ANNUAL REPORT & ACCOUNTS 2014
Delivering
profitable growth
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www.hochschildmining.com
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Delivering
profitable growth
We are a leading underground precious metals company, focusing
on the exploration, mining, processing and sale of silver and gold
in the Americas.
With over 50 years of experience in the mining of precious
metal epithermal vein deposits, we are one of the top five
primary silver producers in the world. We are headquartered
in Lima, Peru and currently have three underground mines
in operation, with three located in southern Peru and one
in southern Argentina. Three of these mines are among the
15 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 second quarter of 2015 and produce
approximately 12 million ounces of silver equivalent per year.
We also have extensive greenfield exploration optionality
across premium geological locations throughout South
America and Mexico.
PRODUCTION GROWTH
We are delivering three years
of production growth
29.0
20.5
22.2
24.0
13
14
15
16
Over 40% PRODUCTION GROWTH
CONTENTS
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
FURTHER INFORMATION
01 Key performance indicators
02 Where we operate
03 How we do it
04
How we are going
to get there
05
Our market overview
06 Chairman’s statement
07 Chief Executive’s review
09 Operating review
13 Exploration review
14 Financial review
20 Sustainability report
30
Risk management
165 Profit by operation
166 Reserves and resources
172 Production
174 Glossary
175 Shareholder information
36
Board of Directors and
Senior Management
38 Directors’ report
40
Corporate governance
report
51 Supplementary information
Directors’ remuneration
55
report
80 Statement of Directors’
responsibilities
81
Independent auditor’s
report
86
87
88
89
90
91
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
150 Parent company statement
of financial position
151 Parent company statement
of cash flows
152 Parent company statement
of changes in equity
153 Notes to the parent
company financial
statements
www.hochschildmining.com
1
OUR KEY PERFORMANCE INDICATORS
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
14
13
12
11
10
ADJUSTED EBITDA
$m
EARNINGS PER SHARE
$
493
622
818
752
988
201
14 136
13
12
11
10
(0.15)
14
(0.15)
13
385
398
563
0.19
12
11
10
0.28
X.XX
0.49
PROPOSED TOTAL DIVIDEND
$
TOTAL SILVER CASH COSTS
$/oz Ag co-product
TOTAL GOLD CASH COSTS
$/oz Au co-product
14
13
12
11
10
LTIFR
14
13
12
11
10
Nil
Nil
0.06
0.06
0.05
14
13
12
11
10
12.1
12.9
14.2
13.0
9.3
14
13
12
11
10
864
801
781
613
535
ACCIDENT SEVERITY INDEX
COMMUNITY INVESTMENT
$m
3.07
2.08
3.33
3.63
3.70
14
13
12
11
10
149
598
1,058
910
777
1.9
3.2
14
13
12
11
10
6.5
6.7
7.7
Calculated as total number of accidents
per million labour hours.
Calculated as total number of days lost per
million labour hours.
Total social expenditure for 2014
amounted to $6.7 million.
For further details please see the
Sustainability report.
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DISCOVER MORE ONLINE ABOUT HOW WE ARE
DELIVERING PROFITABLE GROWTH
• Learn more about our history, our people and our strategy
• Explore our operations
• Read more on our approach to sustainability
www.hochschildmining.com
Strategic reportp1-35
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Hochschild Mining plc Annual Report 2014
WHERE WE OPERATE
We have over half a century’s
operating and exploration
experience in the Americas.
2
4
7 5
1
Peru
6
3
Chile
Argentina
Key
Current operations
Advanced and growth projects
CURRENT OPERATIONS1
1
Arcata
2
3
Peru
Pallancata
Peru
San José2
Argentina
ADVANCED AND GROWTH PROJECTS
Silver equivalent production
Capacity
Silver equivalent production
Capacity
Silver equivalent production
Capacity
6.8 moz
1,500 tpd
8.0 moz
1,800 tpd
12.1 moz
1,650 tpd
4
5
6
7
Inmaculada
Estimated silver equivalent production p.a.
12 moz
Peru
Crespo
Peru
Volcan
Chile
Azuca
Peru
Estimated silver equivalent production p.a.
2.7 moz
Estimated silver equivalent production p.a.
n/a
Estimated silver equivalent production p.a.
3.5 moz
GREENFIELD PROJECTS
Peru
Argentina
Mexico
Corina
El Mosquito, Ponoma, La Flora
Riverside JV
1 Silver equivalent production equals total gold production multiplied by 60 (historical gold/silver ratio) added to the total silver production. Capacity is measured
as tonnes per day (‘tpd’).
2 The Company has a 51% interest in San José.
For more information visit www.hochschildmining.com
HOW WE DO IT
We believe that our sustainable
business model and core strengths
offer a unique and compelling
investment proposition.
www.hochschildmining.com
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OUR UNIQUE PROPOSITION
We believe that the following qualities of Hochschild Mining set us apart:
Flexible f nancial s t r a t e g y
OPERATIONAL & GEOLOGICAL EXPERTISE
Our company is more than 100 years old and we have over 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 consistently been able to achieve our annual
production targets, increase our resource base and achieve positive
FOCUS ON EXPLORATION
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.
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.
FLEXIBLE FINANCIAL STRATEGY
Our financing initiatives are part of a funding strategy that
underpins our business strategy. We have the flexible financial
relationships and support to invest in near-term low cost growth,
manage the current operations in volatile commodity markets
and provide access to further liquidity should the need arise.
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
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
We have also recently utilised a focused hedging strategy
to maintain cashflow stability whilst we are allocating project
capital expenditure.
volatile commodity price cycles for over 50 years. Our management
team has also managed joint venture operations and successfully
integrated several acquisitions and business expansions.
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 over 50 years.
For more information visit www.hochschildmining.com
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4
Hochschild Mining plc Annual Report 2014
HOW WE ARE GOING TO GET THERE
Our long-term 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:
CORE ASSETS
Improve productivity
Optimise life-of-mine
EXPLORATION
Land package
People
Incentives
Budget
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 achieved all of
our annual production targets
and 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 but
also flexible 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 but withstand
short term market volatility.
We believe that significant
long-term value can be created
for our company by discovering
economic mineral resources. We
have an experienced geological
team and 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 sites across 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, subject to market
conditions and to drill and
develop our exploration projects.
We believe that this disciplined
but flexible 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 and subject to market
conditions. We have a proven
track record of identifying
opportunities, such as our
acquisition of the original
controlling stake in the
Inmaculada Advanced Project as
well as the acquisition of Andina
Minerals, which added the
Volcan Growth Project to our
pipeline. We believe the 2013
acquisition of the remaining
40% of Inmaculada fits our
strategy of adding highly
prospective early-stage projects.
For more information please see our Sustainability report on page 20
20
www.hochschildmining.com
5
OUR MARKET OVERVIEW
Silver prices were pushed lower primarily by short term investors
who moved their funds out of not only silver but much of the
commodities complex.
GOLD SUMMARY
Gold prices faced a variety of headwinds during 2014, with
stock markets rising, the U.S. dollar strengthening, and oil prices
weakening. In spite of all of these typically price-negative factors,
the price of gold held up fairly well during 2014 compared to the
sharp declines in 2013. Prices averaged $1,266 during 2014, the
fourth highest annual average on record. During 2014 gold traded
between $1,132 and $1,393, with most of the price activity
occurring between $1,200 and $1,340.
Investors remained buyers of gold during 2014, purchasing
29.9 million ounces of the metal on a net basis during the year.
Shorter term investors’ selling continued throughout 2014 but
the volumes of such sales declined sharply compared to the
amount sold in the second quarter of 2013. Meanwhile, all the
gold that the short-term investors have sold has been absorbed
by longer term investors who remain focused on the wide variety
of longer term economic, financial market, and political issues.
These investors also purchased an additional 29.9 million ounces
on top of that.
Central banks generally remained positive on gold during 2014
and at the end of November 2014 reported net purchases by
central banks had reached 2.78 million ounces for the year.
Approximately 63% of gross purchases were made by Russia
and 73% of gross sales were made by the Bank of International
SILVER SUMMARY
The weakness in silver prices during the year provided
opportunities for longer term investors who were buying in large
quantities which played an important role supporting prices over
the course of the year. Silver prices averaged $19.07 during 2014,
down from an annual average of $23.85 in 2013.
Silver prices were pushed lower primarily by short term investors
who moved their funds out of not only silver but much of the
commodities complex whilst longer term investors were using
the price weakness as a buying opportunity. For example, there
were record sales of 44 million ounces of silver coins by the U.S.
Mint of Silver Eagle coins to its dealers during the year, up 6.1%
over 2013 levels.
Silver fabrication demand has been rising at a healthy pace since
2013, largely driven by an increase in silver jewellery demand but
also by an increase in demand from electronics and solar panels.
Total silver fabrication demand rose to 865.3 million ounces in
2014, up 3.5% from 2013. Demand from the jewellery and
silverware sector, which accounts for around a third of total
fabrication demand, rose to 277.9 million ounces, up 4.3% from
2013. Demand from this sector was helped by the relatively softer
silver prices and by the imposition of import duties on gold by the
Indian government (which were lifted in November 2014), which
boosted demand for silver in jewellery.
Settlement (‘BIS’). The Russian central bank gold purchases are part
of a broader political policy whilst sales by the BIS are primarily the
unwinding of dollar-gold swaps with major European commercial
banks which is expected to be completed in 2015.
Total gold supply, which is comprised of mine production and
secondary supply from old scrap, rose during 2014 to 126.6 million
ounces with the increase entirely driven by an increase in mine
production. The increase was the result of projects brought
onstream between late 2012 and 2014 with some very large
projects like Pueblo Viejo, Tropicana East, Detour Lake, Kibali, and
Oyu Tolgoi commissioning during 2013 and ramping up in 2014,
which more than offset any weakness in mine supply from older
projects. The decline in gold prices since 2013 resulted in most
mining companies scaling back on operating and capital expenditure.
Relatively softer gold prices helped boost gold fabrication demand
to 94.7 million ounces in 2014, up 3.0% from 2013. The relative
weakness in gold prices since 2012 has helped to increase
demand, while consumers have come to accept gold prices at
presently lofty levels as the new normal. Indian demand, which
has been hurt in recent years, benefitted from stability in the
Indian rupee and weaker global gold prices. These factors reduced
the cost of imports to the country.
Demand for silver from electronics rose during 2014 to 223.7
million ounces, up 2.5% from 2013 driven in part by the increased
use of electronics in the auto market and by the near completion
of the transition of consumers from personal computers to tablets,
which require smaller quantities of silver per unit. The sheer
increase in the number of tablet and tablet-like devices being
bought globally more than offset the lost demand due to reduced
per unit usage.
Silver demand from the solar panel industry is relatively small
compared to the jewellery and electronics sectors, but it is one of
the most rapidly growing sectors of demand. Silver demand from
the solar panel industry reached 62.7 million ounces in 2014, up
33.1% from 2013 levels. The ongoing renewable energy drive by
governments and private sector entities around the globe is
expected to boost demand for solar panels for years to come.
An increase in metals prices during the 2000s resulted in a large
amount of new mine capacity coming onstream in recent years.
The relatively gentler decline in silver prices during 2014, compared
to 2013, had less of a negative impact on silver secondary supply,
which is estimated to have declined by 6.5% during the year.
For more information visit www.hochschildmining.com
Source: CPM Group LLC
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6
Hochschild Mining plc Annual Report 2014
CHAIRMAN’S STATEMENT
Throughout another year of weak commodity markets, we have
executed a consistent strategy and I am delighted that we are now
so close to the completion of Inmaculada, our next mine in Peru.
HIGHLIGHTS FROM 2014
• Inmaculada project close to completion
• Cashflow optimisation programme
delivering almost $300 million of savings
• Core operations optimised
2014 OVERVIEW
Throughout another year of weak
commodity markets, we have executed
a consistent strategy and I am delighted
that we are now so close to the completion
of Inmaculada, our next mine in Peru.
Our management team has skilfully
navigated its way through a continuing
decline in silver prices whilst keeping the
organisation competitive, allocating capital
to project construction and maintaining
our financial flexibility.
Following our acquisition of the remaining
stake in Inmaculada in 2013, I remain
confident about not only the plant
commissioning and mine ramp-up in
just a few weeks from now, but also the
considerable potential within the mine’s
surrounding area. I believe that there is
scope over the coming years to transform
our Inmaculada land package into a world
class mining district and provide
Hochschild with low cost growth for many
years to come and significantly beyond the
originally envisaged mine life. In addition,
the Arcata deposit still has strong
geological potential and we continue to
assess a variety of attractive exploration
and partnership opportunities. I believe
that the competitive advantages we have
from our long regional experience, our
strong local business relationships as well
as long-standing partnerships with key
local suppliers will allow us to develop our
assets in a cost effective manner. Across the
Americas, Hochschild has accumulated a
number of highly prospective early stage
projects which will provide a growth
platform for years to come.
The speed and success of our cashflow
optimisation programme, which has
exceeded our initial expectations, has been
vital in our drive to ensure our Company
operates profitably in underlying
commodity markets that unfortunately
have not yet recovered after the initial steep
declines in mid 2013. Indeed with the silver
price once again reaching its lowest level
since 2010, some necessary mine plan
adjustments were made to our Peruvian
assets which will ensure their viability in
2015 and especially during the key final
stages of the Inmaculada project
construction. We have also recently put in
place further hedging for a portion of our
Peruvian production for the year, which
will provide us with a degree of cashflow
stability in 2015.
Despite another highly creditable
performance operationally, Hochschild’s
2014 earnings remain in negative territory
principally due to higher interest costs
resulting from the inaugural senior notes
issue in January 2014 which we expect to
be offset once the Inmaculada project is
complete. The Board therefore proposes
not to reinstate the full year dividend whilst
the cash position is still restricted by project
capital expenditure. We remain committed
to the long term principle of delivering
shareholder returns and the Board intends
to again reassess the position once the
Company returns to profitability.
OPERATING RESPONSIBLY
Our commitment to safety remains
steadfast and one that we are not willing to
compromise and I am therefore delighted
to report that for the first time since our
listing in 2006, we have been able to
achieve our on-going objective of Zero
Fatalities in the year. This is a true
testament to all our teams who have
collectively worked to improve the safety
culture across the Company and of course,
to our workers themselves. Being a
‘Responsible Operator’ sits at the core of
our business strategy and as showcased
in the 2014 Sustainability Report, through
the diverse range of initiatives we have
undertaken during the year. In addition
to building upon our successes with the
Travelling Doctor programme, where we
have extended its reach and the range of
services offered, and the award-winning
Digital Chalhuanca project, we have
worked with the communities close to the
Inmaculada project to establish business
networks dealing in locally grown produce
as a means of promoting sustainable
economic development. Looking at our
commitment to the environment, I am
proud to report that our main operations
have been re-certified as compliant with
the ISO 14001 international standard,
acknowledging the integrity of our
environmental management systems.
BOARD
It is in these challenging times for the
industry that the need for strong leadership
is of paramount importance and, for this
reason, I wish to commend our dedicated
management team for their ongoing
efforts and my fellow directors for their
continued support during the year. Whilst
mindful of the benefits of refreshing the
composition of the Board, I consider the
need for stability in this key transitionary
period as being as crucial as ever. I am,
therefore, also grateful to our directors
for agreeing to delay the implementation
of our Non-Executive succession plan.
The continued operating challenges
prompted the Board to review its
contribution to the Cashflow Optimisation
Programme resulting in a further reduction
in Board remuneration. This reflects an
acknowledgment of the sacrifices made
by colleagues across the business and the
impact on shareholders from the volatile
price environment.
After discussions with the Board, I took the
decision to assume a Non-Executive role, as
announced at the end of last year. Despite
this recent change, I remain resolutely
committed to the business as we position
ourselves to optimise the delivery of value
to all of our stakeholders.
OUTLOOK
It remains challenging to predict the short
term direction of precious metal markets
although we retain our belief that the
strong underlying fundamentals will
reassert themselves. However, the Board is
reassured that considerable steps have been
taken to ensure the Company’s resilience
in a low price environment but also to
capitalise on an upturn when it happens
with low cost, value accretive growth.
EDUARDO HOCHSCHILD
Chairman
17 March 2015
www.hochschildmining.com
7
CHIEF EXECUTIVE’S REVIEW
We are confident that Inmaculada will not only become our flagship
low cost producer but, with the strong upside potential at the deposit,
will represent an important engine of growth for the long term.
HIGHLIGHTS FROM 2014
• Inmaculada project close to completion
• Full year production 6% above expectations
• All-in sustaining costs reduced by 6%
2015 TARGETS
• Deliver low cost, 100% owned
Inmaculada project
• Manage flexible balance sheet strategy
• Deliver all-in sustaining costs per silver
equivalent ounce of between $15 to $16
MAIN OPERATIONS ALL-IN
SUSTAINING COSTS
$/oz Ag Eq
21.7
18.6
17.4
15-16
12
13
14
15(e)
Hochschild’s key strategic aims for
2014 have been to advance our flagship
Inmaculada project to its final stages,
to continue to drive our successful
cashflow optimisation programme
and finally, to manage the Company’s
finances through what was always
expected to be a challenging transitional
phase. These objectives have been
achieved despite further silver price
weakness during 2014, a trend that
has now extended to the majority of
commodity markets.
GROWTH
The importance of the low cost Inmaculada
mine for the future competitiveness of the
Company was emphasised throughout the
year whilst good progress was made at the
project. The plant contractor, Graña y
Montero, commenced work on the plant in
early April and in spite of a few delays, plant
completion has now reached 90%. Excellent
progress has also been made in other key
deliverables including the completion of
the camp, connection to the national grid
and all procurement and infrastructure
targets achieved. We remain confident
that the commissioning date in Q2 will
be achieved. The key area of underground
mine development has progressed well
and consequently a substantial ore
stockpile will be available for processing
on completion of the plant, ensuring our
production guidance from the mine in
2015 of six to seven million silver
equivalent ounces remains in place.
COST SAVINGS
Throughout 2014, Hochschild has
continued to make substantial progress
in improving the cost position of its
current mines as well as of the Company
as a whole. Initiatives have encompassed
all business areas including administration,
exploration and most importantly at the
operational level where we have achieved
further efficiencies in supply chain
management and commercial negotiations
as well as significant working capital
improvements. Both the Peruvian operations
have been optimised with the focus
now on accessible ore. This has reduced
sustaining capital expenditure for 2015
and has resulted in a reduction in plant
throughput at both sites with the Company
focusing on the production of profitable
ounces. Whilst the overall efficiency drive
has necessitated further headcount
reductions, the Company’s all-in sustaining
cost target for 2015 of between $15 and
$16 per silver equivalent ounce represents
a significant reduction and demonstrates
the potential upside of our flexible strategy.
Beyond 2015, it is essential to the ongoing
competitiveness of the current Peruvian
mines that further operational efficiencies
are achieved and that the brownfield
exploration programme continues to
find additional high quality resources.
FINANCING
With the Company allocating significant
growth capital expenditure to Inmaculada
in a volatile precious metal environment,
focused management of our financial
position has been crucial. We began the
year with our inaugural senior note offering
raising approximately $350 million to
finance the previous year’s International
Minerals acquisition and continued to
demonstrate sufficient financial flexibility
to fund the remaining Inmaculada
expenditure as well as repaying the
$115 million convertible bond in October.
Liquidity has been further enhanced with
a $100 million medium term credit facility
secured late in the year. We also took
advantage of short periods of price
improvement to hedge almost 30% of our
2014 production in order to realise a degree
of cashflow certainty during the year. We
believe that such a strategy will remain
appropriate during commissioning and
ramp up of the new mine as we transition
to lower cost production.
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Hochschild Mining plc Annual Report 2014
CHIEF EXECUTIVE’S REVIEW
CONTINUED
Inmaculada conveyor belt
Selene
our greenfield projects, which we expect
to resume once prices recover.
2014 has proved to be another challenging
year for the Company and the management
team is, once again, encouraged by the
committed attitude shown by all our
employees. We look forward to the
commissioning of our new mine and
expect to see the Company in a stronger
position by the end of 2015. We are
confident that Inmaculada will not only
become our flagship low cost producer
but, with the strong upside potential
at the deposit, will represent an important
engine of growth for the long term.
IGNACIO BUSTAMANTE
Chief Executive Officer
17 March 2015
2014 OVERVIEW
Despite our own ongoing programme
of costs savings across the organisation,
our current operations responded well,
exceeding the forecast production target
by almost 6% and delivering 22.2 million
attributable silver equivalent ounces.
Arcata in Peru and San José in Argentina
both enjoyed robust years with their
combined contribution lifting by 3% versus
2013 whilst the adjustment in production
at Pallancata reflected the continuing move
to thinner veins. We were also able to deliver
a better than expected final production
result from the Ares mine which was
suspended in June.
Financial results for 2014 reflected the
effect of a near 15% fall in the average
price achieved of silver despite some relief
provided by the hedges taken out during
the year. Pre-exceptional EBITDA was
$135.5 million as a result of the aggressive
plan to reduce costs and expenses designed
to offset the lower revenues. The increase in
the annual finance costs is primarily related
to the bond issued in January 2014 to
complete the acquisition of Inmaculada
and Pallancata minorities and consequently
the Company expects that, once the new
mine commences production and starts
generating cashflow, this charge will be
largely absorbed. Pre-exceptional EPS was
(0.15) cents per share. The cash balance at
the end of 2014 was $116 million although
an additional $75 million of short term
lines have been drawn down in early 2015.
OUTLOOK
Production for 2015 is expected to increase
to 24 million attributable silver equivalent
ounces which takes into account between
six and seven million ounces from
Inmaculada. Costs are expected to fall
substantially although a portion of the
capital expenditure savings is non-recurring
beyond 2015. The Company has also
continued its policy of protecting cashflows
during the Inmaculada construction by
hedging a further six million silver ounces
for 2015 at $17.75 per ounce on top of the
38,000 gold ounces already hedged at
$1,300 per ounce.
In 2015, the focus of expenditure will
remain firmly on completing and ramping
up Inmaculada, brownfield exploration at
our current operations and a drilling
campaign at the Corina project in Peru.
Whilst exploration-led growth remains an
important part of Hochschild’s long term
strategy, the cashflow optimisation
programme has led to significant reductions
in our exploration initiatives especially at
Inmaculada plant construction
www.hochschildmining.com
9
OPERATING REVIEW
In 2014, Hochschild once again successfully exceeded its full-year
production target, delivering 22.2 million attributable silver
equivalent ounces.
HIGHLIGHTS FROM 2014
• Full-year production of 22.2 million
attributable silver equivalent ounces
achieved, exceeding guidance by 6%
• Main operation all-in sustaining costs
reduced by 6% in 2014
• Strong progress at Inmaculada Advanced
Project with commissioning expected in
Q2 2015
CORE ASSET KPIs
ATTRIBUTABLE SILVER PRODUCTION
moz
14
13
12
11
10
16.2
13.6
13.6
15.0
17.8
ATTRIBUTABLE GOLD PRODUCTION
moz
14
13
12
11
10
10.1
11.6
11.2
12.7
14.4
CORE ASSETS
CURRENT OPERATIONS
PRODUCTION
In 2014, Hochschild once again successfully
exceeded its full year production target,
delivering attributable production of
22.2 million silver equivalent ounces,
including 16.2 million ounces of silver and
101 thousand ounces of gold. Hochschild’s
production target for 2015 is 24.0 million
attributable silver equivalent ounces.
The increase is mainly explained by the
inclusion of between six to seven million
ounces from the Inmaculada project
offsetting the reduced contribution from
the current operations in Peru following
the revision of mine plans.
In order to reduce operating expenditure
and ensure that all the Company’s mines
can deliver profitable ounces in 2015, the
mine plans of the Arcata and Pallancata
operations have been optimised to
maximise cash generation with the
operational focus expected to be on
accessible ore areas requiring reduced
capital expenditure with cut-off grades
reflecting the current weaker metal price
environment. Plant throughput is expected
to be reduced to 1,500 tonnes per day at
Arcata and 1,800 tonnes per day at
Pallancata, with the San José operation in
Argentina continuing at its current level.
COSTS
The Company’s all-in sustaining costs
at its main operations were reduced by
6% in 2014 to $17.4 per ounce driven by
operational initiatives resulting from the
cashflow optimisation programme, an
ongoing decrease in industry cost inflation
and grade improvements particularly at
Arcata1. Unit cost per tonne at the main
Peruvian operations was at $77.3 (2013:
$74.2) with key factors being narrower
veins at Pallancata and the absence of
material from the low cost Macarena
waste dam deposit at Arcata. In Argentina,
unit cost per tonne was reduced by 6% to
$197.8 (2013: $210.0). Please see page 16
of the Financial Review for further details
on costs.
The emphasis on profitable ounces
at all operations with reduced levels of
sustainable capital expenditure for 2015
is expected to have a positive effect on
the Company’s overall costs with the
all-in sustaining cost for the Company
now expected to be reduced to between
$15 to $16 per ounce in 2015.
1 All-in sustaining cash cost per silver equivalent ounce: calculated before exceptional items includes cost
of sales less depreciation and change in inventories, administrative expenses, brownfeld exploration,
operating capex and royalties divided by silver equivalent ounces produced using a ratio of 60:1 (Au/Ag).
Also includes commercial discounts and selling expenses divided by silver equivalent ounces sold using
a ratio of 60:1 (Au/Ag).
Arcata camp in winter
Strategic reportp1-35
10
Hochschild Mining plc Annual Report 2014
OPERATING REVIEW CONTINUED
Arcata plant at night
Underground at Pallancata
Arcata summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)1
All-in sustaining cost ($/oz)
1 Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before
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 2014
701,947
286
0.85
5,827
16.89
6,841
5,621
15.66
89.1
12.6
17.7
% change
(22)
32
15
17
–
14
14
(2)
10
(1)
(15)
exceptional items less depreciation included in cost of sales.
COSTS
In 2014, the unit cost at Arcata of $89.1 per
tonne was up 10% versus 2013 with the
overall effects of the ongoing cost savings
initiatives offset by the planned depletion
in the processing of the low cost Macarena
material. However, all-in sustaining costs
fell by 15% to $17.7 per silver equivalent
ounce (2013: $20.9 per ounce) due to a
decline in sustaining capex resulting from
cashflow optimisation programme
initiatives as well as better grades.
BROWNFIELD EXPLORATION
In 2014, a total of 20,868 metres of drilling
was carried out at Arcata. In the first half
of the year, a detailed surface mapping and
sampling campaign was completed covering
a total of 1,330 ha. In addition, a drilling
campaign with the aim of adding new
resources was carried out at the property.
In 2015, a 17,440 metre exploration and
drilling programme at Arcata will focus
on inferred resource exploration at surface
over Tunel 3 and Tunel 4 and underground
resource exploration at the Lucero and
Norte Sur veins.
PALLANCATA
KEY SITE INFORMATION
Silver production koz
6,527
Gold production koz
24.34
Silver equivalent production koz
7,988
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.
ARCATA
KEY SITE INFORMATION
Silver production koz
5,827
Gold production koz
16.89
Silver equivalent production koz
6,841
The 100% owned Arcata underground
operation is located in the Department of
Arequipa in southern Peru. It commenced
production in 1964.
PRODUCTION
Full year silver equivalent production
at Arcata was 6.8 million ounces, a very
creditable 14% improvement on the
2013 result (6.0 million ounces) and was
principally driven by a planned move to
higher grade areas of the mine. Tonnage
fell following the depletion of the Macarena
Waste Dam deposit by the end of the first
half of the year.
Contribution from
Macarena Waste
Dam Deposit
Total
Tonnage
Average head
grade gold (g/t)
Average head
grade silver (g/t)
Macarena
Tonnage
Average head
grade gold (g/t)
Average head
grade silver (g/t)
Stopes and
Developments
Tonnage
Average head
grade gold (g/t)
Average head
grade silver (g/t)
12 mths
2014
12 mths
2013
701,947
900,861
0.85
0.74
286
217
38,366
290,226
0.25
0.29
63
88
663,581
610,635
0.89
0.95
299
278
www.hochschildmining.com
11
San José plant
Ares
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)
PRODUCTION
At Pallancata, as a result of the Company’s
adjustment of mine plans to ensure the
extraction of profitable ounces, as detailed
in the November 2014 Operational Update,
tonnage in the fourth quarter was moved
downwards with grades increasing. For the
full year, Pallancata produced 8.0 million
silver equivalent ounces (2013: 9.3 million
ounces) with the fall in the second half
reflecting the scheduled move to thinner
veins in the mix.
COSTS
Cost per tonne at Pallancata was $69.3
in 2014 (2013: $68.3). As at Arcata, costs
were positively impacted by the cashflow
optimisation programme although the
impact was offset by a higher proportion
of mineral extracted using conventional
methods due to narrower veins. All-in
sustaining costs however, were flat versus
2013 at $16.7 per silver equivalent ounce.
BROWNFIELD EXPLORATION
During the first half of 2014, the exploration
programme focused on mapping and
sampling a total of 1,200 ha. New surface
structures have also been recognised and
drilling was carried out at two vein systems.
10,466 metres of drilling was completed
on potential areas with further mapping
campaigns also carried out over an area
of 686 ha.
In 2015, a 19,100 metre exploration and
drilling programme at Pallancata will focus
on inferred resource exploration at surface
and also geological mapping of the west
and south side of the district for new
target definition.
Year ended
31 Dec 2014
1,051,068
238
1.03
6,527
24.34
7,988
6,502
24.02
69.3
11.0
16.7
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
% change
(3)
(10)
(9)
(14)
(13)
(14)
(14)
(10)
1
7
–
SAN JOSÉ
KEY SITE INFORMATION
Silver production koz
6,469
Gold production koz
94.16
Silver equivalent production koz
12,119
The San José silver/gold mine is located
in Argentina, in the province of Santa
Cruz, 1,750 kilometres south-southwest
of Buenos Aires. San José 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
In 2014, San José again proved to be a
very consistent performer with increased
tonnage offsetting lower grades and
resulting in almost unchanged year-on-year
production of 12.1 million silver equivalent
ounces (2013: 12.3 million ounces).
COSTS
At San José, unit cost per tonne decreased
by 6% versus 2013 to $197.8. This was
mainly due to the impact of the cash
optimisation. All-in sustaining costs were
reduced by 6% versus the same period of
2013 with cash optimisation initiatives
helping to reduce sustaining and
development capital expenditure.
BROWNFIELD EXPLORATION
In 2014, a 5,263 metre potential drilling
campaign was focused on the definition of
new veins. The team had already completed
detailed surface mapping and sampling
over the Los Pinos vein and identified
another structure, Los Pinitos. In addition,
mapping work identified additional
corridors for subsequent drilling campaigns
to focus on whilst further structures were
identified in the north east and to the west.
In 2015, a drilling program over Los Pinos
and Los Pinitos is planned – subject to
obtaining environmental permits. A review
and interpretation of the ground magnetic
and electrical data collected on the
property in the last five years is scheduled
along with surface geology work to identify
new drill targets for 2016.
San José summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)
All-in sustaining cost ($/oz)
Year ended
31 Dec 2014
571,017
404
5.77
6,469
94.16
12,119
6,316
91.28
197.8
12.1
17.8
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
% change
6
(5)
(10)
2
(5)
(1)
1
(4)
(6)
(10)
(6)
Strategic reportp1-35
12
Hochschild Mining plc Annual Report 2014
OPERATING REVIEW CONTINUED
Inmaculada plant construction
PROJECT REVIEW
Hochschild’s portfolio currently includes
one Advanced Project, Inmaculada and
three Growth Projects, Crespo, Azuca and
Volcan. The continuing weakness of the
precious metal markets following the initial
price declines in 2013 has led to the current
focus on Hochschild’s flagship Inmaculada
project. The acquisition of IMZ, completed
in December 2013, gave the Company
100% of this project which is expected
to contribute, after a ramp-up period,
approximately 12 million silver equivalent
ounces per annum on average with the
start of plant commissioning due in the
second quarter of 2015.
The strategy with regards to Crespo, Azuca
and Volcan was revised in late 2013 with
work on these deposits remaining on hold
throughout 2014. Despite the prioritisation
of Inmaculada, all three projects remain
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 assess capital re-allocation
to these assets and potentially re-initiate
development.
OTHER OPERATIONS
ARES: PERU
KEY SITE INFORMATION
Silver production koz
534
Gold production koz
11.63
Silver equivalent production koz
1,232
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 Ares mine in Peru was
suspended in the second quarter of 2014
with total production for the first half and
for the year as a whole being a better-than-
expected 1.2 million silver equivalent
ounces (2013: 2.2 million ounces).
BROWNFIELD EXPLORATION
Following the 2014 programme of
geological mapping, a 2,500 metre drilling
campaign is scheduled for 2015, subject to
receiving the requisite exploration permits.
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)
Year ended
31 Dec 2014
167,331
110
2.34
534
11.63
1,232
540
11.45
Year ended
31 Dec 2013
329,095
82
2.39
757
23.40
2,162
761
23.25
% change
(49)
34
(2)
(29)
(50)
(43)
(29)
(51)
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.
The EPC contractor Graña y Montero
continued construction of the plant
throughout the year. Later in 2014, concrete
foundations for the plant’s SAG mill were
found to not meet contractual technical
specifications and were therefore re-built
which, along with other delays in the
project including slower than expected
on-site recruitment, resulted in the
commissioning date of the plant being
rescheduled for Q2 2015. However, as a
result of excellent progress being made
by the Hochschild team in the originally
envisaged bottleneck area of mine
development, it has been possible to
ensure that a stockpile of just over 260,000
tonnes will be available for processing on
completion of the plant. Consequently,
the Company confirms that the overall
production forecast of 6-7 million silver
equivalent ounces for 2015 remains in place.
Procurement of all main equipment was
completed during the first half and by
the end of the year, other key deliverables
such as connection to the national grid,
infrastructural and engineering
requirements and relevant permitting were
complete. Construction also commenced
in the third quarter on the tailings dam,
warehouses, laboratories and workshops
as well as work on the paste backfill plant.
In addition, a total of 15,406 metres of
tunnelling and 2,445 metres of raise boring
have been carried out to date at the project.
Construction capital expenditure at the
project to date is $348 million with the
remaining construction capital expenditure
for 2015 expected to be $72 million
bringing the total to $420 million.
Toward the middle of the year, mapping
was carried out at the Puquiopata
(to the North East of Inmaculada) and
Huarmapata veins as well as re-logging of
the Angela vein system in order to optimise
the geological model.
www.hochschildmining.com
13
Prospecting at 5,300 metres above sea level
In addition to exploration at the
Inmaculada land package, a project was
started to explore the overall properties
available between the Pallancata mine
and Inmaculada. Following a mapping
programme in the Palca area further to the
North East of Inmaculada, in August two
anomalous zones were identified, Palca 1
and Palca 2. At Palca 1, six promising vein
structures have been selected amongst
others in a corridor of almost five kilometres
with work at Palca 2 starting later on in the
year. In addition, geochemical results have
shown gold and silver presence at surface.
The exploration team’s resulting
interpretation has allowed them to define
the Palca corridor which continues to the
North West into an area called Cochaloma,
which is part of the Pallancata concession,
where there are similar structures to Palca.
EXPLORATION REVIEW
In 2014, investment in exploration totalled
$20.4 million and was split between
exploration work at the Company’s existing
operations, the Inmaculada Advanced
Project and greenfield opportunities in
Peru and Mexico. As part of Hochschild’s
ongoing cashflow optimisation programme,
the Company reduced its 2014 exploration
budget with the main focus continuing to
be on brownfield exploration. Exploration
work at the core operations was principally
focused on identifying new potential and
near-mine high grade areas to further
improve the resource quality whilst at the
Inmaculada Advanced Project, efforts were
focused on identifying new potential high
grade areas.
Hochschild’s greenfield strategy for 2014
was focused on only the most promising
prospects, specifically in Peru and Mexico.
In 2015, exploration activity will be primarily
focused on brownfield exploration in order
to maintain or improve the resource base.
As a direct consequence of the continued
low price environment, the level of
greenfield exploration and appraisal of
acquisition/joint venture opportunities
has been significantly reduced.
MEXICO
PACHUCA
In the first half of the year, at the Pachuca
project in Mexico, the joint venture with
Solitario Exploration & Royalty Corp,
focused on the northwestern extension of
the historical vein mining district. The 2014
plan included testing the actual extensions
of prior intercepts tested by the previous
operator. A total 2,454 metres were drilled
on 13 holes during the 2013 and 2014
campaigns. However, despite some drill
holes showing economic gold and silver
grades, continuous mineralisation could
not be identified and therefore the project
was transferred back to Solitario.
RIVERSIDE JOINT VENTURE
In the first half of the year, the exploration
team accepted two targets generated by
Riverside, the joint venture partners in the
western Sonora in Mexico. The projects
were Bohemia and Cajon and whereas
Bohemia exhibited mineralised veins,
orogenic type mineralisation was observed
at Cajon with highly frequent small
mineralised veins off a detachment fault.
However sampling at Bohemia did not
show continuity in the mineralisation,
displaying poor gold values and
consequently work at the target was
halted. Trenching at Cajon also concluded
and a drilling campaign will be performed
in 2015.
During the fourth quarter, the Company
decided to close its exploration office in
Chihuahua and focus on financing and
supporting Riverside from the head office.
The venture continues to explore new
opportunities in this prolific, low-cost
mineral district.
PERU
During the year, the Company’s exploration
efforts in Peru focused on optimising the
existing portfolio and reviewing any industry
opportunities. One of these was the Corina
project, located 15-20 km from the Selene
plant and owned by Lara Exploration Ltd.
The agreement drawn up includes an
option giving Hochschild full ownership
of the project over four years. Company
community relations teams are currently
negotiating access agreements that would
allow the Company to drill in late 2015,
subject to government permit approvals.
In addition, promising geochemical results
have been obtained from the Ibel prospect
in Peru.
