Annual Report & Accounts 2016
A decade of
progress...
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Key highlights
We are a leading underground precious metals company,
focusing on the exploration, mining, processing and sale
of silver and gold in the Americas.
Adjusted EBITDA of
Basic adjusted EPS
Final dividend of
AISC cut by 13% to
$329m
(2015: $139m)
$0.11
(2015: loss of $0.14)
1.38¢
/share
(2015: Nil)
$11.2
/oz Ag Eq
Cash and cash
equivalents of
Net debt of
Gold production
(attrib.) up 48% to
Silver production
(attrib.) up 17% to
$140m
$187m
(31 Dec 2015: $84m)
(31 Dec 2015: $351m)
246,000
oz
17.3m
oz
Governance
40
Board of Directors
41
Senior management
42 Directors’ report
44
54
Corporate governance report
Supplementary information
Business model and investment case
57 Directors’ remuneration report
68
69
Statement of Directors’ responsibilities
Independent auditor’s report to the members
of Hochschild Mining plc
Contents
Strategic report
IFC Key highlights
Introduction
Timeline
Chairman’s statement
Chief Executive’s review
01
02
04
05
07
10
Strategy
12 Market experience
14
Key Performance Indicators
16 Where we operate
17 Operating review
24
29
35
Financial review
Sustainability
Risk management & viability
Financial statements
76
Consolidated income statement
76
77
78
79
Consolidated statement of
comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
80 Notes to the consolidated financial statements
125 Parent company statement of
financial position
126 Parent company statement of cash flows
127 Parent company statement of changes
in equity
128 Notes to the parent company
financial statements
Further information
138 Profit by operation
139 Reserves and resources
142 Shareholder information
Introduction
“
Hochschild Mining
has come a long way in
the decade since our
listing on the London
Stock Exchange.
We have successfully navigated a volatile industry
environment with several phases of international
expansion, internal restructuring, mine construction
and delivered consistently on annual production targets
and low cost organic growth while maintaining a
constant focus on our duties as a responsible operator.
This has placed the Company in an ideal position to
continue to generate long-term value for
all stakeholders.
Over the last few years we have maintained a consistent
strategy and in 2016 I was pleased that, as a signal of its
ongoing success, the Board was able to reinstate the
interim dividend in August and now can also announce
a proposed final dividend payout of $7 million.”
Eduardo Hochschild
Chairman
www.hochschildmining.com
1
Strategic report Timeline
We have delivered
a decade of progress...
For the last few years, we have been focused on an organic investment
strategy combined with a highly successful cost efficiency programme.
We are now delivering the results.
Consolidation
• Stake in Lake Shore Gold disposed
• Significant increase in Inmaculada
grades & resource announced
• Inmaculada given go-ahead
following positive feasibility study
• Excess cash position
• Acquisition of Volcan project
in Chile
n ti a l
o t e
e l d p
fi
n
w
o
r
B
International
expansion
• IPO in 2006
• San Jose, Pallancata and Moris
mines begin operation in 2007
• Inmaculada deposit discovered
in 2008
• Investment in Lake Shore Gold
Corp. (Canada) and Gold Resource
Corp. (Mexico) announced in 2008
Moris
Ares
Selene
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017e
2018-2020e
2
Hochschild Mining plc Annual Report 2016
Restructuring &
construction
• Cashflow optimisation
programme launched in 2013
• $725million total cumulative
savings achieved since 2012
• Acquisition of Inmaculada and
Pallancata minorities in 2013
• $350m senior note issued in 2014
• Inmaculada construction
commenced
Delivery
Organic expansion
• Inmaculada achieved commercial
• New 5 year brownfield exploration
production in Aug 2015
programme announced in Sept 2016
• Spare plant capacity available
• Inmaculada expansion options
• Debt repayment begins following
successful $100m equity issue:
$230m since Q4 2015
• Record 35.5m Ag Eq oz output
in 2016 with 17m oz from
Inmaculada
n ti a l
o t e
e l d p
fi
n
w
o
r
B
Inmaculada
San Jose
Pallancata
Arcata
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017e
2018-2020e
www.hochschildmining.com
3
p18p21p20p19Strategic report Chairman’s statement
We are confident of our
enormous potential...
Operationally, 2016 was characterised by a strong first full year from
our top-tier Inmaculada operation in Peru. There were also improved
contributions from Arcata – its best since 2010 – and from our
Argentinian mine, San Jose, reflecting a much more promising
economic environment in the country.
In line with the production growth, cost reduction continued for a
fourth straight year and together with a supportive precious metal
price environment, the Company generated strong cashflow
throughout the year. Consequently, the Company has been able to
follow through decisively on our promise to reduce leverage by
repaying $127 million of debt during the year and building up a
healthy cash balance. We are now in an increasingly solid financial
position to manage our remaining debt profile whilst giving
management the flexibility to invest in further organic growth
options and continue to return capital to shareholders.
Hochschild has always aimed to invest in mineralised districts with the
possibility to grow over time and in this regard we are excited by the
potential of our portfolio. The discovery and subsequent resource
growth of our new Pablo vein district at Pallancata demonstrates our
ability to reinvigorate existing operations, at a low cost through local
exploration. We believe that there are significant further opportunities
to capitalise on latent processing capacity at our plants as well as to
extend the lives of our mines and expand their capacity. The Board is
confident that the ambitious exploration programme announced in
the third quarter will deliver substantial low cost resources and provide
the Company with further growth optionality in the years to come.
Precious metal prices once again experienced periods of volatility in
2016 although both silver and gold did rise to levels not seen since
2013 thereby providing the Company with an unanticipated boost to
already strong cashflow generation. However, the subsequent sharp
decline in prices at the end of the year illustrated the ongoing
unpredictability of our markets and consequently I am encouraged
by the Company’s continuing emphasis on cost control and
debt repayment.
Sustainability
Despite the progress made in 2016 as the third consecutive year
without any fatalities, it is with huge regret that an accident at the
Inmaculada mine early in 2017 resulted in two deaths. On behalf of
the Board, I would like to convey our deepest condolences to the
families of the victims involved. The accident serves as a reminder of
the high level of risks emanating from mining operations in general.
I would like to thank those across the Group whose efforts are focused
on making our operations a safe place to work and to whom I pledge
the Board’s unequivocal support in the belief that every accident
is avoidable.
With regards to our environmental efforts, I am pleased to report that
the Group continued to improve its environmental performance and
maintained its corporate ISO 14001 certification. Furthermore, as part
of our ongoing focus on aligning remuneration with our strategic
goals, a new environmental scorecard has been adopted, performance
against which bonus entitlements will be calculated for senior
management over and above the usual operational and
financial metrics.
Our relations with local communities are of the utmost importance
and we dedicate significant resources in recognition of the social
licence granted to us. Details on the varied programmes that the
Group has run focusing on our core themes of education, health and
socio-economic development can be found in our Sustainability Report
and online.
Board
I wish to thank the employees across the business and my fellow Board
members for their dedication and support over the year. At the Board
level, the stabilised operating environment during the year led to the
resumption of our Non-Executive succession plan and I was delighted
that we were able to announce the appointment, in November, of
Eileen Kamerick and, from the start of this year, Sanjay Sarma. Each
brings a varied skill set to the board table and we look forward to our
future board discussions. It leaves me to pay special thanks, on behalf
of the Board, to Roberto Dañino and Nigel Moore who have served as
Directors since the IPO in 2006 and will be retiring at the forthcoming
AGM. Their contribution over the past decade has been invaluable and
we wish them the very best for the future.
Outlook
The Company is determined to retain emphasis on our low cost organic
growth strategy and the ongoing repayment of debt particularly given
the already unpredictable nature of 2017 so far. We are confident in
the sizeable potential shown in the areas surrounding our operations
as well as our team’s ability to bring early stage projects through the
pipeline and combined with an embedded cost control culture, the
prospects for further shareholder return are very strong.
Eduardo Hochschild
Chairman
7 March 2017
4
Hochschild Mining plc Annual Report 2016
Chief Executive’s review
And there is still
plenty more to come.
We are positioned to deliver sustainable and significant
growth in total shareholder returns.
OUR PRIORITIES GOING FORWARD
1 Management focused on
productivity and cost controls
2 Significant brownfield potential
identified – potential to deliver
additional low cost growth
3 Pablo already a reality, but untapped
geological potential could be material
4 Projects in portfolio offer optionality
and long-term resources
5 Commitment to CSR is a
responsibility but also a competitive
advantage
“Our exploration team is working on a variety of
opportunities for securing additional low cost growth
in the areas surrounding our mines”
– Ignacio Bustamante
2016 has proved to be a watershed year for the Company. We are now
fully benefitting from the results of our growth and cost focused
strategy with a consistent record of operational excellence driving
significantly improved cashflows, reduced leverage and increased
shareholder returns. Furthermore, our exploration team is working on
a variety of opportunities for securing additional low cost growth in
the areas surrounding our mines which we believe will allow for
capacity improvements and life-of-mine extensions at our operations.
Operations
A consistent delivery of annual production targets has become a
trademark of our Company and 2016 was no exception. We produced a
record 35.5 million attributable silver equivalent ounces, an 11%
improvement on our original 32 million ounce target, with
Inmaculada’s output at almost 17 million ounces (229 million gold
equivalent ounces). In its first full year, the all-in sustaining cost at this
world class operation was a highly competitive $8.7 per silver
equivalent ounce ($644 per gold equivalent ounce) which resulted
from robust operational delivery. We also saw a successful year at
Arcata, which produced just over 8 million ounces at a cost of $13.7 per
silver equivalent ounce. At San Jose, continuing operational consistency
combined with a vastly improved fiscal environment in Argentina led
to an 18% reduction in AISC and strongly improved cashflow
generation. The renewed Pallancata mine experienced a transitional
year as we prepare to move production to low cost feed from the new
Pablo vein district during 2017. We have maintained our focus on cost
control at all operations, and the resulting 13% reduction in overall
all-in sustaining costs to $11.2 per silver equivalent ounce demonstrates
the effectiveness of our policies. As a management team, we are
committed to ensuring a safe working environment and we will
redouble our efforts in the area of safety in light of the tragic
accident at Inmaculada earlier this year.
Exploration
In September, following a number of years of prospective work by our
brownfield team, we announced the launch of a new long-term
exploration programme with the expectation of not only replacing our
production but materially improving our reserves and resources by
2020. We are confident that this key organic growth strategy can
deliver further low cost growth through the potential to fill our
existing spare plant capacity as well as increase our visible resource
life-of-mine. Part of the programme focuses on the Pablo vein at
Pallancata and, in 2016, we successfully increased the quality and
quantity of resources with the discovery of the high grade Pablo Piso
structures. Total resources from this new vein system have now
increased to 40 million silver equivalent ounces from 23 million a year
ago. In addition, in order to ensure a high future conversion of our
www.hochschildmining.com
5
Strategic report Chief Executive’s review continued
“Net debt ended the year at $187 million which
translates to a leverage ratio of 0.57x, significantly
below the guidance provided for the year”
– Ignacio Bustamante
resources to reserves, we have made the prudent decision to exclude
material in our deposits that has a low probability of being mined.
This has reduced our overall operational resources by almost 15% but
represents a more robust approach to classification.
Financial position
The proactive management of our balance sheet in order to de-risk the
Company has been a clear aim during the construction and
subsequent first 18 months of operation at Inmaculada from its
commissioning. The strong cashflow from the operations has ensured
that in 2016 we made considerable further progress in reducing our
debt position. $127 million of short- to medium-term lines were repaid
and we still ended the year with a healthy cash and cash equivalents
position of $140 million. In 2017, our aim is to continue to strengthen
the financial position in anticipation of the Company’s option to
redeem some or all of the remaining Senior Notes from January 2018
and thereby reduce our financing costs. It is worth adding that
currently, we no longer have any hedging agreements in place.
Financial results
As mentioned above, our average price achieved improved in 2016, by
5% for gold and by 6% for silver and consequently when combined
with the 25% production increase, revenue rose strongly, by 47% in
2016 to $688 million (2015: $469 million). The improved cost
performance led to Adjusted EBITDA of $329 million (2015:
$139 million), an increase of 137% versus 2015, reflecting a year of
higher margin contribution from Inmaculada. This strong cashflow
generation has finally offset the finance costs arising from our 2014
bond issue and adjusted earnings per share therefore rose to $0.11 per
share from a loss of $(0.14) per share. We ended the year with net debt
of $187 million (2015: $351 million) which translates to a leverage
ratio of 0.57x (2015: 2.5x), significantly below guidance for the year.
Outlook
Overall, 2017 is expected to be another record year for the Company
with attributable production set to rise to 37 million silver equivalent
ounces (or 500,000 gold equivalent ounces) driven by another
17 million ounces from Inmaculada and a first contribution from our
highly prospective new Pablo vein at Pallancata with production there
expected to be second-half weighted. The all-in sustaining cost per
silver equivalent ounce is forecast to be between $12.2 and $12.7
which reflects a stable underlying unit cost and includes an increased
investment in brownfield growth as well as a tailings dam expansion
at Inmaculada and the initial infrastructure for the development
of Pablo.
6
Hochschild Mining plc Annual Report 2016
We are well-positioned for the future
Investment case
p8
We have a number of attributes which we believe delivers
competitive advantage throughout the cycle.
Strategy
p10
Our strategy is reviewed by our Board on an ongoing basis to ensure
relevance to the Company’s current and future requirements.
Market
p12
Precious metals markets have been volatile in the last few years
but in 2016 prices rose for the first time in four years.
KPIs
p14
We use our KPIs to assess performance in terms of meeting our
strategic and operational objectives.
Operations
p16
We have once again delivered an increase in production at our
operations combined with a further reduction in costs.
Sustainability
p29
We aim to manage our CSR programmes with the same rigour
and focus as our operational and exploration programmes.
2016 has represented the consolidation of our organic growth strategy
and it is thanks to the efforts of not only our management team but all
our employees that we have been able to execute so efficiently. We can
look forward to a fifth year of increased production in 2017, further
strengthening of our balance sheet and the potential for additional
upside from our enhanced brownfield exploration plan.
Ignacio Bustamante
Chief Executive Officer
7 March 2017
Business model and investment case
Our business model
drives long‑term
sustainable growth
Corporate
governance
framework
Experienced
management
team
O p e r a tional and
e o l o g i cal expertise
g
Creating
value
Focus on exp l o r a t
n
o
i
Commitment to
sustainability
Consistent
financial
strategy
We believe that our consistent and sustainable business model will
not only create long-term value for our stakeholders but also sets
Hochschild Mining apart, offering an attractive investment proposition.
During the last decade, we have emphasised that a key attribute of
this model is our focus on exploration. Our operational assets and the
projects that we have advanced through our pipeline depend on our
in-house geological expertise and the resulting ability to enhance their
resources and hence their value through exploration success.
This has been supported by the depth of our management’s
experience in the Americas as well as a disciplined but flexible financial
strategy. We recognise that, at all levels of our business, the
contribution of our talented workforce and their commitment to our
corporate values is a fundamental aspect of this model. These values
promote an ethical approach and good corporate governance as well
acknowledging our responsibilities to our wider stakeholders.
www.hochschildmining.com
7
Strategic report Business model and investment case continued
With an investment
case that sets us apart
We believe we have an attractive portfolio of assets
which can deliver long-term profitable growth.
Operational
and geological
expertise
We primarily operate
underground epithermal deposits
in the Americas. For over half
a century, we have developed a
unique in-depth knowledge base
of the regional business
environment and legislative
framework where we operate.
Historically, we have been able
to consistently meet annual
production targets, increase our
resource base and achieve
positive results from brownfield
exploration at existing mines.
This has been achieved despite
periods of significant volatility in
precious metal markets as well as
dynamic political and
economic environments.
What sets us apart?
We have a particular expertise
in mining mid-sized, narrow,
epithermal veins in complex
geological conditions, remote
areas and changing
political environments.
World class
flagship mine
Focus on
exploration
Consistent
financial strategy
The Group has continuously
placed a strong emphasis on
exploration as a key component
of its business model to secure
long-term sustainability of the
core producing assets as well as
finding new projects to expand
its portfolio. To this end, in 2016
the Company launched a new
brownfield exploration
programme aimed at achieving
five years of mine life in reserves
and an additional five years of
mine life in resources by 2020.
What sets us apart?
The value of ounces discovered
at the Company in less than
10 years exceeds $5 billion in
revenue and the brownfield team
believe that, following a long
period of prospection, there is still
potential at all our assets to find
low cost ounces.
With volatile underlying markets,
the Company’s financing
initiatives are a key underpin to
our business strategy. Hochschild
has long-standing and flexible
financial relationships, allowing
it to invest in near-term growth,
manage the current operations
and provide access to further
liquidity should the need arise.
What sets us apart?
Whilst the Company enjoys
robust existing global banking
relationships and has raised both
debt and equity to fund project
construction, our long-standing
Peruvian presence also allows us
favourable access to significant
local sources of finance.
Inmaculada is a world class
precious metal mine located
in the Group’s Southern Peru
Cluster close to several of our
other mining assets. The
presence of high grades of gold
and silver in a single vein, Angela,
characterised by its impressive
width and favourable rock quality,
allows the mine to achieve a
highly competitive cost position.
However, whilst the deposit has
a more than adequate reserve
life, there is significant
exploration potential in the
district including probable
extensions to the main Angela
vein as well other vein systems
identified in the Company’s
concession area.
What sets us apart?
The brownfield exploration team
have identified geological upside
in the surrounding area which is
expected to allow the Company
to potentially expand this world
class operation’s capacity and
drive costs still lower.
8
Hochschild Mining plc Annual Report 2016
Experienced
management
team
Commitment
to sustainability
Results
We have already delivered 75% production
growth since 2012 and a 48% reduction in costs.
The Group’s management team
has extensive experience in
sustainable mining, developing
successful projects and adding
economic mineral reserves. This
experience has enabled us to
operate efficiently and profitably
through volatile commodity price
cycles for more than 50 years.
Hochschild’s team has also
managed joint venture
operations and successfully
integrated several acquisitions
and business expansions.
What sets us apart?
The management team has
considerable experience in the
Americas: operating different
types of deposits; driving
successful cost reduction
programmes; planning and
building high value projects in
short spaces of time; acquiring
and divesting companies; and
working with local communities.
ATTRIBUTABLE PRODUCTION
m oz Ag Eq
35.5 37.0
20.3 20.5 22.2
27.0
12
13
14
15
16
17e
Gold
Silver
ALL‑IN SUSTAINING COSTS
$/oz Ag Eq
21.7
18.6 17.4
12.9
11.2 12.2–12.7
12
13
14
15
16
17e
We have a historical commitment
to safety as well as social and
environmental sustainability, with
operational safety being one of
our core values. In addition, the
Group considers its surrounding
communities as its long-term
business partners and commits
skilled professionals as well as
financial resources to support
programmes in three different
categories: health, safety and
sustainable development. As a
result of these programmes, the
Group has been able to operate
collaboratively with its neighbours
in the Southern Peru Cluster for
more than 50 years.
What sets us apart?
Our mines are located in remote
parts of Peru where Hochschild
is amongst the very few
organisations with a meaningful
presence in the area.
We therefore look to form
partnerships with regional
authorities to provide much
needed support to the local
communities focusing on
education, health and promoting
sustainable economic
development. As a mining
operator, we have a zero
tolerance to incidents relating
to safety and the environment
supported by recognised
management information
systems and controls.
www.hochschildmining.com
9
Strategic report Strategy
And a strategy that
remains unchanged.
Our strategy is to create value for shareholders by optimising
current operations, focusing on exploration and pursuing
opportunistic early-stage acquisitions.
1
Core assets
Short‑term priorities
• Cost control and
operational efficiencies
• Identify short-term resources
to fill spare plant capacity
• Continue execution of
brownfield programme
2
Exploration
Short‑term priorities
• Progressing drill-ready
greenfield projects
• Staking opportunities in Peru
3
Acquisitions
Short‑term priorities
• Early-stage
• Earn-in JVs considered
3
2
1
Operating
responsibly
Core asset s
Exploratio n
Acquisitio n s
10
Hochschild Mining plc Annual Report 2016
CASE STUDY
A key example of our strategy in action is the discovery,
approval, financing and construction of our flagship
Inmaculada mine in only six years. The deposit was first drilled
in early 2009 and by 2012, its feasibility study had been
approved by the Board. Mine development was able to begin
in 2012 with construction of the processing plant
commencing in 2014 on receipt of the requisite government
permits. Hochschild purchased the remaining minority
interests in late 2013 and funded this acquisition and the
construction of the project through existing cash resources
and the issuing of a senior note in January 2014. First
production was achieved in June 2015 and the mine was then
ramped up to full production within three months.
Long‑term priorities
• Increase life-of-mine
at all operations
• High value, cost efficient
capacity expansions
Progress
• Cash optimisation plan achieved $725m of cumulative
savings since 2012
• Announced five year brownfield exploration programme in 2016
• Evaluating opportunities to fill plants at Arcata, Pallancata & Ares
• Inmaculada designed for modular expansion
• Discovered/delivering Pablo opportunity
Long‑term priorities
• Building greenfield portfolio
• Re-evaluating and optimising
early-stage projects
Progress
• Studying water solutions for Volcan
• New geological hypotheses to be tested at Azuca in 2017
• Two drill-ready opportunities being advanced (Corina, Fresia)
Long‑term priorities
• Geological upside potential
• Return on invested capital
of 12-15%
Progress
• Inmaculada and Pallancata minorities
• Volcan
• Lake Shore stake divested for net profit of $115m in 2010
• Gold Resource Corp stake divested
www.hochschildmining.com
11
Strategic report Market experience
We have long
market experience...
We have operated in shifting commodity markets for over
fifty years and are used to managing the Company whatever
the global and political economic circumstances.
What happened in 2016?
Why?
Gold
Gold prices broke their losing streak, rising 7.9%
on an annual average basis during the year after
declining for three consecutive years between 2013
and 2015. While gold started 2016 on a very strong
note, rising 20% during the first ten weeks, prices
weakened sharply during the last quarter of the
year. Prices declined during that period on renewed
expectations of a U.S. interest rate hike, which was
announced in December 2016, along with the
prospects for three more rate hikes in 2017. Markets
also turned very optimistic on U.S. economic growth
following Donald Trump’s election as U.S. president
and pushed higher everything from stocks to base
metals and the dollar. Meanwhile, bonds and
gold declined.
Demand
Gold investment demand rose sharply in
2016, after declining for four consecutive
years, to 20.0 million ounces, up from
13.6 million ounces in 2015. Another
important component was central banks
who remained net buyers of gold during
2016 and, on a net basis, added
approximately 21.55 million ounces of
gold to their holdings. The primary goal
for their purchases was the same as it
has been the past few years – to diversify
their monetary reserve assets by adding
gold as well as foreign exchange reserves,
presently held primarily in U.S. dollars.
Gold fabrication demand is estimated to
have totalled 95.1 million ounces in
2016, down 1.1% from 2015. One of the
primary factors that weighed during
2016 was the strengthening of gold
prices during the first eight months of
the year. Another factors was the
strengthening of the U.S. dollar versus
the domestic currencies of some of the
major consumers of gold.
Silver
Annual average silver prices broke a four-year losing
streak in 2016 averaging $17.17 in 2016, up 9.6%
over 2015. Shorter term speculative investors
combined with longer term investors to drive the
price of silver higher during the first half of 2016
with reasons including investor expectations on
the pace of U.S. interest rate rises, further global
loosening of monetary policy and the surprise Brexit
vote. However, the same explanation as gold drove
the price of silver down during the last quarter of
2016. Silver prices ended 2016 at $15.98, down from
their intraday high of $21.22 on 5 July 2016 but still
15.8% higher than their settlement price of $13.80
at the end of 2015.
Source: CPM Group LLC
12
Hochschild Mining plc Annual Report 2016
Demand
Investors were net buyers of 98.1 million
ounces of silver in 2016. The net
additions to investor holdings were lower
than the average of 147 million ounces
added to investor inventories annually
between 2009 and 2015, but were still
very high historically. This was in stark
contrast to 1990-2005, when investors
were consistent net sellers of silver.
The largest source of demand for silver
is jewellery and silverware. Silver use
in these products rose to a record
301.9 million ounces in 2016 although
the rate of increase slowed significantly
in 2016 to 1.5% from a 7% increase
in demand from this sector in 2015.
This can primarily be attributed to silver
price strength during 2016 relative to
2015 with jewellery demand typically
sensitive to the price.
Demand from the electronics sector, the
second largest use of silver, rose by 0.4%
to a record 224.7 million ounces in 2016.
Demand from electronics manufacturers
declined during the first seven months
of the year but picked up in August 2016
and is expected to continue into 2017.
In 2016, the photovoltaic industry
surpassed photography to become the
third largest use of silver with
government support in various countries
playing a key role in driving higher
demand for solar panels. Demand
is estimated to have reached around
74 million ounces in 2016, up 18.8%.
GOLD AND SILVER PRICES IN 2016
Monthly settlement prices indexed to 4 January 2016
Gold
Silver
COUNTRY PRODUCTION
BY RANKINGS
Peru
Argentina
Mexico
Chile
2015
Silver
3
9
1
5
2016
Silver
3
10
1
5
Gold
7
13
8
16
Gold
6
13
8
17
160
150
140
130
120
110
100
90
80
Jan-16
Feb-16
M ar-16
Apr-16
M ay-16
Jun-16
Jul-16
A ug-16
Sep-16
Oct-16
N ov-16
D ec-16
Supply
Total gold supply, which is composed
primarily of mine supply and secondary
or scrap supply, rose to 125.0 million
ounces in 2016, up 1.6% from 2015.
