180-190
SHAREHOLDER INFORMATION
ANNUAL GENERAL MEETING (‘AGM’)
The AGM will be held at 9.30am on 22 May 2014 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
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 2930 or via the website by visiting
the ‘Contact Us’ section.
FINANCIAL CALENDAR
Annual General Meeting
Half-yearly results announced
22 May 2014
August 2014
LONDON OFFICE AND REGISTERED OFFICE ADDRESS
46 Albemarle Street
London
W1S 4JL
United Kingdom
COMPANY SECRETARY
R D Bhasin
ADVICE TO SHAREHOLDERS CONCERNING SHARE FRAUD
Fraudsters use persuasive and high-pressure tactics to lure investors into scams.
They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment.
While high profits are promised, if you buy or sell shares in this way you will probably lose your money
How to avoid share fraud
Keep in mind that firms authorised by the FCA are unlikely to contact you out of the blue with an offer to buy or sell shares.
Do not get into a conversation, note the name of the person and firm contacting you and then end the call.
Check the Financial Services Register from www.fca.org.uk to see if the person and firm contacting you is authorised by the FCA.
Beware of fraudsters claiming to be from an authorised firm, copying its website or giving you false contact details.
Use the firm's contact details listed on the Register if you want to call it back.
Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date.
Search the list of unauthorised firms to avoid at www.fca.org.uk/scams.
Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman Service or Financial Services
Compensation Scheme.
Think about getting independent financial and professional advice before you hand over any money.
Remember: if it sounds too good to be true, it probably is!
Report a scam
If you are approached by fraudsters please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about
investment scams.
You can also call the FCA Consumer Helpline on 0800 111 6768.If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
If you are approached by fraudsters please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about
investment scams.
You can also call the FCA Consumer Helpline on 0800 111 6768.If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
84
190
Hochschild Mining plc Annual Report 2013
Hochschild Mining plc Annual Report 2013
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FORWARD-LOOKING STATEMENTS
The constituent parts of this Annual Report, including those that make up the Directors’ Report, contain certain forward-looking statement,
including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy,
investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its
current goals, assumptions and expectations relating to its future financial condition, performance and results.
Forward-looking statements include, without limitation, statements typically containing words such as “intends”, “expects”, “anticipates”,
“targets”, “plans”, “estimates” and words of similar import. By their nature, forward looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of
Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such forward
looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of
Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive
conditions, technological developments, exchange rate fluctuations and general economic conditions. Past performance is no guide to future
performance and persons needing advice should consult an independent financial adviser.
The forward looking statements reflect knowledge and information available at the date of preparation of this Annual Report. Except as
required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any forward
looking statements to reflect events occurring after the date of this announcement. Nothing in this Annual Report should be construed as a
profit forecast.
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46 ALBEMARLE STREET
LONDON W1S 4JL
UNITED KINGDOM
TEL: +44 (0)20 7907 2930
FAX: +44 (0)20 7907 2931
INFO@HOCPLC.COM
WWW.HOCHSCHILDMINING.COM