Drill rig at Azuca
Exploration at Crespo
Strategic reportp1-35
14
Hochschild Mining plc Annual Report 2014
FINANCIAL REVIEW
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)/proft from continuing operations
(Loss)/proft from continuing operations (post exceptional)
Earnings per share (pre-exceptional)
Earnings per share (post-exceptional)
Cash flow from operating activities4
Year ended
31 Dec 2014
492,951
16,187
101
11.9
847
18.2
17.4
135,586
(56,689)
(70,831)
(0.15)
(0.19)
93,779
Year ended
31 Dec 2013
622,158
13,588
116
12.3
748
19.9
18.6
200,979
(42,103)
(128,677)
(0.15)
(0.36)
64,674
% change
(21)
19
(13)
(3)
13
(9)
(6)
(35)
(33)
45
–
47
45
1 Revenue presented in the fnancial statements is disclosed as net revenue (in this Financial review it is calculated as gross revenue less commercial discounts).
2 Includes Hochschild’s main operations: Arcata, Pallancata and San José. Cash costs are calculated to include cost of sales, treatment charges, and selling expenses
before exceptional items less depreciation included in cost of sales.
3 Adjusted EBITDA is calculated as proft from continuing operations before exceptional items, net fnance costs, foreign exchange loss and income tax plus
depreciation, and exploration expenses other than personnel and other exploration related fxed expenses and other non-cash expenses.
4 Cash flow from operations is calculated as proft for the year from continuing operations after exceptional items, plus the add-back of non-cash items within proft
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.
REVENUE
Gross revenue
Gross revenue from continuing operations decreased 18% to
$540.9 million in 2014 (2013: $658.2 million) primarily driven
by another substantial fall in precious metal prices.
Silver
Gross revenue from silver decreased 17% in 2014 to $358.2 million
(2013: $432.6 million) as a result of lower prices as well as a 3%
decrease in the total amount of silver ounces sold to 18,981 koz
(2013:19,555 koz).
Gold
Gross revenue from gold decreased 19% in 2014 to $182.7 million
(2013: $225.6 million) as a result of a 4% fall in the average price
received although mostly due to a 15% decline in gold sales –
the total amount of gold ounces sold in 2014 at 142.8 koz
(2013: 168.6 koz).
Gross average realised sales prices
The following table provides figures for average realised prices
and ounces sold for 2014 and 2013:
Silver ounces sold (koz)
Avg. realised silver price ($/oz)
Gold ounces sold (koz)
Avg. realised gold price ($/oz)
Year ended
31 Dec 2014
18,981
18.87
142.77
1,279
Year ended
31 Dec 2013
19,555
22.12
168.56
1,338
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 2014,
the Group recorded commercial discounts of $48.1 million
(2013: $36.1 million). This increase is explained by the decision
to sell the majority of production from Arcata as concentrate
due to improved commercial terms. The ratio of commercial
discounts to gross revenue in 2014 increased to 9% (2013: 6%).
www.hochschildmining.com
15
Net revenue
Net revenue decreased by 21% to $493.0 million (2013: $622.2 million), comprising silver revenue of $320.8 million and gold revenue
of $172.0 million. In 2014 silver accounted for 65% and gold 35% of the Company’s consolidated net revenue with no change from
the 2013 split.
Revenue by mine
$000 unless otherwise indicated
Silver revenue
Arcata
Ares
Pallancata
San José
Moris
Commercial discounts
Net silver revenue
Gold revenue
Arcata
Ares
Pallancata
San José
Moris
Commercial discounts
Net gold revenue
Other revenue1
Net revenue
Year ended
31 Dec 2014
Year ended
31 Dec 2013
% change
103,963
10,896
129,042
114,276
30
(37,369)
320,838
20,040
14,993
31,984
115,211
441
(10,713)
171,956
157
492,951
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
(10)
(38)
(21)
(16)
(95)
(38)
(21)
(10)
(54)
(9)
(7)
(96)
19
(21)
(149)
(21)
1 Other revenue includes revenue from (i) the sale of energy in Peru and, (ii) administrative services in Mexico.
COSTS
Total pre-exceptional cost of sales decreased 15% to $404.6 million
in 2014 (2013: $466.8 million). The direct production cost decreased
by 15% in 2014, to $265.6 million (2013: $311.7 million) mainly
due to the positive effects on operating costs of the Company’s
ongoing cash optimisation programme and lower tonnage
treated at the Ares mine. Depreciation in 2014 was $126.0 million
(2013: $144.1 million) with the decrease mainly due to lower
tonnage and the lower cost of the conversion of resources into
reserves. Other items, which principally includes the costs
associated with stoppages in Argentina, was $4.4 million in 2014
(2013: $7.0 million) with change in inventories at $8.6 million in
2014 (2013: $3.9 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 2014
Year ended
31 Dec 2013
% change
265,637
311,699
(15)
125,955
4,406
8,641
144,137
7,004
3,926
(13)
(37)
120
404,639
466,766
(13)
Unit cost per tonne
The Company reported unit cost per tonne at its main operations
of $106.6 in 2014, slightly up on 2013 (2013: $103.2). For further
explanation on the increase in unit cost per tonne please refer
to page 7 of the Operating review .
Unit cost per tonne by operation (including royalties)1:
Operating unit ($/tonne)
Main operations
Peru
Arcata
Pallancata
Argentina
San José
Others
Ares
Total
Year ended
31 Dec 2014
106.6
77.3
89.1
69.3
Year ended
31 Dec 2013 % change
3
4
10
1
103.2
74.2
81.3
68.3
197.8
210.0
119.3
107.4
128.3
106.1
(6)
(7)
1
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.
Strategic reportp1-35
16
Hochschild Mining plc Annual Report 2014
FINANCIAL REVIEW CONTINUED
Cash cost reconciliation
$000 unless otherwise indicated
Group cash cost
(+) Cost of sales
(-) Depreciation and amortisation in cost of sales
(+) Selling expenses
(+) Commercial deductions
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co-product Au
Co-product Ag
By-product Au
By-product Ag
Year ended
31 Dec 2014
353,736
404,639
(128,480)
28,697
48,880
10,752
38,128
492,951
171,956
320,838
157
142.8
18,981
864
12.1
(38)
9.0
Year ended
31 Dec 2013
387,686
466,766
(144,923)
28,785
37,058
9,065
27,993
622,158
216,576
405,519
63
168.6
19,555
801
12.9
(272)
8.3
% change
(9)
(13)
11
–
32
19
36
(21)
(21)
(21)
149
(15)
(3)
8
(6)
86
8
Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary
metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce
is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.
ALL-IN SUSTAINING COST RECONCILIATION
All-in sustaining cash costs per silver equivalent ounce1
Year ended 31 Dec 2014
$000 unless otherwise indicated
(+) Production cost
excluding depreciation
(+) Other items in
cost of sales
(+) Operating & exploration
capex for units
(+) Brownfeld
exploration expenses
(+) Administrative expenses
(excl depreciation and before
exceptional items)
(+) Royalties
Sub-total
Ounces produced (Ag Eq oz)
Sub-total ($/oz)
(+) Commercial deductions
(+) Selling expenses
Sub-total
Ounces sold (Ag Eq oz)
Sub-total ($/oz)
All-in sustaining costs
($/oz Ag Eq)
Arcata
Pallancata
San José
Main
Operations
Other
Operations
Corporate
& Others
62,644
71,742
110,089
244,475
17,853
1,301
834
1,724
3,859
28,867
34,657
51,350
114,874
2,038
1,728
1,003
4,769
5,266
–
100,116
6,841
14.6
18,016
1,987
20,003
6,560
3.0
7,317
1,370
117,648
7,988
14.7
13,666
1,995
15,661
7,944
2.0
8,270
–
172,436
12,119
14.2
17,198
24,648
41,846
11,793
3.5
20,853
1,370
390,200
26,947
14.5
48,880
28,630
77,510
26,297
2.9
546
–
42
362
241
19,044
1,232
15.5
–
67
67
1,250
0.1
Total
262,328
4,406
–
–
1,613
116,487
3,232
8,043
20,049
–
24,894
–
–
–
–
–
–
–
41,263
1,611
434,146
28,179
15.4
48,880
28,697
77,577
27,547
2.8
17.7
16.7
17.8
17.4
15.5
–
18.2
1 All-in sustaining cash cost per silver equivalent ounce: calculated before exceptional items includes cost of sales less depreciation and change in inventories,
administrative expenses, brownfeld 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).
www.hochschildmining.com
17
Year ended 31 Dec 2013
$000 unless otherwise indicated
(+) Production cost
excluding depreciation
(+) Other items in
cost of sales
(+) Operating & exploration
capex for units
(+) Brownfeld
exploration expenses
(+) Administrative expenses
(excl depreciation and before
exceptional items)
(+) Royalties
Sub-total
Ounces produced (Ag Eq oz)
Sub-total ($/oz)
(+) Commercial deductions
(+) Selling expenses
Sub-total
Ounces sold (Ag Eq oz)
Sub-total ($/oz)
All-in sustaining costs
($/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
11,472
1,822
135,691
9,298
14.6
16,788
2,369
19,157
9,167
2.1
8,589
–
186,724
12,286
15.2
19,335
25,899
45,234
11,963
3.8
26,530
1,822
446,259
27,578
16.2
37,043
28,593
65,636
27,011
2.4
2,983
522
59,706
2,689
22.2
15
192
207
2,658
0.1
22,274
–
27,985
–
–
–
–
–
–
–
51,787
2,344
533,950
30,267
17.6
37,058
28,785
65,843
29,669
2.2
20.9
16.7
19.0
18.6
22.3
–
19.9
ADMINISTRATIVE EXPENSES
Administrative expenses before exceptional items decreased
by 20% to $43.3 million (2013: $54.4 million) primarily due to
the continuing impact of the cashflow optimisation programme.
Post-exceptional administrative expenses in 2014 totalled
$46.1 million (2013: $56.8 million).
EXPLORATION EXPENSES
In 2014, pre-exceptional exploration expenses decreased by 60%
to $17.3 million (2013: $42.9 million). Post-exceptional exploration
expenses in 2014 totalled $18.1 million (2013: $46.3 million).
In addition, the Group capitalises part of its brownfield exploration,
which mostly relates to costs incurred converting potential resource
to the Inferred or Measured and Indicated category. In 2014,
the Company capitalised $1.5 million relating to brownfield
exploration compared to $1.7 million in 2013, bringing the total
investment in exploration for 2014 to $18.8 million (2013: $44.6
million). In addition, $1.6 million was invested in the Company’s
Advanced and Growth Projects.
SELLING EXPENSES
Selling expenses were flat versus 2013 at $28.7 million (2013:
$28.8 million) due to lower prices impacting the export tax in
Argentina, partially offset by higher production of concentrates
in Arcata. Selling expenses mainly consist of export duties at
San José (export duties in Argentina are levied at 10% of revenue
for concentrate and 5% of revenue for dore) and logistic costs for
the sale of concentrate.
OTHER INCOME/EXPENSES
Other income before exceptional items was $4.1 million (2013:
$4.0 million). Other expenses before exceptional items reached
$17.5 million (2013: $15.6 million) mainly due to an increase in
mine closure provisions of $9.1 million (2013: $5.5 million) and the
new reserves tax in Argentina of $3.5 million (2013: $2.5 million).
Tailings dam preparation
Strategic reportp1-35
18
Hochschild Mining plc Annual Report 2014
FINANCIAL REVIEW CONTINUED
ADJUSTED EBITDA
Adjusted EBITDA decreased by 33% over the period to $135.6 million
(2013 restated: $201.0 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
non-cash items (depreciation and changes in mine closure
provisions) and exploration expenses other than personnel
and other exploration related fixed expenses.
$000 unless
otherwise indicated
Proft from continuing
operations before
exceptional items,
net fnance 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
fxed expenses
Other non cash expenses
Adjusted EBITDA
Adjusted EBITDA margin
Year ended
31 Dec 2014
Year ended
31 Dec 2013
% change
(14,374)
–
17,730
3%
(181)
–
128,480
144,923
(11)
2,072
17,254
2,638
42,871
(6,934)
9,088
135,586
28%
(12,699)
5,516
200,979
32%
(21)
(60)
45
65
(33)
In 2014, Adjusted EBITDA has been presented before the effect of significant
non-cash expenses related to changes in mine closure provisions for those mines
which have already closed as these were material. The 2013 Adjusted EBITDA
has been restated for comparability with the current presentation.
Drill rig at Pallancata
FINANCE INCOME
Finance income before exceptional items of $2.2 million reduced
from 2013 ($10.7 million) mainly due to substantially lower
interest received on deposits and liquidity funds ($5.2 million) as
well as lower dividends received from Gold Resource Corporation
($3.0 million).
FINANCE COSTS
Finance costs before exceptional items increased from $11.7
million to $33.1 million in 2014, principally due to the interest
due on $350 million of Senior Notes (issued in January 2014 via
the Company’s wholly owned subsidiary, Compañía Minera Ares
S.A.C) with a coupon rate of 7.75% due for repayment in 2021.
FOREIGN EXCHANGE LOSSES
The Group recognised a foreign exchange loss of $5.0 million
(2013: $19.8 million loss) as a result of exposures in currencies
other than the functional currency principally the Peruvian Nuevo
Sol and Argentinian Peso, both of which depreciated in the year
against the US dollar.
INCOME TAX
The Company’s pre-exceptional income tax was $6.5 million
(2013: $45.0 million). The reduction is mainly explained by lower
metal prices reflected in a reduced pre-exceptional profit before
income tax ($(50.2) million in 2014 vs $2.9 million pre-exceptional
profit before tax in 2013).
EXCEPTIONAL ITEMS
Exceptional items in 2014 totalled $(14.1) million after tax
(2013: $(86.6) million). The tables below detail the exceptional
items excluding the exceptional tax effect that amounted to
$3.8 million (2013: $35.9 million).
Exceptional items in 2014 comprise the following items:
Positive exceptional items:
Main items
Other income
$000 Description of main items
1,643 Reversal of impairment
of San Felipe
Finance income
4,061 Gain on the sale of GRC shares
($2.6 million), Chaparral Gold
shares ($0.8 million), Mirasol
shares ($0.6 million) and others
Negative exceptional items:
Main items
Cost of sales
$000 Description of main items
(6,065) Termination benefts
Administrative
expenses
Exploration
expenses
Other expenses
Finance cost
($4.8 million) and temporary
stoppages at Arcata ($1.2 million)
(2,752) Termination benefts
($2.8 million)
(886) Termination benefts
($0.9 million)
(4,498) Property, plant & equipment
write-off ($1.5 million) and loss
on the sale of the Moris operation
in Mexico ($3.0 million)
(9,491) The impairment of investments
in Pembrook ($6.0 million)
and other minor investments
($0.2 million), transaction
costs on the syndicated loan
($3.3 million)
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
fnancing activities
Net (decrease)/increase in
cash and cash equivalents
during the period
Year ended
31 Dec 2014
Year ended
31 Dec 2013
Change
93,779
64,674
29,105
(263,007)
(218,113)
(44,894)
5,039
99,830
(94,791)
(164,189)
(53,609)
(110,580)
Operating cash flow increased from $64.7 million in 2013 to
$93.8 million in 2014, mainly due to a significant improvement of
working capital and the implementation of the cash optimisation
plan, partially offset by lower prices. Net cash used in investing
activities increased to $(263.0) million in 2014 from $(218.1) million
in 2013 mainly due to higher pre-operating capex incurred at the
Inmaculada project in 2014. Finally, cash generated from financing
activities decreased to $5.0 million from $99.8 million in 2013,
primarily as a result of the proceeds from the issuance of the
unsecured notes ($350.0 million) and the Scotiabank Credit Facility
($100.0 million), partially offset by the repayment of the bridge
loan facility ($270.0 million), Convertible Bond ($114.9 million)
and reduction of short term borrowings ($30.0 million). As a result,
total cash generated decreased from $(53.6) million in 2013 to
$(164.2) million in 2014 ($110.6 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 2014
173,526
58,417
2,809
20,467
Year ended
31 Dec 2013
179,868
69,556
(2,294)
20,842
(226,603)
28,616
(208,618)
59,354
The Company’s working capital position decreased to $28.6 million
in 2014 from $59.4 million in 2013. This was primarily explained
by higher trade and other payables and provisions ($(18.0) million)
and by lower inventories ($(11.1) million). Also, net other financial
assets increased to $2.8 million in 2014 from $(2.3) million in 2013
principally due to gains from hedge agreements.
Net cash
$000 unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings
Net cash/(debt)
Year ended
31 Dec 2014
115,999
(440,834)
(27,882)
(352,717)
Year ended
31 Dec 2013
286,435
–
(435,925)
(149,490)
The Group reported net cash position was $(352.7) million
as at 31 December 2014 (2013: $149.5 million). The change
was mainly driven by cash used to build the Inmaculada
Project ($198 million capex in 2014).
www.hochschildmining.com
19
CAPITAL EXPENDITURE
$000 unless otherwise indicated
Arcata
Ares
Selene
Pallancata
San José
Moris
Operations
Inmaculada
Crespo
Volcan
Azuca
Other
Total
Year ended
31 Dec 2014
28,867
–
497
34,160
51,350
–
114,874
198,112
4,206
1,463
853
1,623
321,121
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
2014 capital expenditure of $321.1 million (2013: $281.6 million)
mainly composed of operational capex of $114.9 million and
Inmaculada capital expenditure of $198.1 million.
San José
Strategic reportp1-35
20
Hochschild Mining plc Annual Report 2014
SUSTAINABILITY REPORT
Against a continued backdrop of a challenging trading environment,
Hochschild Mining maintained its focus on prioritising the welfare of our
workers and promoting sustainability within our communities targeting
the areas of education, health & nutrition and economic development.
IN THIS SECTION
Safety
see page 22
Health and hygiene
see page 23
Our people
see page 24
Working with our communities
see page 26
Managing our environmental impact
see page 28
ACCIDENT SEVERITY INDEX
14
149
13
12
11
598
1,058
910
DEAR SHAREHOLDER
I am delighted to introduce Hochschild
Mining’s Sustainability Report in
which we provide an overview of
the work undertaken by the Group in
acknowledgement of our responsibilities
to our wider stakeholder groups.
ANOTHER CHALLENGING YEAR
2014 continued to be a difficult year for
the mining sector due to the sustained
lower and more volatile precious metal
prices. Management’s focus on cost
reduction was maintained during the year
with implementation of further phases of
the Cash Optimisation Programme.
Inevitably this has translated into limited
resources for our sustainability endeavours
which as a result have had to be more
targeted than ever.
ZERO FATALITIES
As a sign of our commitment to our
workers, I am very proud to report that
for the first time since the Company’s
listing in 2006, there were no fatalities
during 2014. This achievement cannot be
understated given the relentless efforts of
many across the organisation who have
committed themselves to fostering a
culture of safety and seeing this translate
into safe working practices. We will not use
this opportunity to become complacent
but rather, we will look to setting another
first: two consecutive years without any
fatal accidents at our mine sites.
Despite this significant achievement,
the Group’s injury frequency rate has
increased but, as indicated by the c. 75%
reduction in the accident severity rate, this
is primarily the result of the extended scope
of our accident monitoring to include the
main contractor and sub-contractors at the
Inmaculada project which in 2014 entered
the higher-risk construction phase.
SOCIAL RESPONSIBILITY
In 2014, we prioritised the resources
committed to our communities during
the year with a continued focus on our
three core areas: education, health and
socio-economic development. Not only
have we built on the successes of our
flagship Travelling Doctor and Digital
Chalhuanca projects, but we have also
supported communities close to our
Inmaculada project by the establishment
of local co-operatives. It also gives me great
pleasure in sharing with you details of the
scholarships we have been able to offer
through our operation in Argentina. Further
details can be found on pages 26 to 27.
I hope you will find this report informative.
If you should have any questions or
comments, please do not hesitate to
contact me.
ROBERTO DAÑINO
Chairman, CSR Committee
17 March 2015
Camp at Pallancata
www.hochschildmining.com
21
GOVERNANCE STRUCTURE FOR SUSTAINABILITY
BOARD
Roberto Dañino, Chairman, CSR Committee
Vice President, Operations
Vice President, Legal & Corporate Affairs
CSR Working Group
Human Resources
Safety
Community Relations
Health & Hygiene
Environmental
Management
THE CSR COMMITTEE’S WORK
IN 2014
During the year, the CSR Committee:
• approved the 2013 Sustainability report
for inclusion in the 2013 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’s
various Community Relations projects
including the Travelling Doctor
programme in Peru, the local co-
operatives set up within the rural
communities close to Inmaculada and
the scholarships granted in Argentina
(see case studies later in this report); and
• considered updates from across the
Group to manage community and
labour relations.
Given the importance of the sustainability
risks to the Group’s strategy, the full Board
reviewed the short/medium term strategy
with respect to environmental
management and community relations.
As part of its role in monitoring key risks,
the Board also considered the impact of
the Cash Optimisation Programme on the
profile of the Group’s sustainability risks
and the key mitigating actions.
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?
The Company has adopted a number of
policies demonstrating our commitment to:
the Board with delegated responsibility for
various sustainability issues, focusing on
compliance and ensuring that appropriate
systems and practices are in place
Group-wide to ensure the effective
management of sustainability-related risks.
As Chairman of the CSR Committee, Roberto
Dañino has Board level responsibility for
sustainability issues to whom the Vice
President of Operations and the Vice
President of Legal & Corporate Affairs
report to for sustainability issues, as shown
in the diagram above.
• a safe and healthy workplace;
• managing and minimising the
environmental impact of our
operations; and
• 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;
• 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; and
• 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 appropriate
standards are met. The CSR Committee has
been established as a formal committee of
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 serious accidents within the
Group and actions taken by management
following each incident; and
• 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.
Strategic reportp1-35
22
Hochschild Mining plc Annual Report 2014
SUSTAINABILITY REPORT
CONTINUED
SAFETY
Mining has an inherently high risk profile
and safety is our highest priority.
2014 HIGHLIGHTS
• Zero fatalities
• 75% reduction in accident severity rate
Underground emergency refuge.
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.
OUR ACHIEVEMENTS IN 2014
• Zero fatalities across all operations – a first
for the Company since its listing in 2006
• Continued implementation of the Group’s
Safety Management System (designed by
the risk management firm DNV GL) at all
operating units and Advanced Projects to
support the Group’s proactive approach
to safety. All operating units achieved a
Level 7 rating under the International
Safety Rating System (‘ISRS’) (6th edition).
The Inmaculada project achieved a Level 3
rating under the same rating system
• The first stage of implementation of the
Behaviour Based Safety (‘BBS’) tool was
carried out at all mining units. Based
on the feedback received, a training
programme for safety supervisors has
been developed and scheduled to take
place in 2015
How we performed against our 2014 objectives
Target
2.5% reduction in the Lost Time Injury Frequency Rate (‘LTIFR’)
(see footnote 1 to Safety Indicators)
Status
X
25% reduction in Accident Severity Index
(see footnote 2 to Safety Indicators)
All supervisors to be trained in ‘5 Steps Observation Methodology’
under the Behaviour Based Safety programme:
To undertake a full impact assessment of moving from DNV GL’s
ISRS (6th edition) to the 8th edition as the principal form of
appraising the Group’s Safety Management Information System
Safety Indicators
Fatal accidents
Accidents leading to an absence of one day or more
LTIFR1
Accident Severity Index2
Accidentability rate3
Commentary
A 48% year-on-year increase in the LTIFR was primarily
the result of extending the reporting of injuries
sustained by the main contractor and subcontractors
involved in the construction of Inmaculada which,
in 2014, entered the higher-risk construction phase
A 75% reduction in the Accident Severity Index
was achieved
An additional training programme in this area
will be delivered during 2015
Assessment was completed under the guidance
of DNV with transition to the 8th edition expected
to take place in H2 2015
2014
0
76*
3.07*
149
0.46
2013
2
49
2.08
598
1.24
2012
4
81
3.33
1,058
3.52
2011
3
81
3.63
910
3.30
* Includes accidents and injuries reported by the Main Contractor and Subcontractors at the Inmaculada Project.
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.
2015 Targets
• To fully transition to the 8th edition of DNV GL’s International Safety Rating System which will incorporate the additional training for
supervisors under the Behaviour Based Safety programme
• To commission and implement the first five modules of a safety software tool which will facilitate document sharing, legal compliance,
hazard identification and risk assessment, accident investigation and inspections
www.hochschildmining.com
23
CASE STUDY: TRAVELLING DOCTOR PROGRAMME
The Company has built upon its success with this programme by extending its reach to
other rural communities and increasing the range of services that the medical mobile
units are able to offer. Over the course of 2014, the mobile units facilitated over 12,000
medical consultations providing healthcare to those living in the remotest conditions
in the Peruvian Andes.
Community medical consultation.
HEALTH & HYGIENE
Underlining the importance we place on
our people and their wellbeing, the Group’s
Health & Hygiene department is tasked
with providing an integrated approach to
employee welfare.
2014 HIGHLIGHTS
• The establishment of a Health & Hygiene
Committee at the Inmaculada Project
• The successful implementation of a
health referral network
THE HOCHSCHILD APPROACH TO
HEALTH AND HYGIENE
Underlining the importance we place on
our people and their wellbeing, the Group’s
Health & 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
• Proactively identifying and controlling
hazards at source
OUR ACHIEVEMENTS IN 2014
As the Inmaculada Project advanced to
the key construction phase, the Health
& Hygiene team sought to ensure the
ongoing welfare of company workers
and contractors. A committee comprising
representatives from both entities was
established and meets weekly to address
that all relevant procedures are complied
with and that appropriate facilities are
available. In addition, as indicated below,
the Health team:
• enhanced data storage at operating units
through the re-organisation of physical
records and the use of software to
maintain electronic records;
• re-structured the organisation of the
department improving its ability to
respond effectively to legal and technical
developments; and
• established a health referral network
in towns close to our operations. As
our mine sites are situated in remote
locations, it is crucial to have access
to appropriate healthcare facilities in
neighbouring towns in case of necessity.
Following meetings with local medical
professionals, facilities were selected
and procedures drawn up to ensure
the ongoing welfare of our workers.
How we performed against our 2014 objectives
Target
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 close to our mines
Health Indicators
Status
Indicator
Average number of medical attendances at Peruvian operations
and at San José per month
Average number of work-related incidents requiring medical
attention at Peruvian operations and at San José per month
Average number of occupational health examinations at the
Group’s Peruvian operations
2014
2013
2012
2011
4,695*
2,614
3,376
3,065
23
507
14
475
18
441
32
396
* The year-on-year increase is the result of the increase in the number of medical attendances carried out at the Inmaculada Project which entered the higher-risk
construction phase in 2014.
2015 Targets
• To continue the department’s active participation in national discussions on new regulation in the area of occupational health
• To improve the offering of services to ensure the mental well-being of our workers
• To review our corporate audit procedures on the provision of employee health data to our insurance partners
Strategic reportp1-35
24
Hochschild Mining plc Annual Report 2014
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.
2014 HIGHLIGHTS
• Percentage of workforce trained – 61%
• Average number of hours of training per
year per employee – 27 hours
CEO roundtable
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 Human
Resource 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 promotion of social and recreational
activities, 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 57% 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 2014
The people-focused initiatives during the
year included the following:
Developing our people
Driven in part by the Cash Optimisation
Programme, budgets for HR programmes
were reduced and therefore had to be more
targeted. As a result, training and
development in key areas and for key
positions were prioritised. In Argentina,
a two-year course, entitled “Developing
Leaders” was completed during the year
aimed at enhancing the skills of those
in the company with managerial
responsibilities.
Managing our talent
We carried out our internal People Review
process which focused on mapping talent
within the organisation and which
identifies key employees and the
succession plans for critical positions.
Enhancing the working environment
In light of budgetary constraints, the Group
has introduced a number of non-financial
benefits such as flexible working hours for
Head Office staff over the summer period
and the holding of regular social events.
Open dialogue
Following on from the programme
launched in 2013, a series of meetings
was organised during the year between
the CEO, key personnel and various
departments. The aim of these meetings
was to provide employees with an
opportunity to raise any concerns with the
CEO and thereby reducing any uncertainty
that may have resulted from the Cash
Optimisation Programme.
www.hochschildmining.com
25
Arcata employee
Selene workers in the plant
People Indicators
General
Average number of Group employees and contractors
Gender diversity statistics
Number of employees*
Male
Female
Number of senior managers**
Male
Female
Number of Board Members
Male
Female
Training
Average number of hours of training undertaken per employee
during the year
Percentage of workforce trained during the year
Labour relations
Number of production days lost as a result of industrial unrest
* As at 31 December.
2014
2013
2012
2011
5,976
6,853
7,557
6,395
3,468
229
4,080
276
31
2
8
0
27.31
61%
14
23
2
8
0
30.77
79%
16
–
–
–
–
–
–
–
–
–
–
–
–
52.03
90%
7
37.86
90%
28
** Defned as those who qualify under the UK statutory defnition of ‘senior manager’ as at 31 December.
2015 Targets
• Conclude collective negotiations on mutually satisfactory terms
• Oversee optimal resourcing of the Inmaculada Project
• Ensure completion of the technical training plan for the operating units
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26
Hochschild Mining plc Annual Report 2014
SUSTAINABILITY REPORT
CONTINUED
Children of Chalhuanca
WORKING WITH OUR
COMMUNITIES
Our relationship with host communities
is key to the Company’s success and we
commit resources in acknowledgment
of our social licence to operate.
2014 HIGHLIGHTS
• Continued focus on our core areas of
Education, Health and Socio-economic
development
• Establishment of local co-operatives to
promote sustainable development within
the communities
THE HOCHSCHILD
APPROACH TO WORKING
WITH OUR COMMUNITIES
Hochschild Mining acknowledges that
mining is a long term business which is
why we place an emphasis on promoting
sustainability in our dealings with
local communities.
At the core of our approach is a
commitment to respecting human rights
as a signatory of the United Nations Global
Compact and to following best practice
as set out in the Group’s Code of Conduct.
This undertaking informs the way in which
we establish and maintain relationships
with our communities and the local
governmental authorities that host
our operations.
We endeavour to align our efforts with
the needs of our host communities
and the priorities of local government
demonstrated by the range of initiatives
we have put in place that go simply
beyond our supply chain.
COMMUNITY RELATIONS STRATEGY
We strive to develop social programmes
that have a direct impact on the needs
of the local communities and that we can
use our presence to promote education,
healthcare, employment opportunities
and socio-economic empowerment.
Given the extent of the budgetary
challenges faced as a consequence of
the Cash Optimisation Programme, in 2014
we built upon existing initiatives to ensure
continuity and maximise their impact.
How we performed against our 2014 objectives
Target
Continue with the development of our socio-economic
programmes
Status
Maximise employment opportunities to members
of the community
Enhance sustainability in the communities living close
to our Inmaculada project
Community Relations Indicators
Community investment1
Production days lost as a result of community conflict
Commentary
See the ‘Our Achievements in 2014’ section for a summary
of the educational, health and socio-economic development
programmes undertaken during the year
Employment opportunities were offered to members of the local
communities both directly and in conjunction with our suppliers
Local co-operatives were established as a means of promoting
economic self sufficiency for local communities
2014
$1.9m
0
2013
$3.2m
0
2012
$6.5m
0
2011
$7.7m
1
2010
$6.7m
0
1 These fgures 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 2014 and 2013 amounted to $6.7 million and $10.1 million respectively.
2015 Targets
• Continue the development of socio-economic programmes and validate proposals for future innovative initiatives
• Review and restructure, as necessary, the Community Relations team to maximise the efficient delivery of services
• Maximise employment opportunities to members of the community
• Enhance sustainability in the communities living close to our Inmaculada project
www.hochschildmining.com
27
CASE STUDY: PROMOTING TOMORROW’S TALENT
The Group granted almost 40 scholarships to students from
Perito Moreno, the closest town to our San José operation in
the Santa Cruz province of Argentina. Recognising the limited
opportunities for young people to pursue further education
in the area, the Group has provided the financial means that
will enable aspiring students to attend university and achieve
their professional ambitions.
Students and families attending the presentation
OUR ACHIEVEMENTS IN 2014
During the year we focused on a number
of high impact initiatives further details
of which are provided below.
Education
Elementary Education – Through its
support of 12 schools in Peru, the Company
facilitated lessons to over 200 children
between the first and sixth grade focusing
on literacy and numeracy. In 2014, we
continued to commit resources to the
use of technology as a teaching aid.
Secondary Education – Motivated by a
need to equip young people with the tools
they need for the future, the Company
supported the Life Project for a second year
in partnership with the Peruvian charity,
Vision Solidaria. This programme, which
was delivered to over 450 students, is
designed to equip students with a range
of social skills to achieve their personal
and professional ambitions as they
transition to adulthood.
Scholarships – Through our Argentinian
operations, the Company has provided
scholarships which enable students to
benefit from further technical studies or
college. In addition, we have sponsored a
number of students on various mining
courses which have resulted in job
opportunities being offered.
Health
Medico de Cabecera (the Travelling Doctor
programme) – In 2014, we strengthened
our collaboration with the Peruvian Ministry
of Health and established cooperation
agreements with the aim of extending
the reach of the Medico de Cabecera
programme to more communities and
to widen the range of the services offered.
In 2014, over 12,000 consultations were
facilitated through the Company’s mobile
medical units.
Socio-economic development
Digital Chalhuanca – During 2014, the
Company further built upon the success
of its flagship project which promotes
education and local business initiatives to
the population of Chalhuanca through the
provision of IT facilities. In its three years
of operation, over 500 teachers have been
trained at the IT Centre indirectly benefiting
over 3,000 students. In addition, 1,200 of
Chalhuanca’s citizens and almost 200 state
officials have received IT training catering
to their specific needs.
Local Co-operatives – After completion of
an irrigation system to support agricultural
activity, families in the communities close
to the Inmaculada Project were trained in
growing fresh local produce and, in addition,
guinea pig breeding. This year, the
Company will focus on promoting
sustainable self sufficiency by supporting
the families as they commence sales to the
local markets. A similar programme has
also been overseen by our Argentinian
operations.
Member of the local co-operatives project
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Hochschild Mining plc Annual Report 2014
SUSTAINABILITY REPORT
CONTINUED
HOCHSCHILD ENVIRONMENTAL TEAM
VICE PRESIDENT LEGAL & CORPORATE AFFAIRS
ENVIRONMENTAL
SUPERINTENDENT
FOR PROJECTS AND
EXPLORATIONS
ENVIRONMENTAL
SUPERINTENDENT
FOR OPERATIONS
ENVIRONMENTAL
SUPERINTENDENT
FOR CLOSURE AND
REHABILITATION
ENVIRONMENTAL
CHIEF FOR PERMITS
MANAGING OUR
ENVIRONMENTAL IMPACT
We are committed to ensuring the integrity
of the environment in which we develop
our operations and new projects.
2014 HIGHLIGHTS
• The recruitment of an experienced
Corporate Environmental Manager
to head the Company’s efforts in the
crucial area
• Obtained the ISO 14001:2004 re-
certification of Arcata, Selene,
Pallancata, and San José for 3 years
THE HOCHSCHILD APPROACH TO
ENVIRONMENTAL MANAGEMENT
We are committed to ensuring the integrity
of the environment in which we develop
our operations and new projects. Our
environmental management system has
been established at a corporate level in
order to apply best management practices,
and is backed by the continued ISO 14001
certification of our operations.
Hochschild Mining recognises that
environmental and social responsibility
extends beyond the life of our operations
and as a result, mine closure plans are
in place to restore areas where mining
activity has ceased.
OUR ACHIEVEMENTS IN 2014
• Obtained approval of the Inmaculada
revised Project Description.
• Obtained the approval of the Sipan
and the Crespo Project mine closure.
• Received environmental permits for
the Puquiopata and the Huachuhuilca
exploration projects.
• Successfully completed the
environmental closure of the Cuello
Cuello and Jasperoide exploration projects.
This included the closure of access roads,
drilling platforms and open pits.
• A comprehensive audit of all
Company waste water treatment
plants was completed. This analysis
provided recommendations to improve
plant efficiencies.
Workers at Pallancata
Arcata plant
www.hochschildmining.com
29
Crespo
How we performed against our 2014 objectives
Target
Update mine closure schedules for Ares, Arcata, Selene,
Pallancata and Sipan. Additionally, present site closure
plan for Matarani
Obtain ISO 14001 recertifcation for Arcata, Selene,
Pallancata, Ares and San José
Initiate the mine closure process for the Ares and Moris
mining operations
Environmental Indicators1
Status
Commentary
In progress Obtained approval of the revised Ares and Sipan mine
closure plans. The plan for Matarani has been presented
to the authorities for review. Revised plans for Arcata, Selene
and Pallancata are in progress for submission in Q2 2015
Renewed for 3 years
Not
applicable
Ares is in care and maintenance and the Moris mine
has been sold
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 data3 (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
1 Includes data for operations in Ares, Arcata, Selene, Pallancata and San José.
2014
0.34
98.95
1.23
0
29,716
36%
26,316
2014
70,994
68,821
4.98
2013
0.15
82.75
1.18
0
15,538
55%
32,878
2013
56,234
72,946
4.89
20122
0.18
88.69
1.53
0
15,925
60%
30,773
2012
–
–
–
2011
0.24
53.29
1.29
0
32,424
69%
37,979
2011
–
–
–
2 From 2012, fgures 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 José, Inmaculada, Matarani, Moris and office locations.
4 Total production includes 100% of all production, including attributable to joint venture partners at San José and Pallancata (prior to becoming a wholly
owned operation).
2015 Targets
• Launch new corporate environmental KPIs
• Review and update corporate environmental policy, environmental management system and organisation of the department
• Implement efficiencies on waste water and drinking water treatment plants across all units
Strategic reportp1-35
30
Hochschild Mining plc Annual Report 2014
RISK MANAGEMENT
The Group’s risk management framework is premised on the continued
monitoring of the prevailing environment, the risks posed by it and the
evaluation of potential actions to mitigate those risks.