The growth during the year was
primarily driven by an increase in mine
production. which has been rising on
account of the large number of new
projects that came onstream in
response to the rise in prices between
2002 and 2011. After falling sharply for
three consecutive years, gold secondary
supply stabilised somewhat in 2016
at 30.1 million ounces.
DEMAND AND SUPPLY IN 2016
Demand
Supply
65.6%
7.6%
8.0%
16.0%
2.8%
72.1%
24.1%
3.9%
Jewellery
Electronics
Official sector purchases
Private investor demand
Dental and other
Mine production
Secondary supply
Net exports from
transitional economy
Supply
Total supply of silver, from mine
production, secondary supply,
government disposals, and net exports
from transitional economies, is
estimated to have declined by 2% to
987.8 million ounces in 2016. Global
silver mine supply is estimated to have
slipped to 886.1 million ounces in 2016,
down from 889.9 million ounces in 2015
due to scheduled closures and planned
production cutbacks during the year
at a mix of primary mines as well as
by-product mines. Total secondary
supply is estimated to have slipped 1%,
significantly slower than sharper
declines in scrap recovery between
2013 and 2015.
DEMAND AND SUPPLY IN 2016
Demand
Supply
50.8%
29.5%
13.1%
6.7%
Other industrial uses
Jewellery and silverware
Coin fabrication
Photography
Investment demand
(excl coins) N/A
79.5%
20.5%
Mine production
Secondary supply
Note: Investors were net sellers of silver excluding coins in 2016,
exchanging bullion bars for coins. Total newly refined silver supply reached
987.8 million ounces in 2016. Total industrial fabrication demand reached
889.7 million ounces and coin fabrication reached 133.7 million ounces.
The excess demand during 2016 was met with liquidation of bar holdings
by institutional investors.
What could drive
precious metal
prices in 2017?
• Economic and
political uncertainty
• Central bank purchases of gold
• Rising mine supply (gold)/
further supply declines (silver)
• Steady scrap supply
• Rising fabrication demand
from jewellery, electronics,
and solar panels (silver)
• Flat fabrication demand
• Price weakness leading
to increased retail demand
What do we do
in response?
• We have always aimed
to ensure our operations
generate positive cashflows
throughout the price cycle
with a keen focus on cost
control, efficient mine
planning and other
productivity measures
• Hochschild’s aim is to be a
100% hedge free company.
However, during the period
of the construction of
Inmaculada and the
subsequent repayment of our
debt position, Hochschild took
measures to hedge a portion
of production in order to
ensure sustainable cashflows
despite significant moves in
the prices of gold and silver
www.hochschildmining.com
13
Strategic report
Key Performance Indicators
That continues to create
and deliver value
Hochschild’s Key Performance Indicators (KPIs) are important
in evaluating the overall health and performance of the Company
and include a range of operational, financial and non-financial
measures that are tracked every month by the Board.
Financial
PRODUCTION1
m oz Ag equivalent
REVENUE
$m
ADJUSTED EBITDA
$m
35.5
27.0
20.3 20.5
22.2
818
622
688
493
469
385
329
195
136
139
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
Performance
Total silver equivalent production increased by 31%
versus 2015 due to the contribution of a full year
of Inmaculada.
Performance
Total revenue increased by 47% versus 2015 due
to increased production and prices.
Performance
Adjusted EBITDA increased by 137% versus 2015
due to increased revenue and reduced costs.
BASIC EARNINGS PER SHARE
$ pre-exceptional
DIVIDEND PER SHARE
US cents per share
ALL‑IN SUSTAINING COSTS
$/oz Ag equivalent
0.19
6.0
0.11
(0.15)
(0.13)
(0.14)
21.7
18.6
17.4
2.76
12.9
11.2
12
13
14
15
16
Nil
13
Nil
14
Nil
15
16
12
Performance
Basic earnings per share increased by 179% from
a loss in 2015.
Performance
The dividend was restored in 2016 following the
ongoing success of the Company’s strategy.
12
13
14
15
16
Performance
AISC reduced by 13% to $11.2 per silver equivalent
ounce due to a full year at Inmaculada, better
grades and operational initiatives.
1 Calculated using gold/silver ratio for 2015 and 2016 of 74x to convert gold to silver equivalent. Historic ratio of 60x used for 2011 – 2014.
14
Hochschild Mining plc Annual Report 2016
TOTAL SILVER CASH COSTS
$/oz Ag co-product
LTIFR
ACCIDENT SEVERITY INDEX
Non‑financial
14.2
12.9
12.1
10.0
8.2
3.33
3.07
2.08
2.20
1.85
1,058
598
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
Performance
Total silver cash costs were reduced by 18%
versus 2015.
Performance
LTIFR increased by 19% but still remains low relative
to the industry.
Performance
Accident Severity Index increased by 23% primarily
due to an increase in manual mining methods.
Calculation
Calculated as total number of accidents per million
labour hours.
Calculation
Calculated as total number of days lost per million
labour hours.
149
112 138
RESOURCE BASE
m oz Ag equivalent
1,300
1,250
1,260
1,100
1,370
1,400
1,300
1,200
1,100
1,000
12
13
14
15
16
Performance
Total resources increased by 9% to 1,370
million ounces.
www.hochschildmining.com
15
Strategic report Where we operate
With over half a century
of regional expertise...
The operational and geological experience we have developed
over many years has allowed us to maximise the productivity
of our Core Assets, develop mining projects and find new
deposits across the Americas.
MINING OPERATIONS1
1
2
3
4
Arcata
Peru
Silver equivalent production
8.0 moz
All-in sustaining costs
$13.7/oz Ag Eq
Inmaculada
Silver equivalent production
16.9 moz
Peru
All-in sustaining costs
$8.7/oz Ag Eq
Pallancata
Silver equivalent production
3.5 moz
Peru
All-in sustaining costs
$16.3/oz Ag Eq
San Jose2
Silver equivalent production
13.7 moz
Argentina
All-in sustaining costs
$11.6/oz Ag Eq
GROWTH PROJECTS
5
6
7
Crespo
Peru
Volcan
Chile
Azuca
Peru
Estimated silver equivalent
production p.a.
2.7 moz
Estimated silver equivalent
production p.a.
Estimated silver equivalent
production p.a.
n/a
n/a
OTHER ASSETS
Selene
Corina
Ares
Fresia
Peru
Peru
Peru
Peru
3
2
7
5
1
Peru
6
1 Silver equivalent production equals total gold production multiplied by 74 and
Chile
added to the total silver production.
2 The Company has a 51% interest in San Jose.
4
Argentina
16
Hochschild Mining plc Annual Report 2016
Operating review
World‑class portfolio
in Latin America
In 2016 Hochschild once again exceeded its full year production
target, delivering attributable production of 35.5 million silver
equivalent ounces, including 17.3 million ounces of silver and
246.1 thousand ounces of gold.
Operations
Production
The overall production target for 2017 is 37.0 million silver equivalent
ounces, which consists of 17 million ounces from Inmaculada,
approximately 7 million attributable ounces from the 51% owned San
Jose operation and also from Arcata with the balance of 6 million
ounces from Pallancata.
Total group production
Silver production (koz)
Gold production (koz)
Total silver equivalent (koz)
Total gold equivalent (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 Dec 2016
Year ended
31 Dec 2015
20,562
292.63
42,217
570.50
21,091
298.96
18,037
213.37
33,827
457.12
17,263
187.39
Costs
The Company’s all-in sustaining cost was reduced by 13% in 2016 to
$11.2 per silver equivalent ounce driven by Inmaculada’s very
competitive $8.7 per silver equivalent ounce ($644 per gold equivalent
ounce). A full year of production at Inmaculada, better than expected
grades and operational initiatives contributed to the reduction. Please
see page 25 of the Financial Review for further details on costs.
The all-in sustaining cost per silver equivalent ounce in 2017 is
expected to be between $12.2 and $12.7 which includes the previously
announced increased budget for brownfield exploration as well as
further expenditure on the development of the Pablo vein. Excluding
the increased investment in resource growth as well as the one-off
investment in Pablo infrastructure, the all-in sustaining cost forecast is
between $11.5 and $12.0 per silver equivalent ounce.
2017 AISC forecast split
Total production includes 100% of all production, including production attributable to
Hochschild’s joint venture partner at San Jose.
Attributable group production
Silver production (koz)
Gold production (koz)
Silver equivalent (koz)
Gold equivalent (koz)
Year ended
31 Dec 2016
Year ended
31 Dec 2015
17,284
246.08
35,493
479.64
14,752
166.02
27,037
365.37
Attributable production includes 100% of all production from Arcata, Inmaculada,
Pallancata and 51% from San Jose.
Note: silver/gold equivalent production figures assume a gold/silver ratio of 74:1.
Operation
Inmaculada
Arcata
Pallancata
San Jose
2017 AISC
($/oz silver
equivalent)
9.5-10.0
15.3-15.8
14.2-14.7
12.8-13.3
2017 AISC ($/oz
silver equivalent)
Excluding growth
investment
9.0-9.5
14.5-15.0
12.5-13.0
12.5-13.0
www.hochschildmining.com
17
Strategic report Operating review continued
18
Hochschild Mining plc Annual Report 2016
Inmaculada (Peru)
Inmaculada (Peru)
The 100% owned Inmaculada gold/silver underground
The 100% owned Inmaculada gold/silver underground
operation is located in the Department of Ayacucho in
operation is located in the Department of Ayacucho in
southern Peru. It commenced commissioning in
southern Peru. It commenced commissioning in
June 2015.
June 2015.
Year ended
Year ended
31 Dec 2016
31 Dec 2016
Year ended
Year ended
31 Dec 2015 % change
31 Dec 2015 % change
1,306,606
1,306,606
659,737
659,737
133
133
115
115
4.21
4.21
4,908
4,908
162.71
162.71
4.36
4.36
2,055
2,055
84.64
84.64
16,948
16,948
8,318
8,318
229.03
229.03
5,004
5,004
164.75
164.75
64.4
64.4
5.2
5.2
8.7
8.7
112.41
112.41
1,638
1,638
67.51
67.51
63.3
63.3
4.6
4.6
7.3
7.3
98
98
16
16
(3)
(3)
139
139
92
92
104
104
104
104
205
205
144
144
2
2
13
13
19
19
Inmaculada summary
Inmaculada summary
Ore production
Ore production
(tonnes)
(tonnes)
Average silver grade
Average silver grade
(g/t)
(g/t)
Average gold grade
Average gold grade
(g/t)
(g/t)
Silver produced (koz)
Silver produced (koz)
Gold produced (koz)
Gold produced (koz)
Silver equivalent
Silver equivalent
produced (koz)
produced (koz)
Gold equivalent
Gold equivalent
produced (koz)
produced (koz)
Silver sold (koz)
Silver sold (koz)
Gold sold (koz)
Gold sold (koz)
Unit cost ($/t)
Unit cost ($/t)
Total cash cost
Total cash cost
($/oz Ag co-product)
($/oz Ag co-product)
All-in sustaining cost
All-in sustaining cost
($/oz)
($/oz)
Production
Production
Inmaculada has delivered a very successful first full year
Inmaculada has delivered a very successful first full year
with production reaching a better than expected 229
with production reaching a better than expected 229
thousand gold equivalent ounces (16.9 million silver
thousand gold equivalent ounces (16.9 million silver
equivalent ounces) consisting of 162.7 thousand
equivalent ounces) consisting of 162.7 thousand
ounces of gold and 4.9 million ounces of silver.
ounces of gold and 4.9 million ounces of silver.
Throughout the year, grades and silver recoveries
Throughout the year, grades and silver recoveries
achieved were better than expected in the original
achieved were better than expected in the original
mine plan in addition to higher tonnage per day being
mine plan in addition to higher tonnage per day being
processed through the plant (3,850 tonnes versus 3,500
processed through the plant (3,850 tonnes versus 3,500
tonnes per day).
tonnes per day).
Costs
Costs
The all-in sustaining costs were better than expected in
The all-in sustaining costs were better than expected in
the original plan at $8.7 per silver equivalent ounce.
the original plan at $8.7 per silver equivalent ounce.
This was driven by higher production resulting from
This was driven by higher production resulting from
stronger gold grades as well as operational efficiencies
stronger gold grades as well as operational efficiencies
versus plan. AISC in 2017 is expected to be between
versus plan. AISC in 2017 is expected to be between
$9.5 and $10.0 per silver equivalent ounce reflecting
$9.5 and $10.0 per silver equivalent ounce reflecting
lower gold grades and a $15 million investment in the
lower gold grades and a $15 million investment in the
expansion of the tailings dam.
expansion of the tailings dam.
Arcata (Peru)
The 100% owned Arcata underground operation is
located in the Department of Arequipa in southern
Peru. It commenced production in 1964.
Year ended
31 Dec 2016
Year ended
31 Dec 2015 % change
677,309
648,051
337
323
1.24
6,343
22.54
0.99
5,613
15.67
8,011
6,772
108.26
6,346
22.04
101.1
11.0
13.7
91.52
5,653
15.29
109.1
11.7
14.3
5
4
25
13
44
18
18
12
44
(7)
(6)
(4)
Arcata summary
Ore production
(tonnes)
Average silver grade
(g/t)
Average gold grade
(g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent
produced (koz)
Gold equivalent
produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost
($/oz Ag co-product)
All-in sustaining cost
($/oz)
Production
In 2016, Arcata delivered its best year since 2010 with
8.0 million silver equivalent ounces produced consisting
of 6.3 million ounces of silver and 22.5 thousand
ounces of gold. This represents an 18% improvement on
2015 (2015: 6.8 million ounces) with tonnage and
grades strong throughout the year as well as better
than expected silver recoveries.
Costs
In 2016, all-in sustaining costs fell by 4% to $13.7 per
silver equivalent ounce (2015: $14.3 per ounce)
substantially below the original 2016 forecast of $14.5
due to better than expected tonnage and grades
resulting from the success of the Company’s brownfield
exploration programme.
www.hochschildmining.com
19
Strategic report Operating review continued
20
Hochschild Mining plc Annual Report 2016
Pallancata (Peru)
The 100% owned Pallancata silver/gold property is
located in the Department of Ayacucho in southern
Peru. Pallancata commenced production in 2007. Ore
from Pallancata is transported 22 kilometres to the
Selene plant for processing.
Year ended
31 Dec 2016
Year ended
31 Dec 2015 % change
244,765
522,431
(53)
381
259
47
1.86
2,620
12.37
1.28
3,664
16.42
3,536
4,879
47.78
2,660
12.41
131.0
12.4
16.3
65.93
3,632
15.80
98.9
12.5
15.7
45
(28)
(25)
(28)
(28)
(27)
(21)
32
(1)
4
Pallancata summary
Ore production
(tonnes)
Average silver grade
(g/t)
Average gold grade
(g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent
produced (koz)
Gold equivalent
produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost
($/oz Ag co-product)
All-in sustaining cost
($/oz)
Production
The Pallancata mine produced 3.5 million silver
equivalent ounces in 2016 (2015: 4.9 million ounces)
comprising 2.6 million ounces of silver and 12.4
thousand ounces of gold. This result reflected a
transitional year before the introduction of commercial
production from the new Pablo vein in 2017.
During the fourth quarter, there was a reduction in the
mine’s output due to a road blockade by members of a
local community which halted production from early
November 2016. The dispute was subsequently
resolved with production re-commencing on
25 January 2017.
Costs
All-in sustaining costs at Pallancata were $16.3 per
silver equivalent ounce (2015: $15.7 per ounce). The
moderate increase versus 2015 was due to capital
invested in developing the access and infrastructure for
Pablo as well as the effects of stoppage causing a
significant fall in tonnage affecting unit costs. This was
partially offset by increased grades and operational
efficiencies. Costs are expected to fall substantially in
2017 when the Pablo vein begins production.
San Jose (Argentina)
The San Jose silver/gold mine is located in Argentina,
in the province of Santa Cruz, 1,750 kilometres
south-southwest of Buenos Aires. San Jose commenced
production in 2007 and is a joint venture with McEwen
Mining Inc. Hochschild holds a controlling interest of
51% in the mine and is the mine operator.
San Jose summary*
Ore production
(tonnes)
Average silver grade
(g/t)
Average gold grade
(g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent
produced (koz)
Gold equivalent
produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost
($/oz Ag co-product)
All-in sustaining cost
($/oz)
Year ended
31 Dec 2016
Year ended
31 Dec 2015 % change
536,024
532,488
444
448
6.28
6,691
95.01
6.36
6,706
96.64
13,721
13,857
185.42
187.26
7,081
99.76
202.4
9.7
11.5
6,340
88.79
210.4
10.8
14.1
1
(1)
(1)
–
(2)
(1)
(1)
12
12
(4)
(10)
(18)
* The Company has a 51% interest in San Jose
Production
San Jose has again proved to be a solid performer with
production of 13.7 million silver equivalent ounces
consisting of 6.7 million ounces of silver and 95
thousand ounces of gold. This was in line with the 2015
result (13.9 million ounces) with a moderate increase in
tonnage offsetting slightly lower grades.
Costs
At San Jose, all-in sustaining costs were reduced by 18%
to $11.5 per silver equivalent ounce (2015: $14.1 per
ounce) mainly driven by the significant fiscal changes in
Argentina in the first half of the year. These included
the elimination of export taxes and the restoration of
the Patagonian port rebate (see below).
In November 2015, the Argentinian government
restored the right to receive a rebate from goods
exported through Patagonian ports (previously
cancelled in 2009) and was applicable to Hochschild at
a rate of approximately 9% of the FOB value of its
exports. However, in the fourth quarter of 2016, the
benefit was once again cancelled.
www.hochschildmining.com
21
Strategic report Operating review continued
Reserves and resources
Total reserves and resources for core operations remained strong,
reducing slightly to 183 million and 476 million silver equivalent
ounces respectively driven by:
The reduction in the silver price assumption used for cutting both
reserves and resources from $20.0 per ounce as at 31 December 2015
to $16.5 per ounce as at 31 December 2016 while maintaining the gold
price assumption at $1,200 per ounce. The resulting impact in reserves
and resources has been a small decrease, as previously anticipated in
the sensitivity table published in the 2015 Preliminary
Results statement.
In addition, the Group chose to eliminate resources with a low
probability of conversion into reserves at Arcata, San Jose and the
existing Pallancata veins. The reduction was mostly from inferred
resources with low grades and resources located far from existing mine
infrastructure. At Pallancata, the adjustment affects mineral from
bridges and pillars in the original Pallancata vein where extraction
would impact the stability of the mine structure. Resources at
Inmaculada and at the Pablo vein have not been affected.
The decrease was partially offset by the addition of resources from the
Pablo vein at Pallancata which is now over 40 million ounces with silver
equivalent grade improving significantly to 529 silver equivalent grams
per tonne.
These adjustments do not affect the Group’s mine plans, future
production or cost guidance. The Group believes that it will improve
conversion ratios from resources into reserves and ensure a high
quality resource base.
BROWNFIELD EXECUTION PLAN
2016
2017
2018
2019
2020
2021
Agreements
CC Arcata
CC Inmaculada
CC Pallancata
CC San Jose
Environmental & Legal Permits
Arcata
Inmaculada
Pallancata
Mapping & Geophysics
Arcata
Inmaculada
Pallancata
Drilling for Potential Resources
Arcata
Inmaculada
Pallancata
San Jose
Ares
Underground and surface drilling
Surface drilling
22
Hochschild Mining plc Annual Report 2016
Drill results in the Pablo Area
Vein
Results
Pablo Piso
DLYU-A109: 0.9m @ 0.3g/t Au & 183g/t Ag
Exploration
In September 2016, the Company announced details of a new five-year
brownfield exploration plan. Significant brownfield potential has been
identified which is expected to extend LOM at all operations and
deliver additional low cost growth.
Inmaculada
In 2016, historical drill results were reviewed by the brownfield team
and targets for 2017 were defined. The 2017 programme includes
approximately 50,000 metres of resource drilling in the east of the
deposit at the Millet and Olinda structures which is expected to start
towards the end of the second quarter, subject to obtaining the
requisite permits. In addition, 7,200 metres of potential drilling is
planned to start in March 2017 in the east and also at the
Puquiopata area.
Arcata
At Arcata, 8,166 metres were drilled during the year to test
North-South structures in the central area of the mine as well as in the
Tunel 4 zone, Roxana and Macarena veins in order to extend existing
structures and identify new ones. Some highlights are
presented below:
Vein
Results
Ramal Marion Sur DDH-941-GE16:1.2m @ 1.8 g/t Au & 576 g/t Ag
DDH-943-GE16:1.2m @ 4.1 g/t Au & 2,157 g/t Ag
Tunel 4
DDH-912-GE16:1.8m @ 1.1 g/t Au & 205 g/t Ag
DDH-939-LM16:1.3m @ 3.6 g/t Au & 2,655 g/t Ag
Andres
(Pablo Piso 1)
Tomas
(Pablo Piso 2)
In 2017, almost 45,000 metres of resource drilling is planned mostly in
the first half of the year with the focus on the Paralelas, Tunels 2,3 and
4 and Ramal Mario Sur veins whilst 13,000 metres of potential drilling
is planned in the second half of 2017 at the Alexia, Macarena East,
Tunel 2,3 and 4, Tres Reyes, Luisa and Marciano structures.
Simon
(Pablo Piso 3)
Pallancata
During 2016, drilling was carried out at the new Pablo vein in
Pallancata. The results confirmed the presence of several extensional
vein sets adjacent to the main Pablo structure – Pablo Pisos (now
renamed). In addition, the Company has identified an area in Pablo Piso
that hosts higher grade mineralisation. Total inferred resources from
the Pablo and associated structures have now reached 40.4 million
silver equivalent ounces which is a 78% increase on the December
2015 figure and demonstrates the significant potential already
discovered in the Pablo vein system.
Pedro
(Pablo Piso 4)
Juan
(Pablo Piso 5)
DLPP-A07: 4.1m @ 1.4g/t Au & 483g/t Ag
DLPP-A11: 1.2m @ 0.1g/t Au & 52g/t Ag
DLPP-A09: 1.0m @ 0.1g/t Au & 32g/t Ag
DLPP-A05: 6.4m @ 1.1g/t Au & 322g/t Ag
DLPP-A10: 0.9m @ 0.3g/t Au & 125g/t Ag
DLPP-A06: 3.7m @ 2.6g/t Au & 813g/t Ag
DLPP-A08: 0.9m @ 1.3g/t Au & 246g/t Ag
DLPP-A12: 1.2m @ 7.4g/t Au & 2,282g/t Ag
DLPP-A16: 2.7m @ 1.0g/t Au & 356g/t Ag
DLPP-A07: 0.7m @ 0.7g/t Au & 211g/t Ag
DLPP-A05: 0.9m @ 0.2g/t Au & 79g/t Ag
DLPP-A06: 0.8m @ 0.4g/t Au & 126g/t Ag
DLPP-A04: 0.7m @ 0.1g/t Au & 44g/t Ag
DLPP-A12: 0.9m @ 1.2g/t Au & 547g/t Ag
DLPP-A01: 0.9m @ 1.0g/t Au & 177g/t Ag
DLPP-A18: 1.0m @ 5.3g/t Au & 1,652g/t Ag
DLPP-A16: 5.1m @ 1.2g/t Au & 408g/t Ag
DLEP-A04: 0.8m @ 0.3g/t Au & 71g/t Ag
DLEP-A12: 0.8m @ 2.6g/t Au & 652g/t Ag
DLEP-A01: 0.6m @ 0.2g/t Au & 51g/t Ag
DLEP-A16: 0.7m @ 0.5g/t Au & 184g/t Ag
DLPP-A15: 1.0m @ 0.4g/t Au & 111g/t Ag
DLPP-A18: 0.6m @ 1.9g/t Au & 600g/t Ag
DLPP-A14: 1.3m @ 0.7g/t Au & 179g/t Ag
DLPP-A13: 0.8m @ 0.3g/t Au & 156g/t Ag
DLNE-A04: 0.9m @ 1.7g/t Au & 569g/t Ag
DLPP-A04: 0.9m @ 11.7g/t Au & 2,253g/t Ag
DLPP-A12: 0.6m @ 1.8g/t Au & 491g/t Ag
DLPP-A01: 0.8m @ 2.4g/t Au & 721g/t Ag
DLPP-A15: 0.8m @ 0.7g/t Au & 172g/t Ag
DLPP-A18: 0.6m @ 3.6g/t Au & 481g/t Ag
DLPP-A14: 2.7m @ 0.9g/t Au & 220g/t Ag
DLPP-A01: 1.0m @ 0.6g/t Au & 207g/t Ag
DLPP-A14: 0.7m @ 0.5g/t Au & 149g/t Ag
DLPP-A01: 0.6m @ 0.2g/t Au & 65g/t Ag
DLPP-A17: 0.7m @ 0.0g/t Au & 13g/t Ag
DLPP-A14: 0.8m @ 0.3g/t Au & 101g/t Ag
In 2017, potential drilling will focus on the Pablo and Yanacochita-
Farallon areas.
San Jose
At San Jose 1,240m was drilled in the fourth quarter mainly in the
Aguas Vivas area with the programme continuing into 2017. In
addition in 2017, 20,800 metres of drilling is also planned in the
Platifero, Clara and Saavedra Norte structures.
www.hochschildmining.com
23
Strategic report Financial Review
Strong financial performance
and cash generation
We have delivered an impressive improvement in our annual results
driven by a first full year from our flagship Inmaculada mine, a strong
overall cost performance and a more favourable pricing environment.
The reporting currency of Hochschild Mining plc is U.S. dollars. In
discussions of financial performance the Group removes the effect of
exceptional items, unless otherwise indicated, and in the income
statement results are shown both pre and post such exceptional items.
Exceptional items are those items, which due to their nature or the
expected infrequency of the events giving rise to them, need to be
disclosed separately on the face of the income statement to enable a
better understanding of the financial performance of the Group and
to facilitate comparison with prior years.
Revenue
Gross revenue
Gross revenue from continuing operations increased by 47% to
$722.0 million in 2016 (2015: $492.5 million) driven by a significant
increase in sales resulting from the first full year of production
from the Company’s Inmaculada mine as well as a rise in precious
metal prices.1
Silver
Commercial discounts
Commercial discounts refer to refinery treatment charges, refining fees
and payable deductions for processing concentrates, and are deducted
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 2016, the Group recorded commercial discounts of
$34.1 million (2015: $23.6 million). The increase is explained by the
higher production and the decision to switch the production of Arcata
back to concentrate as opposed to the previous year when most was
sold as doré. The ratio of commercial discounts to gross revenue in
2016 was 5% (2015: 5%).
Net revenue
Net revenue increased by 47% to $688.2 million (2015 $469.1 million),
comprising net gold revenue of $354.4 million and net silver revenue of
$333.5 million. In 2016, gold accounted for 51% and silver 49% of the
Company’s consolidated net revenue (2015: gold 45% and silver 55%)
with the increase in the gold contribution due to a full year of sales
from the predominantly-gold Inmaculada mine.
Gross revenue from silver increased by 30% in 2016 to $358.7 million
(2015: $275.3 million) as a result of a 22% increase in the total amount
of silver ounces sold to 21,091 koz (2015:17,263 koz) driven by the first
full year contribution from Inmaculada as well as increased sales from
Arcata and San Jose. In addition, silver revenue also benefited from a
6% increase in the average silver price received.
Gold
Gross revenue from gold increased 67% in 2016 to $363.4 million
(2015: $217.2 million) as a result of a 60% rise in the total amount of
gold ounces sold in 2016 (299.0 koz) as well as a 5% increase in the
average gold price received. The increase in gold sales came from the
first full year of output from the predominantly gold-producing
Inmaculada operation.
Gross average realised sales prices
Revenue by mine2
$000
Silver revenue
Arcata
Inmaculada
Pallancata
San Jose
Commercial discounts
Net silver revenue
Gold revenue
Arcata
Inmaculada
Pallancata
San Jose
The following table provides figures for average realised prices (which
are reported before the deduction of commercial discounts and include
the effects of the hedging agreements in place during the year) and
ounces sold for 2016 and 2015:
Commercial discounts
Net gold revenue
Other revenue
Net revenue
Average realised prices
Silver ounces sold (koz)
Avg. realised silver price ($/oz)
Gold ounces sold (koz)
Avg. realised gold price ($/oz)
Year ended
31 Dec 2016
Year ended
31 Dec 2015
21,091
17.0
298.96
1,215
17,263
16.0
187.39
1,159
Includes revenue from services
1
2 Reconciliation of gross revenue by mine to Group net revenue
24
Hochschild Mining plc Annual Report 2016
Year ended
31 Dec 2016
Year ended
31 Dec 2015
% change
106,206
83,642
44,500
124,316
93,445
25,223
59,803
96,837
(25,139)
(16,929)
333,525
258,379
25,717
196,466
14,994
19,124
77,080
19,929
126,174
101,046
(8,993)
(6,688)
354,358
210,491
359
276
688,242
469,146
14
232
(26)
28
48
29
34
155
(25)
25
34
68
30
47
Revenue
Adjusted EBITDA
Profit before income tax
Adjusted basic earnings
per share
$688m
$329m
$108m
$0.11
(2015: $469 million)
(2015: $139 million)
(2015: $256 million loss)
(2015: loss of $0.14)
Costs
Total cost of sales was $487.7 million in 2016 (2015: $403.7 million).
The direct production cost excluding depreciation was higher at
$293.8 million (2015: $265.1 million) due to the first full year of
Inmaculada. Depreciation in 2016 was $185.7 million (2015:
$139.5 million) with the increase due to Inmaculada’s depreciation of
assets. Other items, which principally includes personnel related
provisions, was $1.8 million in 2016 (2015: $9.3 million). Change in
inventories was $6.5 million in 2016 (2015: ($10.3 million)).
$000
Direct production cost excluding
depreciation
Depreciation in production cost
Other items
Change in inventories
Year ended
31 Dec 2016
Year ended
31 Dec 2015
% change
293,810
185,655
1,750
6,487
265,107
139,533
9,272
(10,255)
11
33
(81)
163
21
Pre-exceptional cost of sales
487,702
403,657
Unit cost per tonne
The Company reported unit cost per tonne at its operations of $106.2
per tonne in 2016, a 10% decrease versus 2015 ($118.4 per tonne).
Unit cost per tonne by operation (including royalties)3:
Operating unit ($/tonne)
Year ended
31 Dec 2016
Year ended
31 Dec 2015
% change
Peru
Arcata
Inmaculada
Pallancata
Argentina
San Jose
Total
83.2
101.1
64.4
131.0
202.4
106.2
90.7
109.1
63.3
98.9
210.4
118.4
(8)
(7)
2
32
(4)
(10)
Cash costs
Cash costs include cost of sales, commercial deductions and selling
expenses before exceptional items, less depreciation included in cost
of sales.
Cash cost reconciliation4:
$000 unless otherwise indicated
Group cash cost
(+) Cost of sales
(-) Depreciation and amortisation in
cost of sales
(+) Selling expenses
(+) Commercial deductions5
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co product Au
Co product Ag
By-product Au
By-product Ag
Year ended
31 Dec 2016
Year ended
31 Dec 2015
% change
358,800
487,702
313,939
403,657
(180,317)
(135,645)
14,175
37,240
11,486
25,754
688,242
354,358
333,525
359
21,729
24,198
6,714
17,484
469,146
210,491
258,379
276
298.9
21,091
187.4
17,263
618
8.2
(2)
(0.3)
752
10.0
203
5.6
14
21
33
(35)
54
71
47
47
68
29
30
59
22
(18)
(18)
(101)
(105)
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.
3 Unit cost per tonne is calculated by dividing mine and treatment production costs
(excluding depreciation) by extracted and treated tonnage respectively.
5
Includes commercial discounts (from the sales of concentrate) and commercial
discounts from the sale of doré.
4 Cash costs are calculated to include cost of sales, treatment charges, and selling
expenses before exceptional items less depreciation included in cost of sales.
www.hochschildmining.com
25
Strategic report
Arcata
Inmaculada
Pallancata
68,155
462
20,819
1,305
1,441
92,182
22,541
6,343
8,011
11.5
15,383
1,973
–
17,356
22,043
6,346
7,977
2.2
13.7
83,796
506
54,199
1
3,420
3,243
145,165
162,710
4,908
16,948
8.6
1,650
1,130
–
2,780
164,754
5,004
17,196
0.2
8.7
33,650
241
16,130
733
674
639
52,067
12,374
2,620
3,536
14.7
5,038
721
–
5,759
12,407
2,660
3,578
1.6
16.3
Arcata
Inmaculada
Pallancata
71,128
2,133
14,600
62
2,641
–
90,564
15,670
5,613
6,772
13.4
5,144
962
6,106
32,765
1,544
13,704
6
2,515
1,037
51,571
72,226
1,746
7,090
7.3
4
12
16
51,599
1,610
10,683
2,457
1,796
741
68,886
16,419
3,664
4,879
14.1
6,687
1,048
7,735
15,289
67,513
15,795
5,653
6,784
0.9
14.3
1,638
6,634
0.0
7.3
3,632
4,801
1.6
15.7
San Jose
108,209
541
32,670
1691
8,180
151,291
95,006
6,691
13,721
11.0
15,169
10,351
Main
operations
293,810
1,750
123,818
3,730
13,715
3,882
440,705
292,631
20,562
42,216
10.4
37,240
14,175
(19,029)
(19,029)
6,491
99,761
7,081
14,463
0.4
11.5
San Jose
108,101
5,499
38,451
1,463
7,095
–
160,609
96,638
6,706
13,857
11.6
12,363
19,707
32,070
88,793
6,340
12,910
2.5
14.1
32,386
298,965
21,091
43,214
0.7
11.2
Main
operations
263,593
10,786
77,438
3,988
14,047
1,778
371,630
200,953
17,729
32,598
11.4
24,198
21,729
45,927
187,390
17,263
31,129
1.5
12.9
Corporate
& others
–
–
255
2,806
32,932
3,869
39,862
–
–
–
–
–
–
–
–
–
–
–
–
Corporate
& others
–
–
1,193
1,990
22,569
–
25,752
–
–
–
–
–
–
–
–
–
–
–
Total
293,810
1,750
124,073
6,536
46,647
7,751
480,567
292,631
20,562
42,216
11.4
37,240
14,175
(19,029)
32,386
298,965
21,091
43,214
0.7
12.1
Total
263,593
10,786
78,631
5,978
36,616
1,778
397,382
200,953
17,729
32,598
12.2
24,198
21,729
45,927
187,390
17,263
31,129
1.5
13.7
Financial Review continued
All‑in sustaining cost reconciliation
All-in sustaining cash costs per silver equivalent ounce
Year ended 31 Dec 2016
$000 unless otherwise indicated
(+) Production cost excluding depreciation
(+) Other items in cost of sales
(+) Operating and exploration capex for units
(+) Brownfield exploration expenses
(+) Administrative expenses
(excl depreciation and before exceptional items)
(+) Royalties and special mining tax6
Sub-total
Au ounces produced
Ag ounces produced (000s)
Ounces produced (Ag Eq 000s oz)
Sub-total ($/oz Ag Eq)
(+) Commercial deductions
(+) Selling expenses
(-) Export credits
Sub-total
Au ounces sold
Ag ounces sold (000s)
Ounces sold (Ag Eq 000s oz)
Sub-total ($/oz Ag Eq)
All-in sustaining costs ($/oz Ag Eq)
Year ended 31 Dec 2015
$000 unless otherwise indicated
(+) Production cost excluding depreciation
(+) Other items in cost of sales
(+) Operating and exploration capex for units
(+) Brownfield exploration expenses
(+) Administrative expenses
(excl depreciation and before exceptional items)
(+) Royalties and special mining tax11
Sub-total
Au ounces produced
Ag ounces produced (000s)
Ounces produced (Ag Eq 000s oz)
Sub-total ($/oz Ag Eq)
(+) Commercial deductions
(+) Selling expenses
Sub-total
Au ounces sold
Ag ounces sold (000s)
Ounces sold (Ag Eq 000s oz)
Sub-total ($/oz Ag Eq)
All-in sustaining costs ($/oz Ag Eq)
6 Royalties arising from revised royalty tax schemes introduced in
2011 and included in income tax line
26
Hochschild Mining plc Annual Report 2016
Administrative expenses
Administrative expenses before exceptional items increased by 26% to
$48.0 million (2015: $38.1 million) primarily due to increased
personnel expenses.
Finance income
Finance income before exceptional items of $1.1 million reduced
slightly from 2015 ($1.9 million) and mainly includes interest received
on deposits.
Exploration expenses
In 2016, exploration expenses were flat at $9.2 million (2015:
$9.3 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 2016,
the Company capitalised $1.3 million relating to brownfield exploration
compared to $2.6 million in 2015, bringing the total investment in
exploration for 2016 to $10.5 million (2015: $11.8 million).
Finance costs
Finance costs before exceptional items decreased from $31.4 million
in 2015 to $30.5 million in 2016, principally due to the reduction of
interest resulting from the repayment of $50.0 million of the
medium-term loan, $57.5 million of short-term loans and $20.0 million
of the amounts owed to Graña y Montero. In 2015, interest expenses
were net of amounts capitalised during the construction of
Inmaculada in line with IFRS.
Foreign exchange losses
The Group recognised a foreign exchange loss of $1.8 million (2015:
$5.6 million loss) as a result of exposures in currencies other than the
functional currency specifically the Peruvian Nuevo Sol and
Argentinian Peso.
Income tax
The Company’s pre-exceptional income tax charge was $47.6 million
(2015: $20.4 million). The substantial increase in the charge is
explained by the Company’s significant increase in profitability in the
period, as well as an increase in the mining royalties paid in Peru, the
level of which is based on the operating margin achieved by the
Company´s Peruvian operations.
Exceptional items
Exceptional items in 2016 totalled a $6.4 million loss after tax (2015:
$173.3 million loss). Exceptional items principally included: a penalty
payment for changing the energy supplier at Arcata ($4.3 million)
which will result in energy cost savings; a $2.7 million gain on the
reversal of the mining reserve tax in Argentina (eliminated by the
Argentinian Government) in addition to the reversal of the associated
interest on the reserve tax ($1.0 million); costs related to the stoppage
at Pallancata ($2.5 million); costs related to improvements to the Ares
tailings dam ($2.2 million); write-off of a now uncontested fee payable
to a local authority of $1.8 million; and a property, plant and
equipment (“PP&E”) write-off of $1.6 million.
These items excluded the exceptional tax effect that amounted to a
$2.2 million tax charge (2015: $36.9 million tax credit).
Selling expenses
Selling expenses decreased by 35% versus 2015 to $14.2 million (2015:
$21.7 million) mainly due to the elimination of export duties at San
Jose. Selling expenses in 2016 consisted mainly of logistic costs for the
sale of concentrate in addition to approximately 1.5 months of export
duties on concentrate until its elimination on 12 February 2016.
Previously, export duties in Argentina were levied at 10% of revenue for
concentrate and 5% of revenue for doré.
Other income/expenses
Other income before exceptional items was $33.1 million (2015:
$8.0 million). This mainly consisted of income from the Patagonian
port benefit ($16.9 million) reintroduced towards the end of 2015,
incremental revenue from logistic services provided to third parties
and a reduction in mine closure provisions ($6.3 million).
Other expenses before exceptional items were reduced to $13.9 million
(2015: $15.3 million).
Adjusted EBITDA
Adjusted EBITDA increased by 137% over the period to $329.0 million
(2015: $138.8 million) driven primarily by the significant effect of a full
year’s contribution from the low cost Inmaculada mine as well as
higher metal 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
Year ended
31 Dec 2016
Year ended
31 Dec 2015
% change
Profit from continuing
operations before exceptional
items, net finance cost, foreign
exchange loss and income tax
Depreciation and amortisation in
cost of sales
Depreciation and amortisation in
administrative expenses
Exploration expenses
Personnel and other exploration
related fixed expenses
Other non cash (income)/ expenses7
Adjusted EBITDA
Adjusted EBITDA margin
148,188
(10,886)
1,461
180,317
135,645
1,331
9,193
(3,947)
(6,068)
1,534
9,255
(4,301)
7,590
329,014
138,837
48%
30%
33
(13)
(1)
8
(180)
137
7 Adjusted EBITDA has been presented before the effect of significant non-cash
(income)/expenses related to changes in mine closure provisions and the write-off
of property, plant and equipment
www.hochschildmining.com
27
Strategic report Financial Review continued
Cash flow and balance sheet review
Net debt
$000 unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings8
Net debt
Year ended
31 Dec 2016
Year ended
31 Dec 2015
139,979
84,017
(291,073)
(339,778)
(36,312)
(94,760)
(187,406)
(350,521)
The Group reported net debt position was $187.4 million as at
31 December 2016 (2015: $350.5 million). The reduction in 2016
includes the net effect of: the prepayment of the Scotiabank
medium-term loan ($50 million); the repayment of short-term
loans ($57.4 million) and; the operating cash generated mainly
in Inmaculada.
Capital expenditure9
$000
Arcata
Ares
Selene
Pallancata
San Jose
Inmaculada10
Operations
Crespo
Volcan
Azuca
Other
Total
Year ended
31 Dec 2016
Year ended
31 Dec 2015
20,819
14,600
16
25
16,105
35,311
54,199
126,475
2,982
691
1,237
260
25
139
10,683
38,451
166,336
230,234
2,842
958
211
3,914
131,645
238,159
2016 capital expenditure of $131.6 million (2015: $238.2 million)
mainly comprised of operational capex of $126.5 million (2015:
$230.2 million) with the reduction due to the inclusion in 2015 of a
portion of Inmaculada project capital expenditure.
Cash flow
$000
Year ended
31 Dec 2016
Year ended
31 Dec 2015
Change
Net cash generated from operating
activities
316,073
133,256
182,817
Net cash used in investing activities
(127,364)
(223,319)
95,955
Cash flows (used in)/generated in
financing activities
Net increase/(decrease in cash and
cash equivalents) during the year
(132,165)
61,027
(193,192)
56,544
(29,036)
85,580
Operating cash flow increased from $133.3 million in 2015 to
$316.1 million in 2016, mainly due to the maiden full year cash
contribution from the Inmaculada mine in addition to higher prices.
Net cash used in investing activities decreased to $127.4 million in
2016 from $223.3 million in 2015 mainly due to the completion of the
Inmaculada mine in the middle of 2015. Finally, cash from financing
activities changed to $132.2 million used in the year from $61.0 million
generated in 2015, primarily due to the $107.4 million of debt
repayment in 2016 versus the raising of short-term debt in Peru in
2015 ($75.0 million). As a result, total cash flows resulted in a net
increase of $56.5 million from a net decrease of $29.0 million in 2015
($85.5 million difference).
Working capital
$000
Trade and other receivables
Inventories
Other financial (liability)/assets
Income tax (payable)/receivable
Trade and other payables and provisions
Working capital
Year ended
31 Dec 2016
Year ended
31 Dec 2015
93,837
57,056
(1,726)
(9,025)
135,014
70,286
20,126
17,628
(211,277)
(249,788)
(71,135)
(6,734)
The Group’s movement in the working capital position improved by
$64.4 million to a $71.1 million reduction in 2016 from a $6.7 million
reduction in 2015. This was primarily explained by: lower trade and
other receivables ($41.2 million) mainly due to VAT recoveries of
$22.0 million and a reduction in trade receivables of $25.0 million;
positive movement in other financial (liability)/assets of $21.9 million
from an asset position in 2015 (explained by hedging contracts), to a
liability position in 2016 resulting from the embedded derivative
associated with provisional pricing; and lower inventories
($13.2 million). These effects were partially offset by lower trade and
other payables and provisions ($38.5 million) mainly resulting from the
payment of amounts owed to Graña y Montero.
8
9
Includes pre-shipment loans and short-term interest payables
10 Inmaculada was accounted for as a project in H1 2015 and therefore the 2015
Includes additions in property, plant and equipment and evaluation and exploration
assets (confirmation of resources) and excludes increases in the expected closure
costs of mine asset
capital expenditure figure includes project expenditure
28
Hochschild Mining plc Annual Report 2016
Sustainability
Significant progress was made
in 2016 on a number of fronts in
acknowledgement of the social
licence to operate that has been
granted to us
Our communities and the environment
In 2016, we continued to prioritise the resources committed to our
communities with the ongoing focus on our three core areas:
education, health and socio-economic development. Whilst the trading
conditions did not allow us to launch any new programmes, we built
on the significant achievements to date by increasing the reach of the
medical services offered to our rural communities as well as
successfully transferring our IT infrastructure project in Chalhuanca, as
planned, to the regional and municipal authorities. Further details on
these initiatives, as well as those of our Argentina operations can be
found in this report and on our website.
With regards to our environmental performance, we have made
significant progress in terms of our usage of water, with sizeable
reductions in water consumption at our Peruvian operations and a
notable increase in the amount of water recycled.
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, Corporate Social Responsibility Committee
Dear Shareholder
In 2016, the Group made significant progress across numerous areas
in acknowledgement of the social licence to operate that has been
granted to us. However, it is with great regret that we recently
announced the accident at Inmaculada which resulted in two fatalities.
I would like to echo the comments of the Company Chairman in
conveying our sincere condolences to the families of those involved
and underline the Board’s collective commitment to ensuring the
safety of our operations.
2016 in context
Even though 2016 saw an improvement in the trading environment
for the Company, there was continued volatility in precious metal
prices. Given management’s focus on rebuilding the Company’s
financial health, there has been a continual need for the many teams
at Hochschild to prioritise the resources available to them and to
maximise the impact of their programmes.
Safety
The accidents earlier in the year serve as a reminder of the risks in
general in the mining industry and why it is crucial that we expend
time and effort in constantly monitoring our practices and providing
training to those operating in and around our mines so that our
collective goal of zero tolerance to accidents is always at the forefront.
In isolation, 2016 represented a third consecutive year without any
fatalities. However, in light of the fatalities in early 2017, we consider
it imperative that we fully understand the reasons behind the latest
accident and that all necessary steps are taken so that we can continue
our path in reassuring colleagues of their safety.
In terms of overall performance during the year, the Group saw
increases of 19% in accident frequency and 24% in accident severity.
Changes in the nature of the Group’s operations did indeed take place
from year to year, primarily with Inmaculada transitioning from project
to core asset, however, we do not adjust our zero appetite to breaches
of safety.
www.hochschildmining.com
29
Strategic report Sustainability continued
Governance of Corporate Social
Responsibility (“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:
• a safe and healthy workplace;
• managing and minimising the environmental impact of our
operations; and
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 and Corporate Affairs report
for sustainability issues.
The CSR Committee’s work in 2016
During the year, the CSR Committee:
• approved the 2015 Sustainability Report for inclusion in the 2015
Annual Report;
• monitored the execution of the yearly plan in each of the four key
areas of focus including progress updates;
• considered the priorities of the environmental team and their
work plan;
• considered the status of the Group’s community initiatives; and
• reviewed the environmental and community relations related risks
• encouraging sustainability by respecting the communities of the
and related work plans.
localities in which we operate.
For further information on how we prioritise our resources and the
Committee’s terms of reference, please visit www.hochschildmining.
com/en/sustainability.
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 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.
Safety
Given the inherently high risk profile of mining, safety is our
highest priority.
2016 HIGHLIGHTS
• Continued implementation of the internally designed
behaviour-based safety programme
• New Inmaculada mine achieved Level 7 certification of the
DNV GL management system (2015: Level 5)
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 2016
• In relation to the Group’s Safety Management System (designed by
the risk management firm DNV GL), the safety team completed the
necessary preparatory steps as well as the requisite training in
advance of the migration to the 7th edition of the International
Safety Rating System;
How we performed against our 2016 safety objectives
Target
To fully roll out the behaviour-based safety programme at San Jose
To fully transition to the new edition of DNV GL’s International Safety
Rating System at all Operating Units
To evaluate the use of performance indicators in respect of
personal safety
30
Hochschild Mining plc Annual Report 2016
Given the exposure of the Group’s strategy to Sustainability Risks
(comprising Health & Safety, Community Relations and Environmental
risks), the full Board received regular presentations on how such risks
are managed. Furthermore, the Board received presentations from
management on the blockade at Pallancata that was ongoing at the
year-end but which ended early this year.
Reporting of targets and indicators
As part of the Company’s ongoing strategy to make more information
available online, detailed sustainability related performance indicators
as well as targets for 2017 are available on the Company’s website.
• The Inmaculada mine, which only commenced commercial
production in the second half of 2015 succeeded in obtaining DNV
Level 7 certification and is therefore on a par with the Group’s other,
more established operations;
• The continued implementation of a bespoke suite of behaviour-
based safety procedures at the Peruvian operations.
These procedures incorporate the use of a five-step process to observe
and register safety checks. Positive reinforcement is a core part of this
observation, which is undertaken through awards events at the
operating units to acknowledge those who have demonstrated safety
excellence in their operational activities.
Fatalities in February 2017
The Group regretted to announce in February 2017 that as a result of
rockfall, two contractors were fatally injured at the Inmaculada mine.
The ongoing investigations are focusing on identifying the underlying
causes of the accident and will result in the taking of all necessary
steps to ensure that such accidents are avoided.
Status
Commentary
The programme, named OTO (Operational Task Observation)
was successfully rolled out
Training was provided at all operating units regarding the
ISRS 7th edition as well as the related audit process.
A new Safety indicator focusing on the performance of each
Mine Superintendent was introduced
Health & Hygiene
The Group’s Health & Hygiene department is tasked with providing an
integrated approach to employee welfare.
2016 HIGHLIGHTS
• Participation of the Corporate Health Manager in industry
discussions on new laws affecting health and safety at work
• Additional monitoring and reporting of occupational health
issues extended to the San Jose operation
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 is focused on ensuring 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 through 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
• Contributing to the continuous improvement in the Group’s Health
& Safety culture
Our achievements in 2016
In 2016, the Health team, in collaboration with other departments,
including the Safety team, continued to go beyond its traditional area
of prevention and sought to influence the way that employees
approach their tasks.
During the year:
• senior members of the team participated in discussions with respect
to new legal requirements and provided training to team
members; and
• a comprehensive programme aimed at minimising, if not
eradicating, exposure to harmful levels of noise was implemented
during the year. This involved:
• the procurement of specialist monitoring equipment to gauge
the level of exposure;
• the examination of over 700 workers at the Peruvian
operations; and
• the preparation of informational material highlighting the risks
and encouraging the use of protective equipment which is
readily available.