RISK PROFILE
The perceived change in the profile of
each of the Group’s principal risks relative
to 2013 has been described to assist the
reader in assessing how the risk has
evolved during the course of the year
under review.
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 remain unchanged
compared to those disclosed in the 2013
Risk Management report however, as
indicated in this report, the profile of a
number of risks has increased relative to
2013 reflecting the ongoing challenges
resulting from the lower and more volatile
precious metal price environment.
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,
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 Group’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
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
www.hochschildmining.com
31
FINANCIAL RISKS
Impact
Risk
Mitigation
2014 Commentary
Commodity
price
Change in risk
profile vs 2013:
HIGHER
Adverse movements
in precious metals’
prices could
materially impact
the Group in various
ways beyond a
reduction in the
results of
operations. These
include impacts on
the feasibility of
projects and
heightened
personnel and
sustainability
related risks.
• Constant focus on maintaining
low cost base
• Initiatives identifed for
implementation in the event of a
low price environment (included
within the Cash Optimisation
Plan – see commentary (right))
• Flexible hedging policy that allows
the Company to approve hedges
to mitigate the effect of price
movements taking into account
the Group’s asset mix and forecast
production
See Market Overview on page 5 for
further details
The Group maintained the pressure on
lowering costs and improving efficiencies
through the Cash Optimisation Programme,
with its focus on conserving capital and
optimising cash flow primarily through:
• reductions in operating and
administrative costs;
• minimising sustaining capital expenditure; and
• refocusing the Group’s exploration strategy.
Signifcant progress was made in the Inmaculada
project, which will considerably contribute to
reduce average production costs and will
materially dilute fxed costs once in operation.
Financial liquidity was ensured via the issue
of $350m Senior Notes, a $100m credit facility
and short term lines available to the Group.
The Group hedged part of its 2014 silver and
gold production to protect cashflow. For further
details see page 19 of the Financial Review.
Counterparty
credit risk
Change in risk
profile vs 2013:
UNCHANGED
The Group may risk
fnancial resources
through the failure
of fnancial
institutions.
OPERATIONAL RISKS
Risk
Impact
• Surplus cash invested with a diverse
list of select highly rated fnancial
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.
Mitigation
2014 Commentary
Operational
performance
Change in risk
profile vs 2013:
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
Administrative expenses and sustaining
capex trended signifcantly downwards during
2014, primarily as a result of the cost savings
initiatives implemented under the Cash
Optimisation Programme.
Production goals at all operations were
met and 2015 mine plans were thoroughly
reviewed to ensure a focus on the extraction
of proftable ounces.
Signifcant progress was made at the Inmaculada
Project, which, when in production, will materially
improve the operational flexibility of the Group.
Strategic reportp1-35
32
Hochschild Mining plc Annual Report 2014
RISK MANAGEMENT CONTINUED
OPERATIONAL RISKS CONTINUED
Risk
Impact
Mitigation
2014 Commentary
Delivery of
Projects
Change in risk
profile vs 2013:
HIGHER
Business
Interruption
Change in risk
profile vs 2013:
UNCHANGED
Unanticipated
delays in delivering
projects could have
negative
consequences
including delaying
cash inflows and
increasing capital
costs, which
could ultimately
reduce proftability.
Assets used in
operations may
break down and
insurance policies
may not cover
against all forms
of risks.
Exploration and
Reserve and
Resource
Replacement
Change in risk
profile vs 2013:
HIGHER
The Group’s
operating
margins and
future proftability
depend upon
its ability to
fnd mineral
resources and to
replenish reserves.
• Teams comprising specialist
personnel and world class
consultants and contractors are
involved in all aspects of project
planning and execution
• Project teams meet with senior
management on a weekly basis to
monitor ongoing progress against
project schedules
During the year, senior management of the
Group and the EPC Contractor met regularly
to monitor progress at the Inmaculada Project
against schedule which by the end of the year
reached 86% completion.
Despite a number of delays, the plant is expected
to be commissioned in Q2 2015.
Further details on Inmaculada can be found
on page 12
• 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
• Implementing and maintaining
an annual exploration drilling plan
• Ongoing evaluation of acquisition
and joint venture opportunities
to acquire additional ounces
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 continued focus on cost reduction in 2014
through the Cash Optimisation Programme
resulted in a refocusing of exploration activity
supported by a budget of over $20 million
which targeted brownfeld exploration at
current operations, Inmaculada and the
resourcing of activity at select sites in Mexico
and Peru.
In 2015, exploration activity will be primarily
focused on brownfeld exploration in order to
maintain or improve our resource base. As a
direct consequence of the continued low price
environment, the level of greenfeld exploration
and appraisal of acquisition/joint venture
opportunities has been signifcantly reduced.
The substantial reduction in sustaining capital
expenditure in 2015 could affect the Group’s
ability to replace reserves at its historic rates.
www.hochschildmining.com
33
Risk
Impact
Mitigation
2014 Commentary
Reserves stated in
this Annual Report
are estimates.
• Engagement of independent
experts to undertake annual
audit of mineral reserve and
resource estimates
• Adherence to the JORC code
and guidelines therein
The Group engaged P&E Consultants to
undertake the annual audit of mineral
reserve and resource estimates.
See page 166 for further details
Exploration and
Reserve and
Resource
Replacement
(continued)
Change in risk
profile vs 2013:
UNCHANGED
Personnel:
Recruitment
and retention
Change in risk
profile vs 2013:
HIGHER
Inability to retain
or attract personnel
through a shortage
of skilled personnel.
• The Group’s approach to
recruitment and retention provides
for the payment of competitive
compensation packages, well-
defned career plans and training
and development opportunities
Due to the low price environment, there has
been a signifcant headcount reduction during
the course of the year, but key personnel have
been retained.
In the case of critical position holders, retention
awards have been granted under the Restricted
Share Plan which was approved by shareholders
in December 2014.
Also, the Group has implemented a number of
low cost/high impact initiatives to improve the
retention of employees. These include the use
of non-fnancial benefts (e.g. flexible working
arrangements for Head Office staff).
The reduction in proftability due to lower
precious metal prices has resulted in no statutory
proft sharing for Peruvian mineworkers.
Management has conducted monthly meetings
with mineworkers and unions during 2014 to
ensure complete understanding of their
requirements and concerns and to keep all
parties updated on the Group’s fnancial
performance with the aim of preparing the
groundwork for the 2015 union negotiations.
Personnel:
Labour relations
Change in risk
profile vs 2013:
UNCHANGED
Failure to maintain
good labour
relations with
workers and/or
unions may result
in work slowdown,
stoppage or strike.
• Development of a tailored labour
relations strategy focusing on
proft sharing, working conditions,
management style, development
opportunities, motivation and
communication
Laboratory at San José
Strategic reportp1-35
34
Hochschild Mining plc Annual Report 2014
RISK MANAGEMENT CONTINUED
MACRO-ECONOMIC RISKS
Risk
Impact
Mitigation
2014 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 2013:
HIGHER
Changes in the
legal, tax and
regulatory
landscape could
result in signifcant
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.
During the year, the authorities in Peru and
Argentina either adopted new measures or
revised their approach with respect to certain
aspects which impact the mining sector.
Of these, key developments are:
• new environmental regulations which have
increased the powers of, and the scale
of fnes levied by, the relevant regulators;
• new permitting requirements which will
lead to longer permitting periods and costs;
• the continued consultation on the law
requiring the prior consultation with
indigenous communities, which is expected
to be implemented in the frst half of 2015.
By virtue of the fact that 2015 is a pre-electoral
year in Peru, the mining sector is expected to
be subject to heightened political debate with
consequences for, amongst other things,
labour and community relations and the
regulatory regime.
In Argentina:
• at a national Federal Government level, foreign
exchange controls were tightened during
the year as a result of the country’s sovereign
debt default;
• following the implementation of a new regional
tax on mining companies’ reserves in 2013,
the Company launched a challenge regarding
its constitutionality of the provincial law.
The Supreme Court has decided to hear the case;
• increased requirements on the import of spare
parts has placed more pressure on the Group’s
San José operation; and
• the Province of Santa Cruz recently increased
the yearly fee for maintaining certain mining
concessions by almost 400%.
SUSTAINABILITY RISKS
Risk
Health and
safety
Change in risk
profile vs 2013:
UNCHANGED
Impact
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.
Mitigation
• Health & Safety operational policies
and procedures reflect the Group’s
zero tolerance approach to accidents
• Use of world class DNV safety
management systems
• Dedicated personnel to ensure
the safety of employees at the
operations via stringent controls,
training and prevention programmes
• 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
2014 Commentary
For the frst time since the Company’s IPO in
2006, the Group achieved its on-going objective
of Zero Fatalities in 2014. This is reflected in the
year-on-year reduction in the accident severity
index for the year, of c. 75% from 598 to 149.
However, the year-on-year accident frequency rate
has increased by c. 48% (from 2.08 to 3.07) primarily
due to the fact that accident monitoring has been
extended to cover the main contractor and
sub-contractors at the Inmaculada project which
entered into the higher-risk construction phase.
The Group’s DNV safety management
information systems at the operating
units have been given a 7 rating under the
International System Rating System (v6)
with Inmaculada achieving a 6 rating.
As previously reported, a behaviour-based safety
tool has been developed and implemented at
all units.
www.hochschildmining.com
35
SUSTAINABILITY RISKS CONTINUED
Risk
Impact
Mitigation
2014 Commentary
• The Group has a team responsible
for environmental management
• The Group has adopted a number of
policies and procedures to limit and
monitor its environmental impact
• Use of leading environmental
management information systems
• The Group conducts annual reviews
of its mine closure plans for its
operating units
• Constructive engagement 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
During the year, the environmental regulator
(OEFA) increased its oversight activities leading to
a signifcant increase in fnes and administrative
actions. In addition, there has been an overall
increase in the trend of criminal actions pursued
by rural communities and third-parties in respect
of environmental issues.
The Cash Optimisation Programme has also
affected the environmental budget resulting in
the postponement of capital expenditure for
infrastructure improvements.
During the year, the Group:
• succeeded in recertifying the operations in
Peru and Argentina as compliant with ISO
14001 for the next three years; and
• restructured its Environmental team following
the appointment of a new Corporate
Environmental Manager.
Despite the reduction of budgets for the Group’s
community welfare activities as part of the Cash
Optimisation Programme, the Group continued
to pursue a number of initiatives benefting the
communities including:
• the establishment of local co-operatives to
promote sustainable economic development
by enabling communities to trade in local
produce; and
• building on the successes of the Travelling
Doctor programme by extending its reach
and the scope of its services, and of the
award-winning Digital Chalhuanca project.
Further details on the Group’s activities to
mitigate sustainability risks can be found in
the Sustainability report on pages 20 to 29
Environmental
Change in risk
profile vs 2013:
HIGHER
Community
Relations
Change in risk
profile vs 2013:
HIGHER
The Group may
be liable for losses
arising from
environmental
hazards associated
with the Group’s
activities and
production
methods, ageing
infrastructure, or
may be required to
undertake corrective
actions or extensive
remedial clean-up
action or pay for
governmental
remedial clean-up
actions or be subject
to fnes 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 for
exploration and 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.
Further information on financial risk can be found in note 38 to the Consolidated Financial Statements.
The Strategic Report, as set out on pages 1 to 35 has been reviewed and approved by the Board of Directors and signed on its behalf by:
IGNACIO BUSTAMANTE
Chief Executive Officer
17 March 2015
Strategic reportp1-35
36
Hochschild Mining plc Annual Report 2014
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
The Board’s role is to provide leadership to the senior management
team through its 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
Eduardo Hochschild
Chairman
Roberto Dañino
Deputy Chairman
Ignacio Bustamante
Chief Executive Officer
Enrico Bombieri
Senior Independent
Director
Dr Graham Birch
Independent 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)
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 del Perú.
Committee
membership
CSR Committee (Chairman)
SENIOR MANAGEMENT
Isac Burstein
Vice President,
Exploration & 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.
38
Hochschild Mining plc Annual Report 2013
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
CSR Committee
Nominations Committee
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
José Augusto Palma
Vice President, Legal &
Corporate Affairs
Eduardo Villar
Vice President,
Human Resources
Eduardo Villar has been
with the Group since 1996.
Prior to his current position, he
served as Human Resources
Manager, Deputy HR
Manager and Legal Counsel.
Eduardo holds a law degree
from the Universidad de Lima
and an MBA from the
Universidad Peruana de
Ciencias Aplicadas.
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 VP Legal.
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.
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
The Board’s role is to provide leadership to the senior management
team through its collective experience and to monitor progress
against the Group’s strategic objectives within a prudent framework
of controls and a managed level of risk.
Eduardo Hochschild joined
Roberto Dañino joined the
Ignacio Bustamante joined
Enrico Bombieri joined the
Dr Graham Birch joined the
the Hochschild Group in 1987
Board in 2006 as an Executive
as Safety Assistant at the
Director and became a Non-
Arcata unit, becoming Head
Executive Director on 1 January
the Board as CEO in April
2010. He previously served
as Chief Operating Officer
Board on 1 November 2012.
Board in July 2011. Prior to his
He previously served as Head
retirement in 2009, Graham
of Investment Banking for
was a Director of BlackRock
Commodities Investment
of the Hochschild Mining
2011. In 2001 Roberto served
(from January 2008) and prior
Europe, Middle East and
Group in 1998 and Chairman
in the Peruvian Government as
to that as General Manager
Africa (‘EMEA’) at JP Morgan.
Trust plc and manager of
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
Prime Minister and thereafter
as the country’s Ambassador
to the United States. Between
2003 and 2006, Roberto was
Senior Vice President and
of the Group’s Peruvian
operations. Ignacio served
as Chief Financial Officer of
After joining JP Morgan in
BlackRock’s World Mining
1989, Enrico held a variety of
Trust and Gold and General
positions in the London and
Unit Trust. Previously he
Cementos Pacasmayo S.A.A.,
Milan offices. In addition to
worked at Kleinwort Benson
an affiliate of the Company,
acting as Head of Investment
Securities and Ord
General Counsel of the World
between 1998 and 2003,
Banking for EMEA, Enrico
Bank Group and Secretary
and as a Board member from
also served as a member
entities such as TECSUP, the
General of ICSID. Previously,
Sociedad Nacional de Minería
he was a partner of Wilmer,
y Petróleo and the Conferencia
Cutler & Pickering in the US
2003 to 2007. Ignacio is a
graduate of Business and
of JP Morgan’s Executive
Committee, the Investment
he launched a number of
Accounting, having studied
Bank’s Operating Committee
mining and natural resources
Episcopal Peruana. In addition,
and founding General
at the Universidad del Pacífico
and the European
Eduardo serves as Chairman
Counsel of the Inter-American
in Peru and he holds an MBA
Management Committee.
of the Board of the Universidad
Investment Corporation.
from Stanford University.
Prior to joining JP Morgan,
Committee
membership
CSR Committee
Guinness Mahon in London
eventually acquired by
Mr Bombieri worked for
and Lehman Brothers in
New York and London.
Committee
membership
Audit Committee
CSR Committee
Nominations Committee
Minnett/Fleming Ord Minnett
before joining Mercury Asset
Management in 1993, where
funds. In 1997, Mercury Asset
Management was acquired
by Merrill Lynch Investment
Managers which was itself
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
de Ingeniería y Tecnología.
Committee
membership
Nominations Committee
(Chairman)
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 del Perú.
Committee
membership
CSR Committee (Chairman)
SENIOR MANAGEMENT
Ramón Barúa
Isac Burstein
Chief Financial Officer
Vice President,
Eduardo Landin
José Augusto Palma
Eduardo Villar
Chief Operating Officer
Vice President, Legal &
Vice President,
Corporate Affairs
Human Resources
Exploration & Business
Development
Ramón Barúa was appointed
CFO of Hochschild Mining on
Group as a geologist in 1995.
appointed COO of Hochschild
Hochschild in July 2006 after
with the Group since 1996.
Isac Burstein joined the
Eduardo Landin was
José Augusto Palma joined
Eduardo Villar has been
1 June 2010. Prior to his
appointment, he served as
CEO of Fosfatos del Pacifico
S.A., owned by Cementos
Pacasmayo, an associate
Prior to his current position,
Isac served as Manager for
Project Evaluation, Exploration
Manager for Mexico, and
Exploration Geologist. Isac
Mining on 25 March 2013,
having previously served as
General Manager of the
Company’s operations in
United States, where he
was a partner at the law
firm of Swidler Berlin, and
Argentina. In 2011, he became
subsequently at the World
served as Human Resources
Manager, Deputy HR
Manager and Legal Counsel.
Eduardo holds a law degree
a 13-year legal career in the
Prior to his current position, he
company of the Hochschild
assumed responsibility for the
General Manager of Projects
Bank. He also served two years
from the Universidad de Lima
Group. During 2008, Ramón
Group’s exploration activities
with direct responsibility over
in the Government of Peru.
and an MBA from the
was the General Manager for
in February 2014. Isac holds a
the development of
José has law degrees from
Universidad Peruana de
Hochschild Mining’s Mexican
BSc in Geological Engineering
Inmaculada and Crespo.
Georgetown University and
Ciencias Aplicadas.
operations, having previously
from the Universidad
worked as Deputy CEO and
Nacional de Ingeniería, an
CFO of Cementos Pacasmayo.
MSc in Geology from the
Prior to joining Hochschild,
University of Missouri and
Ramon was a Vice President
an MBA from Krannert
of Debt Capital Markets with
School of Management,
Deutsche Bank in New York
Purdue University.
Before joining the Company,
the Universidad
Eduardo held the position of
Iberoamericana in Mexico and
Corporate Development
Manager at Cementos
is admitted to practise as a
lawyer in Mexico, New York
Pacasmayo and, prior to that,
and the District of Columbia.
he served in the Government
Prior to his current role, José
served as VP Legal.
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.
38
Hochschild Mining plc Annual Report 2013
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.
www.hochschildmining.com
37
BOARD OF DIRECTORS
Eduardo Hochschild
Chairman
Roberto Dañino
Deputy Chairman
Ignacio Bustamante
Enrico Bombieri
Chief Executive Officer
Senior Independent
Director
Dr Graham Birch
Independent Non-
Executive Director
Sir Malcolm Field
Independent Non-
Executive Director
Jorge Born Jr.
Independent Non-
Executive Director
Nigel Moore
Independent Non-
Executive Director
Sir Malcolm Field joined the
Board in 2006. He serves as
a Non-Executive Director of
Petropavlovsk Plc and Ray
Berndtson. Between 2002
and 2006, Sir Malcolm served
as Chairman of Tube Lines
Limited, one of the London
Underground consortia and,
from 2001 to 2006, as an
external policy adviser to
the UK’s Department of
Transport. Sir Malcolm was
BOARD INDEPENDENCE
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.
3/8
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. Jorge is also
a Director of Dufry AG Zurich
and President of the Bunge
and Born Charitable
Foundation. Previously, Jorge
served as a Director and
Deputy Chairman of Bunge
Limited having served as
Head of European operations
from 1992 to 1997 and as
Head of UK operations from
1989 to 1992.
Committee
membership
Nominations Committee
Remuneration Committee
(Chairman)
5/8
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
Committee
membership
Audit Committee
• Independent Directors
Remuneration Committee
Nominations Committee
• Non-Independent Directors
LENGTH OF TENURE OF INDEPENDENT
NON-EXECUTIVE DIRECTORS
BOARD INDEPENDENCE
3/5
• 0-3 Years
• 3-6 Years
• 6 Years +
1/5
3/8
1/5
5/8
• Independent Directors
• Non-Independent Directors
LENGTH OF TENURE OF INDEPENDENT
NON-EXECUTIVE DIRECTORS
1/5
1/5
3/5
• 0-3 Years
• 3-6 Years
• 6 Years +
www.hochschildmining.com
39
Governance p36-85
38
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REPORT
The Directors present their report for the year ended
31 December 2014.
DIVIDEND
The Directors did not declare any dividend in respect of the
year ended 31 December 2014 and a final dividend is not
being recommended (2013 total dividend: nil).
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 36 and 37.
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.
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 spent $1.94 million1 on social and community welfare
activities surrounding its mining units (2013: $3.22 million).
CORPORATE GOVERNANCE STATEMENT
The requirements for a Corporate Governance Statement are
fulfilled by the Corporate Governance report on pages 40 to 50.
GREENHOUSE GAS EMISSIONS
Disclosures relating to the Group’s greenhouse gas emissions
can be found in the Sustainability report on page 29.
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 2014 amounted
to $6.7 million (2013: $10 million).
40
Hochschild Mining plc Annual Report 2014
RELATIONSHIP AGREEMENT
Pelham Investment Corporation (the ‘Major Shareholder’),
Eduardo Hochschild (who, together with the Major Shareholder
are collectively referred to as the ‘Controlling Shareholders’)
and the Company entered into a relationship agreement
(‘the Relationship Agreement’) in preparation for the Company’s
IPO in 2006 and which was amended and restated during 2014.
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 41 and, with regard to the right to
appoint Directors to the Board, are set out on page 54.
As required by the FCA Listing Rules, the Directors confirm that,
with respect to the year under review:
(i) the Company has complied with the independence
provisions included in the Relationship Agreement; and
(ii) so far as the Company is aware:
(a) the independence provisions included in the Relationship
Agreement have been complied with by the Controlling
Shareholders or any of their associates; and
(b) the procurement obligation included in the Relationship
Agreement has been complied with by the Controlling
Shareholders.
CONFLICTS OF INTEREST
The Companies Act 2006 allows directors of public companies
to authorise conflicts and potential conflicts of interest of
directors where the Company’s Articles of Association contain
a provision to that effect. Shareholders approved amendments
to the Company’s Articles of Association at the AGM held on
9 May 2008, which included provisions giving the Directors
authority to authorise matters which may result in the Directors
breaching their duty to avoid a conflict of interest.
The Board has established effective procedures to enable the
Directors to notify the Company of any actual or potential
conflict situations and for those situations to be reviewed and,
if appropriate, to be authorised by the Board, subject to any
conditions that may be considered appropriate. In keeping with
the approach agreed by the Board, Directors’ conflicts were
reviewed during the year under review.
Directors of the Company who have an interest in matters under
discussion at Board meetings are required to declare this interest
and to abstain from voting on the relevant matters. Any related
party transactions are approved by a committee of the Board
consisting solely of Independent Directors. In addition, the
Directors will be able to impose limits or conditions when
giving any authorisation, if they think this is appropriate.
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39
POLICY ON FINANCIAL RISK MANAGEMENT
The Company’s objectives and policies on financial risk
management can be found in note 38 to the Consolidated
Financial Statements. Information on the Company’s exposures
to foreign currency, commodity prices, credit, equity, liquidity,
interest rate and capital risks can be found in this note.
GOING CONCERN
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Strategic Report on pages 1 to 35. The financial
position of the Group, its cash flows, liquidity position and
borrowings are described in the Financial Review on pages 14
to 19. In addition, note 38 to the financial statements includes
the Group’s objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposure
to credit risk and liquidity risk.
As described in the Market Overview on page 5, the trading
environment in 2014 was a challenging one characterised
by low and volatile precious metal prices.
The Group has taken decisive action to mitigate the impact of
further downturns in prices, primarily through the cost reduction
initiatives implemented as part of the Cash Optimisation Plan
and, to a lesser extent, the hedging arrangements put in place in
respect of 6 million ounces of silver and 38,000 ounces of gold of
the current year’s production. The Group has further strengthened
its financial position through the issue of $350m 7.75% Senior
Notes and the drawdown of the $100m Credit facility negotiated
in 2014 . In addition, in 2015, the Group has also drawn down
short- term credit facilities of $75 million.
During 2014 and, most recently in the process of considering
these financial statements, the Board has reviewed the actions
that could be pursued as part of a contingency plan in the event
that price conditions deteriorate further.
In conclusion, having considered financial forecasts and
projections which take into account (i) possible changes in the
price of silver and gold; (ii) the Group’s expenditure including its
capital commitments for the Inmaculada project; and (iii) the
lower average cost of production and the dilution of fixed costs
brought about by the commencement of the Inmaculada mine,
the Directors have a reasonable expectation that the Group and
the Company have adequate resources, including access to
contingent resources, that would see it 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.
ANNUAL GENERAL MEETING (‘AGM’)
The ninth AGM of the Company will be held at 9.30 am on
15 May 2015 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; and
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
17 March 2015
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41
Governance p36-85
40
Hochschild Mining plc Annual Report 2014
CORPORATE GOVERNANCE REPORT
IN THIS REPORT
DEAR SHAREHOLDER
The Board, its workings and how
it performed in 2014
see page 41
Audit Committee
see page 44
Nominations Committee
see page 48
Corporate Social
Responsibility Committee
see page 49
Remuneration Committee
see page 50
The terms of reference for each
Board Committee are available for
inspection on the Company’s website
at: www.hochschildmining.com
The Board takes its governance responsibilities extremely seriously as they serve as a
robust foundation upon which the Company can achieve its operational and strategic
objectives successfully. This has taken on an increased level of significance in the past
year given the continued challenging environment for the mining sector.
These conditions have led the Board to consider the issue of risks more closely as
we have proceeded to continue the implementation of cost reduction initiatives
across the business.
During the year, the Audit Committee has overseen the risk management process and
the Board has considered not only the risks that could endanger our strategy (and which
are discussed in the Risk Management section of this Annual Report) but also the risks
that are associated with the low price environment and the risks of the mitigating
actions taken by management that we have overseen.
The Board acknowledges that in such a turbulent market environment, continuity at
Board level provides a bedrock of stability and for this reason, I am grateful to my fellow
Board Members for their support in suspending our Non-Executive succession plans for
the time being. The Board is mindful of the benefits of a refreshed Board composition
which we will embark on implementing at the appropriate time.
At the end of last year, the Company announced my decision to assume a Non-Executive
chairmanship of the Company. This decision does not signal my stepping back from the
business but, rather, is indicative of our commitment to strong governance. I look forward
to reporting on these new arrangements in the 2015 Annual Report.
If you should have any queries arising from this report, please do not hesitate to
contact me.
EDUARDO HOCHSCHILD
Chairman
17 March 2015
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42
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41
INTRODUCTION
This report, together with the Directors’ remuneration report,
describes how the Company has applied the Main Principles of
the UK Corporate Governance Code (‘the Code’) (2012 edition)
in respect of the year ended 31 December 2014. A copy of the
Code 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 51 to 54.
This report reflects the arrangements in place during 2014 and
does not, therefore, reflect Eduardo Hochschild’s Non-Executive
chairmanship that was assumed with effect from 1 January 2015.
STATEMENT OF COMPLIANCE
The Board confirms that, in respect of the year under review,
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 remuneration of Eduardo Hochschild, who held
the position of Executive Chairman until 31 December 2014,
was not performance-related.
As previously reported, the Chairman’s remuneration
arrangements were reviewed in early 2010. In agreeing
the structure, the Board felt that the arrangements should
reflect the importance of his contribution to the long-term
strategic development of the Group and his current significant
shareholding. For this reason, a package comprising fixed
elements only was considered to be the most appropriate; and
(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
The Board is responsible for approving the Company’s strategy
and monitoring its implementation, for overseeing the
management of operations and for providing leadership and
support to the senior management team in achieving sustainable
added value for shareholders. It is also responsible for enabling
the efficient operation of the Group by providing adequate
financial and human resources and an appropriate system of
financial control to ensure these resources are fully monitored
and utilised.
There is an agreed schedule of matters reserved for the Board
which includes the approval of annual and half-yearly results,
the Group’s strategy, the annual budget and major items of
capital expenditure.
Composition
During 2014, the Board comprised two Executive Directors;
the Chairman and the Chief Executive Officer, and six
Non-Executive Directors.
Chairman and Chief Executive
In the year under review, the Company was jointly led by the then
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 were 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 as
the majority shareholder of the Company, the Board is satisfied
that, given its structure, decisions can be made without any
one Director exercising undue influence. This specific issue is
the subject of discussion as part of the annual Board evaluation
process which, in 2014, concluded that this view is maintained.
Additional safeguards come in the form of the Relationship
Agreement originally entered into by Eduardo Hochschild,
Pelham Investment Corporation (‘the Major Shareholder’) and
the Company prior to the IPO in November 2006, which ensured
that the Company and its subsidiaries are capable of carrying
on their business independently of the controlling shareholders
at that time and of their respective associates.
The Relationship Agreement was reviewed by the Board during
the year following the implementation of new Listing Rules
applicable to listed companies with controlling shareholders
(the ‘New Listing Rules’). As a result, an amended and restated
Relationship Agreement was approved and adopted which, in
addition to being the subject of a general update, incorporates
revised independence provisions reflecting the language of the
New Listing Rules.
Under the terms of the agreement, each of Eduardo Hochschild
and the Major Shareholder covenants that:
(i) all transactions with the Company (and its subsidiaries)
will be conducted at arm’s length and on normal
commercial terms;
(ii) neither of them (nor their associates) (the ‘Relevant Parties’)
will take any action that would have the effect of preventing
the Company from complying with its obligations under the
Listing Rules;
(iii) the Relevant Parties will not propose, and neither will they
procure the proposal of, a shareholder resolution intended
or which appears to be intended to circumvent the proper
application of the Listing Rules; and
(iv) the Relevant Parties will not take any action that would
preclude or inhibit any member of the Group from carrying
on its business independently of any of them.
The confirmations required to be given by the Board under
the New Listing Rules can be found in the Directors’ Report
on page 38.
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Hochschild Mining plc Annual Report 2014
Governance p36-85
42
Hochschild Mining plc Annual Report 2014
CORPORATE GOVERNANCE REPORT CONTINUED
Senior Independent Director
During the year under review, Enrico Bombieri acted as the
Senior Independent Director and, as such, was available to
act as a sounding board for the Chairman as necessary.
Mr Bombieri was available to meet with major shareholders
during the year if their concerns were not resolved by the
executive management team.
Non-Executive Directors
All of the Company’s Non-Executive Directors hold, or have held,
senior positions in the corporate sector and bring their experience
and independent perspective to enhance the Board’s capacity to
help develop proposals on strategy and to oversee and grow the
operations within a sound framework of corporate governance.
Details of the tenure of appointment of Non-Executive Directors
are provided in the Directors’ remuneration report.
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 judgment:
Enrico Bombieri’s employment, until February 2010, with
JP Morgan, an affiliate of one of the Company’s corporate
brokers, 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 2014
There were six Board meetings held in 2014 comprising
five scheduled meetings and one ad hoc meeting convened
in connection with the issue of the Group’s $350m 7.75%
Senior Notes.
Attendance of the Directors 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
Maximum
possible
attendance
6
Actual
attendance
5
6
6
6
6
6
6
6
6
6
6
5
6
6
6
Directors usually 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 encouraged to be fed back to the Chairman of the
relevant meeting who ensures that all views are represented.
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 2014 were:
Financial
the terms and subsequent issue of $350m 7.75% Senior
Notes in connection with the acquisition of International
Minerals Corporation
the recommendations of the Audit Committee to adopt
the 2013 Annual Report and Accounts and the 2014
Half-Yearly Report
the $100m medium-term loan with Scotiabank
updates on the implementation of the phases of the
Cash Optimisation Plan and revised financial forecasts
ongoing financing options
the 2015 Budget
Strategy
the Group’s strategic plan
hedging strategy
Business performance
detailed updates on progress at the Inmaculada Project
the revised focus of the Group’s business development
and exploration activities
Risk
review of the strategic risks faced by the Group
monitoring of the risks resulting from the Cash
Optimisation Plan
Governance
review and subsequent adoption of, a revised Relationship
Agreement following changes to the Listing Rules (see earlier
section entitled ‘Chairman and Chief Executive’)
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 2013 Board
evaluation recommendations, the outcome of the 2014 Board
evaluation and the form of the 2015 Board evaluation process
the annual reviews of Directors’ conflicts of interest and the
independence of Non-Executive Directors
the assumption, by Eduardo Hochschild, of a Non-Executive
chairmanship of the Company
the reduction in Non-Executive Directors’ remuneration
Sustainability
presentations on the Group’s Environmental and Community
Relations functions and their respective strategies
In between Board meetings, Directors are kept informed
of latest developments through monthly management
reports on the Company’s operations, exploration activity
and financial situation.
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44
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43
Appointments and re-election of Directors
Board nominations are recommended to the Board by the
Nominations Committee.
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 36 and 37.
Under the terms of the Relationship Agreement, the Major
Shareholder has (i) 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 (ii) 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% 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 the various means described as follows.
Induction
New Board appointees are offered the opportunity to meet with
key management personnel and the Company’s principal advisers
as well as undertaking 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.
Advice
The Company has procedures by which members of the Board
may take independent professional advice at the Company’s
expense in the furtherance of their duties.
Company Secretary
The Company Secretary is appointed and removed by the Board
and is responsible for advising the Board on governance matters
and the provision of administrative and other services to the
Board. All the Directors have access to the Company Secretary.
BOARD EVALUATION
The Board is committed to the process of continuous
improvement which is achieved in particular by the internally
led Board evaluation process.
Implementation of 2013 Board evaluation
A number of actions were taken during the year as a consequence
of the findings from the 2013 Board evaluation process.
These actions included:
the recomposition of the CSR Committee under the
chairmanship of Roberto Dañino;
in-depth discussions on commodity markets and market risk;
a review of the Group’s approach to exploration following the
re-organisation of the exploration function; and
extending the scope of the Group’s reporting of risk to
also address the specific risks emanating from the Cash
Optimisation Plan and the associated mitigating actions.
2014 BOARD EVALUATION
In keeping with past practice, the 2014 Board evaluation process was undertaken through one-to-one interviews conducted
by the Senior Independent Director assisted by the Company Secretary.
The interviews were structured to seek Directors’ views on a number of subject areas.
The Board
The composition of the Board, focusing on the skills required
Specific matters arising during the year
The implementation of the various phases of the Cash
to fulfil its responsibilities and gender diversity
Optimisation Plan
Board process and dynamics
Strategic planning and governance
The Committees
Composition and overall workings
Identifying opportunities to enhance the committees’ roles
Reviewing specific aspects of each Committee’s role as
a means of evaluating its performance
A review of the Company’s resilience to a continued
low precious metal price environment
In addition to the above, Directors were requested to provide
feedback on the performance of fellow Board members.
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Hochschild Mining plc Annual Report 2014
CORPORATE GOVERNANCE REPORT CONTINUED
2014 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
and Enrico Bombieri as the Senior Independent Director 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 Enrico Bombieri and considered by the Non-Executive
Directors collectively before being relayed to the Chairman.
Outcome
The principal recommendations arising from the 2014 Board
evaluation process can be summarised as follows:
the resumption of Non-Executive succession planning, taking
into account the benefits of gender diversity, following the
temporary suspension of the plan in light of the volatile
commodity markets;
the ongoing review of senior management succession plans
following the headcount reductions implemented as part
of the Cash Optimisation Plan;
enhancing the flow of communication between the
Committees and the Board; and
reducing the number and length of Board papers to allow
sufficient time for the discussion of critical strategic issues.
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 previously
reported, the Board acknowledges the benefits of a periodic
external evaluation recommended by the Code but given the
extent of the steps taken by management during the year to
mitigate the impact of falling precious metal prices, the Board
feels that the cost of an externally led evaluation does not justify
the expected level of additional benefits. As a result, the Directors
feel it is only right to continue the deferral of 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.
As foretold in last year’s report, 2014 did indeed prove to be a
challenging year with continued volatility in precious metal
prices. In such an environment, the Committee’s key function
of protecting shareholders’ interests through a robust framework
of internal controls, financial management and reporting took
on a heightened level of significance. How we are able to
reassure our shareholders in these respects is set out in detail
later in this report in the description of the Committee’s role and
responsibilities and the actions taken over the course of the year.
This has been primarily achieved through its monitoring activities
of the impact of the Cash Optimisation Plan on the Group’s
internal controls.
The Committee, and indeed the Board, also spent a significant
amount of time during the year considering the combined impact
on the Group of prevailing market conditions and the consequent
actions taken by the Company which, in addition to the cost
reduction measures, include the issue of Senior Notes, the $100m
Credit Facility and, to a lesser extent, the hedges taken to protect
cashflow. Further detail on these considerations can be found in
the Going Concern part of the section of this report addressing
the Significant Audit issues.
The UK Corporate Governance Code requires the Company to
state whether it anticipates tendering its external audit. Ernst
&Young LLP were appointed as Auditors in 2006 in preparation
for the Company’s Initial Public Offering and, accordingly, under
the EU regulations implemented last year and in the absence of
any relevant transitional provisions or guidance, the Company
is currently obliged to tender its 2017 external audit. This is
of course subject always to the Auditors performing to the
satisfaction of the Audit Committee and Company management.
In light of the challenging conditions that are likely to continue
in to 2015, the Board has agreed not to put the audit contract
out to tender earlier than currently required. The Committee
has a positive and open relationship with management and the
auditors and we thank them for their assistance during the year.
NIGEL MOORE
Committee Chairman
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46
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45
Members
Nigel Moore
(Non-Executive Director
and Committee Chairman)
Dr Graham Birch
(Non-Executive Director)
Enrico Bombieri
(Non-Executive Director)
Sir Malcolm Field
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
4
4
4
4
4
4
4
4
There were four meetings of the Audit Committee during
the year.
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 Audit
Committee Chairman for a number of other listed companies
for the last ten years.
All Committee members are considered to be independent
Directors. Their biographical details can be found on pages
36 and 37.
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 2013 Annual Report and Accounts
and the 2014 Half-Yearly Report were reviewed by the
Committee before recommending their adoption by the Board.
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 30 to 35 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. The Audit Committee Chairman receives
a report from the Head of the Internal Audit every three
months which sets out specific areas covered, improvements
being recommended and introduced and proposals for the
programme over the following three months. The CEO and
CFO also receive copies of this report and robustly support
the activities of the Internal Audit function.