How we performed against our 2016 health & hygiene objectives
Target
Status
Commentary
To improve the Group’s accident rating system
To ensure that the Group’s medical services comply with proposed
new regulations on occupational health
Focus on the occupational health implications of exposure to
industrial noise
In collaboration with the Safety department, an updated
corporate policy aligning legal and technical requirements
was implemented
A review of all legal obligations was undertaken during the
year and both Peruvian and Argentinian operations are in a
good state of readiness prior to implementation.
A comprehensive audit and follow-up action plan were
undertaken during the year (see further details under 2016
Achievements above)
www.hochschildmining.com
31
Strategic report Sustainability continued
Our people
2016 HIGHLIGHTS
• Workforce trained: 89% (2015: 79%)
• Average number of hours of training per year per employee:
27.28 hours (2015: 33.33 hours)
The Hochschild approach to our people
Training and development
The quality of our people is key to the success of the business in
achieving its strategic objectives and our ongoing objective is therefore
to attract and retain high quality personnel. The Company’s Human
Resource team seeks to achieve this by providing 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
Amongst the primary responsibilities of the Human Recources team is
the clear 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 undertakings to treat all employees
fairly and to respect 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
People indicators
Gender diversity statistics1
Number of employees
Male
Female
Number of senior managers2
Male
Female
Number of Board Members
Male
Female
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 the members of 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 2016
The people-focused initiatives during the year included the following:
Developing our people
In light of the limited budgetary resources, training and development
programmes were targeted on key technical areas. In Peru, managers
from across the mining units participated in various leadership-
based courses.
Managing our talent
The People Review process was undertaken which maps talent within
the organisation and identifies key positions and succession plans.
Creating a better place to work and Enhancing the Working
Environment
The Group continues to make use of an Organisational Climate Survey
which has been widely acknowledged as a key tool to measure levels of
satisfaction amongst employees and to identify opportunities for
further development. During the year, the Company continued using
the 2016 Climate Survey results to improve conditions in our mining
units and administrative offices.
The Group continually reviews its offering of non-financial benefits
which currently comprise flexible working hours for Head Office staff
over the summer period and the holding of regular social events.
2016
2015
2014
2013
3,859
222
35
1
8
1
3,492
237
34
2
8
0
3,468
229
31
2
8
0
4,080
276
23
2
8
0
1 As at 31 December
2 Defined as those who qualify under the UK statutory definition of ‘senior manager’ as at 31 December.
32
Hochschild Mining plc Annual Report 2016
Working with our communities
2016 HIGHLIGHTS
• Prioritising the Group’s resources which have targeted high
impact initiatives
• Facilitating digital inclusion among the communities that live
in the areas surrounding our mine operations
For more information on our Sustainability indicators visit
www.hochschildmining.com
Our view of working with our communities
Hochschild has historically fostered a culture of collaborating with
local communities surrounding our projects and operations to
promote sustainable development. This is a key tenet of the Group’s
corporate strategy that underpins our approach to mining that we
succinctly describe as “Operating Responsibly”.
Community relations in practice
Despite the restrictions in financial resources resulting from the
trading challenges during the year, the Group continued to prioritise
the ongoing implementation of its social programmes with the
communities thereby minimising any direct impact. This was largely
achieved through more efficient internal processes and synergies in
order to maximise the resources available for allocation.
Our achievements in 2016
During the year we accomplished the goals set for our high impact
initiatives, further details of which are provided below.
Education
Elementary Education
Support programmes have been implemented across various locations
close to our Peruvian and Argentinian operations ranging from the
provision of school meals to employment of qualified teaching staff.
For the fourth consecutive year, the Company has supported
approximately 340 students in 11 schools close to the new Inmaculada
mine with the Maestro Lider initiative which seeks to enhance
elementary literacy and numeracy.
Secondary Education
The fourth year of the Secondary Programme of Maestro Lider has also
been successful, with the launch of the pre-University Academy and a
vocational orientation fair. In total, around 500 students and almost
100 teachers participated.
Scholarships
Through the Group’s Argentinian and Peruvian operations, Hochschild
has provided scholarships so that students can benefit from further
technical studies or college. In 2016, over 80 scholarships were granted.
Training for Work
From the Group’s Argentinian operations, almost 40 students were
sponsored on an Introduction to Mining course and almost 30 students
embarked on vocational courses in mining/drilling. All students were
from the local town of Perito Moreno and were subsequently
employed by the Group.
Donation to UTEC
The Group facilitated a donation of US$1m to UTEC, a new
university established in Lima offering a wide range of vocational
training programmes.
Health
Medico de Cabecera (the Travelling Doctor programme)
This hugely successful programme, which aims to provide free access
to medical care, workshops for health prevention and health education
for local communities, continues to receive high levels of demand from
all of our operations. In 2016, over 11,000 medical consultations were
carried out and over 200 preventative campaigns run.
Socio-economic development
Digital Chalhuanca
This flagship project which, in addition to bringing wi-fi access to the
community of Chalhuanca, also sought to encourage digital inclusion.
In its fifth year of implementation, the Group oversaw the planned
transfer of the facility to the Regional and Municipal authorities who
will now look to ensure that the project continues to provide invaluable
benefits to the local community while also looking to extend its reach.
Business Networks
Close to the Inmaculada mine, the Group has supported families with
their agricultural and artisanal enterprises to promote financial
independence and to improve nutrition.
For further information on the Chalhuanca project and
other projects supported by the Group, please visit: http://
www.hochschildmining.com/en/sustainability/case_studies
How we performed against our 2016 community objectives
Target
Status
Commentary
To increase the scope of opportunities for community-led
commercial enterprises to provide support services for the
Inmaculada mine.
To secure the support of co-sponsors for the Group´s
social programmes
To facilitate the use of technology by local communities close to our
operations through the establishment of digital centres.
We have designed the necessary protocols to carry out this
initiative. We are in the process of aligning local suppliers
with certain requirements of the mine.
We successfully negotiated contributions from the State for
our Business Networks project, which will be disbursed in
2017 and 2018. In addition, support from the local
Municipalities was also secured.
Four digital centers were inaugurated in the districts of
Oyolo, Anizo, San Javier de Alpabamba and San Francisco de
Rivacayco, with state-of-the-art technology as well as a
training plan for the digital inclusion of participants.
www.hochschildmining.com
33
Strategic report Sustainability continued
Managing our environmental impact
We are committed to becoming a leader in sourcing minerals with the
least environmental footprint possible
2016 HIGHLIGHTS
• Launched new Corporate Performance Indicators
• Continued focus on water management and treatment across
all operations
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
incorporating best management practices.
Hochschild 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.
During the year, a review of a number of these plans was undertaken
with the support of internationally recognised consultants.
Our achievements in 2016
• Continued resourcing of the environmental team with more than
100 people working in related operational roles and
environmental management;
• New Environmental Corporate policy launched going beyond
compliance and promoting an environmentally conscious culture
through, among other things, the promotion of efficient use
of resources
• Supported the business by securing the:
• approval of Pallancata´s revised Environmental Impact
Assessment (“EIA”);
• approval of Inmaculada’s environmental permit to reflect new
components and increased plant capacity; and
• environmental permits for the Arcata, Ares and Pallancata
exploration projects.
How we performed against our 2016 environmental objectives
Target
Commentary
Continue strengthening the environmental team
Launch new Corporate environmental
performance objectives
Continue the review of the environmental
management system
Continue efforts in improving water treatment systems and
water saving throughout all mining operations
Review existing waste management system
Team is fully staffed
Completed.
In progress. ISO 14001 certification will be halted for two years during this review.
In progress. In 2016 new treatment plants installed and water saving efforts
implemented throughout all mining operations.
In progress. Contract to be launched in Q1 2017.
Greenhouse gas emissions data1 (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)3
20161
45,909
88,646
4,140
20152
46,790
78,163
5,531
2014
73,244
69,933
5,533
2013
56,234
72,946
4,890
Includes data for the whole year for Ares, Arcata, Selene, Pallancata, Inmaculada, San Jose and office locations
1
2 Restated following a review of underlying data
3 Total production includes 100% of all production, including that attributable to the joint venture partner at San Jose
34
Hochschild Mining plc Annual Report 2016
Risk management & viability
Managing risk on
behalf of the Board
The Audit Committee oversees the process of managing
risk on behalf of the Board taking into account the Board’s
appetite for each specific risk
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 reviewed which maps the significant risks faced by
the business and updated at each Risk Committee meeting and the
most significant risks as well as potential actions to mitigate those
risks are reported to the Group’s Audit Committee, which has oversight
of risk management on behalf of the Board.
2016 Risks
The key business risks affecting the Group set out in this report remain
largely unchanged compared to those disclosed in the 2015 Risk
Management report with the exceptions that:
• the risks associated with the Delivery of Projects are no longer
considered to be significant as the Inmaculada asset transitioned to
a core operation in the second half of 2015; and
• Refinancing Risk has been removed as a significant risk following the
recovery in the commodities sector and the improvement in the
Group’s balance sheet.
The year-on-year changes in the profile of specific risks can be
explained as follows:
• Operational Performance risks are considered by the Board to have
reduced following the commencement of production at
Inmaculada; and
• Community Relations, Safety and Legal/Regulatory risks are
regarded as having heightened due to (a) the above-mentioned
transition of Inmaculada since the impact of those risks could
become more severe in the context of an operating asset and (b) the
changing social and political environment in the countries where
the Group operates.
In addition, in order to provide a more accurate view of the change in
the profile of environmental-related risks, the table below
distinguishes between changes in the level of (a) the environmental
risks arising from operations, which are considered to have reduced in
light of the infrastructure work carried out during the year; and (b) the
risks arising from regulatory action which are considered to have
increased as a reflection of the regulator’s more stringent approach.
Financial risks
Risk
Commodity
price
Change in risk
profile vs 2015:
UNCHANGED
Impact
Mitigation
Commentary
Adverse movements in
precious metal 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, the economics of
the mineral resources and
heightened personnel and
sustainability related risks.
• Constant focus on maintaining a low
all-in sustaining cost of production and an
efficient level of administrative expense
• Flexible hedging policy that allows the
Company to contract hedges to mitigate
the effect of price movements taking
into account the Group’s asset mix and
forecast production
See Our Market Review on pages 12
to 13 for further details
The focus on conserving capital and optimising cash flow
continued in 2016 through:
• controlling operating and administrative costs;
• optimising sustaining capital expenditure;
• reducing debt; and
• reducing working capital.
In addition to the above, the Inmaculada mine, which
started commercial production in the second half of 2015,
brought about a reduction in average production costs and
diluted fixed costs.
Even though no part of 2017 production has been hedged,
the Group’s flexible policy enables the Board to approve
hedging contracts to protect cashflow as and when
appropriate.
www.hochschildmining.com
35
Strategic report Risk management & viability continued
Operational risks
Risk
Operational
performance
Change in risk
profile vs 2015:
REDUCED
Impact
Failure to meet production
targets and manage the cost
base could adversely impact
the Group’s profitability.
Mitigation
Commentary
• Close monitoring of operational
performance, costs and capital expenditure
• Negotiation of long-term supply contracts
2016 budgets across the Group continued to focus on
maintaining controlled levels of administrative expenses
and sustaining capital expenditure.
where appropriate
Production goals at all operations were met or, in the case
of Inmaculada, exceeded with the focus on the extraction
of profitable ounces.
The Group benefited from operational flexibility through a
full-year’s production at Inmaculada.
Management closely monitors the wide range of risks that
could affect operational performance to, among other
things, ensure the adequacy and safety of key mining
components, such as tailing dams, waste rock deposits and
pipelines to service ongoing operations. Close liaison
between relevant departments ensures that procurement,
construction and any permitting are undertaken as
appropriate.
In light of the transition of Inmaculada from project to core
asset and the high proportion of production sourced from
that asset, the change in the risk profile vs 2015 reflects its
heightened impact.
Mitigating actions during the year include the following:
•
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.
In 2016 all brownfield exploration goals were achieved,
including the discovery of additional resources at the Pablo
vein at Pallancata.
The continued focus on cost control has resulted in our
exploration activity being primarily focused on current
operations.
In 2017, exploration of new projects and appraisal of
acquisition/joint venture opportunities restarted given the
Group’s improved financial position.
As mentioned in the CEO’s statement, the Company has
undertaken a conservative re-evaluation of its Reserves and
Resources which (a) reflects lower commodity price
assumptions and (b) excludes material that has a low
probability of being mined.
The Group has engaged P&E Consultants to undertake the
annual audit of mineral reserve and resource estimates.
See pages 139 to 141 for further details
Business
Interruption
Change in risk
profile vs 2015:
HIGHER
Assets used in the Group’s
operations may break down
and cause stoppages with
material effects.
•
Insurance coverage to protect against
major risks
• 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
Exploration
and Reserve
& Resource
Replacement
Change in risk
profile vs 2015:
UNCHANGED
The Group’s operating
margins and future
profitability depend upon its
ability to find mineral
resources and to replenish
reserves.
•
Implementing and maintaining an annual
exploration drilling plan
• Ongoing evaluation of acquisition and joint
venture opportunities to acquire additional
ounces
• High-end software programmes
implemented to improve the estimate of
mineral resources
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
Personnel:
Recruitment
and retention
Change in risk
profile vs 2015:
LOWER
Personnel:
Labour
relations
Change in risk
profile vs 2015:
UNCHANGED
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
defined career plans, and training and
development opportunities
The Group has continued with its initiatives to improve
the retention of employees. These include the use of
non-financial benefits (e.g. flexible working arrangements
for Head Office staff) and tailored personal development
plans
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 profit sharing, working
conditions, management style,
development opportunities, motivation and
communication
The improvement in the sector as a whole is the principal
reason why the profile of this risk has reduced relative
to 2015.
Given the losses incurred in previous years by the Peruvian
operating entity, there continues to be no statutory profit
sharing for Peruvian mineworkers.
Management has conducted monthly meetings with
mineworkers and unions during 2016 to ensure a complete
understanding of their requirements and concerns and to
keep all parties updated on the Group’s financial
performance with the aim of preparing the groundwork for
the 2017 union negotiations.
36
Hochschild Mining plc Annual Report 2016
Macro‑economic risks
Risk
Impact
Political, legal
and regulatory
Change in risk
profile vs 2015:
HIGHER
Changes in the legal, tax and
regulatory landscape could
result in significant
additional expense,
restrictions on or
suspensions of operations
and may lead to delays in the
development of current
operations and projects.
Impact
Sustainability risks
Risk
Health and
safety
Change in risk
profile vs 2015:
HIGHER
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
Commentary
• Local specialist personnel continually
monitor and react, as necessary, to policy
changes
• Active dialogue with governmental
authorities
• Participation in local industry organisations
As an electoral year, 2016 saw the mining industry in Peru
become the subject of heightened political debate. In the
period leading to the elections and during the transition to
a new administration, no new governmental measures
were taken and various permitting processes saw their
timelines extended which continues to be the case.
Even though the new government that assumed office in
July 2016 is supportive of business, the risk of social
conflicts has become heightened in certain parts of the
country to which the authorities remain sensitive.
In addition, a number of new laws were introduced during
the year relating to, among other things (a) the permissible
limits of chemicals in stored tailings and (b) various aspects
of health and safety at mining operations.
In Argentina, 2016 was marked by relative stability
following the Presidential elections in October 2015 where
the new government placed inward investment as a key
priority.
With regards to specific developments:
• the Supreme Court agreed to hear the merits of the
Company’s claim challenging the constitutionality of a
proposed Reserves tax which was subsequently
withdrawn by the relevant Province; and
•
in late 2016, the Argentinian Government removed
the benefit received by those exporting through
Patagonian ports.
Mitigation
Commentary
• Health and Safety operational policies and
The change in risk profile vs 2015 primarily reflects:
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
• the fact that Inmaculada was an operating asset for the
whole of 2016; and
• the increased use of less mechanised processes at
Pallancata in light of the narrower veins being mined.
In 2016, the Group achieved its on-going objective of Zero
Fatalities for the third consecutive year. As reported earlier
in the Chairman’s statement and Sustainability Report, the
Board was saddened to report the fatalities that occurred
at the Inmaculada mine in the first quarter of 2017.
Further details on the accident and the steps being
taken to reinforce the Group’s safety values can
be read in the Sustainability Report on page 30
www.hochschildmining.com
37
Strategic report Mitigation
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
Risk management & viability continued
Sustainability risks continued
Risk
Environmental
Change in risk
profile vs 2015:
Impact
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 fines and/or
penalties.
(a) In relation to
those risks
arising from
the Group’s
environmental
performance/
infrastructure:
LOWER
(b) In relation to
those risks
arising from
the increased
oversight of the
environmental
regulator:
HIGHER
Community
Relations
Change in risk
profile vs 2015:
HIGHER
• 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
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 loss of productions,
increased costs and
decreased revenues and in
longer lead times and
additional costs for
exploration and 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.
Environmental permitting and oversight have become
more rigorous, leading to delays in project execution and
increases in fines from the environmental regulator.
In 2016, the Group has taken a series of measures to
mitigate this risk, including:
• establishing a Permitting Committee, with the
participation of all relevant departments, that meets
bi-weekly to assess the status of all permitting
applications and ensure that the process is carried out
as efficiently as possible;
• the launch of new Environmental Key Performance
Indicators;
•
implementation of state-of-the-art water quality
management tool that allows for real time monitoring
of all water discharges from the operations;
• completing the staffing of the environmental team with
professionals working in related operational and
environmental management roles;
• strengthening our environmental culture, improving
overall housekeeping throughout our operations,
reducing water consumption and solid waste generation;
• continuing to improve water treatment infrastructure,
at Pallancata, Inmaculada, Arcata and the closed Sipan
mine; and
• reviewed and updated Mine Closure Plans, in some
cases with the support of internationally renowned
environmental consultants
The higher risk profile vs 2015 reflects the increase in the
incidence of social conflicts in the areas surrounding the
Group’s operations. Such conflicts have led to temporary
stoppages at other mining operations such as Las Bambas
and Constancia.
Protests by a community close to the Pallancata mine
resulted in a blockade by community members from
November 2016 until mid-January 2017. Even though the
mine stopped producing from 1 December, Pallancata’s
targeted production was not impacted. Government
intervention resulted in the lifting of the blockade after an
informal mediation between the Company and the
relevant community representatives.
Working groups with stakeholders groups near Inmaculada
continue to meet periodically.
In addition, the Group continues to actively engage with
other local communities to fully understand their needs
and to implement an action plan, to the extent possible.
The risk of additional stoppages or blockades will continue
to be present if the working groups do not reach long-term
agreements between the parties involved.
Further details on the Group’s activities to mitigate
sustainability risks can be found in the Sustainability
report on pages 29 to 34
38
Hochschild Mining plc Annual Report 2016
The viability statement analysis has also taken into account other
mitigating actions available to the Group upon the occurrence of one
or more of the principal risks. Such actions include:
• Hedging the price at which sales contracts are settled;
• Operational strategies to anticipate, minimise and overcome
production-related risks;
• The implementation of cost and capital expenditure reduction
programmes;
• Working capital management; and
• Active debt financing management.
For examples of the mitigating actions taken by the Board during the
year under review, please refer to the Commentary in the Risk
Management section of this report.
Conclusion
While it is always possible that combinations of weak precious metal
prices and adverse operational risks could threaten the solvency and
liquidity of the Company over the next three years, the Directors have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over three years being
the period of their assessment.
The Strategic Report, as set out from the inside front cover to page 39
has been reviewed and approved by the Board of Directors and signed
on its behalf by:
Ignacio Bustamante
Chief Executive Officer
7 March 2017
Viability
In accordance with provision C.2.1 of the Code, the Directors have
assessed the viability of the Group taking into account the Group’s
current position and the potential impact of the principal risks which
could threaten the business model, future performance, solvency or
liquidity of the Group.
Period of Viability Statement
As per provision C2.2 the Directors have reviewed the length of time to
be covered by the Viability Statement, particularly given its primary
purpose of providing investors with a view of financial viability that
goes beyond the period of the Going Concern statement.
It has been concluded that three years is the appropriate time horizon
in light of:
i. the inherent uncertainty of longer-term forecasting in a cyclical
industry which, in the case of precious metals, is largely driven by
global macro-economic factors; and
ii. the large number of external variables that need to be taken into
account in establishing any meaningful forecast of the
Group’s business.
Approach to Assessing Viability
In assessing the Group’s viability, the Directors have considered the
principal risks to which the Group is exposed as set out in the earlier
part of this report. This includes those where either the likelihood of
the risk has increased, or the impact of the risk has become more
severe. In particular, the Directors have considered forecasts which
reflect the impact of:
• Depressed precious metal price scenarios. This is a key input for
stress-testing and involved the preparation of forecasts using (i)
lowest metal prices over the past five years for both gold and silver
($1,100/Au oz and $14/Ag oz respectively); and (ii) below-spot prices
of $1,100/Au oz and $16/Ag oz.
Should prices fall further than the lowest of these scenarios, the
Board would oversee the implementation of contingency actions,
such as the elimination of discretionary expenditure, the reduction if
not the elimination of dividend distributions and other initiatives to
reduce costs across the business so as to maximise the production
of profitable ounces.
• Risks that severely threaten forecast production levels. The principal
risks that could jeopardise production are those arising from (a)
geological risk that could result in the variability of our reserves and
production volume and grades; (b) community unrest that could
result in temporary stoppages; (c) environmental incidents that
could also temporarily affect an operation’s production schedule;
and (d) delays in obtaining operational permits.
Management prepares operational and financial forecasts based on
a life of mine plan assuming only reserves and resources which have
an adequate degree of certainty. For this reason, forecasts do not
reflect the potential of incremental resources added as a result of
exploration activity which could be easily converted to actual
production given the availability of spare capacity at its plants. This
state of preparedness, together with the mitigating actions
described above, have been designed to control the impact of
production risks or facilitate the swift recovery from the impact of
those risks; and
• Plausible future contingencies for example, governmental/
regulatory action such as environmental liabilities, controls against
which are described in the table above.
www.hochschildmining.com
39
Strategic report Board of Directors
Eduardo Hochschild
Chairman
Roberto Dañino
Deputy Chairman
Ignacio Bustamante
Chief Executive Officer
Dr Graham Birch
Independent Non-
Executive Director
Enrico Bombieri
Senior Independent
Director
Experience: 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 is the Company’s
majority shareholder with a
c.54% interest.
Other Directorships:
Commercial: Cementos
Pacasmayo S.A.A. (Chairman),
COMEX Peru, Banco de
Crédito del Perú
Non-Profit: UTEC (Chairman),
TECSUP, Sociedad Nacional de
Minería y Petróleo, Conferencia
Episcopal Peruana.
N
Experience: Roberto Dañino
joined the Board in 2006 as
an Executive Director and
assumed his current role in
2011. Roberto served in the
Peruvian Government as
Prime Minister and thereafter
as the Peruvian Ambassador
to the United States. He
previously served as General
Counsel of the World Bank
Group and Secretary General
of ICSID having been a
partner at the US law firm
Wilmer, Cutler & Pickering.
Other Directorships:
Commercial: Fosfatos del
Pacifico S.A. (Chairman),
Goldman Sachs (Advisory
Board) and Uber Technologies
(Advisory Board).
C
Experience: Ignacio
Bustamante joined the Board
as CEO in April 2010 having
previously served as Chief
Operating Officer and 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.
Other Directorships:
Commercial: Profuturo AFP.
C
Experience: Enrico Bombieri
joined the Board in 2012. He
previously served as Head of
Investment Banking for
Europe, Middle East and
Africa (‘EMEA’) at JP Morgan
and was a member of the
Executive Committee, the
Investment Bank’s Operating
Committee and the European
Management Committee.
Prior to joining JP Morgan,
Enrico worked for Guinness
Mahon in London and
Lehman Brothers in New York
and London.
Other Directorships: None.
N
R
Experience: Dr Graham Birch
joined the Board in 2011. Up
until 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. He
previously worked at
Kleinwort Benson Securities
and 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.
Other Directorships:
Commercial: ETF Securities
Limited.
C
R
Jorge Born Jr.
Independent Non-
Executive Director
Eileen Kamerick
Independent Non-
Executive Director
Nigel Moore
Independent Non-
Executive Director
Michael Rawlinson
Independent Non-
Executive Director
Sanjay Sarma
Independent Non-
Executive Director
Experience: Eileen joined the
Board on 1 November 2016
having formerly served as
CFO of ConnectWise.
Previously Eileen held senior
executive roles in finance in
various industries including
healthcare consultancy Press
Ganey Associates, investment
bank Houlihan Lokey and BP
Amoco Americas. Eileen
lectures on corporate finance
and governance at several
US universities.
Other Directorships:
Commercial: Associated Bank
Corp. (Chair of the Corporate
Governance Committee and
member of the Audit
Committee) and certain listed
closed-end funds advised by
Legg Mason Partners Fund
Advisors, LLC (Chair of the
Audit Committee)
Non-Profit: Eckerd
Alternatives for Youth.
A
Experience: Nigel Moore
joined the Board in 2006.
Nigel is a Chartered
Accountant and 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. Nigel
served as Chairman of JKX Oil
& Gas plc and as Non-
Executive Director of several
companies including The
Vitec Group plc and The TEG
Group plc.
Other Directorships:
Commercial: Ascent
Resources plc.
A
R
Experience: Michael
Rawlinson joined the Board in
2016. He is the Global
Co-Head of Mining and
Metals at Barclays investment
bank and prior to 2013
worked at a number of banks
as a corporate financier and
research analyst. Most
recently he helped found the
boutique investment bank,
Liberum Capital, in 2007. Prior
to that Michael worked at
Flemings and Cazenove.
Other Directorships: None.
A
C
Experience: Sanjay joined the
Board on 1 January 2017 and
is Professor of Mechanical
Engineering at Massachusetts
Institute of Technology
(“MIT”) and the Vice President
for Open Learning at MIT.
Sanjay was the founder and
Chief Technology Officer of
OATSystems (subsequently
acquired by Checkpoint
Systems) and has worked at
Schlumberger Oilfield
Services and at the Lawrence
Berkeley Laboratories. Sanjay
also advises several national
governments and
global companies.
Other Directorships:
Commercial: Top Flight
Technologies and ESSESS
Non-Profit: G1S US and edX,
the entity set up by MIT and
Harvard to facilitate the
distribution of free online
education worldwide.
Experience: Jorge Born Jr.
joined the Board in 2006.
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
its UK operations from 1989
to 1992.
Other Directorships:
Commercial: Consult & Co.
(President and CEO), Caldenes
S.A., Dufry AG Zurich.
Non-Profit: Bunge and Born
Charitable Foundation
(President).
N
A
C
N
R
Audit committee
CSR committee
Nominations committee
Remuneration committee
Chairman
40
Hochschild Mining plc Annual Report 2016
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.
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.
TENURE OF INDEPENDENT
NON‑EXECUTIVE DIRECTORS
BOARD INDEPENDENCE
2/7
3/7
3/10
7/10
2/7
0-3 Years
3-6 Years
6 Years +
Independent Directors
Non-Independent Directors
www.hochschildmining.com
41
Governance 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 45 and, with regard to the right to
appoint Directors to the Board, are set out on page 46.
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
necessary. 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.
Directors’ report
The Directors present their report for the year ended 31 December 2016.
Information in directors’ report
The Directors’ Report comprises the Corporate Governance Report from
pages 44 to 53, this Report on pages 42 and 43, and the Supplementary
Information on pages 54 to 56. Other information that is relevant to the
Directors’ Report, and which is incorporated by reference comprises:
• Greenhouse gas emissions included in the Sustainability Report on
page 34; and
• Policy on Financial Risk Management in Note 36 to the Consolidated
Financial Statements.
For the purposes of compliance with paragraphs 4.1.5R(2) and 4.1.8R of
the Disclosure Guidance and Transparency Rules, the Strategic Report
and this Directors’ Report (including the other sections of the Annual
report incorporated by reference) comprise the Management Report.
Dividend
The Directors declared an interim dividend of 1.38 US cents per ordinary
share in the year ended 31 December 2016 and is recommending a final
dividend of 1.38 cents per ordinary share subject to approval at the
forthcoming Annual General Meeting (“AGM”) (2015 total dividend: nil).
Dividend waiver
The trustee of the Hochschild Mining Employee Share Trust (‘the
Employee Trust’) has waived, on an ongoing basis, 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 page 40.
Eileen Kamerick and Sanjay Sarma were appointed to the Board on 1
November 2016 and 1 January 2017 respectively and all other Directors
were in office for the duration of the year under review.
With the exception of Roberto Dañino and Nigel Moore, who will be
retiring at the conclusion of the forthcoming AGM, each of the Directors
will be retiring and seeking re-election by shareholders at the AGM in
line with 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/her 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/her 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/her.
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 US$4.389m1 on social and community welfare activities
surrounding its mining units (2015: US$3.971m).
1
Including at San Jose, the Group’s joint venture in which it has a 51% interest
42
42
Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
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 from the Inside Front Cover to page 39. The financial
position of the Group, its cash flows, liquidity position and borrowings
are described in the Financial Review on pages 24 to 28. In addition, note
36 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.
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 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
7 March 2017
As described in the Market experience on pages 12 and 13, 2016 saw
continued volatility in precious metal prices which experienced steady
and significant increases by the early part of the second half of the year
which subsequently trended downwards by the year-end.
The Group has reported record levels of production of 35.5 million
attributable silver equivalent ounces and successfully reduced costs
across its operations with Inmaculada, in particular, performing
significantly better than anticipated.
As part of its risk management responsibilities, the Board continually
reviews a list of contingency measures that could be implemented in the
event that price conditions deteriorate.
In conclusion, having considered financial forecasts and projections
which take into account (i) possible changes in commodity price
scenarios; and (ii) the contingency measures that could be taken to
alleviate pressure on the balance sheet in the event of a fall in prices, 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.
AGM
The eleventh AGM of the Company will be held at 3 pm on 11 May 2017
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.
Auditor
A resolution to reappoint Ernst & Young LLP as Auditor will be put to
shareholders at the forthcoming AGM.
Statement on disclosure of information to auditor
Having made enquiries of fellow Directors and of the Company’s
Auditor, each Director confirms that, to the best of his/her knowledge
and belief, there is no relevant audit information of which the
Company’s Auditor are unaware. Furthermore, each Director has taken
all the steps that he/she ought to have taken as a Director in order to
make himself/herself aware of any relevant audit information and to
establish that the Company’s Auditor 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.
www.hochschildmining.com
www.hochschildmining.com
43
43
Governance
As Directors, we are rightly expected to have a deep understanding of
the business and the environment in which we operate. We were able to
achieve this during 2016 through various means. Given the increased
proportion of gold produced by the Group, as part of the annual
strategic Board session, the Directors received a presentation from a
representative of the World Gold Council which provided a detailed
update on the economics driving demand and the outlook for the sector.
In addition, at the operational level, a site visit was organised for Board
members to visit our newest operation, Inmaculada which incorporated
presentations from managers in the mine and the plant. Finally, the
Board is kept updated on the ongoing changing landscape of regulation
and market practice that affects the Company and the Board from its
advisers, both externally and internally.
The continuation of the highly valued internal Board evaluation has, yet
again, produced a number of improvements in the way the Board
undertakes its role. It has also sourced themes from the Directors on
areas for future consideration that have been, and will be incorporated
into the annual Board schedule. Further details on this process can be
found on page 47.
If you should have any queries arising from this report, please do not
hesitate to contact me.
Eduardo Hochschild
Chairman
7 March 2017
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
At all times during the year, the Board comprised a majority of
Independent Non-Executive Directors. At the end of the year, the Board
comprised the Chairman, the Chief Executive Officer and seven Non-
Executive Directors, of whom six are considered, by the Board, to be of
independent judgement and character.
Chairman and Chief Executive
The Board is led by the Chairman, Eduardo Hochschild who is also the
majority shareholder of the Company with a 54% holding.
The Board has approved a document which sets out the division of
responsibilities between the Chairman and Chief Executive Officer. This
document was last reviewed and amended by the Board in 2015 in light
of the change in Eduardo Hochschild’s role to Non-Executive Chairman.
As Chairman, Eduardo Hochschild is responsible for leading the Board of
Directors and ensuring that the Board is enabled to play a full and
constructive part in the development and determination of the Group’s
strategy and overall commercial objectives.
Ignacio Bustamante, as the Chief Executive Officer, is responsible for the
formulation of the vision and long-term corporate strategy of the Group
the approval of which is a matter for the full Board.
The Chief Executive Officer is responsible for leading an executive team
in the day-to-day management of the Group’s business.
Corporate governance report
Dear shareholder
One of my key roles as Chairman is to ensure that the Board operates
effectively with the right set of skills demanded of us as Directors to
ensure that we can oversee the successful implementation of the
Group’s strategy.
After the challenges faced by the business in the aftermath of the
significant falls in silver and gold prices, the relative trading stability of
2016 provided the Board with a fuller opportunity to review its
effectiveness and to implement the succession plan that had been put
on hold.
As reported more fully in the Nominations Committee report below, we
were delighted to be able to announce the appointments of Eileen
Kamerick and Sanjay Sarma as Non-Executive Directors. These
appointments were made with succession in mind since, as already
announced, Roberto Dañino and Nigel Moore will be stepping down at
the forthcoming Annual General Meeting. Both have served as Directors
since the Company’s listing in 2006 and the Board has benefited
enormously from their contributions.
A key aspect of the Corporate Governance Code is the ongoing
refreshing of the Board and hence, Eileen and Sanjay’s appointments
will bring not only added diversity to the Board, but also different
perspectives given their background and professional experience; in the
case of Eileen, in relation to matters of audit and risk, and in the case of
Sanjay, the potential for innovation within the mining industry.
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’) (2014 edition) in respect of the year ended
31 December 2016. 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 Guidance and
Transparency Rules are provided in the Supplementary Information
section on pages 54 to 56.
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 with the
exception that the Company did not fully comply with the requirement
that performance-related incentive schemes should include
arrangements to recover or withhold variable pay when appropriate to
do so (ie clawback or malus). As stated in the Directors’ Remuneration
Report, the Company reviewed the use of clawback during the year
which, following legal advice, would be difficult to enforce in the
countries in which we operate. As previously reported, malus is
incorporated in the Group’s incentive schemes, pursuant to which any
vested award may be reduced in the event of an unacceptable position
arising in relation to safety, environment, community and legal
compliance.
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.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
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 has taken into account the fact
that Jorge Born and Nigel Moore (the “IPO Non-Executive Directors”)
were appointed to the Board in 2006 shortly before the Company’s IPO
and have therefore served as Directors for more than nine years. This
being the case, however, the Board collectively feels that the tenure of
each IPO Non-Executive Director is not considered to be of a nature to
materially interfere with the exercise of his independent judgment.
As previously announced, Roberto Dañino and Nigel Moore will be
retiring from the Board at the conclusion of the forthcoming Annual
General Meeting.
Board meetings held in 2016
During the year, four scheduled Board meetings were held which were
attended by all directors. Directors usually receive a full pack of papers
for consideration at least five working days in advance of each scheduled
Board meeting. In the event a Director is unable to attend a Board or
Committee meeting, comments are encouraged to be fed back to the
Chairman of the relevant meeting who ensures that the absent
Director’s 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 2016 were:
Financial
• stress-tested financial projections in support of the going concern and
viability statements;
• considered recommendations of the Audit Committee to adopt the
2015 Annual Report and Accounts and the 2016 Half-Yearly Report
including the resumption of the interim dividend;
reviewing the Group’s ongoing financial position and alternative debt
financing options;
•
• appointment of RBC Europe as joint corporate broker; and
• the 2017 budget.
Strategy
• the Group’s strategic plan which was supplemented by a
presentation from the World Gold Council on the economic
conditions affecting the demand for gold and the outlook for the
metal; and
• presentation on the long-term trends impacting the markets for
metals and minerals.
In light of his majority shareholding, the Chairman is not considered to
be independent. However, during the one-to-one interviews conducted
with each Board member, the Directors continue to assert that no
undue influence is exercised.
The reasons for this are twofold. Firstly, the composition of the Board
ensures that the significant presence of Independent Directors ensures
that the views of minority shareholders are well represented. Secondly,
the undertakings provided in the Relationship Agreement (as described
below) ensure that the Company and its subsidiaries are capable of
carrying on their business independently of Eduardo Hochschild and his
associates.
The Relationship Agreement was reviewed by the Board in 2014
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,
incorporated revised independence provisions reflecting the language of
the New Listing Rules.
Under the terms of the agreement, each of Eduardo Hochschild and
Pelham Investment Corporation (being the entity through which
he holds his shares in the Company) (the “Major Shareholder”)
undertakes 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.
Certain confirmations are required to be given by the Board under the
New Listing Rules with regards to the Company’s compliance with the
independent provisions which can be found in the Directors’ Report on
page 42.
Senior Independent Director
Enrico Bombieri is the Senior Independent Director and, as such, acts as a
central point of contact for the Non-Executive Directors collectively but
also acts as a conduit between the Non-Executive Directors and the
executive management team.
Although no such meetings were held, Mr Bombieri makes himself
available to meet with major shareholders during the year if concerns
have not been addressed by the executive 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.
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Governance
Corporate governance report continued
Business performance
Appointments and re-election of Directors
• detailed updates on the operation of the Inmaculada mine and on
progress, by the Engineering Procurement Construction contractor,
with regards to outstanding works and other matters;
• status reports on the ongoing evaluation of the Pablo vein at
Board nominations are recommended to the Board by the Nominations
Committee. The process undertaken during the year in relation to the
appointment of Eileen Kamerick is further detailed in the Nominations
Committee report on page 51.
Pallancata;
• consideration of unbudgeted initiatives resulting in, among other
things, the acquisition of property close to the Pablo vein and the
incorporation of additional resources and reserves;
• oversight of performance against the Group’s long-term brownfield
•
objectives; and
reports on the ongoing review of the Group’s land portfolio and a
limited number of potential earn-in investment opportunities.
Risk
•
review of the significant risks faced by the Group and the
corresponding mitigation plans.
Governance
•
regular updates from the Company Secretary on relevant
developments in corporate governance including the regulatory
framework governing listed companies. This included the oversight of
revised policies and procedures to ensure the Company’s compliance
with the Market Abuse Regulation;
• an update on the implementation of the 2015 Board evaluation
recommendations, the outcome of the 2016 Board evaluation and
the form of the 2017 process;
• the annual reviews of Directors’ conflicts of interest and
independence of Non-Executive Directors;
• the appointments of Eileen Kamerick and Sanjay Sarma as
Independent Non-Executive Directors; and
• the adoption of updated terms of reference for the Audit Committee.
Sustainability
• presentations on the social and political climate in Peru and Argentina
and the potential impact on the Group;
• update on the community-led blockade which temporarily prevented
access to the Pallancata mine; and
• an evaluation of the alternative courses of action with regards to the
preparatory works in advance of the closing of the Ares tailings dam.
Personnel
• the results of the Organisational Climate survey measuring employee
satisfaction across the Group and the resulting development
opportunities identified.
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.
The Company has adopted the practice of seeking the annual re-election
of Directors in keeping with the UK Corporate Governance Code.
Biographies of the Directors can be found on page 40.
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.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
2016 BOARD EVALUATION
•
In keeping with past practice, the 2016 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 including those outlined below.
The Committees
Risk and Culture
• Composition and overall workings
• Specific aspects of each Committee’s role and scope of
responsibilities
The Board
• The composition of the Board, focusing on the skills mix after the
planned retirements from the Board
• The effectiveness of the Non-Executive Directors as a collective
• A review of the process of managing risk within the risk appetite of
the Board
• Exploring views on the Group’s corporate culture and the perceived
alignment between the culture around the Board table with that
across the organisation
In addition to the above, Directors were requested to provide feedback
on the performance of the Chairman and fellow Board members.
group
• The workings of the Board
• Strategic planning and governance
Company Secretary
Outcome
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 2015 Board evaluation
A number of actions were taken during the year following the 2015
Board evaluation process. These included:
•
re-formatting of the reports to the Corporate Social Responsibility
(‘CSR’) Committee to facilitate a better understanding of the CSR
related risks to which the Group is exposed;
• a wider benchmarking review of executive remuneration conducted
by the Remuneration Committee;
• suggestions on the form and content of the annual strategic review;
and
• a presentation to the Audit Committee on the Group’s IT security
framework.
2016 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 findings of the Chairman’s performance evaluation were collated by
Enrico Bombieri and put to the Non-Executive Directors before being
relayed to the Chairman.
The principal recommendations arising from the 2016 Board evaluation
process can be summarised as follows:
•
•
improved feedback between the Committees and the full Board,
particularly in relation to remuneration matters;
focus on the succession plans in place to ensure the development of
talent to Vice President level;
• the use of a third-party facilitator to support the annual strategic
session; and
• supplementing the monthly Board reports with additional
information to keep the Directors abreast of external perspectives on
the Company and the operations.
External Board evaluation
Since the process was introduced, the Directors unanimously consider
that it has resulted in a number of recommendations that have
improved the way the Board and the Committees function. For this
reason and the focus of the management team to control costs during
2016, an externally led evaluation was not undertaken. The Board
acknowledges the benefits of an external appraisal of the overall
governance structure and processes and, while it is minded to continue
using an internal evaluation, the format of the 2017 evaluation will be
kept under review.
The Board’s Committees
The Board has delegated authority to the Audit Committee, CSR
Committee, Nominations Committee and Remuneration Committee.
Reports from each of these committees on their activities during the
year appear on the following pages. Further information on the activities
of the CSR Committee and Remuneration Committee can be found in
the Sustainability Report and Directors’ Remuneration Report
respectively.
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Governance
Corporate governance report continued
Audit Committee
Dear Shareholder
I am pleased to introduce the report of the Audit Committee for
2016.
Areas of focus for the year
In addition to the usual matters considered by the Audit
Committee which are described later in this report, in 2016 we
looked at a variety of issues. For example, one of the key
responsibilities of the Committee is to ensure that processes are in
place to identify significant risks to the business and to oversee the
programme of the necessary mitigation plans. In this regard, the
Committee received a presentation in order to fully appreciate the
level of exposure to any form of unauthorised access to the Group’s
many IT systems.
Another significant matter during the year was the tender for the
Group audit engagement which the Committee decided to
organise given the rotation of the signing partner at EY, which has
been the Group’s auditors since 2006. The process commenced
with the issue of a Request For Proposal that was sent to
shortlisted audit firms who were selected on set criteria which
included proven expertise in the mining sector and more
fundamentally, a sizeable presence in Peru where the Group is
headquartered, as well as experience of auditing UK listed entities.
Presentations were then given to a Working Group comprising
members of the Audit Committee, the CFO and other senior
members of management. In conclusion, it was decided that Ernst
& Young LLP would be retained as the Group’s external auditors.
The performance of EY will of course continue to be closely
monitored by the Committee.
Finally, we welcomed Eileen Kamerick as an additional Committee
member from 1 November 2016; she will be succeeding me as
Audit Committee Chair following my retirement from the Board at
the forthcoming AGM.
Nigel Moore
Committee Chairman
Members*
Nigel Moore (Non-Executive Director and
Committee Chairman)
Michael Rawlinson (Non-Executive Director)
Eileen Kamerick (Non-Executive Director)
* during the year ended 31 December 2016
Maximum
possible
attendance
Actual
attendance
4
4
1
4
4
1
There were four meetings of the Audit Committee during the year.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
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 Auditor;
• To review the effectiveness of the external audit process; and
• 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 between 1973 and 2003 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.
All Committee members who served during the year under review are
considered to be independent Directors. Their biographical details can be
found on page 40.
In preparation for Nigel Moore’s retirement from the Board at the
forthcoming AGM, Eileen Kamerick was appointed to the Board and as a
member of the Committee on 1 November 2016. As part of the Board’s
succession plan, Eileen will succeed to the chair of the Audit Committee.
Eileen was formerly a CFO of a number of US companies and has chaired
and continues to chair, the Audit Committees of NYSE-listed companies.
For further details, please refer to the biographical details on page 40.
Attendees
The lead partner of the external Auditor, 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 2015 Annual Report and Accounts and the
2016 Half-Yearly Report were reviewed by the Committee before
recommending that they be adopted 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 of audit plans – In line with its usual practice, the Committee
considered reports from the external Auditor 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 35 to 38 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 quarterly report
from the Head of Internal Audit 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 – The Audit Committee continued to review and
challenge the actions taken by management to promote ethical and
transparent working practices.
• External audit – As described earlier in the Committee Chairman’s
letter, a tender for the Group’s audit engagement in Q1 2016 resulted
in the decision to retain Ernst & Young LLP as the Company’s external
Auditor. The Audit Committee oversees the relationship with the
external Auditor and, as part of this responsibility, the Audit
Committee reviewed the findings of the external Auditor and
management letters, and reviewed and agreed audit fees. The Audit
Committee evaluates the Auditor’s performance each year taking into
account 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 resulting in an action plan the execution of which is
assessed in the following year’s auditor evaluation.
• Auditor Objectivity – In light of the new Ethical Standard, the Audit
Committee considered and approved a revised form of Policy on the
Use of External Auditors for the Provision of Non-Audit Services (see
later section for more details).
• Governance – The Audit Committee received updates from the
Auditor and the Company Secretary on regulatory and other
developments impacting the Committee’s role. In addition, the
Committee reviewed its terms of reference during the year, which
were revised to reflect good market practice.
• 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 2016 resulted in:
• the tender for the Group audit engagement which resulted in the re-
appointment of Ernst & Young LLP as the Group’s external Auditor;
• continued focus on the Internal Audit function’s testing of the control
environment for any weaknesses resulting from the Cash
Optimisation Plan (the Group’s cost-reduction programme);
• closer oversight of the preparation of the Company’s first Viability
Statement; and
• a review of the Group’s IT security and assessment of the risk of
disruption or unauthorised access by third-parties.
During the year, the Committee members held meetings with the
external Auditor without executive management to discuss matters
relating to the 2015 annual audit and the 2016 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 2016
financial statements and how these issues have been addressed.
Impairments
The Audit Committee assessed management’s analysis which
concluded that there were no indicators of impairment (or impairment
reversals) in relation to the carrying value of tangible and intangible
fixed assets of the Group’s cash-generating units (‘CGUs’).
The Audit Committee challenged management’s evaluation and agreed
that in the absence of any such indicators, full impairment assessments
would not be required in respect of any of the Group’s CGUs except for
the Volcan project in Chile, which was tested for impairment as required
under IFRS and concluded that no impairment or reversal of impairment
would be required.
Going Concern Assessment
Due to the ongoing volatility of commodity prices, the Board and the
Committee (under its delegated authority) regularly considered
management forecasts on the Group’s financial position and thereby its
qualification as a going concern.
The Board has considered cash flow forecasts and undertaken sensitivity
analysis of the key assumptions.
The Audit Committee considered the processes undertaken by the
Auditor to obtain reassurance that supports the continued application
of the going concern methodology which included reviewing the key
assumptions.
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 43 for its confirmation to
shareholders on the appropriateness of the Going Concern assumption
and the Risk Management section of the Directors’ approach to the
longer term Viability Statement.
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 Auditor which
focused on:
• corroborating management’s assessments;
• 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 judgement exercised by
management in assessing the amounts required to be paid by the
Company to rehabilitate the Group’s mines which, in 2016 were
reviewed by an external consultant.
In its assessment of the analysis undertaken by management and the
independent third-party, the Audit Committee took into account:
• the basis of the estimation of future rehabilitation costs;
• the discount rate applied;
• 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 is appropriate.
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Governance
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 comprises:
•
•
reports from the Head of the Internal Audit function;
reviews 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 satisfied that
the internal controls are in place at the operational level within the
Group.
Board’s assessment
Risk Management
Throughout the year, the Board considered its risk appetite which was
considered to be appropriate. The Board confirms that its assessment of
the principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity,
and which are set out in the Risk Management & Viability section, was
robust.
Internal Control
As detailed above, the Board, through the delegated authority granted to
the Audit Committee, monitors the ongoing process by which critical
risks to the business are identified, evaluated and managed. This process
is consistent with the FRC’s ‘Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting’ published in 2014.
The Directors confirm that, with the support of the Audit Committee,
the effectiveness of the Company’s system of risk management and
internal controls has been reviewed during the year under review. These
covered material controls, which included controls covering operational,
financial and compliance matters. The controls operated effectively
during the financial year although, as is the case for many large
companies, additional controls were implemented or further
strengthened during the year. The Audit Committee was made aware of
the control changes and there was no significant impact on the financial
results. The Directors confirm that no significant failings or weaknesses
were identified as a result of the review of the effectiveness of the
Group’s system of internal control.
Corporate governance report continued
Related Party Transactions
The Audit Committee considered the accounting aspects of the
transaction undertaken during the year by which the Group facilitated a
donation of $1m to the Universidad de Ingenieria y Tecnologia (“UTEC”),
an educational establishment considered to also be under the control of
Eduardo Hochschild, the Company’s major shareholder.
The Audit Committee assessed the work carried out by the Auditor
which confirmed that all of the required disclosures are appropriate and
have been included in the financial statements.
Auditor independence
The Audit Committee continues to oversee the implementation of
specific policies designed to safeguard the independence and objectivity
of the Auditor, which includes the Group’s policy on the provision of
non-audit services.
Policy on the use of Auditor for non-audit services
Following the issue of the new consolidated Ethical Standard for
Auditors by the Financial Reporting Council, the Audit Committee
adopted a revised Policy on the use of the Auditor for non-audit services
(the “Revised NAS Policy”).
The Revised NAS Policy lists those non-audit services that the external
Auditor is specifically prohibited from providing. In summary, these
include (a) tax services; (b) bookkeeping; (c) payroll services; (d)
designing or implementing internal control or risk management
procedures with regards to financial information or related technology
systems; (e) valuation services; (f) certain legal services; and (g) corporate
finance type services. Certain of these services may be provided by the
auditor subject to the satisfaction of certain criteria ensuring the
Auditor’s objectivity and the Audit Committee’s approval. The Revised
NAS Policy is more stringent than the preceding version since it now
requires (i) the Audit Committee and Chief Financial Officer to approve
all non-audit services undertaken by the external auditor and (ii) that the
cost of non-audit services rendered by the external Auditor, in any
financial year, cannot exceed 50% of the total audit fee for that year.
Safeguards
Additional safeguards to ensure auditor objectivity and independence
include:
• six-monthly reports to the Audit Committee from the Auditor
analysing the fees for non-audit services rendered; and
• an annual assessment, by the Audit Committee, of the Auditor’s
objectivity and independence in light of all relationships between the
Company and the audit firm.
2016 Audit and non-audit fees
Details of fees paid to the external Auditor are provided in note 31 to the
Consolidated Financial Statements.
Internal control and risk management
Whilst the Board has overall responsibility for the Group’s system of
internal control including risk management and for reviewing its
effectiveness, responsibility for the periodic review of the effectiveness
of these controls has been delegated to the Audit Committee.