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 and Bribery Act – The Audit Committee continued
to review and challenge the actions taken by management
to promote ethical and transparent working practices.
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Hochschild Mining plc Annual Report 2014
CORPORATE GOVERNANCE REPORT CONTINUED
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.
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 which
result in an action plan, the execution of which is assessed in
the following year’s auditor evaluation.
Committee objectives – The Audit Committee has continued
its initiative of setting specific objectives for itself and
management with a view to ensuring the diligent fulfilment
of its responsibilities.
The objectives for 2014 resulted in:
the periodic reporting of risk to the Committee being
supplemented by analysis of specific risks associated with
the cost cutting initiatives implemented as part of the Cash
Optimisation Plan;
continued focus on the processes through which employee
wrongdoing is detected and reported;
ongoing review of the Group’s tax structure in ensuring
an appropriate effective tax rate;
a review of the assurance mapping process, to ensure that
maximum benefit is derived from the annual review of the
source and quality of the assurances provided to the
Committee; and
a detailed review of developments in corporate
governance and their impact on the Committee
and its scope of responsibilities.
During the year, the Committee members held meetings with
the external Auditors without executive management to discuss
matters relating to the 2013 annual audit and the 2014 half-
yearly report. There were no matters of significance to report
from these meetings.
SIGNIFICANT AUDIT ISSUES
As recommended by the Code, the following is a summary
of the significant issues considered by the Committee in relation
to the 2014 financial statements and how these issues have
been addressed.
Impairments
This was considered to be a significant audit issue in 2014 given
the ongoing challenges faced by the Group during the year arising
from declines and volatility in market prices for silver and gold.
The Audit Committee has assessed reports from management
on the possible presence of indicators of impairment (as defined
in the relevant accounting standard) in respect of the Group’s
cash generating units (‘CGUs’).
In addition the Committee subsequently considered Ernst &
Young’s audit of, amongst other things, the methodology applied
in preparing these recoverable value models which included
assessing the models’ appropriateness, testing their accuracy,
performing sensitivity analyses on significant inputs, and
challenging the appropriateness of key assumptions.
Conclusion
In light of these assessments, the Audit Committee agreed
with management’s conclusion that no impairment charges or
reversals of previously recognised impairments are required for
any of the Group’s mine asset CGUs (excepting San Felipe where
a reversal of a previously recognised impairment was recorded)
and that all impairment-related disclosures made in the Group
financial statements are complete, sufficient, and appropriate.
Revenue Recognition
Under auditing standards, there is a rebuttable presumption
that revenue recognition is identified as a fraud risk. The Group
concludes a number of sales contracts which incorporate complex
terms under which title, risk and rewards pass to the customer
which increases the risk of misstatement and cut-off errors with
respect to the reporting of revenue.
The Audit Committee has reviewed management’s approach
to the matter and considered the Auditors’ procedures which
focused on:
testing the key controls around the revenue recognition
process to confirm that they are designed and operating
effectively, supporting the prevention and detection of
material errors in the reported revenue figures;
the timing of sales; and
the appropriate treatment of provisional pricing.
Conclusion
As a result of the procedures performed, the Audit Committee
has been able to conclude that revenue has been recognised
in accordance with accounting standards and the calculation
of any provisional pricing adjustments has been performed
in accordance with the Group’s accounting policies.
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48
www.hochschildmining.com
47
Going Concern Assessment
Due to the fall and increased volatility in commodity prices and
the Group’s increased leverage during 2014, the Board and the
Committee (with respect to its delegated authority) regularly
considered during the year, the resources available to the Group
in determining its status as a going concern.
Management and the Board considered cash flow forecasts,
undertook sensitivity analysis of the key assumptions and tested
forecast covenant compliance to ensure the Group’s ability to
operate as a going concern.
The Audit Committee considered the processes undertaken
by the auditors to obtain reassurance supporting the continued
application of the going concern methodology including the
testing of key assumptions, the appropriateness of stress
testing and the review of contractual and lending arrangements.
In conclusion, the Committee is content that the financial
statements are in accordance with relevant accounting
standards and guidance.
Please refer to the Directors’ Report on page 39 for its
confirmation to shareholders on the appropriateness
of the Going Concern assumption.
Adequacy of Tax Provisions
The Audit Committee considered the potential fines or losses
that the Group may be subject to in light of open tax reviews
and the uncertainty with respect to the quantum and timing
of these liabilities.
The Audit Committee considered management’s assessment of
these potential exposures and the work of the external auditors
which focused on:
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
after competitive tender;
six-monthly reports to the Audit Committee from the Auditors
analysing the fees for non-audit services rendered; and
an annual assessment, by the Audit Committee, of the
Auditors’ objectivity and independence in light of all
relationships between the Company and the audit firm.
2014 Audit and non-audit fees
Details of fees paid to the external Auditors are provided in note
33 to the Consolidated Financial Statements.
corroborating management’s assessment’s;
changes to those assessments relative to prior years
and the appropriate treatment in light thereof; and
the views of external counsel in support of
management’s assessment.
In conclusion and having had regard to management’s
assessment, the Committee agrees with the treatment
and disclosure of the potential liabilities identified.
Mine Rehabilitation Provisions
The Audit Committee considered the judgment exercised
by management in assessing the amounts required to be
paid by the Company to rehabilitate the Group’s mines.
In its assessment of management’s analysis, the Audit
Committee took into account:
the basis of management’s estimation of future
rehabilitation costs;
the discount rate applied by management;
significant changes in estimates and the basis and level
of new costs; and
the accounting for the changes in the provisions.
The Audit Committee concluded that the provision, which takes
into account the additional amounts now budgeted to restore
the Inmaculada project (to reflect its near completion status)
and the revision of budgets to rehabilitate a number of the
Group’s current and former mines, to be appropriate.
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49
Governance p36-85
48
Hochschild Mining plc Annual Report 2014
CORPORATE GOVERNANCE REPORT 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; and
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.
NOMINATIONS COMMITTEE
Dear Shareholder
One of the key responsibilities of the Nominations Committee
is to oversee the Board’s succession planning requirements
including the identification and assessment of potential Board
candidates and making recommendations to the Board for its
approval. The task we had set ourselves early in 2014 was to see
through the implementation of such a plan with respect to the
Non-Executive Directors, a number of whom will be completing
nine years on the Board later this year. However, the trading
challenges faced by the Company during the past year prompted
the Board to prioritise stability of leadership and, for this reason,
the process of refreshing the Board was temporarily suspended.
As a result, we retained our focus during the year on ensuring the
efficiency of the Board through the development of the Directors’
skills and knowledge by facilitating interaction with staff
members and providing briefings on a variety of subjects ranging
from the commodity markets to regulatory developments.
EDUARDO HOCHSCHILD
Committee Chairman
Members
Eduardo Hochschild
(Committee Chairman)
Enrico Bombieri
(Non-Executive Director)
Jorge Born
(Non-Executive Director)
Sir Malcolm Field
(Non-Executive Director)
Maximum
possible
attendance
Actual
attendance
2
2
2
2
2
2
1
2
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 2014. The Company Secretary acts as Secretary to
the Committee.
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50
Activity during the year
The principal matters considered during the year were:
a review of the Board’s skills’ matrix to identify the skills
to be replaced at the appropriate time;
discussions on the issue of diversity of the Board, including
gender diversity;
succession planning for the senior management team;
the format of the 2014 Board evaluation process. As explained
earlier in this report, it was decided that, given the extent of
the cost reduction initiatives which continued to be taken
across the Group, an externally led evaluation was not
appropriate. The Committee therefore recommended that
an externally led evaluation be deferred until an improvement
in trading conditions; and
the findings of the 2014 Board evaluation process
(see earlier section of the Corporate Governance report
on Board development).
Appointments to the Board
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,
to Board effectiveness are acknowledged by the Directors
who note that the current Board composition is reflective
of a cultural diversity that is relevant to the Group’s business.
Given current trading conditions, there are no immediate plans to
make new Board appointments. However, the Company foresees
that retirements over the next 12-18 months will present
opportunities to increase gender diversity on the Board.
Decisions on Board appointments will ultimately continue
to be taken on merit and, for this reason, the setting of specific
measurable targets is not considered to be appropriate.
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49
CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
Dear Shareholder
The Group has continued to demonstrate its commitment as
a responsible operator throughout 2014 underlined by the fact
that for the first time since the Company’s listing in 2006, the
Company has achieved its ongoing objective of zero fatalities.
We owe our gratitude for this significant achievement to our
many teams who have worked tirelessly to embed a safety
driven culture across the organisation and of course to the
workers at our operations.
Despite the challenging trading conditions, we remain committed
to our responsibilities to our local communities, and details of the
work we have done during the year in the core areas of education,
health and economic development can be found in the
Sustainability report on pages 20 to 29.
ROBERTO DAÑINO
Committee Chairman
Members
Roberto Dañino
(Committee Chairman)
Dr Graham Birch
(Non-Executive Director)
Ignacio Bustamante
(Chief Executive Officer)
Maximum
possible
attendance
Actual
attendance
4
4
4
3
4
4
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
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
All of the members of the Committee served throughout the year
under review. Enrico Bombieri was appointed a member of the
Committee with effect from 1 January 2015.
The Vice President of Operations and the Vice President of Legal
and Corporate Affairs 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
20 to 29.
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51
Governance p36-85
Maximum
possible
attendance
Actual
attendance
February
BMO Global Metals & Mining Conference
March
2013 Annual Results presentation
50
Hochschild Mining plc Annual Report 2014
CORPORATE GOVERNANCE REPORT CONTINUED
REMUNERATION COMMITTEE
Dear Shareholder
We seek to implement a simple and transparent remuneration
policy that aims to retain and motivate senior executives and,
above all, is aligned with the successful achievement of the
Group’s strategic objectives. This alignment does not only look
to reward management’s performance in extremely challenging
trading conditions but also reflects our commitment as a
responsible operator. Further details on the Company’s
remuneration policy and the Committee’s work in 2014 can
be found in the Directors’ remuneration report on page 55.
JORGE BORN JR.
Committee Chairman
Members
Jorge Born Jr.
(Committee Chairman)
Sir Malcolm Field
(Non-Executive Director)
Nigel Moore
(Non-Executive Director)
5
5
5
4
5
5
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
There were no changes to the membership of the Committee
during 2014. The Company Secretary acts as Secretary to
the Committee.
Members of senior management attend meetings at the
invitation of the Committee. During the year, such members
included the 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 55 to 78.
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 2014
The following table summarises the principal means by which
management communicated with investors during the year:
Date
January,
April, July,
October
Event
Conference calls following the Quarterly
Production Reports (and Interim Management
Statements, when appropriate)
UK and European and Roadshow
May
BoA Merrill Lynch Global Metals, Mining and
Steel Conference
Annual General Meeting
June
HSBC LATAM Investor Forum
Zurich Roadshow
August
2014 Half-Yearly Results presentation
September
UK and European Roadshow
Denver Gold Forum
Shareholder communication and meetings led
by the Remuneration Committee in connection
with the proposed Restricted Share Plan (‘RSP’)
December
Extraordinary General Meeting in connection
with the RSP
An extensive Investor Relations schedule resulted in management
holding over 50 investor meetings during the year.
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.
2014 AGM
Notice of the 2014 AGM was circulated to all shareholders at
least 20 working days prior to the meeting. With the exception
of Roberto Dañino (Chairman of the CSR Committee) who was
unable to attend due to ill health, all of the Chairmen of the
Board Committees were available at the AGM 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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52
SUPPLEMENTARY INFORMATION
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51
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.
Current share repurchase authority
The Company obtained shareholder approval at the AGM held
in May 2014 for the repurchase of up to 36,710,135 shares which
represents 10% of the Company’s issued share capital (‘the 2014
Authority’). Whilst no purchases were made by the Company
pursuant to the 2014 Authority, it is intended that shareholder
consent will be sought on similar terms at this year’s AGM when
the 2014 Authority expires.
SHARE CAPITAL
Issued share capital
The issued share capital of the Company in the year under review
was 367,101,352 ordinary shares of 25 pence each (‘shares’).
The Hochschild Mining Employee Share Trust (‘the Trust‘) is
an employee share trust established 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 2014, 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
Eduardo Hochschild 199,320,272
Percentage
of voting
rights
(indirect)
–
Percentage
of voting
rights (direct)
54.30%
Vanguard Group Inc.
39,666,795
–
10.81%
Prudential plc
Group of Companies
Altima Global Special
Situations Master
Fund Limited*
22,277,961
0.17%
5.90%
12,003,175
3.55%
n/a
* 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 17 March 2015.
Additional share capital information
This section provides additional information as at
31 December 2014.
(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 29 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.
53
Hochschild Mining plc Annual Report 2014
Governance p36-85
52
Hochschild Mining plc Annual Report 2014
SUPPLEMENTARY INFORMATION CONTINUED
(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
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.
register any transfer of any share which is not a fully paid share.
The Directors may also decline to recognise any instrument of
transfer relating to a certificated share unless the instrument
of transfer: (i) is duly stamped (if required) and is accompanied
by the relevant share certificate(s) and such other evidence of
the right to transfer as the Directors may reasonably require;
and (ii) is in respect of only one class of share. The Directors
may, in their absolute discretion, refuse to register a transfer
if it is in favour of more than four persons jointly; and
(a) $350m 7.75% Senior Notes
Under the terms and conditions of the $350 million 7.75%
Senior Notes due 2021, 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.
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; and
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.
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54
(b) $100m Credit Agreement
Under the terms and conditions of the $100 million Credit and
Guaranty Agreement between, amongst others, the Group and
Scotiabank Peru S.A.A, a Change of Control constitutes an Event
of Default (as defined in the agreement) as a result of which (i)
the Administrative Agent may, with the consent of the Required
Lenders; or (ii) the Administrative Agent shall, at the request of
the Required Lenders, declare all or a portion of the Commitments
terminated and/or the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement
to be due and payable forthwith, whereupon the same shall
immediately become due and payable.
In summary, a Change of Control means an event or series
of events by which: (a) the Permitted Holders (being Eduardo
Hochschild, his descendants or investment vehicle for the primary
benefit of any of them) shall for any reason cease, individually
or in the aggregate, to be the “beneficial owners” (as defined
in Rules 13d-3 and 13d-5 under the Securities Exchange Act
of 1934), directly or indirectly, of more than 50% of the Equity
Interests in the Company; or (b) the Permitted Holders shall for
any reason cease, individually or in the aggregate, to have the
power to appoint at least a majority of the members of the board
of directors or other equivalent governing body of the Company;
or (c) the Permitted Holders shall for any reason cease, individually
or in the aggregate, to Control the Company (through the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of the Company,
whether through the ability to exercise voting power, by contract
or otherwise); or (d) the Company shall for any reason cease,
directly or through one or more of its Subsidiaries, to be the
“beneficial owner” (as so defined) of 100% of the Equity Interests
in Compania Minera Ares S.A.C. or Hochschild Mining (Argentina)
Corporation S.A.; or (e) the Company shall for any reason cease,
directly or indirectly, to Control Compania Minera Ares S.A.C.
or Hochschild Mining (Argentina) Corporation S.A.
(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.
(d) Derivative Instruments
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.
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)(a)
(10)(b)
(11)
(12)
(13)
(14)
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53
ADDITIONAL DISCLOSURES
Disclosure table pursuant to Listing Rule 9.8.4C R
For the purposes of LR 9.8.4C R, the information required to
be disclosed by LR 9.8.4 R can be found in the following parts
of this Annual Report:
Section
(1)
Subject Matter
Interest capitalised
Location
Note 16 to the
consolidated
financial
statements
Not applicable
Publication of unaudited
financial information
Details of specified long-term
incentive scheme
None
Waiver of emoluments by
a director
Waiver of future emoluments
by a director
Directors’
remuneration
report
As (5) above
Non pre-emptive issues
of equity for cash
Item (7) in relation to major
subsidiary undertakings
None
None
Parent participation in a
placing by a listed subsidiary
None
Contract of significance in
which director is interested
None
Contract of significance with
controlling shareholder
None
Provision of services by a
controlling shareholder
None
Shareholder waivers of
dividends
Shareholder waivers
of future dividends
Directors’ report
Directors’ report
Agreement with controlling
shareholder
Directors’ report
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55
Governance p36-85
54
Hochschild Mining plc Annual Report 2014
SUPPLEMENTARY INFORMATION CONTINUED
SUMMARY OF CONSTITUTIONAL AND
OTHER PROVISIONS
Appointment of Directors
Under the terms of the Articles
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.
Approach to Appointment adopted by the Board
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.
New Listing Rules
Following the implementation of new Listing Rules by the
Financial Conduct Authority (in its capacity as the UK Listing
Authority), as a company with a controlling shareholder, with
effect from the upcoming AGM, the election or re-election of any
independent director must be approved by: (i) all shareholders
of the Company; and (ii) the independent shareholders of the
Company (i.e. any person entitled to vote on the election of
directors of the Company that is not a controlling shareholder).
If either shareholder resolution to elect or re-elect the
independent director is defeated, the Company may propose a
further resolution to elect or re-elect the proposed independent
director provided that the further resolution must not be voted
on within 90 days from the date of the original vote but it must
then be voted on within a period of 30 days from the end of
the 90 day period. It may then be passed by a simple majority
of the shareholders of the Company voting as a single class.
Removal of Directors
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.
Relationship Agreement
In addition, under the terms of the Relationship Agreement:
for as long as the Major Shareholder has an interest of 30%
or more in the Company, it is entitled to appoint up to two
Non-Executive Directors and to remove such Directors so
appointed; and
for as long as the Major Shareholder has an interest of 15% or
more of the Company, it is entitled to appoint up to one Non-
Executive Director and to remove such Director so appointed.
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.
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56
DIRECTORS’ REMUNERATION REPORT
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55
Long-term incentives
As performance conditions (linked to relative Total Shareholder
Return (‘TSR’)) were not achieved, awards granted in 2012 under
the Long Term Incentive Plan (‘LTIP’) and the four-year tranche
of the 2011 Enhanced LTIP (‘ELTIP’) will lapse in early 2015.
In light of ongoing difficulties affecting the precious metals
market, and in the face of the increased competition for
mining professionals, the Committee consulted with
shareholders in 2014 about a one-off grant of restricted shares
to key management personnel, including the CEO. Following
approval of the RSP at the 29 December 2014 Extraordinary
General Meeting, awards were made to Ignacio Bustamante
and other executives, details of which can be found on page 75.
The Committee strongly believes that awards under the RSP
will help ensure the retention of key executives and are in
shareholders’ best interest.
Areas of future consideration
The Committee notes the new requirement for malus and
clawback in the FRC UK Corporate Governance Code, and
confirms that the Company currently has discretion to apply
malus to unvested awards under both the annual bonus and
long-term incentives in exceptional circumstances, such as
material misstatement or gross misconduct. In light of this,
the Committee has determined not to effect changes at this
time, and will review the appropriateness of clawback at the next
formal approval of the Remuneration Policy based on prevailing
market practice at that time.
We hope to receive your support at the AGM.
JORGE BORN JR
Chairman, Remuneration Committee
DEAR SHAREHOLDERS
On behalf of the Board, I am pleased to present the Directors’
remuneration report for the year ending 31 December 2014.
As in 2013, this report is split into three sections: the Annual
Statement, the Directors’ Remuneration Policy and the Annual
Report on Remuneration. The Remuneration Policy has been
updated to include details of the Restricted Share Plan (‘RSP’),
which was approved at the 29 December 2014 Extraordinary
General Meeting, and subject to shareholder approval will take
effect from the date of the forthcoming AGM. The Annual Report
on Remuneration will be subject to an advisory vote at the AGM.
As previously reported, 2014 was characterised by a continued
depressed pricing environment exacerbated by an increased
volatility in precious metal prices. Against this backdrop,
management has maintained its focus on reducing costs
across the business and on making significant progress
with the Inmaculada Project which on the commencement
of commissioning in Q2 2015 is expected to bring down the
Group’s average cost of production.
The Committee’s key decisions during the year related to the
following areas:
Change in Eduardo Hochschild’s role
Following a review of Board structure, Eduardo Hochschild
became Non-Executive Chairman of the Company with effect
from 1 January 2015. Mr. Hochschild will receive a flat annual
fee of $400,000 and will retain eligibility for the benefits received
in respect of his time as an Executive Director. The Committee
considers this move will better align the Board structure with
best practice corporate governance, whilst also delivering a
significant cost saving.
Review of CEO’s base salary
At the beginning of 2015 the Committee reviewed the salary
of the CEO. This review took into account a number of factors
including pay levels in the global mining sector, the relative cost
of living, an assessment of performance during the year, and
pay conditions across the Group. Following this review,
the Committee agreed that the base salary for the CEO will
increase by 16% to US$541,667, effective 1 March 2015.
Annual bonus
Since the start of the downward trend in precious metal
prices in 2013, management has implemented a series of
cost reduction measures under the Cash Optimisation Plan
(‘COP’). The original target set for the COP of US$200m has
been significantly exceeded with total savings to date estimated
at over US$300 million. Another considerable achievement was
the accomplishment of the Company’s ongoing strategic
objective of zero fatalities which was seen through in 2014 for the
first time since the Company’s listing in 2006. As a result of these
notable actions and the reasons set out later in this report, the
annual bonus outcome was 100% of salary for the CEO.
58
Hochschild Mining plc Annual Report 2014
Governance p36-85
56
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
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 Investment Association (formerly the
Association of British Insurers) and the National Association
of Pension Funds.
DIRECTORS’ REMUNERATION POLICY (UNAUDITED)
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; and
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 CEO in the form of the
Enhanced LTIP (ELTIP), which was approved by shareholders
at the 2011 AGM.
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 2015
AGM. The Committee intends that this policy will formally come
into effect from approval at the 2015 AGM. The report below is
broadly unchanged from the Remuneration Policy approved at
the 2014 AGM, save a number of minor changes as follows:
Added details of the Restricted Share Plan (‘RSP’), which
was approved by shareholders at the 29 December 2014
Extraordinary General Meeting, to the notes to the policy table;
Details of opportunities under the ELTIP in 2014 have
been included;
Pay scenario charts have been updated to reflect 2015 salary
levels and inclusion of the RSP;
Details for the Executive Chairman role have been omitted in
light of his move to a Non-Executive Chairman role with effect
from 1 January 2015; and
Clarification of malus provisions for deferred bonus and
ELTIP awards.
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59
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57
Performance metrics
None
None
Benefits
To provide benefits
in line with market
practice in relevant
geographies
Details
Salary is reviewed
annually, usually in
March, or following
a significant change
in responsibilities.
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.
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE
Opportunity
Objective
Any salary increases are applied
Base salary
in line with the outcome of the
To support recruitment
annual review.
and retention
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.
For the profit share, an
amount equal to 8% of the
relevant Peruvian company’s
taxable income for the year is
distributable to its employees.
This amount is mandated by
Peruvian law, and any increases
are not within the control of the
Group. 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
varies 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).
Executive Directors
receive compensation
for time services and
profit share, both of
which are provided
for by Peruvian law,
as well as certain
allowances which
may include medical
insurance, the use
of a car and driver,
and personal security.
60
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Governance p36-85
58
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE CONTINUED
Objective
Annual bonus
To achieve
alignment with
the Group’s strategy
and commitment
to operating
responsibly
Opportunity
For Executive Directors, the
maximum annual bonus
opportunity is 150% of salary.
The bonus earned is 67% of
maximum for threshold level
performance and 83% for
target performance.
Details
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.
Deferred bonus is
subject to malus, i.e.
forfeiture or reduction,
in exceptional
circumstances such as
material misstatement
or gross misconduct.
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
Performance metrics
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 judgment 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 material changes in 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 or 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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61
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE CONTINUED
Objective
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
Opportunity
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.
Details
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.
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59
Performance metrics
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 it 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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Governance p36-85
60
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE CONTINUED
Objective
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
Opportunity
The ELTIP award in 2011 was
over shares with a face value
on the date of grant equivalent
to 600% of the CEO’s salary
(362,196 conditional shares)
In line with the approval granted
by shareholders at
the 2011 AGM, the Committee
made a second ELTIP award
to the CEO in 2014 of 600%
of his salary (951,900 conditional
shares). Dividend equivalents are
payable over the vesting period in
respect of the shares that vest.
Details
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.
Unvested awards
are subject to malus, i.e.
forfeiture or reduction,
in exceptional
circumstances such as
material misstatement
or gross misconduct.
The CEO is required to
retain 50% of the after-
tax vested ELTIP shares
until such time as he
has accumulated a
shareholding with
a value of 200%
of salary.
Performance metrics
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 ELTIP 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.
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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61
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, i.e. before 15 May 2015.
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 ELTIP 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).
One-off Restricted Share Plan
Following shareholder approval at an Extraordinary General Meeting in December 2014, Ignacio Bustamante was granted an award
under the RSP. Awards were made over conditional shares with a grant-date value equivalent to five times salary, and which vest in
tranches over two to five years subject to satisfactory performance and continued employment with the Company. Unvested awards
are subject to malus, i.e. forfeiture or reduction, in exceptional circumstances such as material misstatement or gross misconduct.
Further details of the award, including details of treatment for leavers and in the event of a change in control, are included in the
Annual Report on Remuneration on page 75.
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 the CEO. 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 the
CEO. 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 relevant Peruvian
company’s taxable income for the year is distributable to its employees. The amount receivable by each employee is determined
with reference to their annual base salary and the number of days worked in the calendar year.
Selected senior employees participate in the LTIP on the same basis as the CEO who, with respect to 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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Governance p36-85
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Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
PAY SCENARIO CHARTS
The charts below provide an estimate of the potential future reward opportunities for the CEO, 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 March 2015.
CEO
(USD $000)
0
1,000
2,000
3,000
Minimum
47%
53%
1,052
On-Target
24%
27%
49%
2,029
Maximum
14%
19%
67% 3,453
Salary, pension and benefits
Single-year variable
Multi-year variable1
1 For the CEO, the 2011 and 2014 ELTIP awards have been annualised over the vesting period and are calculated to have an equivalent face value of 198% of salary
in 2015. The value of the one-off RSP award made in 2014 has been similarly annualised over the vesting period and is calculated to have an equivalent face value
of 148% of salary in 2015.
The charts above exclude the effect of any Company share price appreciation. For this reason, were the CEO’s LTIP and ELTIP 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), and full vesting of the RSP. These are
the only elements of the CEO’s remuneration package which are not at risk.
The ‘On-Target’ scenario reflects fixed remuneration as above, plus a target payout of 83% of the annual bonus, threshold vesting
of 25% of the maximum award under the LTIP and ELTIP, and full vesting of the RSP.
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of all incentives.
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63
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
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.
New appointees will be granted awards under the LTIP on the
same terms as the CEO, as described in the policy table.
Maximum annual grant value
150% of salary
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 on a like-for-like basis, having regard to the fair value of the instruments. 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 aims to use the current remuneration structure in making recruitment awards, however in some cases it may be
required to use the flexibility afforded by Listing Rule 9.4.2 R if appropriate in relation to such buy-out awards.
The Remuneration Committee confirms that the Company would engage with its shareholders in exercising the discretion afforded
by LR 9.4.2 R whether in relation to recruitment awards or retention 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 61.
NON-EXECUTIVE DIRECTOR RECRUITMENT
In recruiting a new Non-Executive Director (NED), the Committee will use the policy as set out in the table on page 65. 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.
66
Hochschild Mining plc Annual Report 2014
Governance p36-85
64
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
SERVICE CONTRACTS AND EXIT PAYMENT POLICY
Executive Director
Ignacio Bustamante
Date of service contract
1 April 2007
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee.
Ignacio Bustamante was appointed a Director of the Company with effect from 1 April 2010 and is employed under a contract of
employment with Compañia Minera Ares S.A.C. (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.
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. The Chairman’s service contracts with the Group, details of which can be found in the 2013 Directors’
remuneration report, were terminated on 31 December 2014 following Mr Hochschild’s decision to assume a Non-Executive
Chairmanship.
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 ELTIP are typically treated in specific
circumstances, with the final treatment remaining subject to the Committee’s discretion:
Annual cash bonus
Reason for leaving
Retirement, ill health, disability, death or
any other reasons the Committee may
determine in its absolute discretion or
Change of control
Any other reason
Timing of vesting
Normal payment date,
although the Committee
has discretion to accelerate
No bonus is paid
Treatment of awards
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 prorated for time served during the year
Not applicable
Timing of vesting
Normal vesting date, although
the Committee has discretion to
accelerate
Treatment of awards
Any outstanding awards will be pro-rated for time
and performance
Any outstanding awards will be pro-rated for time
and performance
Any outstanding 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
Not applicable
Timing of vesting
On date of event
Treatment of awards
Any outstanding awards will be pro-rated for time
and performance
LTIP and ELTIP
Reason for leaving
Retirement, ill-health, disability,
redundancy, injury or any other reasons
the Committee may determine in its
absolute discretion
Death
On date of event
Change of control
On date of event
Any other reason
Awards lapse
DBP and RSP
Reason for leaving
Death, ill-health, disability, redundancy,
injury, retirement with agreement
of the Directors (DBP only), or any
other reasons the Committee may
determine in its absolute discretion
Change of control
On date of event
Any other reason
Awards lapse
Any outstanding awards will be pro-rated for time.
In the event of a change of control, Hochschild awards may
alternatively be exchanged for new equivalent awards in
the acquirer where appropriate
Not applicable
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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 further three year
terms. 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
Eduardo Hochschild1
Jorge Born Jr.
Sir Malcolm Field
Nigel Moore
Roberto Dañino2
Dr Graham Birch
Enrico Bombieri
Letter of Appointment dated
30 January 2015
16 October 2006
16 October 2006
16 October 2006
11 January 2011
20 June 2011
20 October 2012
Anticipated expiry of present term of appointment
(subject to annual re-election)
31 December 2017
16 October 2015
16 October 2015
16 October 2015
11 January 2017
30 June 2017
20 October 2015
1 Mr. Hochschild, previously Executive Chairman, became Non-Executive Chairman effective 1 January 2015.
2 Pursuant to a contract between Mr Dañino and Ares dated 28 December 2010, a fee is payable to Mr Dañino in respect of his engagement as Special Adviser to
the Chairman and the senior management team. 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. With effect from 1 January 2015, Mr Dañino has waived the
fee payable to him under this contract in light of the challenging trading conditions faced by the Company. This fee may be reinstated in the future on the terms
of any renewed or extended contract.
The Non-Executive Directors are not eligible to participate in the Company’s performance-related incentive plans and do not receive
any pension contributions. As part of his change of role from Executive to Non-Executive Chairman, the Committee agreed that
Mr. Hochschild would retain his eligibility for benefits received in respect of his time as an Executive Director, consisting primarily
of personal security, car and driver, and medical insurance.
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:
Performance
measures
None
Function
To attract and
retain Non-Executive
Directors of the highest
calibre with broad
commercial and
other experience
relevant to
the Company
Operations
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
2014 are set out in the Annual Report
on Remuneration on page 70.
Opportunity
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 2014
Governance p36-85
66
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
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 in respect of remuneration resolutions during 2014 and the Committee’s response are provided
in the Annual Report on Remuneration.
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67
ANNUAL REPORT ON REMUNERATION
The following section provides details of how Hochschild’s Remuneration Policy was implemented during the financial year ending
31 December 2014.
Remuneration Committee membership
The Remuneration Committee is chaired by Jorge Born and its other members are Sir Malcolm Field and Nigel Moore. 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
Chairman, the CEO 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 five times during the year (details of members’ attendance at meetings are provided in the
Corporate Governance report on page 50) and undertook the items of business noted below.
March 2014
Considered the 2013 performance evaluations of the CEO and approved the bonus payment arrangements including the Deferred
Bonus Plan. In addition, the Committee noted the performance of, and bonuses for, the Group’s Vice Presidents;
Approved the 2013 Directors’ remuneration report;
Considered and approved the 2014 objectives for the CEO and CFO (who is not an Executive Director);
Confirmed the nil vesting outcome of 2011 LTIP awards;
Approved the grant of LTIP awards and an ELTIP award to the CEO; and
Approved the balancing payment due to award holders under the Exploration Incentive Plan, a plan designed to incentivise the
Group’s geologists which has subsequently lapsed.
August 2014
Considered an update on senior executive remuneration and the design of a RSP in light of prevailing market conditions and the
impact of the Cash Optimisation Plan.
September 2014 (two meetings)
Considered:
the detailed implementation steps in respect of the RSP; and
the outcome of the shareholder consultation.
November 2014
Considered the re-initiation of the RSP following the decision to postpone its implementation in light of market conditions;
Considered the new remuneration arrangements for Eduardo Hochschild following his decision to take on a Non-Executive
Chairmanship effective 1 January 2015;
Considered provisional assessments in advance of the year-end with respect to:
senior executive salaries;
the CEO’s 2014 performance evaluation; and
the status of vesting of subsisting LTIP awards;
Considered management’s proposed approach to the 2015 LTIP awards; and
Considered the 2015 objectives for the CEO.
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Hochschild Mining plc Annual Report 2014
Governance p36-85
68
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
Advisers
Kepler Associates Partnership LLP (‘Kepler’), who were appointed by the Remuneration Committee in 2007 as part of a formal selection
process for a remuneration adviser, 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 2014, Kepler provided independent advice on remuneration for executives, TSR performance updates, and support in drafting the
Directors’ remuneration report and shareholder consultation materials. Kepler reports directly to the Chairman of the Committee and
provides no other services to the Company. Kepler’s total fees for the provision of remuneration services to the Committee in 2014
were £24,970 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 2014 AGM and December Extraordinary General Meeting (EGM)
The following table shows the results of the shareholder vote on the 2013 Remuneration report at the 2014 AGM:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
Directors’ Remuneration Policy
Total number
of votes
308,258,985
27,144,983
335,403,968
4,790,137
340,194,105
% of votes cast
91.91%
8.09%
Annual Report on Remuneration
% of votes cast
99.59%
0.41%
Total number
of votes
338,788,812
1,404,990
340,193,802
303
340,194,105
Note: Votes withheld are not included in the final proxy figures as they are not recognised as votes in law.
In light of ongoing difficulties affecting the precious metals market, and in the face of the increased competition for mining professionals,
the Committee consulted with shareholders in 2014 about a one-off grant of restricted shares to key management personnel, including
the CEO. The following table shows the results of the shareholder vote on the resolutions at the December 2014 EGM:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
Approval of RSP
% of votes cast
81.76%
18.24%
Total number
of votes
263,434,374
58,762,213
322,196,587
4,563,294
326,759,881
Approval of RSP award to CEO
Total number
of votes
263,431,522
58,764,213
322,195,735
4,564,146
326,759,881
% of votes cast
81.76%
18.24%
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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
2014 and the prior year:
Base salary1
Taxable benefits2
Pension3
Single-year variable4
Multiple-year variable5
Profit share6
Total
Eduardo Hochschild
Ignacio Bustamante
2014
US$000
776
525
160
n/a
n/a
0
1,461
2013
US$000
931
553
194
n/a
n/a
0
1,678
2014
US$000
471
27
0
409
0
0
907
2013
US$000
515
24
0
460
0
0
999
1 Base salary includes compensation for time services and for 2014 a one-off tax rebate on a portion of salary, as mandated by the Peruvian government.
2 Taxable benefits include: use of a car and driver (Eduardo Hochschild – 2014 $23,429; 2013 $30,557. Ignacio Bustamante – 2014 $22,019; 2013 $22,353),
personal security (Eduardo Hochschild – 2014 $493,510; 2013 $518,072), 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 Neither the LTIP nor ELTIP shares were due to vest for performance to 31 December 2013 or 2014.
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 2014 and 2013:
Non-Executive Director
Jorge Born Jr.
Sir Malcolm Field
Nigel Moore
Roberto Dañino
Dr Graham Birch
Enrico Bombieri
Base fee
US$000
Additional fees
US$000
Benefits-in-kind
US$000
Total
US$000
2014
116
116
116
116
116
116
2013
137
137
137
137
137
137
2014
–1
–
233
2404
–
–
2013
–
272
273
2404
–
–
2014
–
–
–
195
–
–
2013
–
–
–
425
–
–
2014
116
116
139
375
116
116
2013
137
164
164
419
137
137
1 Jorge Born waived the supplement payable following his appointment to the position of Chairman of the Remuneration Committee from 1 January 2014 in light
of the challenging trading conditions faced by the Company.
2 Sir Malcolm Field’s additional fee relates to his role as Chairman of the Remuneration Committee.
3 Nigel Moore’s additional fee relates to his role as Chairman of the Audit Committee.
4 The amount represents the fee of $240,000 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 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. Mr Dañino
has waived this fee effective 1 January 2015 in light of the challenging trading conditions faced by the Company.
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, out-of-pocket expenses and medical insurance.
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Hochschild Mining plc Annual Report 2014
Governance p36-85
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Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
SALARY AND FEE ADJUSTMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (UNAUDITED)
Base salaries for Executive Directors were reduced with effect from 1 July 2013. Following a review in 2014, the Committee determined
that the CEO’s salary would remain unchanged effective 1 March 2014. As a result of a significant depreciation of the Peruvian Nuevos
Soles, the currency in which the CEO’s salary is denominated, against the US dollars over the course of 2014, the CEO’s US dollar
equivalent salary with effect from 1 March 2014 was $467,000.
Executive Director
Ignacio Bustamante2
Base salary1 from
1 July 2013
Base salary1 from
1 March 2014
US$000
502
US$000
467
Percentage
decrease
0% – see
explanation
above
1 Includes compensation for time services (CTS).
2 Ignacio Bustamante’s salary is denominated in PEN. From 1 July 2013, his salary (inclusive of CTS) was PEN 1,324,201. Salary from 1 July 2013 is calculated based
on the 12-month average exchange rate over 2013 of US$1 = PEN 2.702, and salary from 1 March 2014 is based on the 12-month average exchange rate over
2014 of US$1 = PEN 2.838.