Notwithstanding this delegation of authority, the Board continues to
monitor the strategic risks to which the Company is exposed in the
context of a risk appetite that is under continuous review.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Nominations Committee
Dear Shareholder
One of the key responsibilities of the Nominations Committee is
the implementation of a succession plan that will see a refreshing
of skills around the Board table and a diversity of approaches that
will enhance our collective ability to oversee the delivery of the
Group’s strategy.
We were therefore delighted that in preparation for Nigel Moore’s
retirement at the forthcoming AGM, we were able to announce the
appointment of Eileen Kamerick as a Non-Executive Director who
will assume the chair of the Audit Committee in May 2017. Eileen’s
appointment was the culmination of an extensive search process
overseen by the Nominations Committee which I detail later in this
report. We were also very fortunate to secure the appointment of
Sanjay Sarma as an additional Non-Executive Director from 1
January 2017. As a Professor of Mechanical Engineering at MIT
with a personal interest in innovation in the mining industry,
Sanjay brings a new perspective to the Hochschild Board.
In addition, the Committee maintained its focus on the
development of the Directors’ knowledge through the provision of
briefings on various topics of relevance, including the outlook for
the commodity markets and changes to law and regulation
affecting Directors’ duties.
Eduardo Hochschild
Committee Chairman
Members
Eduardo Hochschild (Committee Chairman)
Jorge Born (Non-Executive Director)
Enrico Bombieri (Non-Executive Director)
Maximum
Possible
Attendance
Actual
Attendance
3
3
3
3
3
3
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
2016.
The Company Secretary acts as Secretary to the Committee.
Activity during the year
The principal matters considered during the year were:
• oversight of the selection of candidates to succeed Nigel Moore in
anticipation of his retirement from the Board;
• matters in connection with the appointments of Eileen Kamerick and
Sanjay Sarma as Non-Executive Directors including the review of any
conflicts of interest;
• the format of the 2016 Board evaluation process. As explained earlier
in this report, it was decided that in light of the extensive benefits
that have been brought about by past internally led-evaluations and
the ongoing focus on cost-control, the Board favoured the
continuation of this approach in 2016. The format of the 2017 Board
evaluation will, however, be kept under review; and
• the findings of the 2016 Board evaluation process (see earlier section
of the Corporate Governance report).
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 process of appointing Eileen Kamerick was undertaken by the
Committee with support from Ogers Berndtson who prepared a ‘long
list’ comprising a diverse list of potential candidates meeting prescribed
criteria. A subset of this long list was drawn up and initial interviews
were held by a working group established by the Committee.
The Committee subsequently discussed the results of the interviews
and, following a recommendation from the working group, Committee
members met with Eileen prior to recommending her appointment to
the Board.
Sanjay Sarma’s expertise and personal interest in mining innovation
were already known to the Board and therefore, in relation to his
appointment, neither search consultants nor open advertising were
used.
Diversity Policy
The Board acknowledges that diversity brings new perspectives which
can drive superior business performance and promote innovation.
However, as has been stated in past Annual Reports, the Board is keen to
commit to the overriding principle that every Board member and
potential appointee must be able to demonstrate the skills and
knowledge to be able to make a valued contribution to the Board. This
merits-based approach will continue to apply and the Board does not
intend to set diversity targets. As demonstrated by the most recent
appointments, where the opportunity also arises to increase Board
diversity (whether of gender, culture or professional background) this
would be considered to be an additional benefit.
www.hochschildmining.com
www.hochschildmining.com
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Governance
Corporate governance report continued
Corporate Social Responsibility Committee
Dear Shareholder
Despite making significant progress in safety across our operations
in 2016, it was with sincere regret that we reported on the two
fatalities that occurred at the Inmaculada mine in the early part of
2017. The Committee and indeed the Board as a whole are deeply
committed to ensuring the safety of our colleagues and we will
ensure that all necessary steps are taken on completion of the
internal review.
With regards to the environment, the Group has implemented
numerous initiatives to mitigate the impact of our operations.
The use of a new scorecard to measure our environmental
performance will be reflected in the remuneration of senior
employees and is one way in which we are looking to embed an
environmentally-conscious culture across the Group.
Details of the work we have done during the year with local
communities in the core areas of education, health and economic
development as well as the matters mentioned above can be
found in the Sustainability Report on pages 29 to 34.
Roberto Dañino
Committee Chairman
Members
Roberto Dañino (Committee Chairman)
Dr Graham Birch (Non-Executive Director)
Michael Rawlinson (Non-Executive Director)
Ignacio Bustamante (Chief Executive Officer)
Key roles and responsibilities
Maximum
possible
attendance
Actual
attendance
4
4
4
4
4
4
4
4
• 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
There were no changes to the membership of the Committee during
2016.
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 29 to 34.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Remuneration Committee
Dear Shareholder
The focus of the Remuneration Committee during 2016 was
threefold: firstly, to ensure that we offer our senior executives
levels of remuneration that are commensurate with those paid by
our peers which prompted a wide-ranging benchmarking analysis;
secondly that we seek to implement the shareholder-approved
Remuneration Policy in line with good market practice; and finally,
that we continue to monitor emerging practice with a view to
implementing a simple remuneration structure that aligns senior
executive pay with the successful achievement of the Group’s
objectives.
Further details on the Company’s remuneration policy, the
Committee’s work in 2016 and how we seek to reflect the
experience of our wider stakeholders in executive pay can be found
in the Directors’ Remuneration Report from page 57.
Enrico Bombieri
Committee Chairman
Members
Enrico Bombieri (Non-Executive Director &
Committee Chairman)
Dr Graham Birch (Non-Executive Director)
Nigel Moore (Non-Executive Director)
Sir Malcolm Field (Non-Executive Director)
Key roles and responsibilities
Maximum
possible
attendance
Actual
attendance
4
4
2
2
4
4
2
2
• 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
Sir Malcolm Field ceased to be a member of the Committee following his
retirement from the Board at the 2016 AGM on 20 May 2016 and Nigel
Moore was appointed a member on 11 August 2016.
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 from page 57.
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 2016
The following table summarises the principal means by which
management communicated with investors during the year:
Date
Event
January, April,
July, October
Conference calls following the Quarterly
Production Report
March
BMO Global Metals & Mining Conference
2015 Annual Results presentation
UK Roadshow
May
BoA Merrill Lynch Global Metals, Mining and Steel Conference
Annual General Meeting
August
2016 Half-Yearly Results presentation
September
UK Roadshow
Investor Day (London)
Denver Gold Forum
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 Chief Executive Officer is responsible for discussing strategy with
the Company’s shareholders and conveying their views to the other
members of the Board.
Other than through direct contact as detailed in the table above,
Directors are kept informed of major shareholders’ views through copies
of (i) relevant analysts’ and brokers’ briefings, (ii) voting
recommendation reports issued by institutional investor agencies, and
(iii) significant correspondence from shareholders with respect to the
business to be put to shareholder vote at General Meetings.
2016 AGM
Notice of the 2016 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) each of the Chairmen of the
Board Committees was 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
www.hochschildmining.com
www.hochschildmining.com
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Governance
Supplementary information
Introduction
References in this section to ‘the Articles’ are to the Company’s Articles
of Association as at the date of this report, copies of which are available
from the Registrar of Companies or on request from the Company
Secretary.
References in this section to ‘the Companies Act’ are to the Companies
Act 2006.
Share capital
Issued share capital
The issued share capital of the Company as at 1 January 2016 was
505,571,505 ordinary shares of 25 pence each (‘shares’). During the year
a total of 1,660,805 shares were issued following the vesting of the first
tranche of awards granted under the Company’s Restricted Share Plan
taking the issued share capital, as at 31 December 2016, to 507,232,310
shares.
The Hochschild Mining Employee Share Trust (‘the Trust’) is an employee
share trust established to hold shares 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 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 2016, the Company had been notified of the
following interests in the Company’s shares in accordance with Chapter
5 of the Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules:
Eduardo Hochschild
Vanguard Precious Metals
and Mining Fund
Number of
ordinary shares
274,065,3731
Percentage of
voting rights
(indirect)
Percentage of
voting rights
(direct)
–
54.03%
29,550,423
–
5.83%
1 The shareholding of Mr Eduardo Hochschild is held through Pelham Investment
Corporation.
The Company has been notified of the following additional interest as at
7 March 2017.
Number of
ordinary shares
Percentage of
voting rights
(indirect)
Percentage of
voting rights
(direct)
Van Eck Associates Corporation
25,505,678
–
5.03%
Current share repurchase authority
The Company obtained shareholder approval at the AGM held in May
2016 for the repurchase of up to 50,557,150 shares which represented,
at that time, 10% of the Company’s issued share capital (‘the 2016
Authority’). Whilst no purchases have been made by the Company
pursuant to the 2016 Authority, it is intended that shareholder consent
will be sought on similar terms at this year’s AGM when the 2016
Authority expires.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Additional share capital information
This section provides additional information as at 31 December 2016.
(a) Structure of share capital
The Company has a single class of share capital which is divided into
ordinary shares of 25 pence each, which are in registered form.
Further information on the Company’s share capital is provided in note
27 to the Consolidated Financial Statements.
(b) Rights and obligations attaching to shares
The rights attaching to the ordinary shares are described in full in the
Articles.
In summary, on a show of hands and on a poll at a general meeting or
class meeting, every member present in person or, subject to the below,
by proxy has one vote for every ordinary share held. However, in the case
of a vote on a show of hands, where a proxy has been appointed by
more than one member, the proxy has one vote for and one vote against
if the proxy has been instructed by one or more members to vote for the
resolution and by one or more members to vote against the resolution.
Members are entitled to appoint a proxy to exercise all or any of their
rights to attend and to speak and vote on their behalf at a general
meeting or class meeting. A member that is a corporation is entitled to
appoint more than one individual to act on its behalf at a general
meeting or class meetings as a corporate representative.
(c) Transfer of shares
The relevant provisions of the Articles state that:
•
registration of a transfer of an uncertificated share may be refused in
the circumstances set out in the CREST Regulations and where, in the
case of a transfer to joint holders, the number of joint holders to
whom the uncertificated share is to be transferred exceeds four;
• the Directors may, in their absolute discretion, decline to register any
transfer of any share which is not a fully paid share. The Directors may
also decline to recognise any instrument of transfer relating to a
certificated share unless the instrument of transfer:
(i) is duly stamped (if required) and is accompanied by the relevant
share certificate(s) and such other evidence of the right to transfer
as the Directors may reasonably require; and (ii) is in respect of only
one class of share. The Directors may, in their absolute discretion,
refuse to register a transfer if it is in favour of more than four persons
jointly; and
• the Directors may decline to register a transfer of any of the
Company’s shares by a person with a 0.25% interest, if such a person
has been served with a notice under the Companies Act after failure
to provide the Company with information concerning interests in
those shares required to be provided under the Companies Act.
(d) Restrictions on voting
No member shall be entitled to vote at any general meeting or class
meeting in respect of any shares held by him 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
(b) Long-Term Incentive Plans
Awards made under the Group’s Long-Term Incentive Plan, Enhanced
Long-Term Incentive Plan and Restricted Share 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.
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
Matter
Location
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
Interest capitalised
Note 16 to the consolidated
financial statements
Publication of unaudited financial
Not applicable
information
Details of specified long-term
None
incentive scheme
Waiver of emoluments by a director Directors’ Remuneration
Waiver of future emoluments by a
As (5) above
director
Report
Non pre-emptive issues of equity for
None
cash
Item (7) in relation to major
subsidiary undertakings
None
Parent participation in a placing by a
None
listed subsidiary
(10)(a)
Contract of significance in which a
None
director is interested
(10)(b)
Contract of significance with
None
controlling shareholder
(11)
(12)
(13)
(14)
Provision of services by a controlling
Directors’ Report
shareholder
Shareholder waivers of dividends
Directors’ Report
Shareholder waivers of future
Directors’ Report
dividends
Agreement with controlling
Directors’ Report
shareholder
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.
Significant agreements
A change of control of the Company following a takeover bid may cause
a number of agreements to which the Company, or any of its trading
subsidiaries, is party to take effect, alter or terminate. Such agreements
include commercial trading contracts, joint venture agreements and
financing arrangements. Further details are given below of those
arrangements where the impact may be considered to be significant in
the context of the Group.
(a) $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 Compañía Minera Ares S.A.C.; or
(6) the adoption of a plan relating to the liquidation or dissolution of
Compañía Minera Ares S.A.C.
www.hochschildmining.com
www.hochschildmining.com
55
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Governance
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
paripassu rights for losses arising from the payment of interim dividends
on other shares.
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 adopted the
recommendation of the UK Corporate Governance Code that all
Directors should seek annual re-election by shareholders.
2014 Listing Rules
Following the implementation, in 2014, of new Listing Rules by the
Financial Conduct Authority (in its capacity as the UK Listing Authority),
as a company with a controlling shareholder, 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.
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56
Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Directors’ remuneration report
Dear Shareholders
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ending 31 December 2016.
This report is split into three sections: the Annual Statement, the
Directors’ Remuneration Policy and the Annual Report on Remuneration.
The Remuneration Policy remains consistent with that approved by
shareholders at the 2015 AGM, and is reproduced in summary form to
provide context to the decisions taken by the Remuneration Committee
during the year. The Annual Report on Remuneration will be subject to
an advisory vote at the 2017 AGM.
In 2016, the Remuneration Committee focused on ensuring that
Hochschild Mining’s executive remuneration structure remains effective
whilst avoiding unnecessary complications. This has the dual benefit of
ensuring that our schemes are understood by both shareholders and
participants, whilst also driving strong corporate performance and
pay-performance alignment.
To this end, the Committee followed with great interest the
consultation launched by the Executive Remuneration Working Group
aimed at simplifying pay for senior management. In parallel, the
Committee has reviewed existing practices and, where considered
desirable, has adopted certain decisions to ensure that we operate our
incentives in line with good market practice. Such matters include the
calculation of annual bonuses with reference to the actual salary paid
during the year (and not the salary at the end of the year) and the
implementation of share ownership and share retention guidelines for
senior employees.
Having submitted our Remuneration Policy to shareholders for approval
at the 2015 Annual General Meeting, we will continue to monitor
developing remuneration trends and will seek to incorporate those
aspects considered to be of relevance in the policy to be published in our
2017 Remuneration Report.
I would encourage our shareholders to contact me through the
Company Secretary with any feedback on any parts of our existing
Remuneration Policy or any aspect of this year’s Remuneration Report.
I hope you find this report to be informative.
Enrico Bombieri
Chairman, Remuneration Committee
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 and
the Pensions and Lifetime Savings Association (formerly 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.
As no changes have been made to the Remuneration Policy, which
shareholders approved at the 2015 AGM, the full policy is not repeated
here. The Policy Table and service contracts/letters of appointment of
the Board are included below for information, and the full policy can be
found in the 2014 Annual Report and Accounts.
www.hochschildmining.com
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Governance
Directors’ remuneration report continued
Executive director remuneration policy table
Objective
Opportunity
Details
Performance metrics
Base salary
To support
recruitment and
retention
Benefits
To provide benefits in
line with market
practice in relevant
geographies
Salary is reviewed annually,
Any salary increases are applied in line with the
None
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.
outcome of the annual review.
To avoid setting expectations of Directors and
other employees, no maximum salary is set under
the Remuneration Policy. In respect of existing
Executive Directors, it is anticipated that any
salary increases will be in line with the wider
employee population over the term of this policy.
In exceptional circumstances (including, but not
limited to, a material increase in job size or
complexity), the Committee has discretion to
make appropriate adjustments to salary levels to
ensure they remain competitive.
None
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,
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 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 costs 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).
Performance measures,
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.
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.
Annual bonus
To achieve alignment
with the Group’s
strategy and
commitment to
operating responsibly
Maximising core
assets
To optimise life-of
mine and production
Exploration and
project
development
To develop a pipeline
of high quality
projects
Mergers &
acquisitions
To seek early stage
value accretive
opportunities with
strong geological
potential with a clear
path to control
Committed to
operating
responsibly
To be responsible
corporate citizens
Performance is determined by the Committee on an annual
basis by reference to Group financial measures, e.g. Adjusted
EBITDA, as well as the achievement of personal or strategic
objectives, for example production and social responsibility.
The financial and strategic/personal objectives are typically
weighted between 70% and 80% and 20% and 30% of
maximum, respectively. The Committee retains discretion to
vary the weightings +/- 20% for individual measures within the
financial element, to ensure alignment with the business
priorities for the year. Performance targets are generally
calibrated with reference to the Company’s budget for the year.
Each objective in the scorecard has a ‘threshold’, ‘target’ and
‘maximum’ performance target, achievement of which
translates into a score for each objective.
The Committee uses its judgement to determine the overall
scorecard outcome based on the achievement of the targets and
the Committee’s broad assessment of Company performance.
A review of the quality of earnings is conducted by the
Committee to determine whether any adjustments should be
made to the reported profit for the purpose of bonus outcomes.
This ensures that bonus outcomes are not impacted by
unbudgeted non-recurring or one-off items, or circumstances
outside of management’s control such as 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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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Executive director remuneration policy table continued
Opportunity
Objective
Details
Performance metrics
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
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
Executive Directors may be granted
The maximum cash
Vesting of LTIP awards is subject to continued employment and
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.
awards annually as determined by the
Committee.
The vesting of these awards is subject
to the attainment of specific
performance conditions.
Awards are in the form of cash. Awards
made under the LTIP have a
performance and vesting period of at
least three years.
If no entitlement has been earned at
the end of the relevant performance
period, awards lapse.
The CEO is required to invest at least
20% of vested LTIP awards into
Hochschild shares until such time as he
has accumulated a shareholding with a
value of 200% of salary.
the 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.
An award in the form of conditional
Awards vest based on the Company’s TSR performance compared
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.
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. No further awards
are intended to be granted
under this plan.
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.
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.
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.
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.
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Governance
Directors’ remuneration report continued
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.
Nigel Moore
Roberto Dañino3
Dr Graham Birch
Enrico Bombieri
Michael Rawlinson
Eileen Kamerick
Sanjay Sarma
Letter of Appointment dated
Anticipated expiry of present term of appointment
(subject to annual re-election)
30 January 2015
16 October 2006
16 October 2006
11 January 2011
20 June 2011
20 October 2012
18 December 2015
9 September 2016
13 December 2016
1 January 2019
16 October 2018
16 October 20182
1 January 20204
1 July 2017
1 November 2018
1 January 2019
1 November 2019
1 January 2020
1 Mr. Hochschild, previously Executive Chairman, became Non-Executive Chairman effective 1 January 2015.
2 Mr Moore will be retiring from the Board at the forthcoming AGM on 11 May 2017.
3 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 2015, the fee was waived in light of the challenging trading conditions faced by the Company. The fee was reinstated with effect from 1 January 2016.
4 Mr Dañino will be retiring from the Board at the forthcoming AGM on 11 May 2017.
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:
Objective
Details
Opportunity
Performance metrics
To attract and retain Non-
Executive Directors of the
highest calibre with broad
commercial and other
experience relevant to the
Company.
Fee levels are reviewed from time to time, with any
Non-Executive Director fee increases are applied in line with
None
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 2016 are set out
in the Annual Report on Remuneration on page 63.
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.
Annual report on remuneration
The following section provides details of how Hochschild’s Remuneration Policy was implemented during the financial year ending 31 December 2016.
Remuneration Committee membership
The Remuneration Committee is chaired by Enrico Bombieri and its other members are Graham Birch and Nigel Moore (from 11 August 2016).
Sir Malcolm Field was a member of the Committee until his retirement from the Board on 20 May 2016. All of the members of the Remuneration
Committee were, and continue to be, 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.
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Hochschild Mining plc Annual Report 2016
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 four times during the year (details of members’ attendance at meetings are provided in the Corporate
Governance report on page 52) and undertook the items of business noted below.
March 2016
• Confirmed the lapse of 2013 LTIP awards and the second tranche of 2011 ELTIP awards;
• Reviewed remuneration policy, including consideration of the wider application of malus provisions and the introduction of clawback, and
consideration of the Company’s shareholding guidelines for executives;
• Considered 2015 performance evaluation of CEO and the resulting bonus. In addition, the Committee noted the performance of, and bonuses for,
the Group’s Vice Presidents;
• Reviewed and approved the CEO’s salary for 2016;
• Considered and approved the 2015 Directors’ Remuneration Report; and
• Approved the grant of 2016 LTIP awards.
May 2016
• Reviewed feedback on the 2015 Directors’ Remuneration Report at the AGM;
• Considered developments in remuneration governance; and
• Reviewed senior executive remuneration benchmarking.
August 2016
• Further reviewed remuneration policy;
• Further reviewed senior executive remuneration benchmarking; and
• Considered provisional assessments in advance of the year-end with respect to the CEO’s 2016 performance evaluation.
December 2016
• Approved the Company’s shareholding guidelines for executives;
• Considered developments in remuneration regulation; and
• Considered provisional assessments in advance of the year-end with respect to:
• the CEO, CFO and COO’s 2016 performance evaluation;
• 2017 bonus objectives for the CEO;
• vesting of the first tranche of RSP awards;
• vesting of subsisting LTIP awards; and
• the proposed 2017 LTIP grant.
Advisers
During the year, in order to enable the Committee to reach informed decisions on executive remuneration, advice on market data and trends was
obtained from independent consultants, Kepler, a brand of Mercer (which is part of the MMC group of companies). Kepler reports directly to the
Committee Chairman, and is a signatory to and abides by the Code of Conduct for Remuneration Consultants (which can be found at
www.remunerationconsultantsgroup.com). Other than advice on remuneration, no other services were provided by Kepler to the Company (or any
other part of the MMC group of companies with the exception of unrelated insurance brokerage services). The fees paid to Kepler in respect of work
carried out in 2016 (based on time and materials) totalled £33,532, 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 2016 AGM
The table below shows the results of the advisory vote on the 2015 Annual Report on Remuneration at the AGM on 20 May 2016:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Note: Votes withheld are not included in the final proxy figures as they are not recognised as votes in law.
The current Remuneration Policy was approved by shareholders at the 2015 AGM, and received 74% support.
Annual Report on Remuneration
Total number
of votes
284,334,705
148,095,988
434,265,280
1,834,587
% of
votes cast
65.75%
34.25%
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Governance
Directors’ remuneration report continued
The Board is mindful of the shareholders who voted against the Annual Report on Remuneration, which related principally to the salary increase
awarded to the CEO in November 2015, and the use of year-end salary to calculate his bonus entitlement. As set out in the 2015 report, the salary
increase related to the commencement of production from Inmaculada in August 2015. The Committee believes the size of the increase is justified
in the context of market pay data which was reviewed again during 2016 as part of an extensive benchmarking analysis and strong Company and
individual performance. In respect of the bonus calculation, the Committee acknowledges that this approach may not be considered appropriate
where salary is reviewed later in the year, and has revised the approach to align with best practice with effect from 2016.
The Committee is committed to listening to and engaging with the views of our shareholders and takes an interest in voting outcomes. The
Committee will continue to be transparent in our remuneration decision-making and to engage with our shareholders on remuneration matters.
Single total figure of remuneration for executive directors (audited)
The table below sets out a single figure for the total remuneration received by Ignacio Bustamante, the only Executive Director, for the year ended 31
December 2016 and the prior year:
Base salary1
Taxable benefits2
Pension
Single-year variable3
Multiple-year variable4
Restricted Share Plan5
Profit share6
Total
2016
US$000
2015
US$000
792
42
–
875
904
779
–
584
44
–
700
–
–
–
3,392
1,328
1 Base salary includes compensation for time services as mandated by the Peruvian Government, and tax rebates in 2016 and 2015 based on a portion of salary.
2 Taxable benefits include: use of a car and driver (2016: US$36,066; 2015: US$37,840) and medical insurance.
3 Payment for performance during the year under the annual bonus plan. See following sections for further details.
4 Zero vesting for ELTIP based on performance to 31 December 2015 and 2016, zero vesting for the LTIP to 31 December 2015 and 90.4% vesting for the LTIP to 31 December 2016.
5 The first tranche of restricted shares granted on 30 December 2014 vested on 30 December 2016, at a share price of 211.5p.
6 All-employee profit share mandated by Peruvian law which, in light of the levels of taxable profit generated at the relevant entity level, has resulted in nil payout.
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 2016
and 2015:
Eduardo Hochschild1
Jorge Born Jr.
Nigel Moore
Roberto Dañino
Dr Graham Birch
Enrico Bombieri
Eileen Kamerick
Michael Rawlinson
Former directors
Sir Malcolm Field
Base fee
US$000
2015
400
77
77
77
77
77
–
–
77
2016
400
68
68
68
68
68
10
68
28
Additional
fees US$000
2016
2015
–
–2
143
2404
–
–6
–
–
–
–
–2
153
–4
–
–6
–
–
–
Benefits-in-
kind US$000
2015
339
2016
397
–
–
85
–
–
–
–
–
–
–
75
–
–
–
–
–
Other
US$000
2015
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$000
2015
739
77
92
84
77
77
–
–
77
2016
797
68
82
316
68
68
10
68
28
1 Eduardo Hochschild was an Executive Director until 31 December 2014, and as reported last year, Eduardo Hochschild retained eligibility to receive benefits following his transition to
the Non-Executive Chairman role.
2 Jorge Born originally waived his entitlement to an additional fee of £10,000 as Chairman of the Remuneration Committee in light of the challenging trading conditions faced by the
Company and continues to do so.
3 Nigel Moore’s additional fee relates to his role as Chairman of the Audit Committee.
4 Pursuant to a contract between Mr Dañino and the Group dated 28 December 2010, a fee of $240,000 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. The fee was waived in 2015 in light of the challenging trading conditions faced by the Company but was reinstated with effect from 1 January 2016.