Effective 1 January 2015, Eduardo Hochschild became Non-Executive Chairman of the Company.
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 typically
paid for the role of Chairman of the Remuneration Committee and Chairman of the Audit Committee.
Non-Executive Director fees (both base and additional fees) were reduced by 30% from 1 August 2013, and further reduced by an
additional 30% effective 1 January 2015. Eduardo Hochschild became Non-Executive Chairman of the Company effective 1 January
2015 and will receive an annual fee of $400,000. Mr Hochschild will also be entitled to retain the same level of benefits as under his
previous role. A summary of current fee levels is provided below:
Non-Executive Director fee
Chairman fee
Base fee
Additional fees1
Fee from
1 August 2013
n/a
Fee from
1 January 2015
$400,000
£70,000
£14,000
£50,000
£10,000
Percentage
decrease
n/a
-28.6%
-28.6%
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 in light of the challenging trading conditions faced by the Company.
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71
INCENTIVE OUTCOMES FOR THE YEAR ENDED 31 DECEMBER 2014 (AUDITED)
Performance-related annual bonus in respect of 2014 performance
Objectives for the 2014 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 February 2015.
Further details of the bonuses paid for 2014, including the specific performance metrics, weightings and performance against each
of the metrics, are provided in the table below:
Objective
Production and financial results
KPI Target weighting
Threshold
Production
21%
Targets
Target
22m Oz Aq Eq
Maximum
EBITDA
21% US$187m US$192m US$202m
Sustaining
Capex
Brownfields
exploration –
Arcata
Brownfields
exploration –
Pallancata
Cash
generated
through
project sales
Project
milestones –
Inmaculada
schedule and
budget
Frequency rate
Business growth
Project development
Safety
Performance assessment
Maximum:
22.2m Oz Ag Eq
Maximum:
US$202m1
Maximum:
US$112m
Maximum (after
RemCo discretion):
15m Oz Ag Eq
Removed from
scorecard
(see below)
11% US$144m US$137m US$131m
5%
n/a
13.3m Oz
Ag Eq
(<0.64Mt;
≥650 g/t
Ag Eq)
17.7m Oz
Ag Eq
(<0.64Mt;
≥650 g/t
Ag Eq)
14.5m Oz
Ag Eq
(<0.69Mt;
≥650 g/t
Ag Eq)
19.2m Oz
Ag Eq
(<0.69Mt;
≥650 g/t
Ag Eq)
15.7m Oz
Ag Eq
(<0.75Mt;
≥650 g/t
Ag Eq)
20.8m Oz
Ag Eq
(<0.75Mt;
≥650 g/t
Ag Eq)
11%
Not disclosed
Below threshold
11%
Not disclosed
Below threshold
16% 2013 rate 2013 rate
-2.5%
2013 rate
-5%
Threshold (after Remco
discretion): 2013 rate
+48%
Severity rate
5% 2013 rate
-10%
2013 rate
-25%
2013 rate
-50%
Maximum:
2013 rate -75%
1 In line with the Committee’s usual approach and as described in the policy section of this report, the final assessment for EBITDA is arrived at after a review
of the quality of earnings to ensure that they are not distorted by external circumstances. The final assessment is the post-reconciliation EBITDA after stripping
out the impact of, amongst other things, the differences in actual precious metal prices and inventory levels versus those originally assumed.
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 150% of salary for the CEO, which is used in the Committee’s judgment in determining
the actual bonus awarded.
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Hochschild Mining plc Annual Report 2014
Governance p36-85
72
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
The Committee assessed performance against the scorecard and the CEO’s performance in 2014. A number of small adjustments
to the formulaic outcome were made, for example brownfield exploration for Pallancata was dropped as a KPI as the project budget
had been reduced significantly and the Committee used its judgment to uplift the assessment for Arcata in light of the significant
budget reductions, and the Committee used its judgment to uplift the safety score to reflect zero fatalities during the year, a significant
achievement for the Company. Accordingly, and in light of the CEO’s contribution to the success of the Cash Optimisation Plan which
exceeded its original savings target of US$200 million by more than US$100 million, the Committee determined that the final bonus
outcome was 100% of salary for the CEO. The bonus will be paid entirely in cash.
Partial disclosure of the CEO’s 2013 objectives and his performance against them was provided in last year’s Annual Report on
Remuneration, and can be found on page 92 of the 2013 Annual Report and Accounts. Full details are provided in the table below:
Objective
Production and financial results
KPI
Production
Business growth
EBITDA
Brownfield
exploration
Target weighting
Targets
Target
20m Oz Ag Eq
20%
Threshold
Maximum
Performance assessment
Maximum:
20.5m Oz Ag Eq
17% US$142m US$146m US$154m Maximum: US$200m
Maximum: 20.9m Oz
12%
Ag Eq (600 g/t Ag Eq)
Pallancata discoveries
(<1Mt; ≥600 g/t Ag Eq)
19.2m Oz
Ag Eq
17.7m Oz
Ag Eq
Identification of targets
with economic potential
at Arcata/San Jose
20.8m Oz
Ag Eq
Project development
Safety
Business
development
Project
milestones
Frequency rate
Severity rate
10%
15%
4 targets
2 targets
Remuneration Committee
judgment1
Range of targets2
20% 2012 rate
+2.5%
2012 rate 2012 rate
-5%
7% 2012 rate
-20%
2012 rate
-45%
2012 rate
-80%
Maximum: more
than 4 targets
identified at Arcata and
2 at San Jose
Maximum
Target
Maximum:
2012 rate -31%
Between threshold
and target:
2012rate -40%
1 The Committee considered a range of acquisitions and divestitures, including (i) for acquisitions: Volcan closing, IMZ closing, Riverside regional alliance,
17 opportunities reviewed (2 advanced) and (ii) for divestitures: Cristo de los Andes, Josnitoro & Victoria.
2 Targets related to Inmaculada and Crespo schedule and budget, loan terms for the Suyamarca Loan for Inmaculada, profitability of the Matarani deposit,
effective cash management in Argentina and management of the group effective tax rate.
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. For 2013, a portion of the total annual bonus outcome was deferred into Hochschild shares for up to two years.
The Committee determined that, for the CEO, 78% of the bonus for 2013 would be deferred into shares, 50% of which would vest
in March 2015 and the remaining 50% in March 2016.
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2012 LTIP VESTING
On 31 March 2012, 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 both a tailored peer group (70% of the total award) and the constituents of the FTSE350
Mining Index (30% of the total award). There was no retesting of performance. Further details of the performance conditions are shown
in the table below.
Performance measure
Relative TSR performance vs. tailored peer group1
Weighting
70%
Relative TSR performance vs. Constituents of the FTSE350
Mining Index
30%
Performance targets
Upper quintile (80th percentile): Full vesting
Upper tercile (67th percentile): 75% vesting
Median (50th percentile): 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 Acacia Mining plc, Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold Ashanti Ltd, Barrick Gold Corp, Centamin Egypt Limited, Cia des Minas Buenaventura SA, Coeur
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.
The Committee has considered the extent to which the performance conditions attached to the 2012 LTIP award had been satisfied
and since the Company’s TSR in the performance period between 1 January 2012 and 31 December 2014 was below that for the
tailored peer group and the FTSE350 Mining Index, this award will lapse.
2011 ELTIP VESTING
On 28 April 2011, Ignacio Bustamante was granted an award under the ELTIP. Vesting was dependent on four-, five- and six-year
relative TSR performance against a tailored peer group. There was no retesting of performance. Further details of the performance
conditions are shown in the table below:
Performance periods
Vesting dates
(subject to performance)
Performance conditions
TSR comparator group
1 January 2011 to 31 December 2014 in respect of 25% of the award
1 January 2011 to 31 December 2015 in respect of 25% of the award
1 January 2011 to 31 December 2016 in respect of 50% of the award
28 April 2015 in respect of 90,549 shares
28 April 2016 in respect of 90,549 shares
28 April 2017 in respect of 181,098 shares
Relative TSR performance
Upper Decile: Full vesting
Upper Quartile: 75% vesting
Median: 25% vesting
Straight-line vesting between these points
Acacia Mining plc, Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold Ashanti Ltd, Barrick Gold
Corp, Centamin Egypt Limited, Cia des Minas Buenaventura SA, Coeur d’Alène Mines Corp,
Eldorado Gold Corp, Fresnillo plc, Gold Fields Ltd, Goldcorp Inc, 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.
Subsequent to the year end, the Committee considered the extent to which the performance condition attached to the four-year
tranche of the 2011 ELTIP award had been satisfied. The Company’s TSR in the performance period between 1 January 2011 and
31 December 2014 was below that for the tailored peer group, and as a result all shares under this tranche will lapse.
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Hochschild Mining plc Annual Report 2014
Governance p36-85
74
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
SCHEME INTERESTS AWARDED IN 2014 (AUDITED)
LTIP
On 12 March 2014, Ignacio Bustamante was granted a cash-settled award under the LTIP with a face value of $1 million.
Vesting is dependent on three-year relative TSR from 1 January 2014 to 31 December 2016, 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 malus
if, before vesting, the Committee determines either that (i) the overall underlying business performance of the Company is not
satisfactory or (ii) an unacceptable position has occurred regarding safety, the environment, community relations, and/or compliance
with legal obligations of the Company. Awards are settled in cash and the CEO will be required to invest at least 20% of any amount
vesting into Hochschild shares, until such time as he has achieved the relevant shareholding guideline.
Further details, including vesting schedules, are provided in the table below:
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
Does not participate in the LTIP
12.03.14
01.01.14 – 31.12.16
$1,000
$250
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 Acacia Mining plc, Agnico-Eagle Mines Ltd, Alamos Gold, AngloGold Ashanti Ltd, Barrick Gold Corp, Centamin Egypt Limited, Cia des Minas Buenaventura SA,
Coeur 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.
ELTIP
As reported in the 2013 Directors’ remuneration report, on 20 March 2014 Ignacio Bustamante was granted a second award under
the ELTIP. Awards were made over conditional shares with a value, on the date of grant, equivalent to six times salary and which vest
in tranches over an extended performance period of four, five and six years.
Further details on the design of the ELTIP award are included in the table below:
Performance periods
Vesting dates (subject to performance)
Performance conditions
1 January 2014 to 31 December 2017 in respect of 25% of the award
1 January 2014 to 31 December 2018 in respect of 25% of the award
1 January 2014 to 31 December 2019 in respect of 50% of the award
20 March 2018 in respect of 237,975 shares
20 March 2019 in respect of 237,975 shares
20 March 2020 in respect of 475,950 shares
Relative TSR performance
Upper Decile: Full vesting
Upper Quartile: 75% vesting
Median: 25% vesting
Straight-line vesting between these points
TSR comparator group
Malus provisions
Basis of TSR calculation of Comparator Group
Shareholding requirement
As for the 2014 LTIP Awards
Yes1
Average of local and common currencies
50% of the after-tax vested shares is required to be retained until an overall beneficial
shareholding equal to two times salary has been achieved
1 Potential malus if, before vesting, the Remuneration Committee determines either that (i) the overall underlying business performance of the Company is not
satisfactory or (ii) an unacceptable position has occurred regarding safety, the environment, community relations, and/or compliance with legal obligations
of the Company.
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Details of the Conditional Shares awarded to Ignacio Bustamante under the ELTIP in 2014 are provided in the table below:
Date of grant
20.03.14
Number of Conditional
Shares granted
951,900
Share price on date
of award
175.0p1
Face value
(000)
£1,6661
1 Based on the mid-market closing share price on the date of award. The reference price used was 183.6p, equal to the average market value of shares for the three
trading days prior to the grant of the award.
RESTRICTED SHARE PLAN
Following shareholder approval at the 29 December 2014 Extraordinary General Meeting, Ignacio Bustamante was granted an award
under the RSP. Awards were made over conditional shares with a grant-date value equivalent to five times salary, and which vest
in tranches over two to five years subject to satisfactory performance and continued employment with the company.
Further details on the design of the RSP award are included in the table below:
Vesting dates subject to performance)
30 December 2016 in respect of 263,878 shares
30 December 2017 in respect of 263,878 shares
30 December 2018 in respect of 263,878 shares
30 December 2019 in respect of 527,758 shares
Performance conditions
Vesting is subject to satisfactory performance and continued employment
Malus provisions
Treatment for leavers
with the company
Yes1
For good leavers (e.g. death, injury, disability, redundancy or as otherwise agreed by the
Committee), awards will be pro-rated for time and vest immediately on cessation of
employment. For any other reason, awards will lapse
Treatment on change of control
Awards will be pro-rated for time and vest immediately. Alternatively, the Committee
can allow/require awards to be exchanged for equivalent awards
in any acquirer
1 Potential malus if, before vesting, the Remuneration Committee considers that corporate or the participant’s individual performance justifies such an adjustment.
Details of the Conditional Shares awarded to Ignacio Bustamante under the RSP in 2014 are provided in the table below:
Date of grant
30.12.14
Number of Conditional
Shares granted
1,319,392
Share price on date of award
86.8p1
Face value
£1,1451
1 Based on the mid-market closing share price on the date of award. The reference price used was 102.2p, equal to the average market value of shares for the three
months prior to the grant of the award.
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Hochschild Mining plc Annual Report 2014
Governance p36-85
76
Hochschild Mining plc Annual Report 2014
DIRECTORS’ REMUNERATION REPORT CONTINUED
EXIT PAYMENTS MADE IN THE YEAR (AUDITED)
No exit payments were made to Directors in the year (2013: £25,000 (US$35,000) comprising payments to two Non-Executive Directors
in lieu of notice who stepped down from the Board during 2013).
PAYMENTS TO PAST DIRECTORS (AUDITED)
No payments were made to past Directors in the year (2013: nil).
IMPLEMENTATION OF REMUNERATION POLICY FOR 2015
2015 remuneration arrangements will be implemented in line with the approved Remuneration Policy. Further details are
provided below.
SALARY
2014 saw a significant and sustained depreciation of the Peruvian Nuevos Soles against the US dollar, and as a result, the CEO’s
salary (currently denominated in PEN) has decreased significantly in US dollar terms. To protect against significant future movements
in exchange rates, the Committee has decided to re-denominate the CEO’s salary from PEN to US dollars. The new denomination
will be fixed for a period of 5 years, subject to review by the Committee if there is a sustained and material increase or decrease in
the exchange rate. Any further changes to salary denomination will be detailed and explained in the relevant year’s Annual Report
on Remuneration.
As a result of the re-denomination and a salary review by the Remuneration Committee at the start of 2015, it was agreed that
with effect from 1 March 2015, Ignacio Bustamante’s base salary shall be $541,667 (including CTS). Subject to the commencement
of production from Inmaculada, the Committee will consider a further increase in base salary for Mr Bustamante the amount of
which will be determined following an external benchmarking of his remuneration.
ANNUAL BONUS
The Annual Bonus for the 2015 financial year will operate on the same basis as in 2014. The Committee has approved a maximum
bonus opportunity for the CEO of 150% of salary. Bonuses will be based on broadly the same measures as those used in 2014, 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 2015
Directors’ remuneration report.
LTIP
The Committee will make awards in 2015 within the maximum limits described in the Remuneration Policy. The performance
conditions will be the same as for 2014 awards.
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
CEO remuneration
US$000
2014
471
27
4093
2013
515
24
460
% change
(8.4%)
11.8%
(11.1%)
Other employees1
% change
9.2%
n/a
(31%)
1
‘Other employees’ comprise full-time salaried employees in Peru.
2 Includes compensation for time services, and for 2014 a one-off tax rebate on a portion of salary, as mandated by the Peruvian government.
3 Calculated using the exchange rate as at 31 December 2014 of $1: PEN 2.989.
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 2013 to the financial year ended 31 December 2014.
Distribution to shareholders
US$000
Employee remuneration
US$000
2014
NIL
2013
NIL
% change
n/a
2014
$157,696
2013
$175,933
% change
-10%
The Directors are not recommending the payment of a final dividend for the year ended 31 December 2014 (2013: nil).
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PAY FOR PERFORMANCE
The following graph shows the TSR 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 a broad equity market index of which Hochschild was a constituent for the
majority of the period. 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
0
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
31 Dec 14
FTSE 350 Index
FTSE SmallCap
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%
2014
907
67%
0%
2011
2012
2013
2014
–
–
–
–
–
–
–
–
–
–
–
–
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Hochschild Mining plc Annual Report 2014
Governance p36-85
78
Hochschild Mining plc Annual Report 2014
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 2014 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 ELTIP shares until such time as he has
accumulated a shareholding with a value of 200% of salary.
Shares held
Dec 2013
Owned outright
or vested at 31
Owned outright
or vested at 31
Dec 2014
199,320,272 199,320,272
62,219
–
14,285
40,000
200,000
10,000
–
62,219
–
14,285
26,434
200,000
10,000
–
Vested but
subject to
holding
period
–
–
–
–
–
–
–
–
Unvested and
subject to
performance
conditions
–
2,751,538
–
–
–
–
–
–
Shareholding
requirement
(% of salary)
–
200%
–
–
–
–
–
–
Current
shareholding
(% of salary/fee)
–
21%1
–
–
–
–
–
–
Requirement
met?
–
No
–
–
–
–
–
–
Eduardo Hochschild
Ignacio Bustamante
Jorge Born Jr.
Sir Malcolm Field
Nigel Moore
Roberto Dañino
Dr Graham Birch
Enrico Bombieri
1 Using Company’s share price as at 31 December 2014 of 88.0p.
There have been no changes to Directors’ shareholdings since 31 December 2014.
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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DIRECTORS’ INTERESTS IN SHARE OPTIONS, SHARES AND CASH AWARDS IN HOCHSCHILD LONG-TERM INCENTIVE
PLANS AND ALL EMPLOYEE PLANS
Ignacio Bustamante
DBP
2011 ELTIP
2011 ELTIP
2011 ELTIP
2014 ELTIP
2014 ELTIP
2014 ELTIP
2012 LTIP
2013 LTIP
2014 LTIP
RSP
RSP
RSP
RSP
Date of grant
Share price
at grant
Exercise price
at grant
20.03.14
28.04.11
28.04.11
28.04.11
20.03.14
20.03.14
20.03.14
31.03.12
13.03.13
12.03.14
30.12.14
30.12.14
30.12.14
30.12.14
175p
428p
428p
428p
175p
175p
175p
n/a
n/a
n/a
86.8p
86.8p
86.8p
86.8p
Nil
Nil
Nil
Nil
Nil
Nil
Nil
n/a
n/a
n/a
Nil
Nil
Nil
Nil
Number
of shares
awarded
118,050
90,549
90,549
181,098
237,975
237,975
475,950
n/a
n/a
n/a
263,878
263,878
263,878
527,758
Face value
at grant1
£206,588
£387,550
£387,550
£775,099
£416,456
£416,456
£832,913
$0.9m
$1m
$1m
£229,046
£229,046
£229,046
£458,094
Performance period Vesting Date
n/a
01.01.11 – 31.12.14
01.01.11 – 31.12.15
01.01.11 – 31.12.16
01.01.14 – 31.12.17
01.01.14 – 31.12.18
01.01.14 – 31.12.19
01.01.12 – 31.12.14
01.01.13 – 31.12.15
01.01.14 – 31.12.16
n/a
n/a
n/a
n/a
20.03.16
28.04.15
28.04.16
28.04.17
20.03.18
20.03.19
20.03.20
31.03.15
13.03.16
12.03.17
30.12.16
30.12.17
30.12.18
30.12.19
1 The face value of (a) equity settled incentives are stated in Pounds Sterling and (b) cash settled incentives, namely Long Term Incentive Plan awards, are stated
in US Dollars (to be paid in US Dollars or its equivalent in Peruvian Nuevos Soles)
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 OF EXECUTIVE DIRECTORS IN 2014 (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
Banco Crédito del Peru
Inversiones Pacasmayo SA and affiliated companies
Pacifico Peruano Suiza Cia. de Seguros
Fees received1
PEN 283,683 (US$99,924)
PEN 8,334,502 (US$2,935,718)2
PEN 126,360 (US$44,509)
1 Converted from Peruvian Nuevos Soles (PEN) to US dollars using the 12-month average exchange rate over 2014 of US$1 = PEN 2.838
2 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.
Signed on behalf of the Board
JORGE BORN JR.
Chairman of the Remuneration Committee
17 March 2015
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Hochschild Mining plc Annual Report 2014
Governance p36-85
80
Hochschild Mining plc Annual Report 2014
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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INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF HOCHSCHILD MINING PLC
OPINION ON FINANCIAL STATEMENTS
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December
2014 and of the Group’s loss for the year then ended;
• the Group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
WHAT WE HAVE AUDITED
We have audited the financial statements of Hochschild Mining plc for the year ended 31 December 2014 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 39 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.
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.
OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT AND OUR RESPONSE TO THAT RISK
The risks of material misstatement that had the greatest effect on our audit strategy, including the allocation of our resources and
effort, are those identified in the table below together with an explanation of how we tailored our audit to address these risks. As in
all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there is evidence
of bias by the directors that may represent a risk of material misstatement due to fraud. This is not a complete list of all risks identified
by our audit.
Governance p36-85
82
Hochschild Mining plc Annual Report 2014
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC CONTINUED
Risk
Assessment of the carrying value of the Group’s
mining assets (as described on page 46 in the
report of the Audit Committee and notes 16, 17
and 18 to the Group fnancial statements).
We focused on this because of the materiality
of the balances involved and because the
assessment of the recoverability of the carrying
value of the Group’s Cash Generating Units
(‘CGUs’) involves signifcant judgements
about the future results of the business and
the discount rates applied to future cash
flow forecasts.
We continued to consider this to be a risk area in
2014, given the ongoing challenges faced by the
Group during the year arising from declines and
volatility in market prices for silver and gold.
Going concern and impact of new borrowings
(as described on page 47 in the report of the
Audit Committee and note 27 to the Group
fnancial statements).
This area was considered an area of increased
risk for 2014 as the Group has increased its
leverage during 2014 and now has to make
regular debt repayments and there are restrictive
covenants over its debt. These factors coupled
with the recent volatility in commodity prices
have led to our increased focus on this area.
Management and the Board prepare a cash
flow forecast and undertake sensitivity analysis
of the key assumptions to ensure that the Group
can operate as a going concern for at least 12
months from the date the fnancial statements
are signed.
How our audit addressed the risk
Our approach focused on the following procedures:
• we obtained an understanding of management’s process around impairment
assessment, including all related controls;
• we audited management’s assessment of whether indicators of impairment
(as defned in IAS 36 “Impairment of Assets” and IFRS 6 “Exploration for and
Evaluation of Mineral Resources”) exist for its CGUs and evaluating this
assessment, including a challenge of the validity and completeness of the
indicators identifed with reference to our knowledge of the business obtained
elsewhere in our audit;
• where indicators existed, we obtained recoverable value models from management
for the Group’s CGUs and assessed the appropriateness of the methodology
applied in preparing these recoverable value models;
• we tested the recoverable value models for accuracy, performed sensitivity
analyses on signifcant inputs, and challenged the appropriateness of key
assumptions (e.g. price assumptions, production and costing fgures, etc.)
as compared with third party/independent sources (e.g. analyst price forecasts)
or other evidence;
• we involved valuations specialists to assist the audit team in challenging and
assessing the appropriateness of the discount rates used in the calculation;
• we agreed key inputs to approved mine plans or budgets as appropriate, and
compared these with historical actual fgures, considering the accuracy of
previous internal forecasts;
• we compared the calculated recoverable values to the associated carrying values,
assessing whether any impairment charges or reversals of previously recognised
impairment charges were necessary; and
• we considered the appropriateness, sufficiency, and clarity of any impairment-
related disclosures provided in the Group Financial Statements, including the
disclosure of key sensitivities.
Our approach focused on the following procedures:
• we obtained the Group’s going concern forecasts covering the 12 month
period following approval of the fnancial statements . We challenged the
key assumptions and judgements made by the directors therein. We satisfed
ourselves as to the reasonableness of all key assumptions, as well as their
consistency, where appropriate, with other key assumptions noted elsewhere
throughout our audit (notably those in our audit of the Group’s impairment
models above);
• we obtained an understanding the contractual arrangements surrounding
the Group’s fnancing arrangements completed during the year on 23 January
2014 (US $350 million bond) and on 29 October 2014 (US$ 100 million medium
term facility);
• we also read these lending agreements to substantiate our knowledge of the
borrowing covenants to which the Group is subject and recalculated its forecast
compliance with the same over the going concern assessment period;
• we read the Group fnancial statements to ensure the new borrowings were
presented and disclosed appropriately; and
• we considered whether, given the available information and based on
management’s forecasts, the use of the going concern assumption is appropriate.
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83
Risk
Tax contingencies (as described on page 47
in the report of the Audit Committee and
note 36 to the Group fnancial statements)
We identifed tax exposures as another area
of higher risk, due to the size of the potential
fnes or losses that the Group could suffer as
a result of open tax authority reviews and the
uncertainty surrounding the amount and
timing of these potential liabilities.
Revenue recognition (as described on page 46 in
the report of the Audit Committee and notes 5
and 23 to the Group fnancial statements)
We continue to consider revenue recognition
as an area of higher risk which drives our audit
strategy and allocation of resources. The number
of sales contracts and complex terms under
which title, risk and rewards pass to the customer
increases the risk of overstatement and cut-off
errors. We have also identifed risks in relation
to the revenue hedging arrangements entered
into by the Group and the calculation of the
adjustment for provisional pricing, including
the estimate of silver and gold in the
concentrate sold.
How our audit addressed the risk
Our approach focused on the following procedures:
• we analysed management’s assessment with regards to potential tax
contingencies arising from tax authority reviews, primarily in Peru and Argentina;
• we obtained an understanding of management’s process for assessing the
contingencies;
• we challenged the likelihood of an unfavourable outcome for the Group with
regards to these contingencies, by forming an independent assessment based
on the relevant facts and circumstance of each signifcant review, concluding
that the Group has appropriately designated all contingencies as either ‘remote’
or ‘possible’, or ‘probable’ and has recognised and disclosed any such contingencies
in the Group fnancial statements as required; and
• where applicable, we obtained confrmations from external legal counsel to
support Group management’s position in respect of these potential contingencies.
Our approach focused on the following procedures:
• we obtained an understanding of and tested that the key controls around the
revenue recognition process are designed and operating effectively, supporting
the prevention, detection or correction of material errors in the reported revenue
fgures (in locations where this was deemed a more efficient approach than
substantive testing);
• we performed cut off testing to ensure revenue is recognised in the correct period;
• we audited the terms and conditions of material sales contracts and ensure they
have been accounted for in line with the Group’s revenue recognition policy, which
is in line with the requirements of IFRS;
• where provisional pricing applies, we compared the fair value price assumptions
to market forward rates;
• for the silver and gold price swaps taken out during the year, we audited
management’s hedging documentation, forming an independent view that the
application of hedge accounting was appropriate, and tested any resulting realised
and unrealised gains, including the agreement of market forward rates used in
determining the unrealised fair value gain at year-end; and
• we read the fnancial statements assessing whether all required disclosures
in respect of the provisional pricing and hedging arrangements were included
in the Group fnancial statements.
Governance p36-85
84
Hochschild Mining plc Annual Report 2014
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC CONTINUED
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
For the Parent Company – our assessment of audit risk and our evaluation of materiality determines our audit scope for the Parent
Company financial statements. This helps us to form an opinion on the Parent Company financial statements under International
Standards on Auditing (ISA) (UK and Ireland).
For the Group – we tailored the scope of our audit to ensure that we obtained sufficient audit evidence to be able to give an opinion
on the Group financial statements as a whole under ISA (UK and Ireland), taking into account the structure of the Group, its accounting
processes and controls, the industry in which the Group operates, and the risks of material misstatement to the Group financial
statements as noted above.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting
units by us as the Group audit team, or by component auditors from other EY network firms operating under our instruction. Where
work was performed by component auditors, notably the Peruvian and Argentinian EY member firms, we determined the level of
involvement we needed to have in the audit work at those components to be able to conclude whether sufficient appropriate audit
evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.
Accordingly, our Group audit scope focused on the Group’s two primary operating locations, Peru and Argentina, and two other
locations (the UK and Mexico). Three subsidiaries at these locations were subject to a full audit, while a fourth was subject to an audit
of specified account balances where the extent of our testing was based on our assessment of the risks of material misstatement
and of the materiality of the Group’s operations at this location. Together with the Group functions, which were also subject to audit,
these locations represent the principal business units of the Group and account for 99% (2013: 99%) of the Group’s Adjusted EBITDA,
100% (2013: 98%) of Group’s Revenue, and 91% (2013: 92%) of the Group’s Total Assets. Audits of these locations are performed at a
materiality level calculated as 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. The Senior Statutory Auditor visits the
Peru operating location twice every year, and the Argentina operating location at least once every two years. For all locations subject to
a full audit, in addition to location visits, the Group audit team also reviewed key working papers, participated in the component team’s
planning, including the component team’s discussion of fraud and error, and attended all closing meetings either in person or by call.
The Group audit team also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to full audit or an audit of specified account balance. This, together with additional procedures performed at the Group level, gave us
the evidence we needed to support our opinion on the Group financial statements as a whole.
OUR APPLICATION OF MATERIALITY
The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing, and extent of our
audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
How we determined it
Rationale
Performance materiality
How we determined it
Rationale
US$2.7 million (2013: US$3.1 million)
2% of Adjusted EBITDA (2013: 0.5% of Revenue)
As in 2013, the Group is loss making in 2014. Accordingly, we considered other earnings-based
measures of signifcance to users of the fnancial statements on which we could set our materiality.
We changed the base on which we set materiality in the current year to Adjusted EBITDA (as defned
on page 14 of the Annual Report), as this was deemed to be a more critical measure for users of the
fnancial statements in 2014, given the focus on this metric by the Group’s external lenders, specifcally
as an Adjusted EBITDA measure is used to assess the Group’s compliance with key restrictive covenants
on these borrowings.
US$2.0 million (2013: $1.6 million)
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 75%
(2013: 50%) of materiality.
Our performance materiality was set to a lower threshold in 2013, in response to changes to the
Group’s control environment resulting from redundancies made as part of the cash optimisation
plan implemented during that year. As these changes had no adverse impact on the Group’s reporting,
and no further signifcant changes have taken place in the current year, it was deemed appropriate to
increase this fgure for our 2014 audit. Our objective in adopting this approach is to ensure that total
detected and undetected audit differences do not exceed our materiality of US$2.7 million for the
fnancial statements as whole.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of US$135,000
(2013: US$155,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
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85
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in the light
of other relevant qualitative considerations.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As explained more fully in the Statement of Directors’ Responsibilities set out on page 80, the directors are responsible for the
preparation of the Group and Parent Company 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 Group and Parent Company financial statements in accordance with applicable
law and ISA (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
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 ISA (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
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 39, 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
17 March 2015
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 fnancial statements since
they were initially presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of fnancial statements may differ from legislation in other jurisdictions.
Governance p36-85
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Hochschild Mining plc Annual Report 2014
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87
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2014
Year ended 31 December 2014
Exceptional
Before
items
exceptional
(note 11)
items
US$000
US$000
Total
US$000
Notes
Year ended 31 December 2013
Exceptional
Before
items
exceptional
(note 11)
items
US$000
US$000
Total
US$000
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income
Other expenses
3,5
492,951
–
492,951
622,158
– 622,158
6
(404,639)
(6,065)
(410,704)
(466,766)
(2,466) (469,232)
88,312
(6,065)
82,247
155,392
(2,466) 152,926
7
8
9
(43,335)
(2,752)
(46,087)
(54,425)
(2,351)
(56,776)
(17,254)
(28,697)
4,112
(886)
(18,140)
(42,871)
(3,456)
(46,327)
–
–
(28,697)
(28,785)
–
(28,785)
4,112
3,974
2,442
6,416
12
(17,512)
(2,963)
(20,475)
(15,555)
–
(15,555)
Impairment and write-off of assets net
–
109
109
–
(90,671)
(90,671)
(Loss)/profit from continuing operations
before net finance income/(cost), foreign
exchange loss and income tax
Share of post-tax profit of associates
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
(14,374)
(12,557)
(26,931)
17,730
(96,502)
(78,772)
19
13
–
–
–
5,921
–
5,921
2,215
4,061
6,276
10,675
2,417
13,092
–
–
–– 107,942 107,942
13
(33,074)
(9,491)
(42,565)
(11,697) (136,353) (148,050)
(4,990)
–
(4,990)
(19,753)
–
(19,753)
(50,223)
(17,987)
(68,210)
2,876 (122,496) (119,620)
14
(6,466)
3,845
(2,621)
(44,979)
35,922
(9,057)
Loss for the year from continuing operations
(56,689)
(14,142)
(70,831)
(42,103)
(86,574) (128,677)
Attributable to:
Equity shareholders of the Company
(54,963)
(13,914)
(68,877)
(50,345)
(72,738) (123,083)
Non-controlling interests
(1,726)
(228)
(1,954)
8,242
(13,836)
(5,594)
(56,689)
(14,142)
(70,831)
(42,103)
(86,574) (128,677)
Basic and diluted loss per ordinary share from
continuing operations for the year (expressed
in US dollars per share)
15
(0.15)
(0.04)
(0.19)
(0.15)
(0.21)
(0.36)
102 Hochschild Mining plc Annual Report 2014
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Hochschild Mining plc Annual Report 2014
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87
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2014
Year ended 31 December
Notes
2014
US$000
(70,831)
2013
US$000
(128,677)
(1,716)
(842)
20
(3,106)
(125,932)
2,096
130,286
18,945
(14,603)
–
–
–
Loss 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
Change in fair value of cash flow hedges
Recycling of the gain on cash flow hedges
Deferred income tax relating to components of other comprehensive income
14
(1,216)
Other comprehensive gain for the period, net of tax
Total comprehensive expense for the year
Total comprehensive expense attributable to:
Equity shareholders of the Company
Non-controlling interests
400
3,512
(70,431)
(125,165)
(68,477)
(119,571)
(1,954)
(5,594)
(70,431)
(125,165)
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Hochschild Mining plc Annual Report 2014
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89
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2014
ASSETS
Non-current assets
Property, plant and equipment
Evaluation and exploration assets
Intangible assets
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
2014
US$000
As at
31 December
2013
US$000
Notes
16 1,076,310
873,477
17
18
20
21
30
207,290
204,643
42,815
455
6,488
1,574
43,683
51,658
12,128
2,416
1,334,932 1,188,005
22
21
23
24
58,417
69,556
167,038
167,740
25,584
22,156
4,342
–
115,999
286,435
371,380
545,887
1,706,312 1,733,892
29
29
29
29
170,389
170,389
396,021
396,021
(898)
(898)
(217,335)
(211,143)
451,047
511,492
799,224
865,861
95,160
104,375
894,384
970,236
92
440,834
111,751
25,000
84,959
174
–
79,649
22,000
93,505
662,636
195,328
111,890
119,222
1,533
2,294
27,882
435,925
2,870
5,117
9,573
1,314
149,292
568,328
811,928
763,656
26
27
28
25
30
26
23
27
28
1,706,312 1,733,892
These financial statements were approved by the Board of Directors on 17 March 2015 and signed on its behalf by:
IGNACIO BUSTAMANTE
Chief Executive Officer
17 March 2015
104 Hochschild Mining plc Annual Report 2014
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Hochschild Mining plc Annual Report 2014
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89
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2014
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Payment of mine closure costs
Income 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 of 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 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
Notes
2014
US$000
2013
US$000
34
129,993
116,084
28
1,931
6,236
(25,585)
(10,292)
(5,524)
(7,036)
(4,781)
(42,573)
93,779
64,674
4(b)
25
(309,033)
(248,335)
(6,071)
(10,781)
(281)
(1,625)
–
494
–
3,223
48,097
564
(14,615)
2,423
3,385
17,593
33,498
344
(263,007)
(218,113)
482,393
440,010
(458,132)
(116,701)
(9,166)
(9,145)
–
–
(272,127)
71,916
31
(10,056)
(18,503)
–
4,380
5,039
99,830
(164,189)
(53,609)
(6,247)
(18,900)
286,435
358,944
24
115,999
286,435
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Hochschild Mining plc Annual Report 2014
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91
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
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
Unrealised
gain/
(loss) on
hedges
US$000
Bond
equity
component
(note 27(c))
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 2013
Other comprehensive
(loss)/income
Loss for the year
Total comprehensive
income/(loss)
for the year
Capital contribution
from non-controlling
interest
Purchase of shares
from non-controlling
interest
Issuance of shares
Transfer to retained
earnings
CEO ELTIP
Expiration of
dividends
Dividends
Dividends declared
to non-controlling
interests
Balance at
31 December 2013
Other comprehensive
(loss)/income
Loss for the year
Total comprehensive
income/(loss)
for the year
Transfer to retained
earnings
Deferred bonus plan
CEO ELTIP
Dividends declared
to non-controlling
interests
Balance at
31 December 2014
158,637 395,928
(898)
(3,330)
–
–
–
–
–
–
4,354
–
–
–
–
4,354
–
–
–
–
4(a)
–
11,752
–
93
–
–
–
–
–
–
–
–
31
–
–
–
–
–
–
–
–
–
–
–
–
31
–
–
–
–
170,389 396,021
(898)
1,024
–
–
–
–
–
–
–
–
–
–
–
–
–
8,432
(10,447)
(210,046)
445
(214,946)
720,011 1,058,732 264,518 1,323,250
–
–
–
–
–
–
–
–
–
–
–
(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
–
–
–
291
–
(38)
(38)
–
–
(10,139)
(10,139)
–
(10,139)
–
–
(10,706)
(10,706)
8,432
(11,289)
(210,046)
736
(211,143)
511,492
865,861 104,375
970,236
–
–
(1,010)
3,126
–
–
–
(1,010)
3,126
–
–
–
(1,716)
–
(1,716)
400
–
400
–
400
–
(68,877)
(68,877)
(1,954)
(70,831)
400
(68,877)
(68,477)
(1,954)
(70,431)
(8,432)
8,432
1,230
610
1,230
610
–
–
–
1,230
610
–
–
–
–
1,230
610
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8,432)
–
–
–
–
–
–
–
–
31
–
–
–
–
–
–
–
–
(7,261)
(7,261)
170,389
396,021
(898)
14
3,126
(13,005)
(210,046)
2,576
(217,335)
451,047
799,224
95,160
894,384
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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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 23 Hanover Square, London W1S 1JB, United Kingdom.