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 medical
insurance in 2016 and 2015.
6 Enrico Bombieri originally waived his entitlement to additional fees totalling £20,000 as Senior Independent Director and Chairman of the Remuneration Committee in light of the
challenging trading conditions faced by the Company and continues to do so.
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Hochschild Mining plc Annual Report 2016
Salary and fee adjustments for the year ended 31 December 2016 (unaudited)
Following the base salary increase for the CEO effective 1 November 2015 the Committee determined that no increase would be awarded for 2016.
Executive Director
Ignacio Bustamante2
1
2
Includes compensation for time services (CTS).
Ignacio Bustamante’s salary is denominated in US dollars.
Base
salary1 from
1 March 2016
US$000
Base
salary1 from
1 November
2015
US$000
Percentage
increase
758
758
0%
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, Chairman of the Audit Committee and Senior Independent Director.
A summary of current fee levels is provided below:
Non-Executive Director fee
Chairman fee
Base fee
Additional fees
Fee from
1 Jan 2017
Fee from
1 Jan 2016
Percentage
increase
US$400,000
US$400,000
£50,000
£10,000
£50,000
£10,000
0%
0%
0%
The Chairman of the Remuneration Committee and the Senior Independent Director have each waived their rights to their additional fees.
Incentive outcomes for the year ended 31 December 2016 (audited)
Performance-related annual bonus in respect of 2016 performance
Objectives for the 2016 bonus were set by the Committee at the beginning of the year and a provisional assessment of performance during the year
was undertaken at the December Committee meeting, which was confirmed in March 2017.
Further details of the bonuses paid for 2016, including the specific performance metrics, weightings and performance against each of the metrics,
are provided in the table below:
Objective
KPI
Profitable production and
financial results
Safety awareness
Production
EBITDA1
All-in Sustaining Cost (AISC)1
Sustaining capex
Frequency rate
Severity rate
1 Adjusted as described in the final paragraph below.
Target
weighting
35%
18%
12%
10%
15%
10%
Targets
Threshold
Target
Maximum
US$175m
US$13.2 Oz
US$115m
2.18
540
32m Oz Aq Eq
US$181m
US$13.0 Oz
US$109m
2.08
450
US$191m
US$12.8 Oz
US$99m
1.98
300
Performance
assessment
35.5m Oz Ag Eq
US$219.9m
US$12.4 Oz
US$97.4m
2.20
137.71
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 judgement in determining the actual bonus awarded.
The Committee assessed performance against the scorecard and the CEO’s performance in 2016. A number of adjustments were made in line with
the Company’s usual practice to maintain the quality of earnings by primarily disregarding the impact of factors outside of management’s control
such as the price of silver and gold (as compared to the budgeted prices) and the impact of any hedging approved by the Board. The Committee’s
assessment of performance resulted in the award of a bonus to the CEO of 125% of salary (83.3% of maximum).
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Governance
Directors’ remuneration report continued
2014 LTIP Vesting
On 12 March 2014, Ignacio Bustamante was granted an award under the LTIP with a face value of US$1,000,000. 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 TSR1 performance vs. tailored peer group2
Relative TSR1 performance vs. Constituents of the
FTSE350 Mining Index
Weighting
70%
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 TSR is calculated on the average of local and common currencies.
2 Acacia Mining, Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold, Centamin Egypt, Cia des Minas Buenaventura, Coeur Mining, Eldorado Gold, Fresnillo, Gold Fields,
Goldcorp, Hecla Mining, Highland Gold, IAMGOLD, Kinross Gold, Newmont Mining, Pan American Silver, Petropavlovsk, Polymetal, Randgold Resources, and Silver Standard Resources.
The Committee has considered the extent to which the performance conditions attached to the 2014 LTIP award had been satisfied. Since the
Company’s TSR in the performance period between 1 January 2014 and 31 December 2016 ranked 73rd percentile versus that for the tailored peer
group and outperformed the median of the constituents of the FTSE350 Mining Index by c.21%, 90.4% of this award will vest on 12 March 2017,
subject to continued employment on that date.
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)
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
Performance conditions
Relative TSR performance
Upper decile (90th percentile): Full vesting
Upper quartile (75th percentile): 75% vesting
Median (50th percentile): 25% vesting
Straight-line vesting between these points
TSR comparator group
Acacia Mining, Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold, Centamin Egypt, Cia des Minas
Buenaventura, Coeur Mining, Eldorado Gold, Fresnillo, Gold Fields, Goldcorp, Highland Gold, IAMGOLD, Kinross Gold,
Newmont Mining, Pan American Silver, Petropavlovsk, Polymetal, Randgold Resources, and Silver Standard Resources
Subsequent to the year end, the Committee considered the extent to which the performance condition attached to the six-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 2016 ranked 48th
percentile versus that for the tailored peer group and, as a result, shares under this tranche will not vest. Shares under all three tranches of the 2011
ELTIP have now lapsed as the respective performance conditions were not met.
64
64
Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Scheme interests awarded in 2016 (audited)
LTIP
On 9 March 2016, Ignacio Bustamante was granted a cash-settled award under the LTIP with a face value of US$1,400,000.
Vesting is dependent on three-year relative TSR from 1 January 2016 to 31 December 2018, 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
Ignacio Bustamante
Grant
date
Performance
period
09.03.16
01.01.16 – 31.12.18
Face value of
award at grant
US$1,400,000
Award value for
minimum performance
US$350,000
Performance measure
Relative TSR1 performance vs. tailored peer group2
Relative TSR1 performance vs.
constituents of the FTSE350 Mining Index
Weighting
70%
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 TSR is calculated on the average of local and common currencies.
2 Acacia Mining, Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold, Centamin Egypt, Cia des Minas Buenaventura, Coeur Mining, Eldorado Gold, Endeavour Silver, First
Majestic Silver, Fortuna Silver Mines, Fresnillo, Gold Fields, Goldcorp, Hecla Mining, IAMGOLD, Kinross Gold, Newmont Mining, Pan American Silver, Petropavlovsk, Polymetal, Randgold
Resources, Silver Standard Resources, Tahoe Resources and Volcan Compania Minera.
Exit payments made in the year (audited)
No exit payments were made to Directors in the year.
Payments to past directors (audited)
No payments were made to past Directors in the year.
Implementation of remuneration policy for 2017
2017 remuneration arrangements will be implemented in line with the approved Remuneration Policy. Further details are provided below.
Salary
The Committee has determined that Ignacio Bustamante’s salary for 2017 will remain the same at US$758,333 (including CTS).
Annual bonus
The annual bonus for the 2017 financial year will operate on the same basis as in 2016 in that (a) the maximum bonus opportunity for the CEO will
be 150% of salary and (b) the payment will be subject to performance against broadly the same measures as those used in 2016 with the addition of
an objective on environmental performance which will be assessed using a wide ranging environmental scorecard. Further disclosure of measures
and targets, where not commercially sensitive, will be provided in next year’s Annual Report on Remuneration. The Remuneration Committee will
continue to retain discretion as to whether any part of the bonus should be paid in shares and/or deferred for any period up to three years.
LTIP
The Committee will make awards in 2017 within the maximum limits described in the Remuneration Policy. The performance conditions will be the
same as for 2016 awards The full comparator group is as follows: Acacia Mining, Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold,
Centamin Egypt, Cia des Minas Buenaventura, Coeur Mining, Eldorado Gold, Endeavour Silver, First Majestic Silver, Fortuna Silver Mines, Fresnillo,
Gold Fields, Goldcorp, Hecla Mining, IAMGOLD, Kinross Gold, Newmont Mining, Pan American Silver, Petropavlovsk, Polymetal, Randgold Resources,
Silver Standard Resources, Tahoe Resources, and Volcan Compañía Minera.
www.hochschildmining.com
www.hochschildmining.com
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65
Governance
Directors’ remuneration report continued
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 salary
Taxable benefits
Single-year variable
CEO remuneration US$000
2016
7922
42
8753
2015
5842
44
7003
Other employees1
% change
% change
36%
-4%
25%
6.5%
n/a
34%
‘Other employees’ comprise full-time salaried employees in Peru.
Includes compensation for time services as mandated by the Peruvian government, and tax rebates in 2016 and 2015 on a portion of salary.
1
2
3 The CEO’s bonus is calculated with reference to base salary only ie before CTS and tax rebates.
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 2015 to the financial year ended 31 December 2016.
Distribution to shareholders US$000
Employee remuneration US$000
2016
14,0001
2015
Nil
% change
n/a
2016
143,891
2015
139,765
% change
2.95%
1 Comprising the 2016 interim dividend and the proposed final dividend.
The Directors are recommending the payment of a final dividend of US$7m for the year ended 31 December 2016.
Pay for performance
The following graph shows the TSR for the Company compared to the FTSE350 Mining Index and FTSE 250 Index, assuming £100 was invested on
31 December 2008. The Board considers that the FTSE350 Mining Index is an appropriate published index as it reflects the sector that Hochschild
operates in, and the FTSE 250 Index provides a view of performance against a broad equity market index of which Hochschild has been a constituent
for the majority of the past eight years. The table below details the CEO’s single figure remuneration and actual variable pay outcomes over the
same period.
Historical TSR performance
£100 INVESTED IN HOCHSCHILD AND FTSE 350 MINING AND FTSE 250 INDICES ON 31 DECEMBER 2008
Growth in the value of a hypothetical £100 holding over eight years to 31 December 2016
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
31 Dec 15
31 Dec 16
Hochschild
FTSE250 index
FTSE350 Mining Index
CEO
CEO single figure of
remuneration ($000)
Annual bonus outcome
(% of maximum)
LTI vesting outcome
(% of maximum)
2009
Miguel
Aramburú
1,228
20101
2011
Miguel
Aramburú
1,019
Ignacio
Bustamante
1,525
Ignacio
Bustamante
1,120
2012
Ignacio
Bustamante
1,852
2013
Ignacio
Bustamante
999
2014
2015
Ignacio
Bustamante
924
Ignacio
Bustamante
1,328
2016
Ignacio
Bustamante
3,392
100%
46%
100%
100%
0%
0%
47%
0%
90%
98%
81%
0%
67%
0%
67%
83%
0% 0% (ELTIP) 90%
(LTIP)
1 Miguel Aramburú resigned on 31 March 2010. Ignacio Bustamante was appointed on 1 April 2010.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Directors’ interests (audited)
The interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2016 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
Owned outright or
vested at 31 Dec
2015 (or date of
appointment if
later)
Owned outright or
vested at 31 Dec
2016 (or date of
retirement if earlier)
166,710
531,751
274,065,373
274,065,373
–
68,750
275,000
33,750
–
–
–
–
68,750
275,000
33,750
–
–
–
19,641
19,641
Vested but subject
to holding period
0
–
–
–
–
–
–
–
–
–
Unvested and
subject to
performance
conditions
2,350,146
Shareholding
requirement (% of
salary)
200%
–
–
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Current
shareholding (% of
salary)
198%1
–
–
–
–
–
–
–
–
–
Requirement met?
No
–
–
–
–
–
–
–
–
–
Ignacio Bustamante
Eduardo Hochschild
Jorge Born Jr.
Nigel Moore
Roberto Dañino
Dr Graham Birch
Enrico Bombieri
Eileen Kamerick
Michael Rawlinson
Former directors
Sir Malcolm Field
1 Using the Company’s closing share price and GBP/USD exchange rate as at 30 December 2016 (being the last trading day of the year) of 211.5p and £1:$1.2329 respectively.
There have been no changes to Directors’ shareholdings since 31 December 2016.
Details of Directors’ interests in shares and cash awards under Hochschild’s long-term incentives are set out in the section following.
Directors’ interests in share options, shares and cash awards in Hochschild long-term incentive plans and all
employee plans
Date of
grant
Share price
at grant1
Exercise price
at grant
Number of
shares awarded1
Face value
at grant2
Performance
period
Vesting
date
Ignacio Bustamante
DBP3
DBP4
2014 ELTIP
2014 ELTIP
2014 ELTIP
2015 LTIP
2016 LTIP
RSP5
RSP
RSP
RSP
20.03.14
16.03.16
20.03.14
20.03.14
20.03.14
18.03.15
09.03.16
30.12.14
30.12.14
30.12.14
30.12.14
155p
87p
155p
155p
155p
n/a
n/a
77p
77p
77p
77p
Nil
Nil
Nil
Nil
Nil
n/a
n/a
Nil
Nil
Nil
Nil
66,727
80,766
269,030
269,030
538,062
n/a
n/a
298,314
298,314
298,314
596,630
£103,294
£69,930
n/a
n/a
£416,456
01.01.14 – 31.12.17
£416,456
01.01.14 – 31.12.18
£832,913
01.01.14 – 31.12.19
$1m
01.01.15 – 31.12.17
$1.4m
01.01.16 – 31.12.18
£229,046
£229,046
£229,046
£458,094
n/a
n/a
n/a
n/a
20.03.16
16.03.18
20.03.18
20.03.19
20.03.20
18.03.18
09.03.19
30.12.16
30.12.17
30.12.18
30.12.19
1 These figures have been updated for the October 2015 rights issue and, in the case of the share price at grant, the share price has been rounded to the nearest pence.
2 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).
3 Figures disclosed are for the 50% of the 2014 DBP award (which relates to the deferred portion of the 2013 annual bonus) which vested in March 2016.
4 50% of the 2016 DBP award (which relates to the deferred portion of the 2015 annual bonus) will vest in March 2017 and 50% in March 2018, subject to continued employment.
5 The first tranche of the 2014 RSP vested on 30 December 2016.
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 2016 (unaudited)
The table below details the fees received by Ignacio Bustamante, as the only Executive Director in office during 2016, in respect of his non-Group
directorships and which are retained by him.
Name of Company
Caral Edificaciones SAC
Profuturo AFP
Fee received
US$8,280
US$28,980
Signed on behalf of the Board
Enrico Bombieri
Chairman of the Remuneration Committee
7 March 2017
www.hochschildmining.com
www.hochschildmining.com
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Governance
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law the
Directors have prepared the financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the EU.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and the Parent Company and of their profit or loss for that period. In preparing those financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, Directors’ report, Directors’ remuneration
report and Corporate governance statement that comply with that law and those regulations. The Directors are responsible for the maintenance
and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
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Hochschild Mining plc Annual Report 2016
Independent auditor’s report to the members of Hochschild Mining plc
Our opinion on the financial statements
In our opinion:
• Hochschild Mining plc’s Group financial statements and Parent Company financial statements (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 2016 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union 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
Hochschild Mining plc’s financial statements comprise:
Group
Parent company
Consolidated statement of financial position as at 31 December 2016
Statement of financial position as at 31 December 2016
Consolidated income statement for the year then ended
Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income for the year then ended
Statement of cash flows for the year then ended
Consolidated statement of changes in equity for the year then ended
Related notes 1 to 13 to the financial statements
Consolidated statement of cash flows for the year then ended
Related notes 1 to 37 to the consolidated financial statements
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.
Overview of our audit approach
Risks of material
misstatement
• Recoverability of the carrying value of the Group’s mining assets
• Revenue recognition
• Mine rehabilitation provisions
Audit scope
• We performed an audit of the complete financial information of 3 of the 18 components and performed audit procedures on
Materiality
specific selected accounts of 2 additional components.
• The components where we performed full and specific audit procedures accounted for 99% of Adjusted EBITDA (as defined in the
Financial Review on page 27 of the Annual Report) on an absolute basis, 100% of revenue and 96% of total assets.
Overall Group materiality of US$6.3m (2015: US$2.6m) which represents approximately 2% of Adjusted EBITDA. The increase in the
materiality is primarily due to the improved financial performance as a result of the overall increase in prices and additional production
from Inmaculada.
www.hochschildmining.com
69
Governance Independent auditor’s report to the members of Hochschild Mining plc continued
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation
of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below
which were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these
individual areas.
Details of why we identified these risks of material misstatements and our audit response are set out in the below table. This is not a complete list
of all the procedures we performed in respect of these areas. The arrows in the table indicate whether we consider the financial statement risk
associated with this focus area to have increased, decreased or stayed the same compared to 2015.
Key observations communicated to the Audit Committee
As a result of the audit procedures performed, we have
concluded that management’s impairment indicator
analysis for the Group’s CGUs has been carried out
appropriately and in accordance with the requirements
of IFRS.
We concur with management’s analysis that there are
no impairment indicators nor impairment reversal
indicators present at 31 December 2016
and therefore a full impairment assessment is
not required.
We concur with management’s assessment that the
carrying value of the Volcan CGU is not impaired or
requires a reversal of impairment as at 31 December
2016.
We concluded that the related disclosures in the Group
financial statements are appropriate.
Risk
Our response to the risk
Recoverability of the carrying value
of the Group’s mining assets
Refer to the Audit Committee Report
(page 48); Accounting policies (page
81); and Notes 16, 17 and 18 to the
Consolidated Financial Statements.
At 31 December 2016 the carrying
value of property, plant and
equipment, evaluation and
exploration assets and intangible
assets was US$1,140.8m (2015:
US$1,211.7m).
IFRS requires companies to test their
assets by cash generating units
(CGUs) for impairment (or
impairment reversals) whenever an
indicator exist. An intangible asset
with an indefinite useful life is tested
for impairment at least annually and
whenever there is an indication that
the asset might be impaired.
As at 31 December 2016,
management assessed that there
were no impairment or impairment
reversal indicators present and
therefore no assessment of the
recoverable amount of the Group’s
mining assets has been performed.
Given the ongoing volatility in
commodity prices, we continue to
consider there is a risk that the
carrying values of the Group’s mining
assets, including property, plant and
equipment, exploration and
evaluation assets and intangible
assets might not be recoverable or
could require a reversal of
impairments previously recognised.
Our approach focused on the following procedures:
• Obtained an understanding of management’s process around
impairments and impairment reversals assessment, including
the effective implementation of all relevant controls.
• Audited management’s assessment of whether any indicators
of impairment under IAS 36 and IFRS 6 were present at
31 December 2016, including a challenge of the validity and
completeness of the indicators and consulted with our
valuation specialist where appropriate:
• Compared and assessed the changes to the spot and
analyst forecasts of future gold and silver prices as at
31 December 2016 and 31 December 2015;
• Obtained relevant support of management’s position on
market interest rates and other macro-economic factors,
in particular whether the economic changes in the
Argentinian economy would suggest a potential indicator
of impairment; and
• Discussed with management the approved mine plans or
budgets, taking into account the updated reserves and
resources estimates.
• Obtained the recoverable value model from management for
the Volcan CGUs, which includes water permits (which are
deemed to have an indefinite useful life under Chilean law):
• Assessed the appropriateness of the methodology applied in
preparing the model;
• Tested the recoverable value model for accuracy, performed
sensitivity analyses on significant inputs, and challenged the
appropriateness of key assumptions as compared with third
party/independent sources or other evidence; and
• Compared the calculated recoverable value to the associated
carrying value, assessing whether any impairment charge or
reversal of previously recognised impairment charge is
required; and
• Considered the appropriateness, sufficiency, and clarity of the
impairment-related disclosures provided in the financial
statements and disclosures of sensitivities.
We performed audit procedures at the Group level over this risk
area covering 100% of the risk amount.
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Hochschild Mining plc Annual Report 2016
Key observations communicated to the Audit Committee
As a result of the procedures performed, we have been
able to conclude that the Group has appropriately
accounted for the revenue transactions in accordance
with IFRS, and the calculation of the provisional pricing
adjustment and the values of the realised loss on the
hedging arrangements have been performed in
accordance with the requirements of IFRS and the
Group’s accounting policies. We noted that in all cases
management’s assumptions and estimates were
reasonable.
As a result of the procedures performed we concluded
that the provisions for mine rehabilitation activities
have been recognised appropriately in accordance with
IFRS, and that all required disclosures have been
included in the Group financial statements. Based on
the information available, we consider that the
judgements and assumptions made by management
and the external specialists appear to be reasonable.
Risk
Our response to the risk
Revenue recognition
Our audit focused on the following procedures:
Refer to the Audit Committee Report
(page 48); Accounting policies (page
81); and Note 5 to the Consolidated
Financial Statements.
For the year ended 31 December
2016 the Group recognised revenue
from operations of US$688.2m
(2015: US$469.1m).
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, risks and rewards
pass to the customer increases the
risk of measurement and cut-off
errors. We have also identified risks in
relation to the calculation of the
adjustment for provisional pricing,
including the estimate of silver and
gold in the concentrate sold.
• Obtained an understanding of the key controls around the
revenue recognition process to ensure that they were designed
and implemented effectively, supporting the prevention,
detection or correction of material errors in the reported
revenue figures;
• Tested the operating and effectiveness of key controls (where
this was deemed a more efficient approach than substantive
testing), including those controls over provisional pricing;
• Read the terms and conditions of material sales contracts and
ensured they have been accounted for in line with the Group’s
revenue recognition policy;
• Performed detailed substantive testing procedures over the
revenue transactions, including cut-off testing to ensure
revenue is recognised in the correct period;
• For open sales where provisional pricing applies, we compared
the fair value price assumption to market forward rates and
recalculated the provisional price adjustment to ensure that
this item was properly measured. Also we performed a
subsequent review for the sales closed near the date of
reporting to check that the final amounts issued on sale
settlement are materially consistent with the estimation made
at year-end;
• For the silver and gold price hedging arrangements entered
during the year, we engaged an EY internal specialist to audit
management’s hedging documentation, forming an
independent view that the application of hedge accounting
was appropriate. We also recalculated the resulting realised
losses recognised within revenue;
• Tested reconciliation of year-end inventory (additional cut-off
procedures) by agreeing the movements of production and
sales transactions to the respective reports; and
• Reviewed the financial statements to assess whether all
required disclosures in respect of revenue and the provisional
pricing have been included in the Group financial statements.
We performed audit procedures in two components under full
scope audit, covering 100% of this risk amount.
Mine rehabilitation provisions
Our approach consisted of the following procedures:
Refer to the Audit Committee Report
(page 48); Accounting policies (page
81); and Notes 26 to the Consolidated
Financial Statements
At 31 December 2016 management
has recorded a mine rehabilitation
provision of US$102.4m (2015:
US$120.1m).
Management is required to provide
for the costs of environmental
rehabilitation and site restoration in
accordance with IAS 37 ‘Provisions,
contingent liabilities and contingent
assets’.
Given the high level of judgement
and estimation applied in assessing
the method, timing and quantum of
the cash flows required to
rehabilitate mines, this is an area of
audit focus. We noted that the
provision has decreased and
therefore we challenged
management’s measurement.
• Obtained an understanding of management’s process to
calculate the future restoration costs;
• Obtained and read copies of the mine closure reports issued by
the external specialists engaged by the Group to update the
mine closure plans, and held discussions directly with the
specialists, to understand their work and assess the sufficiency
of the Group’s restoration provisions;
• Reviewed any significant changes in estimates or new
restoration costs and challenged the rationale behind the
updates;
• Assessed the objectiveness and completeness of the external
and internal specialists used by management;
• Audited the significant changes in estimates and challenged
the reasoning behind these. For this purpose we held
discussions with management and the third-party specialist as
well as performed comparison to prior year figures and
enquired about significant variances;
• Performed an overall recalculation of the provision, including
challenging the discount rate applied; and
• Assessed the accounting for the changes to these provisions,
and ensured that these changes and the provisions were
appropriately reflected and disclosed in the Group financial
statements.
We performed audit procedures in two components under full
scope audit, covering 100% of this risk amount.
www.hochschildmining.com
71
Governance Independent auditor’s report to the members of Hochschild Mining plc continued
As part of our audit, 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. The above is not a complete list of all risks identified by
our audit.
Our audit approach and assessment of risks of material misstatements change in response to changes in circumstances affecting the Hochschild
Mining plc business and impacting the Group financial statements. Since the 2015 audit, we have made the following change to our risks of
material misstatements:
• The risk relating to the recoverability of the carrying value of the Group’s mining assets has been reduced relative to the prior year as no
impairment assessment of the recoverable value of the Group’s mining assets was performed (excluding intangible assets with indefinite
useful life), as there were no impairment or impairment reversal indicators present as at 31 December 2016.
• As at 31 December 3016, the mine rehabilitation provision decreased by US$17.0m mainly as a result of the review performed by external
specialists. We now consider mine rehabilitation provision to be a risk of material misstatement given it had the greatest effect on the
allocation of resources in the audit and directing the efforts of the engagement team.
• We no longer consider ‘Going concern’ to be a risk of material misstatement on the basis of the higher level of operating cash inflows and
improved net cash positions of the Group, as compared to the prior year.
• We no longer consider ‘Tax contingencies’ to be a risk of material misstatement as there have been no significant changes from prior year in
terms of timing and potential impact that could have a significant effect on the risk arising from tax exposures. Consequently, this issue no
longer has the greatest effect on the allocation of resources in the audit.
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size,
the organisation of the group and effectiveness of group-wide controls, the industry in which the Group operates, changes in the business
environment and other factors, such the risks of material misstatement, when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the Group financial statements, of the 18 reporting components of the Group, we selected three components covering
entities within the UK, Peru and Argentina, which represent the principal business units within the Group. On these components we performed
an audit of the complete financial information (“full scope components”) which were selected based on their size or risk characteristics.
In addition to this, at the Group level we performed audit procedures on specific accounts on two components that we considered had the
potential for the greatest impact on the significant accounts in the Group financial statements either because of the size of these accounts or
their risk profile (“specific scope components”).