The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its subsidiaries
(together ‘the Group’ or ‘Hochschild Mining Group’) is held through Pelham Investment Corporation, a Cayman Islands company.
On 8 November 2006, the Company’s shares were admitted to the Official List of the UKLA (‘United Kingdom Listing Authority’) and to
trading on the London Stock Exchange.
The Group’s principal business is the mining, processing and sale of silver and gold. The Group has three operating mines (Ares, which
ceased operations during 2014, Arcata and Pallancata) and a plant (Selene, used to treat ore from the Pallancata mine) located in
southern Peru and one operating mine (San Jose) located in Argentina. The Group also has a portfolio of projects located across Peru,
Argentina, Mexico and Chile at various stages of development. The Inmaculada advanced project, located in Peru, will enter production
in 2015.
These consolidated financial statements were approved for issue by the Board of Directors on 17 March 2015.
The Group’s subsidiaries are as follows:
Company
Hochschild Mining (Argentina) Corporation S.A.
MH Argentina S.A.
Minera Santa Cruz S.A.1
HOC Holdings Canada Inc.2
International Minerals Corporation2
Hochschild Mining Chile S.A.
Minera Hochschild Chile S.C.M.
Andina Minerals Chile Ltd.
Sociedad Contractual Minera Victoria
Southwest Minerals (Yunnan) Inc.
Hochschild Mining Holdings Limited
Hochschild Mining Ares (UK) Limited
Skyfall Jersey Limited3
Southwest Mining Inc.
Southwest Minerals Inc.
Hochschild Mining Mexico, S.A. de C.V.4
HMX, S.A. de C.V.
Minera Hochschild Mexico, S.A. de C.V.
Minas Santa María de Moris, S.A. de C.V.5
Principal activity
Holding company
Exploration office
Production of gold & silver
Holding company
Holding company
Holding company
Exploration office
Exploration office
Exploration office
Exploration office
Country of
incorporation
Argentina
Argentina
Argentina
Canada
Canada
Chile
Chile
Chile
Chile
China
Holding company
England & Wales
Administrative office
England & Wales
Administrative office
Exploration office
Exploration office
Holding company
Service company
Exploration office
Production of gold & silver
Jersey
Mauritius
Mauritius
Mexico
Mexico
Mexico
Mexico
Equity interest at
31 December
2014
%
100
2013
%
100
100
51
–
–
100
100
100
100
100
100
100
–
100
100
–
100
100
–
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 CORPORATE INFORMATION CONTINUED
Company
Hochschild Mining (Peru) S.A.
Compañía Minera Ares S.A.C.
Compañía Minera Arcata S.A.
Empresa de Transmisión Callalli S.A.C.
Asociación Sumac Tarpuy6
Number Company S.A.C. (formerly 0848818 BC Ltd)7
Southwestern Gold (Bermuda) S.A.C. (formerly
Southwestern Gold (Bermuda) Limited)7
Minera Suyamarca S.A.C.8
Minera Oro Vega S.A.C.
Minera Qorihuayta S.A.C.9
Empresa de Transmisión Aymaraes S.A.C.10
Inmaculada Holdings S.A.C.11
Liam Holdings S.A.C.7
Minera del Suroeste S.A.C.7
Minera Antay S.A.C.
Hochschild Mining (US) Inc.
Principal activity
Holding company
Country of
incorporation
Peru
Equity interest at
31 December
2014
%
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
Exploration office
Holding company
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
Peru
USA
100
99.1
100
–
–
–
–
100
–
50
–
–
–
99.9
100
2013
%
100
100
99.1
100
–
100
100
100
100
100
50
100
100
100
–
100
1 The Group has a 51% interest in Minera Santa Cruz S.A. while the remaining 49% is held by a non-controlling interest. The significant financial information
in respect of this subsidiary before intercompany eliminations as at and for the years ended 31 December 2014 and 2013 is as follows:
Non current assets
Current assets
Non current liabilities
Current liabilities
Equity
Revenue
Loss for the year
Net cash generated from operating activities
Net cash used in investing activities
Cash flow (used in)/generated from financing activities
As at 31 December
2014
US$000
226,886
2013
US$000
225,955
109,700
123,332
(78,297)
(72,446)
(66,937)
(66,678)
(191,352)
(210,163)
213,013
240,723
(3,997)
(19,725)
75,108
53,962
(59,398)
(66,184)
(23,700)
24,396
2014: Loss attributable to non-controlling interests in the Consolidated Income Statement, non-controlling interest in the Consolidated Statement of Financial
Position, and dividends declared to non-controlling interests in the Consolidated Statement of Changes in Equity are solely related to Minera Santa Cruz S.A.
(2013: non-controlling interest in the Consolidated Statement of Financial Position, and dividends declared to non-controlling interests in the Consolidated Statement
of Changes in Equity are solely attributalble to Minera Santa Cruz S.A., while the: Loss attributable to non-controlling interests in the Consolidated Income Statement
is attributable to Minera Santa Cruz S.A. as well as Minera Suyamarca S.A.C. in which the Group had a 60% interest until October 2013).
2 On 17 March 2014 HOC Holdings Canada Inc absorbed International Minerals Corporation. On 24 March 2014 HOC Holdings Canada Inc was liquidated.
3 Skyfall Jersey Limited was incorporated on 23 September 2013 and liquidated on 20 January 2014.
4 On 1 July 2014 Minera Hochschild Mexico, S.A. de C.V. absorbed Hochschild Mining Mexico, S.A. de C.V.
5 On 28 February 2014 the Group sold its interest in Minas Santa María de Moris, S.A. de C.V. (note 4(c)).
6 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.
7 On 1 February 2014 Compañia Minera Ares S.A.C. absorbed Number Company S.A.C. (formerly 0848818 BC Ltd), Southwestern Gold (Bermuda) S.A.C.
(formerly Southwestern Gold (Bermuda) Limited), Minera del Suroeste S.A.C. and Liam Holdings S.A.C.
8 On 1 January 2014, Compañia Minera Ares S.A.C. absorbed Minera Suyamarca S.A.C.
9 On 1 June 2014 Minera Oro Vega S.A.C. absorbed Minera Qorihuayta S.A.C.
10 Although the Group’s interest in this company does not exceed 50%, it remains considered as a subsidiary in accordance with IFRS 10, as the Group has all of
the following elements: (1) power over the investee in the relevant activities, (2) exposure, or rights, to variable returns from its involvement with the investee, and
(3) the ability to use its power over the investee to affect the amount of the investor's returns. The Group was deemed to have control as it directs the financial and
operating policy decisions of that investee.
11 On 1 May 2014, Compañia Minera Ares S.A.C. absorbed Inmaculada Holdings S.A.C.
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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 by 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 2014 and 2013 are set out below. The consolidated financial statements have been prepared on a historical cost basis
except for the revaluation of certain financial instruments that are measured at fair value at the end of each reporting period, as
explained 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(a)).
The financial statements are presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand ($000)
except when otherwise indicated.
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 2013, except for the adoption of the following
relevant standards and interpretations:
• IFRIC Interpretation 21 Levies (IFRIC 21), applicable to annual periods beginning on or after 1 January 2014.
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. This application of this interpretation has had no impact on the
Group’s financial position or performance.
• IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39, applicable to annual periods
beginning on or after 1 January 2014.
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 any of its derivatives during the current period, therefore the application
of these amendments has had no impact on the Group´s financial position or performance.
• 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. The application of these
amendments has had 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 adoption of this new standard has had 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 adoption of this new standard has had 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, its adoption has had no impact on the Group’s financial position
or performance. The Group has made all additional disclosures required by this standard in respect of the financial information
of its material non-controlling interest in Minera Santa Cruz S.A.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
• 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 application of this amendment
has had no impact on the Group’s financial position or performance.
• IAS 36 ‘Impairment of Assets’ – recoverable amount disclosures, applicable for annual periods 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 application of this amendment has had no impact on the Group’s financial position or performance, but has affected its
impairment disclsoures.
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 2015 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’, not yet endorsed by the EU.
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments
project and replaces IAS 39 Financial Instruments: Recognition and Measurement and allprevious versions of IFRS 9. The standard
introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative
information is not compulsory. The Group is currently assessing the impact of IFRS 9 and plans to adopt the new standard on the
required effective date.
• Annual improvements 2010-2012 Cycle, not yet endorsed by the EU.
These improvements relate to IFRS 2 Share-based payments, IFRS 3 Business combinations, IFRS 8 Operating segments, IAS 16 Property,
plant and equipment, IAS 38 Intangible assets, and IAS 24 Related party disclosures and are effective from 1 July 2014 These
improvements are not expected to have a material impact on the Group.
• Annual improvements 2011-2013 Cycle, not yet endorsed by the EU.
These improvements relate to IFRS 3 Business combinations, IFRS 13 Fair value measurement, and IAS 40 Investment property and are
effective from 1 July 2014. These improvements are not expected to have material impact on the Group.
• Annual improvements 2012-2014 Cycle, not yet endorsed by the EU.
These improvements relate to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments:
Disclosures, IAS 19 Employee Benefits, and IAS 34 Interim Financial Reporting and are effective from 1 July 2016. The Group is currently
assessing the impact of these improvements and will apply them from the required effective date.
• IFRS 15 Revenue from contracts with customers, not yet endorsed by the EU.
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers.
Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and
recognising revenue.
The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS.
Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early
adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required
effective date.
• IAS 1 Disclosure initiative, not yet endorsed by the EU.
The IAS 1 Disclosure initiative was issued in December 2014 and seeks to clarify the concept of materiality in filtering out entity-specific
information which is not relevant to financial statement users. Specifically, this initiative will clarify that materiality applies to the
whole financial statements and that information which is not material need not be presented in the primary financial statements
or disclosed in the notes. It will further clarify that some disclosures specified in standards are simply not important enough to justify
separate disclosure for a particular entity, whilst making it clear that preparers should exercise judgement in presenting their financial
reports. This initiative is not expected to impact the financial performance of the Group, but may impact its disclosures. The Group is
currently assessing the impact of the disclosure initiative and will apply it from the required effective date.
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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(e).
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(g).
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(h), 2(j), 2(u), 16 and 17.
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(n) and 28.
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 statement of financial position 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 the income statement. For closed sites, changes to
estimated costs are recognised immediately in the income statement.
Critical judgements:
• Determination of functional currencies – note 2(d).
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(s), 14, 30 and 36.
Judgement is required in determining whether deferred tax assets are recognised on the statement of financial position. Deferred tax
assets, including those arising from un-utilised tax losses require management to assess the likelihood that the Group will generate
taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future taxable income are based on
forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows
and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the
balance sheet date could be impacted.
• Recognition of evaluation and exploration assets and transfer to development costs – note 2(f).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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) and 4(b).
In identifying a business combination (note 2(c)) 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 19.
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) Basis of consolidation
The consolidated financial statements set out the Group’s financial position, performance and cash flows as at 31 December 2014
and 31 December 2013 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 is achieved
when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Non-controlling interests’ rights to safeguard their interest are fully considered in assessing
whether the Group controls a subsidiary. Specifically, the Group controls an investee if, and only if, the Group has:
• power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has
less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing
whether it has power over an investee, including:
• the contractual arrangement with the other vote holders of the investee;
• rights arising from other contractual arrangements; and
• the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more
of the three elements of control.
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2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Basis of consolidation
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.
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; and (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 statement of financial position, 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
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.
(d) 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.
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(e) Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment losses. Cost comprises
its purchase price and directly attributable costs of acquisition or construction required to bring the asset to the condition necessary
for the asset to be capable of operating in the manner intended by management. Economical and physical conditions of assets have
not changed substantially over this period.
The cost less residual value of each item of property, plant and equipment is depreciated over its useful life. Each item’s estimated
useful life has been assessed with regard to both its own physical life limitations and the present assessment of economically
recoverable reserves and resources of the mine property at which the item is located. Estimates of remaining useful lives are made
on a regular basis for all mine buildings, machinery and equipment, with annual reassessments for major items. Depreciation is
charged to cost of production on a units of production (‘UOP’) basis for mine buildings and installations and plant and equipment used
in the mining production process, or charged directly to the income statement over the estimated useful life of the individual asset on
a straight-line basis when not related to the mining production process. Changes in estimates, which mainly affect units of production
calculations, are accounted for prospectively. Depreciation commences when assets are available for use. Land is not depreciated.
An asset’s carrying amount is written-down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other
income/expenses, in the income statement.
The expected useful lives under the straight-line method are as follows:
Buildings
Plant and equipment
Vehicles
Years
3 to 33
5 to 10
5
Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time
to be ready for its intended use are capitalised as part of the cost of the asset. All other borrowing costs are expensed where incurred.
The Group capitalises borrowing costs for those assets where construction commenced on or after 1 January 2009 and continues to
expense borrowing costs related to construction projects that commenced prior to 1 January 2009. For borrowings associated with a
specific asset, the actual rate on that borrowing is used. Otherwise, a weighted average cost of borrowing is used. The Group capitalises
the borrowing costs related to qualifying assets with a value of US$1,000,000 or more, considering that the substantial period of time
to be ready is six or more months.
Mining properties and development costs
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.
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(f) 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.
(g) 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.
(h) 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. 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.
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.
(i) 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.
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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.
(j) 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 of disposal 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 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.
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.
(k) 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.
(l) 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.
(m) 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.
(n) 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.
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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.
(o) 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 reporting 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 reporting 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).
(p) 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.
(q) Revenue recognition
The Group is involved in the production and sale of gold and silver from dore and concentrate containing both gold and silver. Dore bars
are either sold directly to customers or are sent to a third-party for further refining into gold and silver before they are sold. Concentrate
is sold directly to customers.
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 32) is recognised in income when services are provided.
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(r) 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.
(s) 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; and
• 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.
(t) 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.
(u) 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(z)), 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.
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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 twelve 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.
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.
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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.
(v) 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.
(w) 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.
(x) 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 restructuring within the Group;
• the impact of infrequent labour action related to work stoppages in mine units; and
• the related tax impact of the above items.
(y) Comparatives
Where applicable, certain comparatives have been reclassified to present them in a comparable manner to the current
period’s figures.
(z) Hedging
The Group uses commodity swaps to hedge certain of its cash flows from product sales against price risk. 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 commodity swap contracts is determined by reference to market values
for similar instruments.
These swaps 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 sales transactions.
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
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2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
flows attributable to the hedged risk. Such hedges are expected to be highly effective in offsetting changes in fair value or cash
flows and are assessed on an ongoing basis to determine their effectiveness in the financial reporting periods for which they
were designated.
Where the commodity 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 forecast transaction occurs.
If the forecast sales transaction 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 sales transaction occurs.
(aa) Fair value measurement
The Group measures financial instruments, such as, derivatives, and non-financial assets at fair value at each statement of financial
position 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 at market prices. 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, in suspension, which generated revenue from the sale of gold and silver.
• Operating unit – Arcata, which generates revenue from the sale of gold, silver, dore 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, dore and concentrate.
• Operating unit – Moris, which generated revenue from the sale of gold and silver, disclosed as a segment until 31 December
2013. Minas Santa María de Moris, S.A. de C.V., which held the Moris operating unit, was sold to a third party on 28 February 2014
(note 4(c)). Accordingly, this operation did not meet the quantitative thresholds to be a separate reportable segment in 2014
and has been included in ‘Other’. The comparative segment information has been restated to reflect these changes.
• Pre operating unit – Inmaculada, which will generate revenue from the sale of gold and silver is now considered as a segment due
to the significant investment in the construction of the mine . Accordingly, the comparative segment information has been restated
to reflect this change.
• 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 costs charged
to the profit and loss and capitalised as assets.
• Other – includes the profit or loss generated by Empresa de Transmisión Callalli S.A.C. (a power transmission company), HMX, S.A. de
C.V. (a service company in Mexico), Empresa de Transmisión Aymaraes S.A.C. (a power transmission company), and the Selene plant
(used to process some of the Group’s production).
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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3 SEGMENT REPORTING CONTINUED
(a) Reportable segment information
Ares
US$000
Arcata
US$000
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Adjustment
and
eliminations
US$000
Other1
US$000
Total
US$000
Year ended
31 December 2014
Revenue from
external customers
25,889 106,061 147,360
213,013
Inter segment revenue
–
–
–
–
Total revenue
25,889 106,061 147,360
213,013
(437)
5,054
20,894
28,429
–
–
–
–
–
–
–
628
–
492,951
2,857
(2,857)
–
3,485
(2,857)
492,951
(18,662)
884
(752)
35,410
Segment profit/(loss)
Others2
Loss from continuing
operations before
income tax
Other segment
information
Depreciation3
Amortisation
Impairment and
write-off of assets net
Assets
(103,620)
(68,210)
(137,678)
(1,639)
109
321,121
131,235
1,326,415
1,457,650
248,662
1,706,312
–
–
–
–
–
–
–
–
–
(418) (31,348)
(48,008)
(46,820)
(7,558)
–
–
–
(1,181)
–
(930)
(458)
(2,596)
–
(6)
(499)
(31)
(717)
(85)
1,580
(133)
Capital expenditure
–
28,867
34,160
51,350
193,445
6,522
6,777
Current assets
6,740
27,993
21,174
66,995
5,877
35
2,421
Other non-current
assets
832 143,524 112,365
223,295
497,771
277,829
70,799
Total segment assets
7,572 171,517 133,539
290,290
503,648
277,864
73,220
Not reportable assets4
–
–
–
–
–
–
248,662
Total assets
7,572 171,517 133,539
290,290
503,648
277,864
321,882
1
‘Other’ revenue primarily relates to revenues earned by HMX S.A. de C.V. for services provided to the Moris mine, the Mexican exploration activities, and revenue
for the sale of gold and silver generated by the Moris mine.
2 Comprised of administrative expenses of US$46,087,000, other income of US$4,112,000, other expenses of US$20,475,000, gain on the reversal of impairment
net of write-off of assets of US$109,000, finance income of US$6,276,000, finance expense of US$42,565,000, and foreign exchange loss of US$4,990,000.
3 Includes US$967,000 and US$7,558,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.
4 Not reportable assets are comprised of available-for-sale financial assets of US$455,000, other receivables of US$100,708,000, income tax receivable of
US$25,584,000, deferred income tax assets of US$1,574,000, other financial assets of US$4,342,000 and cash and cash equivalents of US$115,999,000.
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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
Inmaculada
US$000
Exploration
US$000
Other1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Segment profit/(loss)
Others2
Loss from continuing
operations before
income tax
Other segment
information
Depreciation3
Amortisation
Impairment and
write-off of assets net
Assets
Year ended
31 December 2013
Revenue from
external customers
50,362
136,968 181,795
240,723
Inter segment revenue
–
–
–
–
Total revenue
50,362
136,968 181,795
240,723
(3,515)
31,710 49,357
44,142
–
–
–
–
–
–
–
12,310
–
622,158
8,796
(8,796)
–
21,106
(8,796)
622,158
(50,894)
5,467
1,547
77,814
(197,434)
(119,620)
(8,723)
(31,044) (50,222)
(52,790)
(1,158)
–
–
–
(1,300)
–
(769)
(441)
(3,791)
(115)
(271)
(41,382)
–
(45,112)
(4,908)
–
–
–
–
(149,614)
(1,741)
–
(90,671)
Capital expenditure
3,783
43,255 42,992
56,502
89,120
30,551
15,375
–
281,578
Current assets
13,211
14,009 31,563
73,844
1,421
453
4,757
–
139,258
Other non-current
assets
1,328
142,618 122,058
217,344
297,311
284,802
56,342
Total segment assets
14,539
156,627 153,621
291,188
298,732
285,255
61,099
Not reportable assets4
–
–
–
–
–
–
472,831
Total assets
14,539
156,627 153,621
291,188
298,732
285,255
533,930
– 1,121,803
– 1,261,061
–
472,831
– 1,733,892
1
‘Other’ revenue primarily relates to revenues earned by Minas Santa Maria de Moris, S.A. de C.V., generated by the sale of gold and silver and HMX S.A. de C.V.
for services provided to the Moris mine, and the Mexican exploration activities.
2 Comprised of administrative expenses of US$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 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.
3 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.
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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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
Korea
Japan
Total
Inter-segment
Peru
Mexico
Total
Year ended 31 December
2014
US$000
2013
US$000
96,427
148,201
178,217
36,421
10,987
45,020
2,450
91,781
53,664
4,901
149,452
38,697
121,868
135,100
1,561
362
492,951
622,158
1,804
1,053
3,122
5,674
495,808
630,954
In the periods set out below, certain customers accounted for greater than 10% of the Group’s total revenues as detailed in the
following table:
Year ended 31 December 2014
Year ended 31 December 2013
LS Nikko
US$000 % Revenue
25%
121,868
Segment
Arcata, Pallancata
and San Jose
US$000
135,100
% Revenue
22%
Glencore Perú S.A.C.
114,192
23% Arcata and Pallancata
35,188
San Jose
105,730
6%
17%
Argor Heraus
45,045
Johnson Matthey Inc.
26,850
9%
5%
Segment
Pallancata and
San Jose
Pallancata
Ares, Arcata and
San Jose
Ares, Arcata
70,547
11% Ares, Arcata and Others
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3 SEGMENT REPORTING CONTINUED
Non-current assets, excluding financial instruments and deferred income tax assets, were allocated to the geographical areas in which
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
2014
US$000
942,411
2013
US$000
746,211
223,295
217,415
41,944
40,591
118,765
117,466
–
120
1,326,415 1,121,803
455
6,488
1,574
51,658
12,128
2,416
1,334,932 1,188,005
4 ACQUISITIONS AND DISPOSALS
(a) Acquisition of Non-controlling interest
Minera Suyamarca S.A.C.
In 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’). Prior to the Acquisition, Hochschild held a 60% interest in the Peruvian Assets.
IMZ is also the 100% owner of Minera Oro Vega S.A.C. and 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 payment
Available-for-sale financial assets (note 20)
Net assets received from Minera Oro Vega S.A.C
Total consideration
Non-controlling interest
Retained earnings
US$000
(271,036)
(1,091)
(4,264)
(8,939)
1,777
(283,553)
148,185
(135,368)
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4 ACQUISITIONS AND DISPOSALS CONTINUED
(b) Acquisition of assets
Andina Minerals Inc
On 20 February 2013 the Group completed the acquisition of Andina Minerals Inc. (‘Andina’)
Andina’s principal asset, the 100% owned Volcan project, includes the Volcan area, located in Chile.
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.
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 total consideration was settled in cash.
(c) Sale of subsidiary
Minas Santa María de Moris, S.A. de C.V.
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’) for consideration with a fair value of nil. The terms of the
transaction stipulate that:
• the Group was entitled to a 1% net smelter return over the Moris concessions once production reaches 50,000 ounces of gold
equivalent following the sale; and
• EDR and APE would assume all costs associated with the mine and plant rehabilitation obligations.
The carrying value of the net assets disposed was:
Property, plant and equipment
Inventories
Trade and other receivables
Income tax receivable
Cash and cash equivalents
Trade and other payables
Provision for mine closure
Net assets disposed
The transaction resulted in a loss of US$2,963,000.
US$000
13
278
3,878
241
33
(214)
(1,266)
2,963
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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
2014
US$000
62,911
2013
US$000
112,855
67,418
179,773
109,045
103,721
253,420
225,746
157
63
492,951
622,158
Included within revenue is a loss of US$16,518,000 relating to provisional pricing adjustments representing the change in the fair
value of embedded derivatives (2013: loss of US$29,867,000) arising on sales of concentrates and dore (refer to note 2(q) and footnote
2 of note 23).
The realised gain on gold and silver swaps sales contracts in the period recognised within revenue was US$14,603,000
(gold: US$2,451,000, silver: US$12,152,000) (2013: US$Nil).
Other sources of revenue are disclosed at note 13.
6 COST OF SALES
Included in cost of sales are:
Depreciation and amortisation
Personnel expenses (note 10)
Mining royalty (note 37)
Change in products in process and finished goods
7 ADMINISTRATIVE EXPENSES
Personnel expenses (note 10 and 11)
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.
128 Hochschild Mining plc Annual Report 2014
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2014
US$000
128,720
2013
US$000
146,918
114,322
124,834
6,581
8,641
8,293
3,926
Year ended 31 December
2014
US$000
24,206
2013
US$000
28,445
3,846
1,943
1,442
865
579
2,678
2,072
718
951
188
6,599
5,553
3,216
1,925
1,342
834
3,044
2,638
1,092
1,083
243
7,361
46,087
56,776
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8 EXPLORATION EXPENSES
Mine site exploration1
Arcata
Ares
Selene
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
2014
US$000
2013
US$000
2,038
2,052
42
58
–
1,728
1,003
–
4,869
788
73
195
237
1,293
1,180
11
2,588
379
4,158
7,412
408
18,140
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
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 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 cash flows which relate to the exploration activities of Group companies engaged only in exploration.
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.
Cash flows on exploration activities are as follows:
Payments
As at 31 December
2014
US$000
3,362
2013
US$000
23,441
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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
2014
US$000
6,020
429
249
2,930
2013
US$000
4,256
1,050
210
3,256
15,609
16,596
3,460
3,417
28,697
28,785
Year ended 31 December
2014
US$000
115,770
2013
US$000
128,225
(34)
(737)
22,168
24,641
7,074
(657)
7,860
(1,127)
11,570
10,487
1,805
6,584
157,696
175,933
1 Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses, other expenses and capitalised as property
plant and equipment amounting to US$114,322,000 (2013: US$124,834,000), US$24,206,000 (2013: US$28,445,000), US$7,412,000 (2013: US$12,302,000),
US$249,000 (2013: US$210,000), US$1,642,000 (2013: US$nil) and US$9,865,000 (2013: US$10,142,000) respectively.
Average number of employees for 2014 and 2013 were as follows:
Peru
Argentina
Mexico
Chile
United Kingdom
Total
As at 31 December
2014
2,852
1,179
19
11
9
2013
3,226
1,227
122
38
12
4,070
4,625
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11 PRE-TAX 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.
Cost of sales
Termination benefits1
Termination benefits Ares mine unit2
Work stoppage at Arcata mine unit
Total
Administrative expenses
Termination benefits1
Total
Exploration expenses
Termination benefits1
Total
Other income
Gain on sale of property, plant and equipment
Total
Other expenses
Loss on sale of subsidiary3
Total
Impairment and write-off of assets (net)
Impairment and write-off of assets4
Reversal of impairment of assets5
Total
Finance income
Gain on sale of available-for-sale financial assets6
Gain from changes in the fair value of financial instruments7
Total
Gain on transfer from investment accounted under the equity method to
available-for-sale financial assets8
Total
Finance costs
Amortisation of transaction costs on secure bank loans9
Transaction costs on bank loans10
Loss from changes in the fair value of financial instruments11
Loss on sale of available-for-sale financial assets12
Total
Year ended
31 December
2014
US$000
Year ended
31 December
2013
US$000
(1,327)
(3,511)
(1,227)
(6,065)
(2,752)
(2,752)
(886)
(886)
–
–
(2,963)
(2,963)
(2,466)
–
–
(2,466)
(2,351)
(2,351)
(3,456)
(3,456)
2,442
2,442
–
–
(1,534)
(105,071)
1,643
109
4,061
–
4,061
14,400
(90,671)
–
2,417
2,417
–
–
107,942
107,942
(3,336)
–
(1,072)
(2,577)
(6,155)
(124,899)
–
(7,805)
(9,491)
(136,353)
1 Termination benefits paid to workers following the restructuring plan approved by management, amounting to US$4,965,000 (2013:US$8,273,000).
2 Termination benefits generated in connection with the suspension of the Ares mine unit.
3 Loss generated by the sale of the Group’s interest in Moris (refer to note 4(c)).
4 As at 31 December 2014 corresponds to the write-off of assets of US$1,534,000. 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.
5 Corresponds to a reversal of previously recorded impairment at the San Felipe property of US$1,643,000 (2013: US$14,400,000) (note 17).
6 Corresponds to the gain on sale of the Group’s holding in Gold Resource Corp (‘GRC’) of US$2,642,000, Chaparral Gold of US$842,000, Mirasol Resources Ltd
of US$556,000 and Northern Superior Resources Inc of US$21,000.
7 Corresponds to the recycling of the unrealised gain generated by the shares of International Minerals Corporation, at the time of acquisition (refer to note 4(a)).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
11 PRE-TAX EXCEPTIONAL ITEMS CONTINUED
8 Gain on the reclassification of 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 19).
9 Corresponds to the attributable issue cost of the syndicated loan granted to Compañía Minera Ares S.A.C. (note 27), disclosed as an exceptional item as a significant
one-off expense.
10 Corresponds to the write-off of transaction costs related to bank facilities never drawn by Minera Suyamarca S.A.C.
11 As at 31 December 2014 corresponds to the impairment of the investments in Pembrook Mining Corp of US$6,000,000, Brionor Resources of US$54,000, Revelo
Resources Corp (formerly Iron Creek Capital Corp) of US$53,000, Northern Superior Resources Inc of US$45,000 and Empire Petroleum Corp of US$3,000. 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.
12 Corresponds to the loss on sale of part of the Group’s holding in 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.
12 OTHER EXPENSES BEFORE EXCEPTIONAL ITEMS
Year ended
31 December
2014
Before
exceptional
items
US$000
9,088
Year ended
31 December
2013
Before
exceptional
items
US$000
5,516
3,453
1,680
3,291
2,453
845
6,741
17,512
15,555
Year ended
31 December
2014
Before
exceptional
items
US$000
Year ended
31 December
2013
Before
exceptional
items
US$000
1,567
1,567
525
123
6,751
6,751
3,551
373
2,215
10,675
(5,027)
(5,364)
(20,302)
(30,693)
(1,865)
(90)
(426)
(4,633)
(4,594)
–
(9,227)
(1,267)
(220)
(983)
(33,074)
(11,697)
Increase of provision for mine closure (note 28(4))
Tax on mining reserves in Argentina (note 37)
Contingencies
Other
Total
13 FINANCE INCOME AND FINANCE COSTS BEFORE EXCEPTIONAL ITEMS
Finance income
Interest on deposits and liquidity funds
Interest income
Dividends
Other
Total
Finance costs
Interest on secured bank loans (note 27)
Interest on convertible bond (note 27)
Interest on bond (note 27)
Interest expense
Unwind of discount rate
Loss from changes in the fair value of financial instruments
Other
Total
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14 INCOME TAX EXPENSE
Current corporate income tax from
continuing operations
Current corporate income tax charge
Current mining royalty charge (note 37)
Current special mining tax charge (note 37)
Withholding taxes
Deferred taxation
Origination and reversal of temporary differences
from continuing operations (note 30)
Effect of change in tax rate
Year ended 31 December 2014
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Year ended 31 December 2013
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
10,082
1,611
375
(343)
(251)
–
–
–
9,831
1,611
375
(343)
10,971
2,344
905
(641)
(752)
10,219
–
–
–
2,344
905
(641)
11,725
(251)
11,474
13,579
(752)
12,827
(457)
(4,802)
(5,259)
(3,851)
257
(3,594)
(4,308)
(4,545)
(8,853)
31,400
(35,170)
(3,770)
–
–
–
31,400
(35,170)
(3,770)
Total taxation charge/(credit) in the
income statement
6,466
(3,845)
2,621
44,979
(35,922)
9,057
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14 INCOME TAX EXPENSE CONTINUED
The weighted average statutory income tax rate was 28.7% for 2014 and 28.5% for 2013. 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.
In December 2014, the Peruvian government approved a schedule for the gradual reduction of the statutory income tax rate,
from its current level of 30% to 26% by 2019.
The tax related to items charged or credited to equity is as follows:
Deferred taxation:
Deferred income tax relating to fair value gains on cash flow hedges
Total tax charge in the statement of other comprehensive income
As at 31 December
2014
US$000
2013
US$000
1,216
1,216
–
–
The total taxation charge on the Group’s loss 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 from continuing operations before income tax
At average statutory income tax rate of 28.7% (2013: 28.5%)
Expenses not deductible for tax purposes
Non-taxable income1
Non-taxable share of gains of associates
Deferred tax recognised on special investment regime
Movement in unrecognised deferred tax
Change in statutory income tax rate
Withholding tax
Special mining tax and mining royalty2
Foreign exchange rate effect3
Other
At average effective income tax rate of -3.8% (2013: -11.8%)
Taxation charge attributable to continuing operations
Total taxation charge in the income statement
As at 31 December
2014
US$000
(68,210)
2013
US$000
(119,620)
(19,547)
(34,140)
3,058
(851)
–
(780)
2,685
(1,366)
(1,377)
(4,246)
6,700
13,048
(4,545)
(343)
1,986
–
(641)
3,249
14,473
30,366
2,470
2,621
2,621
2,621
1,479
9,057
9,057
9,057
1 Mainly corresponds to the gain on sale of Gold Resource Corp shares (2013: Mainly corresponds to dividends received from Gold Resource Corp. and International
Minerals Corporation).
2 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 37).
3 Mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the functional currency.
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15 BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share (‘EPS’) is calculated by dividing profit/(loss) for the year attributable to equity shareholders of the Company
by the weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2014 and 2013, EPS has been calculated as follows:
Basic loss per share from continuing operations
Before exceptional items (US$)
Exceptional items (US$)
Total for the year and from continuing operations (US$)
Diluted loss 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
2014
2013
(0.15)
(0.04)
(0.19)
(0.15)
(0.04)
(0.19)
(0.15)
(0.21)
(0.36)
(0.15)
(0.21)
(0.36)
Net loss from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:
Loss 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 from continuing operations before exceptional items attributable to equity holders
of the parent (US$000)
Diluted loss 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 per share computations:
Basic weighted average number of ordinary shares in issue (thousands)
Dilutive potential ordinary shares related to convertible bond (thousands)1
Dilutive potential ordinary shares related to contingently issuable shares (thousands)1
Diluted weighted average number of ordinary shares in issue and dilutive potential
ordinary shares (thousands)
As at 31 December
2014
(68,877)
2013
(123,083)
13,914
72,738
(54,963)
(50,345)
(54,963)
(50,345)
As at 31 December
2014
366,975
2013
345,225
–
–
–
–
366,975
345,225
1 The potential ordinary shares related to the convertible bond and the contingently issuable shares under the Enhanced Long Term Incentive Plan and Restricted
Share Plan have not been included in the calculation of diluted EPS for 2014 and 2013 as they have an antidilutive effect.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 PROPERTY, PLANT AND EQUIPMENT
Year ended 31 December 2014
Cost
At 1 January 2014
Additions
Change in discount rate
Change in mine closure estimate
Disposals
Write-offs
Disposal of subsidiary (note 4(c))
Transfers and other movements2
Mining
properties
and
development
costs1
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$000
869,780
220,083
371,079
6,511
74,362
136,383 1,678,198
136,742
1,913
20,281
–
–
–
(114)
–
–
(178)
(276)
(11,015)
(7,851)
–
–
(2,657)
(3,943)
(6,972)
4,384
43,480
11,254
46
–
–
(309)
(308)
(355)
445
–
157,192
316,174
4,357
18,741
–
–
(1,247)
–
–
(61)
–
–
4,357
18,741
(3,205)
(4,641)
(27,440)
–
(56,206)
3,357
At 31 December 2014
999,777
257,171
389,042
6,030
96,213
237,308 1,985,541
Accumulated depreciation
and impairment
At 1 January 2014
452,777
120,923
175,453
3,645
48,425
3,498
804,721
Depreciation for the year
84,928
19,836
29,854
Disposals
Write-offs
Disposal of subsidiary (note 4(c))
Transfers and other movements2
–
(51)
(178)
(184)
(11,015)
(7,851)
185
2,092
(2,385)
(2,677)
(6,969)
(66)
At 31 December 2014
526,824
134,638
193,210
Net book amount at 31 December 2014
472,953
122,533
195,832
752
(256)
(195)
(345)
62
3,663
2,367
2,308
–
–
(1,247)
–
–
–
–
137,678
(2,819)
(3,107)
(27,427)
–
(2,088)
185
49,486
1,410
909,231
46,727
235,898 1,076,310
The carrying value of plant and equipment held under finance leases at 31 December 2014 was US$Nil (2013: US$539,627). Additions during the year included
US$Nil (2013: US$Nil) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.
There were borrowing costs capitalised in property, plant and equipment amounting to US$9,904,000 (2013:US$5,736,000). The capitalisation rate used was
8.83% (2013: 9.45%).
1 Mining properties and development costs related to Azuca, Crespo, Inmaculada and Volcan projects are not currently being depreciated.
2 Net of transfers and other movements of US$3,172,000 were transferred from evaluation and exploration assets.
At the end of 2014, given the continued challenging environment for the mining sector, the Group carried out an impairment review
of all of its operating mines (Arcata, Pallancata, and San Jose), its advanced project (Inmaculada), and its growth projects (Crespo, Azuca,
and Volcan). As a result of this review, no impairment charges were identified.
The recoverable values of these CGUs were determined using a fair value less costs of disposal (‘FVLCD’) methodology. FVLCD was
determined using a combination of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that
would be paid by a willing third party in an arm’s length transaction. The key assumptions on which management has based its
determination of fair value less costs of disposal, and the associated recoverable values calculated are presented below.
Gold and silver prices
US$ per oz.
Gold
Silver
Other key assumptions
Discount rate
Value per in-situ ounce
2015
1,266
19.4
2016
1,288
20.1
2017
1,288
21.3
2018
1,325
Long-term
1,300
21.8
20.0
Arcata
5.1%
Pallancata
5.1%
San Jose
12.8%
Inmaculada
6.1%
n/a
n/a
n/a
n/a
Crespo
6.6%
n/a
Azuca
n/a
0.561
Volcan
n/a
18.001
1 With respect to the Azuca and Volcan growth projects, given their early stage, 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 Azuca and Volcan CGUs, which includes
the water permits held by the Group. The enterprise value used in the calculation performed at 31 December 2014 was US$18.00 per gold equivalent ounce of
resources (Volcan) and $0.56 per silver equivalent ounce of resources (Azuca). The enterprise value figures are based on observable external market information.
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16 PROPERTY, PLANT AND EQUIPMENT CONTINUED
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above
would cause the carrying value of any of its cash generating units to exceed its recoverable amount.
The estimated recoverable amounts of the following of the Group’s CGUs are equal to, or not materially greater than, their
carrying values; consequently, any adverse change in the following key assumptions would, in isolation, cause an impairment
loss to be recognised:
Arcata
Pallancata
Inmaculada
San Jose
Crespo
Azuca
Approximate impairment resulting from the
following changes (US$000)
Prices (10% decrease)
Discount rate (3% increase)
(52,000)
(47,000)
(98,000)
(84,000)
(21,000)
(9,000)
(3,000)
(59,000)
(18,000)
(16,000)
Production costs (10% increase)
(25,000)
(20,000)
(5,000)
(41,000)
(10,000)
n/a
n/a
n/a
Value per in-situ ounce (10% decrease)
n/a
n/a
n/a
n/a
n/a
(3,000)
Current carrying value of CGU, net of deferred
tax (US$000)
31 December 2014
135,356
108,388
464,355
171,977
64,877
39,288
Arcata
Pallancata
Inmaculada
San Jose
Crespo
Azuca
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 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
Year ended 31 December 2013
Cost
At 1 January 2013
Additions
Change in discount rate
Change in mine closure estimate
Disposals
Write-offs
540,324
179,940
313,457
141,504
2,823
49,700
–
–
–
–
–
–
–
–
(724)
(321)
(57)
(7,089)
Transfers and other movements
(50)
37,377
15,611
5,360
323
–
–
(43)
(150)
1,021
–
–
67,356
119,381 1,225,818
–
73,421
267,771
(1,481)
8,487
–
–
–
–
–
–
–
–
–
(1,481)
8,487
(767)
(7,617)
(56,419)
(2,460)
–
–
188,323
124
Transfers from evaluation and
exploration assets
Foreign exchange
At 31 December 2013
Accumulated depreciation
and impairment
At 1 January 2013
188,323
–
–
–
–
124
869,780
220,083
371,079
6,511
74,362
136,383 1,678,198
306,443
87,679
146,823
2,574
44,808
936
589,263
Depreciation for the year
96,862
20,377
29,316
Disposals
Write-offs
Impairment1
Transfers from evaluation and
exploration assets
Transfers and other movements
Foreign exchange
At 31 December 2013
–
(41)
–
(9)
42,080
5,883
(351)
(5,567)
8,520
7,418
–
–
15
–
6,993
(3,350)
–
62
452,777
120,923
175,453
Net book amount at 31 December 2013
417,003
99,160
195,626
989
(14)
(110)
204
–
2
–
3,645
2,866
2,070
–
–
–
–
–
149,614
(365)
(5,727)
1,547
3,899
62,133
–
–
–
–
(1,337)
–
7,418
2,323
62
48,425
3,498
804,721
25,937
132,885
873,477
1 In 2013, 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 combination
of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length
transaction. The key assumptions on which management has based its determination of fair value less costs of disposal include: forecast commodity prices,
discount rates, production volumes, production costs, and required capital expenditures. Where applicable, the post-tax discount rates used in the measurement
of the fair value less costs of disposal were: Azuca: 5.1%, Crespo: 6.8%, San Jose: 11.7%. Any variation in these key assumptions would either result in further
impairment or a reduction of the impairment. The recoverable amount of CGUs impaired during 2013 was determined to be US$28,285,000, US$50,005,000
and US$154,214,000 for Azuca, Crespo and San Jose respectively.
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17 EVALUATION AND EXPLORATION ASSETS
Azuca
US$000
Crespo
US$000
Inmaculada
US$000
San Felipe
US$000
Volcan
US$000
Others
US$000
Total
US$000
Cost
Balance at 1 January 2013
70,804
67,615
116,762
55,950
86,301
41,172
438,604
Additions
Foreign exchange
Write-off
Transfers to property, plant
and equipment
4,736
–
–
–
179
(512)
–
965
–
–
(38,106)
(117,727)
Balance at 31 December 2013
75,540
29,176
Additions
821
Transfers from/(to) property, plant
and equipment
Balance at 31 December 2014
Accumulated impairment
Balance at 1 January 2013
Impairment1
Transfers to property, plant
and equipment
3,593
(3,620)
79,954
25,556
22
29,840
9,904
5,507
–
(6,281)
Balance at 31 December 2013
29,862
9,130
Impairment1
Transfers from/(to) property, plant
and equipment
Balance at 31 December 2014
Net book value as at 31 December 2013
Net book value as at 31 December 2014
–
–
3,430
(3,620)
33,292
45,678
46,662
5,510
20,046
20,046
There were no borrowing costs capitalised in evaluation and exploration assets.
–
779
(92)
687
–
–
–
–
–
–
–
–
687
–
–
–
–
4,300
2,006
12,186
–
(26)
–
(4)
(512)
(30)
–
(32,490)
(188,323)
55,950
90,575
10,684
261,925
–
–
1,463
1,603
4,666
(3)
(3,730)
(3,852)
55,950
92,035
8,557
262,739
30,950
(14,400)
–
16,550
(1,643)
–
14,907
39,400
41,043
–
–
–
–
–
–
–
90,575
92,035
1,171
1,706
42,047
22,653
(1,137)
(7,418)
1,740
57,282
–
–
1,740
8,944
6,817
(1,643)
(190)
55,449
204,643
207,290
1 In 2014, the Group partially reversed the impairment of the San Felipe project of US$1,643,000. In 2013, 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 (note 16).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
18 INTANGIBLE ASSETS
Cost
Balance at 1 January 2013
Additions
Transfer
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
1,337
– 52,168
–
–
–
–
–
–
–
11
1,621
4,783
1,621
4,794
Balance at 31 December 2013
2,091
22,157
26,583
1,348
6,404
58,583
Additions
Transfer
–
–
–
–
–
–
4
421
277
–
281
421
Balance at 31 December 2014
2,091
22,157
26,583
1,773
6,681
59,285
Accumulated amortisation and impairment
Balance at 1 January 2013
Amortisation for the year4
Impairment of the period5
Balance at 31 December 2013
Amortisation for the year4
Transfer
Balance at 31 December 2014
Net book value as at 31 December 2013
Net book value as at 31 December 2014
–
–
2,091
2,091
–
–
2,091
–
–
7,138
1,213
1,671
10,022
1,102
–
11,124
12,135
11,033
–
–
–
–
–
–
–
1,127
87
24
–
441
1,108
8,265
1,741
4,894
1,238
1,549
14,900
79
(69)
458
1,639
–
(69)
1,248
2,007 16,470
26,583
26,583
110
525
4,855
43,683
4,674 42,815
1 The transmission line is amortised using the units of production method. At 31 December 2014 the remaining amortisation period is approximately 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 to 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 2014 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 In 2013 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$1,108,000 related to the Crespo project (refer to note 16).
The carrying amount of water permits is reviewed annually to determine whether it is in excess of its recoverable amount.
(a) Goodwill
The 2013 impairment test carried out for the San Jose CGU to which this goodwill relates used a fair value less cost of disposal
methodology which is most sensitive to the following assumptions:
• Commodity prices – Commodity prices of gold and silver are based on prices considered in the Group’s 2013 forecast and external
market consensus forecasts. The prices considered in the 2013 impairment tests were:
Year
2013 – Gold – US$/oz
2013
1,343.9
2014
1,405.9
2015
1,379.3
2013 – Silver – US$/oz
21.2
25.0
23.5
2016
1,319.3
20.7
2017
1,272.1
22.3
2018
1,272.1
2019 2020-2024
1,272.1
1,272.1
22.3
22.3
22.3
• 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 twelve days of maintenance per year;
• 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; and
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18 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 post-tax discount rate used in the 2013 impairment test was 11.7%.
The period approved by management to project the cash flows was 10 years (which approximated the remaining life of the San Jose
mine at the time).
(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 Volcan
cash-generating unit, which includes the water permits held by the Group. The enterprise value used in the calculation performed
at 31 December 2014 was US$18.00 per gold equivalent ounce of resources (2013: US$13.60) . The enterprise value figures are based
on observable external market information.
Headroom for the 2014 impairment test was US$53,185,000 (2013: US$14,172,000).
19 INVESTMENTS ACCOUNTED UNDER EQUITY METHOD
Gold Resource Corp.
The Group had an interest in Gold Resource Corp.(‘GRC’), which is involved in the exploration for and production of gold and silver
in Mexico.
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. Accordingly, 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. In the period prior to reclassification, the Group’s share of the profit and total comprehensive
income of GRC was US$5,921,000. A portion of the Group’s interest in GRC was disposed of in 2013 following the reclassification to an
available-for-sale financial asset.
The Group disposed of its available-for-sale investment in GRC during 2014 (note 20).
20 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Beginning balance
Additions1
Reclassification from investments accounted under the equity method2
Fair value change recorded in equity
Disposals3
Other4
Ending balance
Year ended 31 December
2014
US$000
51,658
–
–
2013
US$000
30,609
1,119
189,418
(3,106)
(125,932)
(48,097)
(33,498)
–
(10,058)
455
51,658
1 In 2013 represents 3,755,746 shares of Chaparral Gold Corp. received as a result of the Group´s 3.2% original interest in International Minerals Corporation (‘IMZ’)
(refer to note 4(a)).
2 Reclassification of the Group’s Gold Resource Corp. shares from an associate accounted for under the equity method to an available-for-sale financial asset on
27 March 2013. Equity accounting of the investment was discontinued as a result of developments during the period which resulted in the Group concluding
that it no longer had the ability to influence significantly that company's strategic, operational and financial direction. Consequently, the asset is recognised
as an available-for-sale asset at fair value.
3 Sale of 9,451,874 shares of Gold Resource Corp., 3,334,000 shares of Norther Superior Resources Inc., 3,755,746 shares of Chaparral Gold Corp., and 500,000 shares
of Mirasol Resources Ltd. (2013: Sale of 3,375,000 and 1,800,000 shares of Gold Resource Corp on 11 July 2013 and 12 December 2013 respectively).
4 In connection with the acquisition of the non-controlling interest of Minera Suyamarca S.A.C. the Group disposed of its 3,755,746 ordinary shares of IMZ and
received 3,755,746 class A shares of IMZ, which was recognised as an investment in a subsidiary and consequently eliminated on consolidation (refer to note 4(a)).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
20 AVAILABLE-FOR-SALE FINANCIAL ASSETS CONTINUED
Available-for-sale financial assets include the following:
Equity securities – quoted Canadian companies
Equity securities – quoted US companies1
Equity securities – quoted British companies
Equity securities – unquoted2
Total
1 Includes Gold Resource Corp shares of US$Nil (2013: US$42,817,000l).
2 Includes Pembrook Mining Corp and ECI Exploration and Mining Inc. shares.
Year ended 31 December
2014
US$000
216
12
227
–
2013
US$000
2,030
42,883
745
6,000
455
51,658
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 investments in ECI Exploration
and Mining Inc. and Pembrook Mining Corp. are fully impaired as at 31 December 2014 (2013: impairment of US$5,745,000).
Available-for-sale financial assets are denominated in the following currencies:
Canadian dollars
US dollars
Pounds sterling
Total
2014
US$000
216
12
227
455
2013
US$000
8,030
42,883
745
51,658
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21 TRADE AND OTHER RECEIVABLES
Trade receivables (note 38(c))
Advances to suppliers
Duties recoverable from exports of Minera Santa Cruz
Receivables from related parties (note 32)
Loans to employees
Interest receivable
Receivable from Kaupthing, Singer and Friedlander Bank
Other1
Provision for impairment2
Financial assets classified as receivables
Prepaid expenses
Value Added Tax (VAT)3
Total
As at 31 December
2014
2013
Non-current
US$000
–
Current
US$000
72,818
Non-current
US$000
–
–
2,016
–
1,192
–
–
2,186
–
5,347
6,000
45
748
78
264
15,939
(5,136)
–
5,776
–
2,030
–
–
2,638
–
Current
US$000
69,702
22,667
–
111
909
600
294
19,115
(5,084)
5,394
96,103
10,444
108,314
389
705
11,336
59,599
755
929
11,602
47,824
6,488
167,038
12,128
167,740
The fair values of trade and other receivables approximate their book value.
1 Mainly corresponds to account receivables from contratists for the sale of supplies of US$9,763,000 (2013: US$6,870,000), a tax claim related to the withholding
tax on the GRC dividends received of US$1,447,000 (2013: US$2,724,000), other tax claims of US$2,767,000 (2013: US$1,835,000).
2 Includes the provision for impairment of trade receivable from a customer in Peru of US$1,108,000 (2013: US$1,108,000), the impairment of deposits in Kaupthing,
Singer and Friedlander of US$264,000 (2013: US$294,000) and other receivables of US$3,764,000 (2013: US$3,682,000) that mainly relates to an exploration project
that would be recovered through an ownership interest if it succeeds.
3 Primarily relates to US$19,583,000 (2013: US$17,807,000) of VAT receivable related to the San Jose project that will be recovered through future sales of gold and
silver by Minera Santa Cruz S.A. It also includes the VAT of Minera Suyamarca of US$Nil (2013: US$10,639,000), Compañía Minera Ares S.A.C. of US$35,026,000
(2013: US$11,005,000) and Minas Santa María de Moris of US$Nil (2013: US$3,108,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
At 1 January 2013
Provided for during the year
Released during the year
At 31 December 2013
Provided for during the year
Released during the year
At 31 December 2014
As at 31 December 2014 and 2013, none of the financial assets classified as receivables (net of impairment) were past due.
Individually
impaired
US$000
3,819
1,485
(220)
5,084
110
(58)
5,136
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
22 INVENTORIES
Finished goods
Products in process
Raw materials
Supplies and spare parts
Provision for obsolescence of supplies
Total
Finished goods include ounces of gold and silver, dore and concentrate.
Products in process include dore, concentrate and stockpile.
As at 31 December
2014
US$000
7,147
2013
US$000
7,871
13,326
21,246
–
2
42,404
62,877
(4,460)
47,118
76,237
(6,681)
58,417
69,556
Dore is an alloy containing a variable mixture of silver, gold and minor impurities. The Group either sells dore bars as a finished product
or if it is commercially advantageous to do so, delivers the bars for refining into gold and silver ounces which are then sold. In the latter
scenario, the dore bars are classified as products in process. The amount of dore on hand at 31 December 2014 included in products
in process is US$1,405,000 (2013: US$697,000).
Concentrate is a product containing sulphides with a variable content of base and precious metals and is sold to smelters, but in
addition could be used as a product in process to produce dore.
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$75,066,000 (2013: US$94,235,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$192,000 (2013: US$1,832,000) and the
reversal of US$1,137,000 relating to the sale of supplies and spare parts, that had been provided for (2013: US$Nil).
The amount of income relating to the reversal of the inventory provision is US$Nil (2013: US$90,000).
23 OTHER FINANCIAL ASSETS AND LIABILITIES
Other financial assets
Swap contracts1
Derivative instruments in designated hedge accounting relationships
Other financial liabilities
Embedded derivatives2
Total financial liabilities at fair value through profit or loss
As at 31 December
2014
US$000
2013
US$000
4,342
4,342
–
–
1,533
1,533
2,294
2,294
1 Corresponds to the fair value of the unsettled commodity forward contract signed in 19 August 2014 with JP Morgan to hedge the sale of 38,000 ounces of gold
at US$1,300 per ounce, during the period from January to December 2015.
2 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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24 CASH AND CASH EQUIVALENTS
Cash at bank
Liquidity funds1
Current demand deposit accounts2
Time deposits3
Cash and cash equivalents considered for the statement of cash flows4
As at 31 December
2014
US$000
293
935
76,850
37,921
2013
US$000
454
8,751
62,259
214,971
115,999
286,435
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 10 days as at
31 December 2014 (2013: average of 8 days).
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of 2 days (2013: Average of 27 days) (refer to note 38(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 2014 is US$14,233,000 (2013: US$29,112,000), which is not readily available for use in subsidiaries outside of Argentina.
25 DEFERRED INCOME
On 3 August 2011, Hochschild entered into an agreement with Impulsora Minera Santa Cruz (“IMSC”) whereby IMSC acquired the right
to explore the San Felipe properties and an option to purchase the related concessions. Under the terms of this agreement the Group
has received the following non-refundable payments to date:
San Felipe contract
As at 31 December
2014
US$000
25,000
2013
US$000
22,000
These payments reduce the total consideration IMSC will be required to pay upon exercise of the option on December 2016, and
constitute an advance of the final purchase price, rather than an option premium, as such, they were recorded as deferred income.
26 TRADE AND OTHER PAYABLES
Trade payables1
Salaries and wages payable2
Dividends payable
Taxes and contributions
Guarantee deposits
Mining royalty (note 37)
Accounts payable to related parties (note 32)
Other
Total
As at 31 December
2014
2013
Non-current
US$000
–
Current
US$000
64,458
Non-current
US$000
–
–
–
–
–
–
–
92
92
23,890
1,789
11,441
7,327
951
11
2,023
111,890
–
–
–
–
–
–
174
174
Current
US$000
73,339
18,620
4,584
8,264
7,266
840
16
6,293
119,222
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
Long Term Incentive Plan and Exploration Incentive Plan
Total
2014
US$000
23,890
–
–
2013
US$000
17,885
152
583
23,890
18,620
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 BORROWINGS
Bond payable (a)
Secured bank loans (b)
• Pre-shipment loans in Minera Santa Cruz
(note 22)
• Pre-shipment loans in Minera Suyamarca
S.A.C.(note 22)
• Syndicated loan
• Medium-term bank loan
Convertible bond payable (c)
Total
As at 31 December
Effective
interest rate
8.48%
2014
Non-current
US$000
342,043
Current
US$000
13,457
Effective
interest rate
–
2013
Non-current
US$000
–
Current
US$000
–
–
–
–
–
–
–
3.47%
98,791
–
–
13,843
–
–
582
–
440,834
27,882
–
–
25.26%
–
8.26%
–
24,122
–
–
–
–
–
30,053
265,877
–
115,873
435,925
(a) Bond payable
On 23 January 2014 the Group issued US$ 350,000,000 7.75% Senior Unsecured Notes of Compañía Minera Ares S.A.C. guaranteed by
Hochschild Mining plc and Hochschild Mining (Argentina) Corporation S.A. The interest will be paid semi-annually, commencing 23 July
2014 until maturity in 23 January 2021. The balance at 31 December 2014 comprises the carrying value, including accrued interest
payable, of US$355,500,000 determined in accordance with the effective interest method.
The following options could be taken before the maturity:
• Optional Redemption with Proceeds of Equity Offerings: Up to 35% at 107.750% prior to 23 January 2017;
• Optional Redemption with Make-Whole Premium: At any time prior to January 23, 2018, the issuer may redeem all or part of the
notes, at a price equal to 100% of the outstanding principal amount of the notes plus accrued and unpaid interest and additional
amounts, if any, to the redemption date, plus a “make-whole” premium at Treasury Rate + 50 bps;
• Optional Redemption without Make-Whole Premium: The issuer may redeem all or part of the notes on or after 23 January 2018 at
the redemption prices specified plus accrued and unpaid interest and additional amounts, if any, to the redemption date. The Make
Whole Premium requires repayment of 103.875%, 101.938% or 100% of the outstanding principal balance it exercised in 2018, 2019
or 2020 respectively;
• Optional Redemption Upon Tax Event: 100% of the outstanding principal amount plus accrued and unpaid interest and additional
amounts, if any; and
• Change of Control Offer: 101% of principal amount plus accrued and unpaid interest.
(b) Secured bank loans
Syndicated loan:
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, of which $270,000,000 was drawn with an effective interest rate of 25.26% and was 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$265,877,000
determined in accordance with the effective interest method. This loan was repaid on 23 January 2014.
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27 BORROWINGS CONTINUED
Medium-term bank loan:
Credit agreement of US$100,000,000 with Scotiabank Peru S.A.A. acting as Lead Arranger and The Bank of Nova Scotia and Corpbanca
as lenders. The borrower is Compañía Minera Ares S.A.C. and the loan is guaranteed by Hochschild Mining plc. The loan has an interest
rate of LIBOR + 2.6% payable quarterly. The first principal repayment is scheduled for July 2016, with subsequent payments quarterly
thereafter until maturity in April 2019. The carrying value including accrued interest payable at 31 December 2014 of US$99,373,000
was determined in accordance with the effective interest method.
(c) Convertible bond payable
Relates to the placement of US$115,000,000 of senior unsecured convertible bonds, due 2014, which were convertible into ordinary
shares of Hochschild Mining plc. The Group settled the convertible bonds in cash upon their maturity in October 2014. The bonds
had a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of each year.
Upon initial recognition, the convertible bonds were recorded at a value of US$ 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 convertible bonds were repaid on 16 October 2014.
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
2014
US$000
16,660
82,131
342,043
440,834
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:
Secured bank loans
Bond payable
Total
Carrying amount
as at 31 December
Fair value
as at 31 December
2014
US$000
98,791
342,043
440,834
2013
US$000
–
2014
US$000
99,083
–
–
348,250
447,333
2013
US$000
–
–
–
The fair value of secured bank loans was determined by discounting the remaining principal and interest payments at the three month
U.S. LIBOR rate plus 2.6 percent. The U.S. LIBOR rate is a Level 1 input. In the case of the bond payable, the fair value was determined
with reference to the quoted price of these bonds in an active market, another Level 1 input.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28 PROVISIONS
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
At 1 January 2014
Additions
Accretion
Change in discount rate
Change in estimates
Payments
Sale of subsidiary (note 4(c))
At 31 December 2014
Less current portion
Non-current portion
Provision
for mine closure1
US$000
74,214
–
224
(1,481)
14,0054
(4,781)
–
(32)
82,149
(6,311)
75,838
82,149
–
242
4,357
27,8294
(5,524)
(1,266)
107,787
–
107,787
Workers’
profit
sharing2
US$000
18,549
–
–
–
(427)
(17,645)
–
(103)
374
(374)
–
374
–
–
–
–
(374)
–
–
–
–
Long Term
Incentive
Plan3
US$000
6,027
–
–
–
(2,960)
(651)
(537)
–
1,879
–
1,879
1,879
–
–
–
(1,285)
–
–
594
–
594
Other
US$000
4,448
1,171
–
–
–
(83)
–
(716)
4,820
(2,888)
1,932
4,820
1,680
–
–
(260)
–
6,240
(2,870)
3,370
Total
US$000
103,238
1,171
224
(1,481)
10,618
(23,160)
(537)
(851)
89,222
(9,573)
79,649
89,222
1,680
242
4,357
26,544
(6,158)
(1,266)
114,621
(2,870)
111,751
1 The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the
mines. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure
adjusted for the impact of quantitative easing as at 31 December 2014 and 2013 respectively, and the cash flows have been adjusted to reflect the risk attached
to these cash flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mines, as new
resources and reserves are discovered. The discount rate used was 0.02% (2013: 0.29% to 0.56%).
2 Corresponds to the legal and voluntary workers’ profit sharing of the Group. Legal workers’ profit sharing represents 8% of taxable income of Peruvian companies.
Voluntary workers’ profit sharing is determined by the Group taking into account the market conditions of employment. The balance of the provision as at
31 December 2014 is: (i) Legal US$Nil (2013: US$374,000), (ii) Voluntary US$Nil (2013: US$Nil).
3 Corresponds to the provision related to awards granted under the Long Term Incentive Plan to designated personnel of the Group. Includes the following benefits:
(i) 2014 awards, granted in March 2014, payable in March 2017 (Ii) 2013 awards, granted in March 2013, payable in March 2016. Only employees who remain
in the Group’s employment on the vesting date will be entitled to a cash payment, subject to exceptions approved by the Remuneration Committee of the Board.
The provision represents the discounted values of the estimated cost of the long-term employee benefit. In 2014 there is change to the provision and corresponding
expense of US$-1,285,000 (2013: US$-2,960,000) that is disclosed under administrative expenses US$-1,064,000 (2013: US$-1,698,000), exploration expenses
US$-221,000 (2013: US$-244,000) and capitalised as evaluation and exploration expenses US$Nil (2013: US$-1,018,000). The amount of US$537,000 corresponded
to the Exploration Incentive Plan award which was transferred to salary and wages payable as the performance period ended on 31 December 2012 (note 26(2)).
4 Based on the 2014 and 2013 internal review of mine rehabilitation budgets, an increase of US$27,829,000 (2013: US$14,005,000) was recognised, of which
US$9,088,000 (2013: US$5,516,000) related to project already closed and has therefore been recognised directly in the income statement.
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29 EQUITY
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2013 and 2014 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
367,101,352 £91,775,338
At 31 December 2014 and 2013, all issued shares with a par value of 25 pence each were fully paid (2014: weighted average
of US$0.464 per share, 2013: weighted average of US$0.464 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 2013
Conversion of 1 convertible bond on 2 January 2013 (note 27(c))
Number of
shares
338,085,226
Share Capital
US$000
158,637
16,126
7
Shares issued and paid pursuant to the placing of shares on 2 October 2013
29,000,000
11,745
Share
premium
US$000
395,928
93
–
Shares issued as at 31 December 2013
Shares issued as at 31 December 2014
367,101,352
170,389
367,101,352
170,389
396,021
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(o)). During 2011, the Group purchased 126,769 shares for the purposes of the plan, for a total consideration of
£561,477.91 (equivalent to US$898,000). No shares were purchased by the Group during 2013 and 2014.
(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 instruments (refer to note 2(z)).
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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
29 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
Represented the equity component of a Convertible bond issued on 20 October 2009 (note 27(c)) which was repaid on 16 October 2014.
Upon repayment the equity component was transferred to retained earnings.
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.
30 DEFERRED INCOME TAX
The changes in the net deferred income tax assets/(liabilities) are as follows:
Beginning of the year
Income statement charge (note 14)
Deferred income tax arising on net unrealised gains cash flow hedges recognised in equity (note 14)
Others
End of the year
As at 31 December
2014
US$000
(91,089)
8,853
(1,216)
67
2013
US$000
(94,859)
3,770
–
–
(83,385)
(91,089)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.
The movement in deferred income tax assets and liabilities before offset during the year is as follows:
Deferred income tax liabilities
At 1 January 2013
Income statement (credit)/charge
At 31 December 2013
Income statement (credit)/charge
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Financial
instruments
US$000
Others
US$000
Total
US$000
31,882
2,582
34,464
7,453
108,420
(17,237)
91,183
(11,202)
2,109
434
142,845
–
2,584
(12,071)
2,109
3,018
130,774
–
(844)
(4,593)
Deferred income tax arising on net unrealised gains cash flow
hedges recognised in equity
At 31 December 2014
–
–
41,917
79,981
1,216
3,325
–
1,216
2,174
127,397
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
Tax
losses
US$000
Mine
development
US$000
Financial
instruments
US$000
Others
US$000
Total
US$000
Deferred income tax assets
At 1 January 2013
Income statement credit/(charge)
At 31 December 2013
23,415
11,180
(4,989)
1,652
18,426
12,832
735
(95)
640
Income statement credit/(charge)
(8,879)
1,703
7,911
Foreign exchange effect
At 31 December 2014
–
–
–
9,547
14,535
8,551
–
–
–
697
–
697
3,148
9,508
47,986
(754)
(4,115)
(8,301)
2,394
5,393
39,685
(132)
2,960
4,260
–
67
67
2,262
8,420
44,012
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30 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
2014
US$000
1,574
2013
US$000
2,416
(84,959)
(93,505)
As at 31 December
2014
US$000
2013
US$000
970
1,276
1,330
26,996
–
30,572
–
1,256
3,184
6,017
–
–
–
–
2,134
2,134
–
–
1,414
3,511
108,143
184,613
118,600
189,538
149,172
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
2014
US$000
55,637
2013
US$000
39,086
(493)
(4,320)
1 This relates to a provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected against which the
expenditure can be offset.
2 Corresponds to the reversal of impairment of San Felipe project (note 17).
Unrecognised deferred tax liability on retained earnings
At 31 December 2014, there was no recognised deferred tax liability (2013: nil) for taxes that would be payable on the unremitted
earnings of certain of the Group’s subsidiaries as the intention is that these amounts are permanently reinvested.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DIVIDENDS PAID AND PROPOSED
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2013: US$Nil (2012: US$0.03)
Interim dividend for 2014: US$Nil (2013: US$Nil)
Dividends declared to non-controlling interests: US$0.04 and US$Nil (2013: US$0.03 and US$0.05)
Dividends declared and paid
Dividends declared to non-controlling interests: US$0.04 (2013: US$0.03)
Dividends declared and not paid
Total dividends declared
Final dividend for 2014: US$Nil (2013: US$Nil)
2014
US$000
2013
US$000
–
–
10,139
–
5,542
6,197
5,542
16,336
1,719
1,719
4,509
4,509
7,261
20,845
–
–
Dividends per share
The Directors of the Company are not recommending a dividend in respect of the years ended 31 December 2014 and 31 December 2013.
32 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 2014 and 2013. The related
parties are companies owned or controlled by the main shareholder of the parent company or associates.
Current related party balances
Cementos Pacasmayo S.A.A.1
Total
Accounts receivable
as at 31 December
Accounts payable
as at 31 December
2014
US$000
2013
US$000
2014
US$000
2013
US$000
45
45
111
111
49
49
16
16
1 The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A. The account payable relates to the
payment of rentals.
As at 31 December 2014 and 2013, 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 19)
Expenses
Year ended
2014
US$000
2013
US$000
–
2,633
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.
(185)
(164)
Transactions between the Group and these companies are on an arm’s length basis.
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32 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
Others
As at 31 December
2014
US$000
5,369
–
679
2013
US$000
5,781
77
(434)
1
Total compensation paid to key management personnel
6,048
5,425
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$4,005,780 (2013: US$4,410,956),
out of which US$160,462 (2013: US$193,831) relates to pension payments.
(c) Participation in placing by Inversiones Pacasmayo S.A. (IPSA)
IPSA, 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.
33 AUDITOR’S REMUNERATION
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2014 and 2013 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 LLP
in the year ended
31 December
2014
US$000
899
2013
US$000
1,046
Amounts paid
to others
in the year ended
31 December
2014
US$000
1
2013
US$000
7
84
84
34
–
1,101
76
25
67
436
1,650
–
–
–
–
1
–
–
–
–
7
1 The total audit fee in respect of local statutory audits of subsidiaries is US$524,000 (2013: US$607,000).
In 2014 and 2013, 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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
34 NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of loss for the year to net cash generated from operating activities
Loss for the year
Adjustments to reconcile Group loss to net cash inflows from operating activities
Depreciation (note 3(a))
Amortisation of intangibles
Write-off of assets (net)
(Reversals of impairment)/Impairment of assets (net)
Impairment of available-for-sale financial assets
(Gain)/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
Loss on sale of subsidiary
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
2014
US$000
2013
US$000
(70,831)
(128,677)
129,153
149,586
1,639
1,534
1,741
991
(1,643)
89,680
6,155
124,899
(4,061)
7,805
–
(2,417)
–
(107,942)
(269)
(945)
2,963
(2,442)
1,832
–
–
(5,921)
9,088
5,516
(2,215)
(10,675)
33,074
11,697
2,621
7,323
9,057
22,883
(3,417)
477
(761)
(4,447)
11,843
5,025
8,982
(31,246)
(240)
(21,338)
129,993
116,084
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35 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 agreements are explained below:
As at 31 December
2014
US$000
350
6,850
2013
US$000
1,484
16,250
(i) 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 2014 the Group had invested US$300,000.
(ii) Lara Exploration Ltd (Corina)
On 13 June 2014, the Group entered into a purchase option agreement with Lara Exploration Ltd. to explore and develop minerals and
to earn the right to purchase 100% of the properties in ‘Corina’ located in Apurimac, Peru. Upon signing the purchase option agreement
the Group paid US$150,000 to Lara Exploration Ltd.
In order to exercise the option, the Group is required to make a total payment of US$5,000,000 within four years since the mining
exploration authorisation The Group is entitled to withdraw from the agreement at any time. At 31 December 2014 the Group had
invested US$150,000.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
35 COMMITMENTS CONTINUED
(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 2014 and 2013 are included in production costs
(2014: US$7,108,000, 2013: US$10,287,000), administrative expenses (2014: US$1,442,000, 2013: US$1,925,000), exploration
expenses (2014: US$611,000, 2013: US$2,216,000) and selling expenses (2014: US$1,000, 2013: US$13,507).
As at 31 December 2014 and 2013, 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
2014
US$000
6,371
2013
US$000
5,149
2,224
258
For the year ended
31 December
2014
US$000
97,826
2013
US$000
151,362
6,091
6,767
103,917
158,129
36 CONTINGENCIES
As at 31 December 2014, 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 2014,
the Group had exposures totalling US$46,100,000 (2013: US$38,630,000) 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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37 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 “Income Taxes”.
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 2014, 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$395,000 (2013: US$389,000), US$266,000
(2013: US$629,000), and US$Nil (2013: US$148,000) 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$1,279,000 (2013: US$1,784,000) representing the former mining royalty, classified as cost of sales,
US$1,611,000 (2013: US$2,344,000) of new mining royalty and US$375,000 (2013: US$905,000) 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 2014, the amount payable as mining royalties amounted to US$556,000 (2013: US$451,000). The
amount recorded in the income statement as cost of sales was US$5,302,000 (2013: US$6,509,000).
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. According to these regulations, the
tax applies only on “proved reserves” and certain deductions (related to the production cost) apply. Minera Santa Cruz S.A. (a subsidiary
of Hochschild Mining plc) is affected by this tax. 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
2014, the amount payable as tax on mining reserves was US$4,088,000 (2013: US$1,381,000) recorded as ‘Trade and other payables’.
The amount recorded in the income statement was US$3,453,000 (2013: US$2,453,000) as other expenses.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
38 FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of risks and uncertainties which may have a financial impact on the Group and which also impact
the achievement of social, economic and environmental objectives. These risks include strategic, commercial, operational and financial
risks and are further categorised into risk areas to facilitate consolidated risk reporting across the Group.
The Group has made significant developments in the management of the Group’s risk environment which seeks to identify and,
where appropriate, implement the controls to mitigate the impact of the Group’s significant risks. This effort is supported by a Risk
Committee with the participation of the CEO, the Vice Presidents, 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´s policy is generally 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.
For the year ended 31 December 2014 the gain recognised in the income statement for the commodity swaps contracts signed during
the year is as follows (2013: nil):
Entity
Citibank N.A.
Goldman Sachs International
Goldman Sachs International
JP Morgan
Gain in commodity swaps contacts
The fair value of unsettled commodity swaps contracts is as follows:
Entity
JP Morgan
Unrealised gain on cash flow hedges
Oz Ag
1,000,000
1,000,000
2,000,000
Oz Au
Price per oz
US$
22
22
21
–
33,300
1,338.45
Oz Ag
Oz Au
38,000
Price per oz
US$
1,300
Effect
Income
statemet
US$000
3,180
3,180
5,793
2,450
14,603
Effect in
equity
US$000
4,342
4,342
The Group is exposed to commodity price risk on these commodity swap contracts. A 10% favourable or adverse change in the price
of gold would have an impact on amounts recognised in the comprehensive income of approximately +/- US$4,940,000.
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 23(2)). 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
2014
2013
Increase/
decrease price of
ounces of:
Gold +/-10%
Silver+/-10%
Gold +/-10%
Silver+/-10%
Effect on
profit before tax
US$000
+/-238
+/-1,414
+/-831
+/-2,155
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in pounds
sterling, Peruvian nuevos soles, Canadian dollars, Argentinian pesos and Mexican pesos. Accordingly, the Group’s financial results
may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-term relationship between
commodity prices and currencies in the countries in which the Group operates provides a certain degree of natural protection.
The Group does not use derivative instruments to manage its foreign currency risks.
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38 FINANCIAL RISK MANAGEMENT CONTINUED
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their respective
currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group’s profit
before tax and the Group’s equity.
Year
2014
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
2013
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
Increase/
decrease in
US$/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%
+/-9
+/-23
+/-2,197
+/-237
+/-7,757
+/-41
-/+17
-/+10
+/-2,708
+/-1,922
-/+483
+/-1,223
-/+265
–
–
–
–
–
+/-75
–
–
–
+/-765
–
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
38 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 2014 and 31 December 2013:
As at
31
December
2014
US$000
28,765
21,203
8,319
3,785
3,393
3,226
1,913
1,108
1,066
–
–
–
40
Credit
rating or %
collected as
at 17 March
2015
54%
As at
31 December
2013
US$000
29,087
Credit
rating or %
collected as
at 11 March
2014
A1
96%
100%
89%
0%
63%
3%
0%
0%
–
–
–
–
9,045
4,826
5,185
–
4,577
–
1,108
59
7,434
4,011
3,945
425
84%
100%
26%
–
BBB
–
0%
1%
61%
100%
63%
–
72,818
69,702
As at
31
December
2014
US$000
4,342
Credit
rating or %
collected as
at 17 March
2015
A
As at
31 December
2013
US$000
–
Credit
rating or %
collected as
at 11 March
2014
–
1
(461)
(420)
(346)
(198)
(39)
(66)
(4)
–
–
–
2,809
0%
89%
54%
3%
63%
100%
96%
0%
–
–
–
–
(282)
(393)
–
(696)
(227)
(36)
(27)
(645)
(17)
29
(2,294)
–
26%
A1
–
BBB
100%
84%
1%
61%
63%
100%
Summary commercial partners – Trade receivables
LS Nikko
Glencore Peru S.A.C.
Republic Metals Corporation
Aurubis AG (formerly Nordeutsche Affinerie AG)
Johnson Matthey Inc.
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Trafigura Perú S.A.C.
Doe Run Peru S.R.L.
Sumitomo Corporation
Consorcio Minero S.A.
Argor Heraus S.A.
Glencore International AG
Others
Summary commercial partners – Embedded derivatives and swap contracts
JP Morgan
Johnson Matthey Inc.
Aurubis AG (formerly Nordeutsche Affinerie AG)
LS Nikko
Trafigura Perú S.A.C.
Teck Metals Ltd (formerly Teck Cominco Metals Ltd.)
Republic Metals Corporation
Glencore Peru S.A.C.
Sumitomo Corporation
Consorcio Minero S.A.
Glencore International AG
Argor Heraus S.A.
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38 FINANCIAL RISK MANAGEMENT CONTINUED
Financial counterparties
JP Morgan
Citibank
Interbank
Banco de Crédito del Peru
Banco de la Nacion
Banco Bilbao Vizcaya Argentaria
ICBC
HSBC
Others (including cash in hand)
Total
1 The long-term credit rating as at 4 March 2015.
As at
31 December
2014
US$000
6,512
71,761
27,001
5,238
3,058
888
405
540
596
As at
31 December
2013
US$000
175,673
43,426
4
18,822
2,317
18,771
9,356
–
Credit
rating1
A
A-
BBB
BBB+
BBB+
BBB
A
A
NA
18,066
115,999
286,435
Credit
rating
A
A-
BBB
BBB+
BBB+
BBB-
A
–
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); and
• 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; and
• 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 notes 21, 23 and 24.
(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 with
all other variables held constant:
Year
2014
2013
Increase/
decrease in
prices
+25%
-25%
+25%
-25%
Effect on
profit before
tax
US$000
–
-100
–
-242
Effect
on equity
US$000
+114
-14
+428
-186
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
38 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 2014 and 2013, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Equity shares (note 20)
Commodity swaps (note 23(1))
Liabilities measured at fair value
Embedded derivatives (note 23(2))
Assets measured at fair value
Equity shares (note 20)
Liabilities measured at fair value
Embedded derivatives (note 23(2))
31 December
2014
US$000
455
4,342
(1,533)
31 December
2013
US$000
51,658
Level 1
US$000
455
–
–
Level 2
US$000
–
4,342
Level 3
US$000
–
–
–
(1,533)
Level 1
US$000
45,658
Level 2
US$000
–
Level 3
US$000
6,000
(2,294)
–
–
(2,294)
During the period ending 31 December 2014 and 2013, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Balance at 1 January 2013
Gain from the period recognised in revenue (note 23(2))
Impairment through profit and loss (finance costs)
Fair value change through equity
Balance at 31 December 2013
Gain from the period recognised in revenue (note 23(2))
Impairment through profit and loss (finance costs)
Balance at 31 December 2014
Embedded
derivatives
liabilities
US$000
(6,891)
4,597
–
–
(2,294)
761
–
(1,533)
Equity
shares
US$0001
12,009
–
(5,745)
(264)
6,000
–
(6,000)
–
1 Pembrook Mining Corp (‘Pembrook’): Macroeconomic uncertainty has been putting downward pressure on commodity prices. 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 full impairment of the remaining cost of the investment has been recorded as at 31 December 2014 (2013: 50%). The
impairment percentage was calculated based on available observable market data of similar peers.
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38 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.
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 2014
Trade and other payables
Embedded derivative liability
Borrowings
Provisions
Total
At 31 December 2013
Trade and other payables
Embedded derivative liability
Borrowings
Provisions
Total
Less than
1 year
US$000
93,122
1,533
45,053
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
92
–
–
–
–
–
93,214
1,533
46,618
167,980
390,688
650,339
–
166
1,932
–
2,098
139,708
46,876
169,912
390,688
747,184
103,692
2,294
448,355
–
554,341
174
–
–
4,937
5,111
–
–
–
–
–
–
–
–
–
–
103,866
2,294
448,355
4,937
559,452
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
38 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 at 31 December 2014, interest on the
US$100,000,000 medium-term bank loan facility drawn in October 2014 are variable based on the 3 month U.S. LIBOR rate
plus an applicable margin (note 27). All other currently existing financial obligations are at fixed rates.
Fixed rate
Cash at bank (note 24)
Time deposits (note 24)
Liquidity funds (note 24)
Secured bank loans (note 27)
Bond payable (note 27)
Floating rate
Liquidity funds (note 24)
Secured bank loans (note 27)
Fixed rate
Cash at bank (note 24)
Time deposits (note 24)
Liquidity funds (note 24)
Secured bank loans (note 27)
Convertible bond payable (note 27)
Floating rate
Liquidity funds (note 24)
Secured bank loans (note 27)
Within
1 year
US$000
293
37,921
–
(13,843)
(13,457)
935
As at 31 December 2014
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$000
293
37,921
–
(13,843)
–
–
–
–
(342,043)
(355,500)
–
–
935
(99,373)
(582)
(16,660)
(82,131)
Within
1 year
US$000
454
214,971
–
(54,175)
(115,873)
8,751
(265,877)
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)
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.
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38 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 fluctuations in market interest rates.
This assumes that the amount remains unchanged from that in place at 31 December 2014 and 2013 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
2014
2013
Increase/
decrease
interest
rate
+/-50bps
Effect
on profit
before tax
US$000
-/+495
+/-50bps
+/-1,394
(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 27 and 29).
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 partner in Pallancata and Inmaculada, International Minerals Corporation. 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 with joint venture partners) with a mix of equity and joint
venturepartners’ debt.
39 SUBSEQUENT EVENTS
(a) On 20 January 2015, the group signed a commodity swap contract with JPMorgan Chase Bank, National Association, London Branch
to hedge 6,000,000 ounces of silver at at price of US$17.75 per ounce from 21 January 2015 to 31 December 2015.
(b) On 9 and 13 January 2015, and 11 and 12 February 2015 the Group drew down US$75,000,000 of its short-term credit lines in
Peru. US$50,000,000 will mature in December 2015 and US$25,000,000 will mature in February 2016. The average annual interest
rate is 1.56%.
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PARENT COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2014
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
Trade and other payables
Provisions
Current liabilities
Trade and other payables
Borrowings
Total liabilities
Total equity and liabilities
As at 31 December
2014
US$000
2013
US$000
Notes
4
5
6
7
8
8
8
–
120
911,016 1,343,000
911,016 1,343,120
2,179
3,293
5,472
1,058
71,797
72,855
916,488 1,415,975
170,389
170,389
416,247
416,247
(898)
(898)
2,576
347,915
23,693
135,167
612,007 1,068,820
9
11
11,866
45
11,911
–
128
128
9
292,570
231,154
10
–
115,873
292,570
347,027
304,481
347,155
916,488 1,415,975
The financial statements on pages 150 to 164 were approved by the Board of Directors on 17 March 2015 and signed on its behalf by:
IGNACIO BUSTAMANTE
Chief Executive Officer
17 March 2015
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PARENT COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2014
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
Write off of property, plant and equipment
Finance income
Finance costs
Income tax
Foreign exchange loss
(Decrease)/increase 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
Dividends received
Loans to subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Proceeds of loans from related parties
Repayment of borrowings
Proceeds from issue of ordinary shares
Dividends paid
Cash flows generated from financing activities
Net (decrease)/increase in cash and cash equivalents during the year
Foreign exchange loss
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended 31 December
Notes
2014
US$000
2013
US$000
(458,653)
(992,233)
4
5
4
13
27
27
448,345
976,649
93
(2,082)
7,157
3
47
(1,285)
(370)
1,757
(4,961)
109
(8,111)
(12,963)
–
33
131
164
59,242
(114,900)
–
–
(55,658)
(68,457)
(47)
71,797
–
(250)
9,439
–
437
37
8,738
200
3,044
357
(6,607)
(3,206)
(7)
(238)
(245)
10,651
(109)
71,816
(10,139)
72,219
68,768
(437)
3,466
7
3,293
71,797
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PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
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 2013
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
Other
comprehensive
income
Loss for the year
Total comprehensive
loss for 2014
Transfer to retained
earnings
CEO LTIP
Deferred bonus plan
Balance at
31 December 2014
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
170,389 416,247
(898)
–
–
–
(8,432)
–
–
–
–
–
–
–
610
1,230
2,576
–
–
–
–
–
–
–
(458,653)
(458,653)
–
(458,653)
(458,653)
(338,747)
(347,179)
347,179
610
1,230
–
–
–
610
1,230
2,576
23,693
612,007
–
–
–
–
–
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2014
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 23 Hanover Square, London W1S 1JB, United Kingdom. The Company was incorporated
to serve as a holding company to be listed on the London Stock Exchange. The Company acquired its interest in a group of companies
to constitute the Hochschild Mining Group (‘the Group’) pursuant to a share exchange agreement (‘Share Exchange Agreement’)
dated 2 November 2006.
The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its subsidiaries
(together ‘the Group’ or ‘Hochschild Mining Group’) is held through Pelham Investment Corporation, a Cayman Islands company.
On 8 November 2006, the Company’s shares were admitted to the Official List of the UKLA (‘United Kingdom Listing Authority’)
and to trading on the London Stock Exchange.
2 SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and are also consistent with IFRS issued by the IASB, as applied in accordance with the
Companies Act 2006.
The financial statements of the Company have been prepared on a historical cost basis. The financial statements are presented
in US dollars (US$) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.
The ability for the Company to continue as a going concern is dependent on Hochschild Mining Holdings Limited providing additional
funding to the extent that the operating inflows of the Company are insufficient to meet future cash requirements. As Hochschild
Mining Holdings Limited has committed to provide this support, is itself a going concern and can provide financial support if necessary,
the Directors have prepared the financial statements for the Company on the going concern basis.
(b) Exemptions
The Company’s financial statements are included in the Hochschild Mining Group consolidated financial statements for the years
ended 31 December 2014 and 31 December 2013. 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 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 application of these amendments has had no impact on the Company’s financial position or performance.
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
• IAS 36 ‘Impairment of Assets’ – recoverable amount disclosures.
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 application of this amendment has had no impact on the Company’s financial position or performance, but has affected its
impairment disclsoures.
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 2015 or later periods but which the Company has not early adopted.
A list of these items is included in note 2(a) of the Group financial statements.
(e) Currency translation
The functional currency of the Company is the US dollar and is determined by the currency of the primary economic environment
in which it operates.
Transactions denominated in currencies other than the functional currency of the Company are initially recorded in the functional
currency using the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are remeasured at the rate of exchange ruling at the 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.
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.
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2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(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.
(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 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.
(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 reporting 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 reporting 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 contribution to 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 and 2014, the Company approved an equity-settled scheme
for its CEO.
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
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 with the following exemptions:
• 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; and
• 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.
Financial guarantees
Financial guarantees are gurantees provided by the Company on behalf of one of the Group’s subsidiaries. At inception the fair value
of a financial guarantee is determined and recognised as a liability in the Company’s accounts, while the debit is recognised as a capital
contribution to its subsidiary. The liability is subsequently amortised on a straight-line basis over the life of the guarantee, unless it is
considered probable that the guarantee will be called, in which case it is measured at the value of the guaranteed amount payable,
if higher.
The liability is presented within creditors as ‘Financial liability – financial guarantee’.
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
twelve months after the statement of financial position date.
A detailed description of the Company’s policies in respect of financial instruments is included in the Group’s financial statements
(note 2(u)).
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2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(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 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.
The convertible bond issued by the Company was derecognised in October 2014, upon repayment of the debt.
3 PROFIT AND LOSS ACCOUNT
The Company made a loss attributable to equity shareholders of US$458,653,000 (2013: loss of US$992,233,000).
4 PROPERTY, PLANT AND EQUIPMENT
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
Year ended 31 December 2014
Cost
At 1 January 2014
Disposals
Write off
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Depreciation
Disposals
Write off
At 31 December 2014
Net book value at 31 December 2014
Office
building
US$000
Equipment
US$000
Total
US$000
277
267
130
27
157
120
277
–
(277)
–
157
27
–
(184)
–
–
267
–
267
–
267
(2)
–
265
267
–
(2)
–
265
–
544
397
27
424
120
544
(2)
(277)
265
424
27
(2)
(184)
265
–
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
5 INVESTMENTS IN SUBSIDIARIES
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
Year ended 31 December 2014
Cost
At 1 January 2014
Additions
At 31 December 2014
Accumulated impairment
At 1 January 2014
Impairment loss
At 31 December 2014
Net book value at 31 December 2014
Total
US$000
2,319,649
10,274
(10,274)
2,319,649
–
(976,649)
(976,649)
1,343,000
2,319,649
16,361
2,336,010
(976,649)
(448,345)
(1,424,994)
911,016
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 indicators of impairment. As a result
of this test, the Company recognised an impairment of the investment in Hochschild Mining Holdings Ltd. of US$448,345,000
(2013: 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 Limited was determined using a fair value less costs of disposal. The fair value less
costs of disposal was determined with reference to the market capitalisation of the Group at 31 December 2014 and 2013 translated
from Pounds Sterling into U.S. Dollars using the year-end exchange rate (both Level 1 inputs), to which a control premium was added
based on recent market transactions (a Level 2 input), and subsequently adjusted for the net debt held directly by the Company. A Level
1 input refers to quoted prices in active markets, while a Level 2 input corresponds to other information that can be observed directly or
indirectly. 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:
As at 31 December 2014
As at 31 December 2013
Name
Hochschild
Mining
Holdings Limited
Total
Country of
incorporation
England & Wales
Equity interest
%
100%
Carrying value
US$000
911,016
Country of
incorporation
England & Wales
Equity interest
Carrying
value
US$000
100% 1,343,000
%
911,016
1,343,000
The list of indirectly held 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$10,443,000 (US$10,274,000).
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$10,274,000.
During 2014 the Company recorded a capital contribution of $16,361,000 related to the financial guarantee granted over some
borrowings entered into by Compañia Minera Ares S.A.C., one of its indirectly held subsidiaries (note 9).
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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
2014
US$000
2,169
10
264
–
2,443
(264)
2,179
2013
US$000
892
66
289
100
1,347
(289)
1,058
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$264,000 accrued in 2008 and partially recovered
in 2014 (2013: US$289,000).
Movements in the provision for impairment of receivables:
At 1 January 2013
Amounts recovered
At 31 December 2013
Amounts recovered
At 31 December 2014
As at 31 December 2014 and 2013, none of the financial assets classified as receivables (net of impairment) were past due.
Total
US$000
330
(41)
289
(25)
264
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
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 (2013: 2 days).
8 EQUITY
(a) Share capital and share premium
Issued share capital
Year ended 31 December
2014
US$000
307
2,986
3,293
2013
US$000
402
71,395
71,797
The issued share capital of the Company as at 31 December 2013 and 31 December 2014 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
367,101,352 £91,775,338
At 31 December 2014 and 2013, all issued shares with a par value of 25 pence each were fully paid (2014: weighted average
of US$0.464 per share, 2013: weighted average of US$0.464 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 2013
Conversion of 1 convertible bond on 2 January 2013 (note 10)
Shares issued and paid pursuant to the placing of shares dated
2 October 2013
Shares issued as at 31 December 2013
Shares issued as at 31 December 2014
Number of
shares
338,085,226
16,126
29,000,000
367,101,352
367,101,352
Share Capital
US$000
158,637
Share premium
US$000
416,154
7
11,745
170,389
170,389
93
–
416,247
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 US$898,000). No shares were purchased by the Company in 2013 and 2014.
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8 EQUITY CONTINUED
(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 and 2014 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. As the convertible
bond was repaid on 16 October 2014, the bond equity component was transferred to retained earnings.
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.
9 TRADE AND OTHER PAYABLES
Trade payables
Payables to subsidiaries (note 12)
Remuneration payable
Taxes and contributions
Financial guarantees1
Total
2014
Non-current
US$000
–
As at 31 December
2013
Current
US$000
511
Non-current
US$000
–
–
–
–
289,236
59
242
11,866
11,866
2,522
292,570
–
–
–
–
–
Current
US$000
991
229,994
–
169
–
231,154
1 The Company has provided financial guarantees to certain banks over the medium-term bank loan and bond payable entered into by its subsidiary Compañia
Minera Ares S.A.C. The financial guarantee was recognised at its fair value at initial recognition of US$16,361,000. This fair value was determined through the
use of certain Level 3 estimates, the most significant of which being the estimated rate of interest Compañia Minera Ares S.A.C. would have been charged were
it not for the guarantee provided by the Company. The liability is subsequently amortised on a straight-line basis over the life of the guarantee.
Trade payables mainly relate to the purchase of third-party services. These payables do not accrue interest and no guarantees have
been granted in relation to these payables. The fair value of trade and other payables approximate their book values.
10 BORROWINGS
Convertible bond payable
Total
2014
Non-current
US$000
–
As at 31 December
2013
Current
US$000
–
Non-current
US$000
–
Current
US$000
115,873
–
–
–
115,873
This relates to the placement of US$115,000,000 of senior unsecured convertible bonds, due 2014, which were convertible into ordinary
shares of Hochschild Mining plc. The Group settled the convertible bonds in cash upon their maturity in October 2014. The bonds had
a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of each year.
Upon initial recognition, the convertible bonds were recorded at a value of US$ 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 convertible bond was repaid on 16 October 2014.
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.
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
11 PROVISIONS
Beginning balance
Decrease in provision
At 31 December
Less current portion
Non-current portion
As at 31 December
2014
US$000
128
2013
US$000
219
(83)
45
–
45
(91)
128
–
128
Corresponds to the provision related to cash-settled share-based payment 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 2014,
payable in March 2017, (ii) Long Term Incentive Plan awards, granted in March 2013, payable in March 2016. 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 2014 and
31 December 2013.
As at 31 December 2014
As at 31 December 2013
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
Accounts
payable
US$000
Subsidiaries
Compañía Minera Ares S.A.C.1
HOC Holdings Canada Inc.2
Minera del Suroeste S.A.C.3
Hochschild Mining Holdings Ltd.4
Other subsidiaries
Total
1,468
617
124
223
–
775
–
600
–
–
288,593
488
228,594
26
57
25
–
–
488
213
2,169
289,236
892
229,994
1 The account receivable mainly relates to the Deferred Bonus Plan provision that is going to be paid by Hochschild Mining plc in shares on behalf of Compañía
Minera Ares S.A.C. The account payable mainly relates to the services performed by Compañía Minera Ares S.A.C. to Hochschild Mining plc during 2014 of
US$617,000 (2013: US$775,000). The Company has also provided certain financial guarantees on behalf of Compañía Minera Ares S.A.C. (notes 5 and 9).
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) of the Consolidated Financial Statements).
3 The Company paid the obligation to Minera del Suroeste S.A.C. in July 2014.
4 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$1,509,604
(2013: US$1,641,176), out of which US$28,059 (2013: US$33,989) 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
As at 31 December
2014
US$000
899
–
610
2013
US$000
1,273
77
291
1,509
1,641
178 Hochschild Mining plc Annual Report 2014
162
Hochschild Mining plc Annual Report 2014
www.hochschildmining.com
163
13 DIVIDENDS PAID AND PROPOSED
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2013: US$Nil (2012: US$0.03)
Interim dividend for 2014: US$Nil (2013: US$Nil)
Dividends paid
Proposed for approval by shareholders at the AGM
Final dividend for 2014: US$Nil (2013: US$Nil)
2014
US$000
2013
US$000
–
–
–
–
–
10,139
–
10,139
–
–
Dividends per share
The Directors of the Company are not recommending the payment of a dividend in respect of the years ended 31 December 2014
and 2013.
14 FINANCIAL RISK MANAGEMENT
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas to
facilitate risk assessment. The Company is not exposed to significant sources of commodity price, equity or interest rate risk.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling and
Canadian dollars. Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company
does not use derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity of financial
assets and liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible change in the US dollar
exchange rate, with all other variables held constant, of the Company’s profit before tax and the Company’s equity.
Year
2014
Pound sterling
2013
Pound sterling
Increase/
decrease in
US$/other
currencies
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/-10%
-/+8
+/-10%
-/+32
–
–
(b) Credit risk
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 has evaluated and introduced efforts to try to
mitigate credit risk exposure.
To manage credit risk associated with cash balances deposited in banks, the Company is:
• increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and
to diversify credit risk;
• investing cash in short-term, highly liquid and low risk instruments (term deposits); and
• 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 179
Financial statementsp86-164
164
Hochschild Mining plc Annual Report 2014
www.hochschildmining.com
165
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
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 Limited through loans in order to meet its obligations. Liquidity is supported
by the balance of cash in the Company and Hochschild Mining Holdings Limited at 31 December 2014 of US$3,293,000 (2013:
S$71,797,000) and US$3,519,000 (2013: US$113,472,000) respectively. The Company also serves as principal funding conduit
for the Group’s capital raising activities such as equity 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 2014
Trade and other payables
Borrowings
Provisions
At 31 December 2013
Trade and other payables
Borrowings
Provisions
Less than
1 year
US$000
289,806
–
–
230,985
123,202
–
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
13
–
–
332
–
–
146
–
–
–
–
–
–
–
–
–
289,806
–
159
230,985
123,202
332
The table below analyses the maximum amounts payable under financial guarantees provided to Compañía Minera Ares S.A.C.
(notes 5 and 9), considering that if the guarantees were to be called, the guaranteed amounts would be due immediately:
At 31 December 2014
Financial guarantees1
At 31 December 2013
Less than
1 year
US$000
450,000
450,000
–
Between
1 and
2 years
US$000
–
–
–
Between
2 and
5 years
US$000
–
–
–
Over
5 years
US$000
–
–
–
Total
US$000
450,000
450,000
–
1 Not including any accumulated interest that may be payable at the call date.
(d) 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
(notes 8, 9 and 10). 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.
180 Hochschild Mining plc Annual Report 2014
Production cost
excluding depreciation
(17,853)
(62,644)
(71,742)
(3,309)
(110,089)
164
Hochschild Mining plc Annual Report 2014
www.hochschildmining.com
165
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2014
1
PROFIT BY OPERATION
(Segment report reconciliation) as at 31 December 2014
Company (US$000)
Revenue
Ares
25,889
Arcata
106,061
Pallancata
147,360
Inmaculada
–
San Jose
213,013
Consolidation
adjustment
and others
628
Total
492,951
Cost of sales (Pre consolidation)
(26,259)
(99,020)
(124,471)
Consolidation adjustment
(2)
(245)
303
Cost of sales (Post consolidation)
(26,257)
(98,775)
(124,774)
–
–
–
(159,936)
(1,018)
(410,704)
–
(159,936)
(56)
(962)
–
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 Limited through loans in order to meet its obligations. Liquidity is supported
by the balance of cash in the Company and Hochschild Mining Holdings Limited at 31 December 2014 of US$3,293,000 (2013:
S$71,797,000) and US$3,519,000 (2013: US$113,472,000) respectively. The Company also serves as principal funding conduit
for the Group’s capital raising activities such as equity 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 2014
Trade and other payables
Borrowings
Provisions
Borrowings
Provisions
At 31 December 2013
Trade and other payables
At 31 December 2014
Financial guarantees1
At 31 December 2013
Less than
1 year
US$000
289,806
–
–
–
230,985
123,202
Less than
1 year
US$000
450,000
450,000
–
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
13
–
–
332
–
–
–
–
–
146
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
289,806
–
159
230,985
123,202
332
Total
US$000
450,000
450,000
–
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
The table below analyses the maximum amounts payable under financial guarantees provided to Compañía Minera Ares S.A.C.
(notes 5 and 9), considering that if the guarantees were to be called, the guaranteed amounts would be due immediately:
1 Not including any accumulated interest that may be payable at the call date.
(d) 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
(notes 8, 9 and 10). 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.
Depreciation in production cost
(438)
(31,398)
(48,963)
Other items
Change in inventories
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income/expenses
(4,142)
(3,824)
(370)
–
–
(67)
–
(3,065)
(1,668)
7,041
–
–
(1,540)
(2,529)
22,889
–
–
(1,987)
(1,995)
–
–
Operating profit before impairment
(437)
5,054
20,894
Impairment of assets
Finance income
Finance costs
Foreign exchange 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.
–
–
–
–
–
–
–
–
–
–
–
–
(437)
5,054
20,894
–
–
–
(437)
5,054
20,894
–
–
3,309
–
–
–
–
–
–
–
–
–
–
–
–
–
180 Hochschild Mining plc Annual Report 2014
181 Hochschild Mining plc Annual Report 2014
(45,156)
(1,724)
(2,967)
53,077
–
–
(962)
(390)
(265,637)
(125,955)
(10,471)
(8,641)
82,247
–
–
(46,087)
(46,087)
(18,140)
(18,140)
(24,648)
–
(28,697)
–
(16,363)
(16,363)
28,429
(80,980)
(27,040)
–
–
–
–
109
6,276
109
6,276
(42,565)
(42,565)
(4,990)
(4,990)
28,429
(122,150)
(68,210)
–
(2,621)
(2,621)
28,429
(124,771)
(70,831)
Further informationp165-175
166
Hochschild Mining plc Annual Report 2014
www.hochschildmining.com
167
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 167 to 171 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 2014, 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.
182
Hochschild Mining plc Annual Report 2014
166
Hochschild Mining plc Annual Report 2014
www.hochschildmining.com
167
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2014
Proved and
probable
(t)
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Reserve category
MAIN OPERATIONS1
Arcata
Proved
Probable
Total
Pallancata
Proved
Probable
Total
San Jose
Proved
Probable
Total
Main operations total
Proved
Probable
Total
ADVANCED PROJECTS
Inmaculada2
Proved
Probable
Total
GROUP TOTAL
Proved
Probable
TOTAL
782,317
1,307,744
2,090,061
903,257
834,331
1,737,588
624,370
360,949
985,319
2,309,944
2,503,025
4,812,968
3,840,000
3,960,000
7,800,000
6,149,944
6,463,025
12,612,968
341
308
320
261
250
256
520
365
463
358
297
326
106
134
120
201
197
199
1.0
1.0
1.0
1.4
1.2
1.3
7.2
6.1
6.8
2.8
1.8
2.3
3.4
3.3
3.4
3.2
2.8
3.0
8.6
12.9
21.5
7.6
6.7
14.3
10.4
4.2
14.7
26.6
23.9
50.5
13.1
17.0
30.1
39.7
40.9
80.6
24.7
43.1
67.9
39.5
33.3
72.8
143.6
70.7
214.2
207.9
147.1
354.9
424.7
424.5
849.2
10.1
15.5
25.6
9.9
8.7
18.7
19.1
8.5
27.5
39.1
32.7
71.8
38.6
42.5
81.1
632.6
571.6
1,204.1
77.7
75.2
152.9
Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company’s ownership only. Includes discounts for ore loss and dilution.
1 Main operations were audited by P&E Consulting.
2 Inmaculada reserves as published in the Feasibility Study released on 11 January 2012. Prices used for reserves calculation: Au: $1,100/oz and Ag: $18/oz.
www.hochschildmining.com
183
Further informationp165-175
168
Hochschild Mining plc Annual Report 2014
RESERVES AND RESOURCES CONTINUED
www.hochschildmining.com
169
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2014
Cu
Ag
(%)
(g/t)
Tonnes
(t)
Au
(g/t)
Zn
(%)
Pb
(%)
Resource category
MAIN OPERATIONS
Arcata
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
Measured
Indicated
Total
Inferred
Pallancata
Measured
Indicated
Total
Inferred
San Jose
Measured
Indicated
Total
Inferred
Main operations
total
Measured
Indicated
Total
Inferred
ADVANCED/GROWTH
PROJECTS
Inmaculada1
Measured
Indicated
Total
Inferred
Crespo2
Measured
Indicated
Total
Inferred
Azuca
Measured
Indicated
Total
Inferred
Volcan3
Measured
Indicated
Total
Inferred
1,566,470
2,375,166
3,941,636
3,572,309
2,669,327
1,268,572
3,937,899
2,560,082
958,979
1,384,056
2,343,035
887,930
5,194,776
5,027,794
10,222,570
7,020,321
3,283,431
3,782,818
7,066,249
4,937,776
5,211,058
17,298,228
22,509,286
775,429
190,602
6,858,594
7,049,197
6,946,341
105,918,000
283,763,000
389,681,000
41,553,000
467
381
415
322
348
287
328
263
589
390
472
380
428
360
395
308
128
159
144
152
47
38
40
46
244
187
188
170
-.-
-.-
-.-
-.-
1.40
1.31
1.35
1.29
1.66
1.37
1.57
1.12
8.19
5.83
6.79
6.21
2.78
2.57
2.68
1.85
4.10
4.05
4.07
3.91
0.47
0.40
0.42
0.57
0.77
0.77
0.77
0.89
0.738
0.698
0.709
0.502
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
551
459
496
399
447
370
422
330
1,081
740
879
753
23.5
29.1
52.6
37.0
29.9
11.7
41.6
21.7
18.2
17.4
35.5
10.8
70.4
100.3
170.7
148.2
142.2
56.1
198.3
92.0
252.5
259.3
511.8
177.4
27.8
35.1
62.8
45.9
38.4
15.1
53.5
27.2
33.3
32.9
66.2
21.5
596
514
555
419
71.6
58.1
129.7
69.5
465.1
415.7
880.8
417.7
99.5
83.1
182.6
94.5
374
402
389
387
75
62
65
80
290
233
234
223
44
42
43
30
13.5
19.3
32.8
24.2
7.9
21.0
28.8
1.1
1.5
41.2
42.7
37.9
432.8
492.3
925.1
620.0
78.6
222.5
301.0
14.2
4.7
168.8
173.5
199.5
39.4
48.9
88.3
61.4
12.6
34.3
46.9
2.0
1.8
51.3
53.1
49.9
–
–
–
–
2,511.0
6,367.0
8,878.0
671.0
150.7
382.0
532.7
40.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
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.
184
Hochschild Mining plc Annual Report 2014
168
Hochschild Mining plc Annual Report 2014
www.hochschildmining.com
169
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2014 CONTINUED
Resource category
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
Tonnes
(t)
Ag
(g/t)
Au
(g/t)
Zn
(%)
Pb
(%)
Cu
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
114,603,091
311,702,641
426,305,732
6
8
8
54,212,547
36
–
–
–
12,187,270
1,393,716
1,354,261
2,747,977
1,257,731
1,393,716
1,354,261
2,747,977
13,445,001
121,191,583
318,084,696
439,276,279
74,677,869
–
–
–
–
69
82
76
84
69
82
76
8
25
14
17
57
0.82
0.72
0.75
0.86
–
–
–
0.32
0.02
0.06
0.04
0.05
0.02
0.06
0.04
0.30
0.90
0.75
0.79
0.85
–
–
–
–
–
–
–
–
7.12
6.14
6.64
6.18
7.12
6.14
6.64
0.58
0.08
0.03
0.04
0.10
–
–
–
–
–
–
–
–
3.10
2.73
2.92
2.26
3.10
2.73
2.92
0.21
0.04
0.01
0.02
0.04
–
–
–
–
–
–
–
0.39
0.31
0.35
0.19
0.39
0.31
0.35
1.22
0.00
0.00
0.00
0.22
56
52
53
88
22.9
81.5
3,027.1
7,250.6
104.3
10,277.6
63.2
1,504.7
204.5
516.5
721.0
153.5
–
–
–
–
–
–
126.8
57.6
1.32
147
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
161.2
5.5
4.2
9.7
2.3
5.5
4.2
9.7
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
12.9
99.3
43.1
83.2
37.0
27.0
182.4
80.1
128.6
69.0
77.8
28.5
163.6
–
–
–
–
3.1
3.6
6.7
3.4
3.1
3.6
6.7
3.4
–
–
–
315
295
305
283
315
295
305
160
82
60
66
97.5
3,493.1
318.1
99.3
43.1
143.2
7,668.7
612.4
83.2
37.0
240.7
11,161.8
930.5
182.4
80.1
5.5
4.2
9.7
132
136.1
2,051.0
317.1
77.8
28.5
163.6
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.
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Hochschild Mining plc Annual Report 2014
RESERVES AND RESOURCES CONTINUED
CHANGE IN TOTAL RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Arcata
Pallancata
San Jose
Main operations total
Inmaculada
Crespo
Azuca
Volcan
Advanced/Growth Projects total
Jasperoide
San Felipe
Other projects total
TOTAL
Category
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
December
2013
99.4
23.5
109.7
29.0
188.9
54.6
398.0
107.2
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
1,368.5
188.3
Production1 Movements2
9.2
9.7
(29.0)
(0.3)
(16.9)
13.1
(36.7)
22.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(36.7)
22.5
–
7.6
–
10.1
–
13.8
–
31.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31.5
December
Net
2014
108.7
25.6
80.7
18.7
172.0
54.0
361.4
98.2
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
1,331.9
179.3
difference % change
9.3
8.8
(26.5)
(35.8)
(8.9)
(1.2)
(9.2)
(8.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.7)
(4.8)
9.2
2.1
(29.0)
(10.4)
(16.9)
(0.6)
(36.7)
(9.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(36.7)
(9.0)
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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171
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Arcata
Pallancata
San Jose
Main operations total
Inmaculada
Crespo
Azuca
Volcan
Advanced/Growth Projects total
Jasperoide
San Felipe
Other projects total
TOTAL
Category
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Percentage
attributable
December
2014
100%
100%
51%
100%
100%
100%
100%
100%
100%
December
2013
Att.1
99.4
23.5
109.7
29.0
96.3
27.9
305.5
80.4
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
1,276.0
161.5
December
2014
Att.1
108.7
25.6
80.7
18.7
87.7
27.5
277.1
71.8
149.7
81.1
48.9
–
103.0
–
572.9
–
874.5
81.1
57.6
–
38.5
–
96.0
–
1,247.6
152.9
Net
difference
9.2
2.1
(29.0)
(10.3)
(8.6)
(0.3)
(28.4)
(8.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(28.4)
(8.7)
% change
9.3
8.8
(26.5)
(35.5)
(8.9)
(1.1)
(9.3)
(10.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.2)
(5.4)
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
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173
PRODUCTION
2014 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
2014
19,357
147.03
28,179
469.65
18,981
142.77
Year ended
31 December
2013 % change
(2)
(16)
(7)
(7)
(3)
(15)
19,754
175.22
30,267
504.45
19,555
168.56
1 Total production includes 100% of all production, including production attributable to Hochschild’s joint venture partner at San Jose as well as production in 2013
from the now-sold Moris operation
ATTRIBUTABLE PRODUCTION BY MINE2
Silver production (koz)
Gold production (koz)
Attributable silver equivalent (koz)
Attributable gold equivalent (koz)
Year ended
31 December
2014
16,187
100.89
22,241
370.68
Year ended
31 December
2013 % change
(3)
(20)
(8)
(8)
16,639
126.80
24,247
404.11
2 Attributable production for Q4 2014 and Full Year 2014 includes 100% of all production from Arcata, Pallancata and Ares and 51% from San Jose. Comparatives for
2013 have been restated to include 100% of production from Pallancata and also include production from the now-sold Moris operation.
Year ended
31 December
2014
701,947
286
0.85
5,827
16.89
6,841
5,621
15.66
Year ended
31 December
2014
167,331
110
2.34
534
11.63
1,232
540
11.45
Year ended
31 December
2013 % change
(22)
32
15
17
–
14
14
(2)
900,861
217
0.74
4,984
16.83
5,994
4,924
15.95
Year ended
31 December
2013 % change
(49)
34
(2)
(29)
(50)
(43)
(29)
(51)
329,095
82
2.39
757
23.40
2,162
761
23.25
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)
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173
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
2014
1,051,068
238
1.03
6,527
24.34
7,988
6,502
24.02
2013 % change
(3)
(10)
(9)
(14)
(13)
(14)
(14)
(10)
1,088,712
264
1.13
7,628
27.83
9,298
7,567
26.67
1 Until 20 Dec 2013 the Company had a 60% interest in Pallancata. Following completion of the International Minerals acquisition the Company now 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.
Year ended
31 December
Year ended
31 December
2014
571,017
404
5.77
6,469
94.16
12,119
6,316
91.28
2013 % change
6
(5)
(10)
2
(5)
(1)
1
(4)
536,937
425
6.42
6,357
98.83
12,286
6,278
94.76
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PB
GLOSSARY
AG
Silver
ADJUSTED EBITDA
Adjusted EBITDA is calculated as profit from continuing
operations before exceptional items, net finance costs, foreign
exchange loss and income tax plus depreciation, and exploration
expenses other than personnel and other exploration related
fixed expenses and other non-cash expenses.
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.
190
Hochschild Mining plc Annual Report 2014
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
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
SHAREHOLDER INFORMATION
ANNUAL GENERAL MEETING (‘AGM’)
The AGM will be held at 9.30am on 15 May 2015 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 Asset Services, 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 3714 9040 or via the website by visiting
the ‘Contact Us’ section.
FINANCIAL CALENDAR
Annual General Meeting
Half-yearly results announced
15 May 2015
August 2015
LONDON OFFICE AND REGISTERED OFFICE ADDRESS
23 Hanover Square
London
W1S 1JB
United Kingdom
COMPANY SECRETARY
R D Bhasin
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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.
H
O
C
H
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C
H
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A
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P
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&
A
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T
S
2
0
1
4
HOCHSCHILD MINING PLC
23 HANOVER SQUARE
LONDON W1S 1JB
UNITED KINGDOM
TEL: +44 (0) 203 714 9040
FAX: +44 (0) 203 714 9041
INFO@HOCPLC.COM
WWW.HOCHSCHILDMINING.COM
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Hochschild Mining plc Annual Report 2013