The reporting full scope and specific scope components where we performed audit procedures accounted for 97% (2015: 97%) of the Group’s
Adjusted EBITDA (on an absolute basis), 100% (2015: 100%) of the Group’s revenue and 96% (2015: 97%) of the Group’s total assets.
The remaining components represent 3% of the Group’s Adjusted EBITDA and none is individually greater than 1% of the Group’s Adjusted
EBITDA. For these components, we performed other procedures, including analytical review and testing of consolidation journals to respond to
any potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams:
ADJUSTED EBITDA
REVENUE
TOTAL ASSETS
3%
4%
6%
97%
100%
90%
Full scope components
Other procedures
Full scope components
Full Scope
Specific Scope
Other procedures
72
Hochschild Mining plc Annual Report 2016
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components
by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. Of
the three full scope components, audit procedures were performed on two directly by the Peruvian and Argentinian EY member firms, while the
third component was audited by the Group team.
For the components, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to
determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.
The Group audit team continued to follow a programme of planned visits that is designed to ensure that the Senior Statutory Auditor visits each
of the primary operating locations where the Group audit scope was focused. The primary audit team and Senior Statutory Auditor visit the Peru
operating location twice every year, and the Argentina operating location is visited at least once every two years. During the current year’s audit
cycle, visits were undertaken to the component team in Peru. The last visit to the Argentina operating location was in February 2015 and next visit
is expected to take place in 2017. For all locations subject to a full audit, in addition to any location visits, the primary team interacted regularly
with the component teams during various stages of the audit and was responsible for the scope and direction of the audit process. The primary
team also participated in the component teams’ planning, discussed the audit approach with the component teams and any issues arising from
their work, reviewed key audit working papers and attended all closing meetings either in person or by call. The Group audit team tested the
consolidation process and carried out analytical procedures to confirm the 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
balances. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group
financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
US$6.3m
Performance materiality
US$4.7m
Reporting threshold
US$315k
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be US$6.3 million (2015: US$2.6 million), which is approximately 2% (2015: 2%) of Adjusted EBITDA.
We consider that Adjusted EBITDA provides us with an earnings-based measure that is significant to users of the financial statements on which
we could set our materiality. This was deemed to be a critical measure for users of the financial statements, given the focus on this metric by the
Group’s shareholders, investors and external lenders, specifically as an Adjusted EBITDA measure is used to assess the Group’s compliance with
key restrictive covenants on the Group’s borrowings.
Our materiality amount provides a basis for determining the nature and extent of risk assessment procedures, identifying and assessing the risk
of material misstatement and determining the nature and extent of further audit procedures. Materiality is assessed on both quantitative and
qualitative grounds.
• Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and
Starting basis
income tax
Adjustments
Materiality
• Add: Depreciation and amortisation in cost of sales and in administrative expenses
• Add: Exploration expenses other than personnel and other exploration related fixed expenses
• Add: Other non-cash expenses
• Adjusted EBITDA - US$329.0m
• Materiality: 2% of Adjusted EBITDA
www.hochschildmining.com
73
Governance
Independent auditor’s report to the members of Hochschild Mining plc continued
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment and the number and monetary
amounts of individual uncorrected misstatements identified in prior periods as well as the nature of the misstatements, our judgement was that
performance materiality for the Group was 75% (2015: 75%) of our planning materiality, namely US$4.7m (2015: US$2.0m). We have set
performance materiality at this percentage due to our understanding of the Group’s control environment and that there have been no significant
events that would alter our expectation that there is a low likelihood of misstatements that would be material individually or in aggregate to the
financial statements.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based
on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of
performance materiality allocated to components was US$3.8m to US$3.0m (2015: US$2.0m to US$1.1m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of US$315k (2015: US$130k),
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 68, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
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.
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
• based on the work undertaken in the course of the audit:
• 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; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
74
Hochschild Mining plc Annual Report 2016
Matters on which we are required to report by exception
ISAs (UK and Ireland)
reporting
We are required to report to you if, in our opinion, financial and non-financial information in the
Annual Report is:
We have no exceptions to report.
• 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
• otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies between our
knowledge acquired in the course of performing the audit and the Directors’ statement that they
consider the Annual Report and accounts taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the entity’s performance, business
model and strategy; and whether the Annual Report appropriately addresses those matters that we
communicated to the Audit Committee that we consider should have been disclosed.
Companies Act 2006
reporting
In light of the knowledge and understanding of the Company and its environment obtained in
the course of the audit, we have identified no material misstatements in the Strategic Report or
Directors’ Report.
We have no exceptions to report.
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.
Listing Rules review
requirements
We are required to review:
We have no exceptions to report.
• the directors’ statement in relation to going concern, set out on page 43, and longer-term viability,
set out on page 39; and
• the part of the Corporate Governance Statement relating to the Company’s compliance with the
ten provisions of the UK Corporate Governance Code specified for our review.
Statement on the Directors’ assessment of the principal risks that would threaten the solvency or
liquidity of the entity
ISAs (UK and
Ireland) reporting
We are required to give a statement as to whether we have anything material to add or to draw
attention to in relation to:
We have nothing material to add
or to draw attention to.
• the Directors’ confirmation in the Annual Report that they have carried out a robust assessment of
the principal risks facing the entity, including those that would threaten its business model, future
performance, solvency or liquidity;
• the disclosures in the Annual Report that describe those risks and explain how they are being
managed or mitigated;
• the Directors’ statement in the financial statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them, and their identification of any
material uncertainties to the entity’s ability to continue to do so over a period of at least twelve
months from the date of approval of the financial statements; and
• the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the
entity, over what period they have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable expectation that the entity will be able
to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
Mirco Bardella (Senior statutory auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
London
7 March 2017
Notes:
1 The maintenance and integrity of the Hochschild Mining plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on
the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
www.hochschildmining.com
75
Governance Financial Statements
Consolidated income statement
For the year ended 31 December 2016
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income
Other expenses
Impairment and write-off of non-current assets
Profit/(loss) from continuing operations before net finance
income/(cost), foreign exchange loss and income tax
Finance income
Finance costs
Foreign exchange loss
Profit/(loss) from continuing
operations before income tax
Income tax (expense)/benefit
Profit/(loss) for the year from continuing operations
Attributable to:
Equity shareholders of the Company
Non-controlling interests
Basic earnings/(loss) per ordinary share from continuing
operations for the year (expressed in US dollars per share)
Diluted earnings/(loss) per ordinary share from continuing
operations for the year (expressed in US dollars per share)
15
15
Year ended 31 December 2016
Year ended 31 December 2015
Before
exceptional
items
US$000
Exceptional
items
(note 11)
US$000
Before
exceptional
items
US$000
Exceptional
items
(note 11)
US$000
Total
US$000
Notes
Total
US$000
3,5
6
7
8
9
12
12
11
13
13
688,242
(487,702)
200,540
(47,979)
(9,193)
(14,175)
33,131
(13,858)
(278)
148,188
1,100
(30,541)
(1,800)
116,947
14
(47,641)
69,306
53,154
16,152
69,306
0.11
0.10
–
–
–
–
–
–
2,667
(10,675)
(1,634)
688,242
469,146
–
469,146
(487,702)
(403,657)
(1,514)
(405,171)
200,540
(47,979)
(9,193)
(14,175)
35,798
(24,533)
(1,912)
65,489
(38,148)
(9,255)
(21,729)
8,021
(15,264)
(1,514)
–
–
–
–
–
63,975
(38,148)
(9,255)
(21,729)
8,021
(15,264)
–
(207,146)
(207,146)
(9,642)
138,546
(10,886)
(208,660)
(219,546)
974
–
–
(8,668)
2,224
(6,444)
(7,604)
1,160
(6,444)
(0.02)
(0.01)
2,074
(30,541)
(1,800)
1,898
–
1,898
(31,414)
(1,486)
(32,900)
(5,627)
–
(5,627)
108,279
(46,029)
(210,146)
(256,175)
(45,417)
(20,370)
36,888
16,518
62,862
(66,399)
(173,258)
(239,657)
45,550
17,312
62,862
0.09
0.09
(61,852)
(172,758)
(234,610)
(4,547)
(500)
(5,047)
(66,399)
(173,258)
(239,657)
(0.14)
(0.38)
(0.52)
(0.14)
(0.38)
(0.52)
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Profit/(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 loss/(gain) on cash flow hedges
Deferred income tax relating to components of other comprehensive income
Other comprehensive (loss)/gain for the year, net of tax
Total comprehensive income/(expense) for the year
Total comprehensive income/(expense) attributable to:
Equity shareholders of the Company
Non-controlling interests
Notes
19
14
Year ended 31 December
2016
US$000
62,862
(249)
774
(66)
(39,989)
18,722
5,955
(14,853)
48,009
30,697
17,312
48,009
2015
US$000
(239,657)
(597)
(86)
104
35,887
(18,962)
(4,739)
11,607
(228,050)
(223,003)
(5,047)
(228,050)
76
76
Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Consolidated statement of financial position
As at 31 December 2016
ASSETS
Non-current assets
Property, plant and equipment
Evaluation and exploration assets
Intangible assets
Available-for-sale financial assets
Trade and other receivables
Income tax receivable
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Income tax receivable
Other financial assets
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital
Share premium
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
2016
US$000
As at
31 December
2015
US$000
Notes
16
17
18
19
20
28
21
20
36(e)
22
27
27
27
27
24
25
26
23
28
24
36(e)
25
26
975,483
138,985
26,379
991
25,717
–
1,027
1,045,516
138,171
27,981
366
10,187
47
–
1,168,582
1,222,268
57,056
68,120
20,988
–
139,979
286,143
70,286
124,827
20,384
21,267
84,017
320,781
1,454,725
1,543,049
224,315
438,041
(426)
223,805
438,041
(898)
(217,288)
(203,649)
258,269
702,911
90,442
793,353
1,266
291,073
106,121
25,000
65,971
489,431
98,484
1,726
36,312
5,406
30,013
171,941
661,372
218,093
675,392
90,113
765,505
20,379
339,778
121,402
25,000
64,274
570,833
101,892
1,141
94,760
6,115
2,803
206,711
777,544
1,454,725
1,543,049
These financial statements were approved by the Board of Directors on 7 March 2017 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
7 March 2017
www.hochschildmining.com
www.hochschildmining.com
77
77
Financial statements
Year ended 31 December
2016
US$000
2015
US$000
345,856
860
(27,074)
(3,355)
(214)
316,073
(126,495)
(3,478)
(14)
807
149
1,550
117
(127,364)
70,000
(177,431)
(17,736)
(6,998)
–
(132,165)
56,544
(582)
84,017
139,979
166,234
726
(36,445)
(2,538)
5,279
133,256
(216,188)
(6,861)
(612)
–
3
–
339
(223,319)
175,948
(209,173)
(964)
–
95,216
61,027
(29,036)
(2,946)
115,999
84,017
Notes
32
26
17
18
4
19
12
29
29
22
Financial Statements
Consolidated statement of cash flows
For the year ended 31 December 2016
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Payment of mine closure costs
Income tax (paid)/received, net
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
Net proceeds from sale of subsidiary
Proceeds from sale of available-for-sale financial assets
Proceeds from sale of other 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
Dividends paid to non-controlling interests
Dividends paid
Proceeds from issue of ordinary shares
Cash flows (used in)/generated from financing activities
Net increase/(decrease) in cash and cash equivalents during the year
Exchange difference
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
78
78
Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Consolidated statement of changes in equity
For the year ended 31 December 2016
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
US$000
Notes
Balance at 1 January 2015
170,389 396,021
(898)
Other comprehensive
income/(expense)
Loss for the year
Total comprehensive income/
(expense) for the year
–
–
–
Exercise of share options
27(a)
220
–
–
–
–
Issuance of shares
27(a)
53,196
46,812
Transaction costs related
to issuance of shares
Share -based payments
27(a)
27(c)
–
–
(4,792)
–
–
–
–
–
–
–
–
Unrealised
gain on
available-
for-sale
financial
assets
US$000
14
18
–
18
–
–
–
–
Other reserves
Unrealised
gain/
(loss) on
hedges
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
3,126
(13,005)
(210,046)
2,576
(217,335) 451,047
799,224
95,160
894,384
12,186
–
(597)
–
12,186
(597)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,607
–
11,607
–
11,607
–
(234,610)
(234,610)
(5,047)
(239,657)
11,607
(234,610)
(223,003)
(5,047)
(228,050)
(1,560)
(1,560)
1,340
–
–
–
–
–
3,639
3,639
–
100,008
–
316
(4,792)
3,955
–
–
–
–
–
100,008
(4,792)
3,955
Balance at 31 December 2015
223,805 438,041
(898)
32
15,312
(13,602)
(210,046)
4,655
(203,649) 218,093
675,392
90,113
765,505
Other comprehensive
income/(expense)
Profit for the year
Total comprehensive income/
(expense) for the year
–
–
–
Exercise of share options
27(a)
510
Dividends
Dividends to
non-controlling interests
29
29
Share-based payments
27(c)
–
–
–
–
–
–
472
–
–
–
–
–
–
–
–
–
Balance at 31 December 2016
224,315 438,041
(426)
740
708
(15,312)
(249)
–
–
–
708
(15,312)
(249)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14,853)
–
(14,853)
–
(14,853)
–
45,550
45,550
17,312
62,862
(14,853)
45,550
30,697
17,312
48,009
(2,223)
(2,223)
1,241
–
–
(6,998)
(6,998)
–
–
–
(6,998)
3,437
3,437
–
–
383
–
(16,983)
(16,983)
3,820
–
3,820
(13,851)
(210,046)
5,869
(217,288) 258,269
702,911
90,442
793,353
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Financial statements
Financial Statements
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
17 Cavendish Square, London W1G 0PH, 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 (Arcata, Pallancata and
Inmaculada) 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.
These consolidated financial statements were approved for issue by the Board of Directors on 7 March 2017.
The Group´s subsidiaries are as follows:
Company
Hochschild Mining (Argentina) Corporation S.A.
MH Argentina S.A.
Minera Santa Cruz S.A.1
Minera Hochschild Chile S.C.M.
Andina Minerals Chile Ltd.
Sociedad Contractual Minera Victoria2
Southwest Minerals (Yunnan) Inc.
Hochschild Mining Holdings Limited
Hochschild Mining Ares (UK) Limited
Southwest Mining Inc.
Southwest Minerals Inc.
HMX, S.A. de C.V.3
Minera Hochschild Mexico, S.A. de C.V.
Hochschild Mining (Peru) S.A.
Compañía Minera Ares S.A.C.
Compañía Minera Arcata S.A.
Empresa de Transmisión Callalli S.A.C.4
Asociación Sumac Tarpuy5
Empresa de Transmisión Aymaraes S.A.C.4
Minera Antay S.A.C.
Hochschild Mining (US) Inc.
Equity interest at
31 December
Principal activity
Holding company
Exploration office
Production of gold and silver
Exploration office
Exploration office
Exploration office
Exploration office
Holding company
Administrative office
Exploration office
Exploration office
Service company
Exploration office
Holding company
Production of gold and silver
Production of gold and silver
Power transmission
Not-for-profit
Power transmission
Exploration office
Holding company
Country of
incorporation
Argentina
Argentina
Argentina
Chile
Chile
Chile
China
England and Wales
England and Wales
Mauritius
Mauritius
Mexico
Mexico
Peru
Peru
Peru
Peru
Peru
Peru
Peru
USA
2016
%
100
100
51
100
100
–
100
100
100
100
100
–
100
100
100
99.1
–
–
100
100
100
2015
%
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
99.1
100
–
50
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 2016 and 2015 is as follows:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
Revenue
Profit/(loss) for the year and total comprehensive income
Net cash generated from operating activities
Net cash used in investing activities
Cash flow used in financing activities
As at 31 December
2016
US$000
216,124
107,196
(83,823)
(57,837)
(181,660)
235,961
35,262
102,923
(35,221)
(44,655)
2015
US$000
225,422
90,552
(90,518)
(44,397)
(181,059)
186,097
(10,290)
32,387
(33,966)
(893)
2016 and 2015: Profit 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.
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2 On 31 August 2016, Sociedad Contractual Minera Victoria was liquidated.
3 On 22 February 2016, HMX S.A. de C.V. was sold to a third party (see note 4).
4 On 1 June 2016, Empresa de Transmisión Aymaraes S.A.C. (“Aymaraes”) absorbed Empresa de Transmisión Callalli S.A.C. Although the Group’s interest in this company did not exceed
50% in 2015, it was considered as a subsidiary in accordance with IFRS 10, as the Group had 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.
5 Asociación Sumac Tarpuy (“Sumac Tarpuy”) is an unincorporated entity, which received donations from Compañía Minera Ares S.A.C. (‘Ares’), and spent this money at
the direction of Ares on community and social welfare activities located close to its mine units. Accordingly, the Group consolidated this entity. On 17 May 2016 Ares transferred all its
rights over Sumac Tarpuy to Inversiones ASPI S.A. (see note 4).
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 2016 and
2015 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 standard.
The financial statements are presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand ($000) except when
otherwise indicated.
The financial statements have been prepared on the going concern basis. Details of the factors which have been taken into account in assessing the
Group’s going concern status are set out within the Directors’ report.
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 2015. Amendments to standards and interpretations which came into force
during the year did not have a significant impact on the Group’s financial statements.
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 2017 or later periods but which the Group has not previously adopted. Those that are applicable to the Group
are as follows:
•
•
•
•
•
IFRS 15 Revenue from Contracts with Customers, applicable for annual periods beginning on or after 1 January 2018.
This standard outlines the principles an entity must apply to measure and recognise revenue. The Group is planning to apply the standard when it
becomes mandatory, analysing all the variables during the first quarter of 2017, including the method of implementation and the restatement of
the previous year financial information. IFRS 15 is not expected to have a significant effect on the financial statements.
IFRS 9 Financial Instruments, applicable for annual periods beginning on or after 1 January 2018.
IFRS 9 is the replacement of IAS 39 Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and
measurement, impairment, derecognition and general hedge accounting. IFRS 9 should be applied retrospectively in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors, subject to certain exemptions and exceptions. The Group do not anticipate a
significant effect over the financial statements.
IFRS 16 Leases, applicable for annual periods beginning on or after 1 January 2019.
IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting
model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low
value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its
predecessor, IAS 17.The Group is analysing the adoption of this new standard and expected not to have a significant impact on the Group´s
financial position or performance.
IAS 7 Statement of cash flows, applicable for annual periods beginning on or after 1 January 2017.
The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes
arising from cash flows and non-cash changes. The adoption of these amendments would not have impact on the Group´s financial position
or performance.
IAS 12 Income Taxes, applicable for annual periods beginning on or after 1 January 2017.
•
The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. Entities are
required to apply the amendments retrospectively. The adoption of these rules would not have impact on the Group´s financial position
or performance.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
2 Significant accounting policies continued
•
IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2, applicable for annual periods beginning on
or after 1 January 2018.
The amendments are related to the classification and measurement of share-based payment transactions and it does not require to restate prior
periods. The adoption of these amendments would not have impact on the Group´s financial position or performance.
The Group is analysing the effect of the standards and plans to adopt the new standards on the required effective date.
(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.
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 and resources 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 and
resources 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 and resources. Changes are accounted for prospectively.
• Determination of ore reserves and resources – note 2(g).
There are numerous uncertainties inherent in estimating ore reserves and resources. 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 resources and may, ultimately, result in the reserves and resources being
restated.
• Review of non-financial asset carrying values and impairment charges or reversals – 2(i), 16, 17 and 18.
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, evaluation and exploration assets, and intangibles.
• Estimation of the amount and timing of mine closure costs – notes 2(m) and 26.
The Group assesses its mine closure cost provision annually. Significant estimates and assumptions are made in determining the provision for
mine closure cost as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and
costs of rehabilitation activities, technological changes, regulatory changes, cost increases, mine life and changes in discount rates. Those
uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the balance sheet date
represents management’s best estimate of the present value of the future closure costs required.
• Significant estimates and assumptions for cash-settled transactions – notes 26(3).
The Group initially measures the cost of cash-settled transactions with employees using the Monte Carlo model to determine the fair value of the
liability incurred. The liability needs to be remeasured at the end of each reporting period up to the date of settlement, with any changes in fair
value recognised in the profit or loss. This requires a reassessment of the estimates used at the end of each reporting period, including the
anticipated potential changes to the Total Shareholder Return (‘TSR’) performance, the number of participants in the plan, and levels of interest
rates. The assumptions and models used for estimating fair value are discussed in note 26(3).
• Significant estimates and assumptions for assets classified as held for sale- note 23.
To determine whether an asset should be classified as an asset held for sale in accordance with IFRS 5, consideration should be given as to
whether the sale ‘highly probable’. The three main criteria are: There is a plan in place to sell the asset, the sale is due to complete within 12
months of the year end; and that it is unlikely that significant changes to the plan will be made or the sale withdrawn. As disclosed in note 23,
despite the final payment date for the sale of San Felipe property being within twelve months, all the three criteria to be considered “highly
probable” (as defined by IFRS 5) have not been met and therefore the property has not been classified as an assets held for sale.
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Critical judgements:
• Production start date.
The Group assesses the stage of each mine under development/construction to determine when a mine moves into the production phase, this being
when the mine is substantially complete and ready for its intended use.
The criteria used to assess the start date are determined based on the unique nature of each mine development/construction project, such as the
complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have
commenced. At this point, all related amounts are reclassified from ‘Construction in progress’ to the corresponding type of ‘Property, plant and
equipment.’ Some of the criteria used to identify the production start date include, but are not limited to:
• Level of capital expenditure incurred compared with the original construction cost estimate
• Completion of a reasonable period of testing of the mine plant and equipment
• Ability to produce product in saleable form (within specifications)
• Ability to sustain ongoing production of product
When a mine development project moves into the production phase, the capitalisation of certain mine development costs ceases and
costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to
mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that
depreciation/amortisation commences.
Based on the above criteria in determining when Inmaculada moved into the production phase, it was determined by management that
the start date was 1 August 2015.
• 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(r), 14, 28 and 34.
Judgement is required in determining whether deferred tax assets are recognised in 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.
Judgement is also required when determining the provision for taxes as the tax treatment of some transactions cannot be finally determined until
a formal resolution has been reached with the tax authorities. Provisions are also made for uncertain exposures which can have an impact on both
deferred and current tax. Tax benefits are not recognised unless it is probable that the benefit will be obtained and tax provisions are made if it is
possible that a liability will arise. The final resolution of these transactions may give rise to material adjustments to the income statement and/or
cashflow in future periods. The Group reviews each significant tax liability or benefit each period to assess the appropriate accounting treatment.
• Recognition of evaluation and exploration assets and transfer to development costs – notes 2(f), 16 and 17.
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; 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.
• Recoverable values of mining assets – notes 16, 17 and 18.
The values of the Group’s mining assets are sensitive to a range of characteristics unique to each mine unit. Key sources of estimation for all assets
include uncertainty around ore reserve estimates and cash flow projections. In performing impairment reviews, the Group assesses the
recoverable amount of its operating assets principally with reference to fair value less costs of disposal, assessed using discounted cash flow
models. There is judgement involved in determining the assumptions that are considered to be reasonable and consistent with those that would
be applied by market participants. Key judgements include the estimation of future gold and silver prices, mine production projections and the
application of discount rates which reflect the macro-economic risk in Peru and Argentina as applicable.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
2 Significant accounting policies continued
(c) Basis of consolidation
The consolidated financial statements set out the Group’s financial position, performance and cash flows as at 31 December 2016 and
31 December 2015 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 results 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.
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.
An NCI represents 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.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for the NCI,
and any previously interest held, over the net identifiable assets acquired and the liabilities assumed. 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.
(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.
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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.
(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 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 net 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. 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. In addition, the revenue generated by the sale of the inventory
produced during the pre-operating stage is recognised as a deduction of the costs capitalised for this project.
Construction in progress and capital advances
Assets in the course of construction are capitalised as a separate component of property, plant and equipment. Once the asset moves into the
production phase, 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.
(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.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
2 Significant accounting policies continued
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) Intangible assets
Right to use energy 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 that allow the holder to withdraw a specified amount of water from the ground for reasonable, beneficial
uses. This is an asset with an indefinite useful life.
Legal rights
Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development
and production. This is an asset with a finite useful life equal to that of the mine to which it relates and that is amortised applying the units of
production method for that mine.
Other intangible assets
Other intangible assets are primarily computer software which are capitalised at cost and are amortised on a straight-line basis over their useful life
of three years.
(i) 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 and evaluation and exploration assets.
If the carrying amount of an asset or its cash-generating unit (CGU) exceeds the recoverable amount, an impairment 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 (VIU) and fair value less costs of disposal (FVLCD) to sell. FVLCD is based
on an estimate of the amount that the Group may obtain in a sale transaction on an arm’s length basis. VIU is based on estimated future cash flows
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.
The recoverable values of the CGU are determined using a 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.
Reversal of impairment
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
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(j) 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.
(k) 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.
(l) 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.
(m) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow
of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time
value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognised as a finance cost.
Mine closure cost
Provisions for mine closure costs are made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation
costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the
accounting period when the related environmental disturbance occurs. The provision is discounted and the unwinding of the discount is included in
finance costs. At the time of establishing the provision, a corresponding asset is capitalised and is depreciated over future production from the mine
to which it relates. The provision is reviewed on an annual basis for changes in cost estimates, discount rates and operating lives.
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 related mine assets net of mine closure cost provisions exceed the recoverable value, that portion
of the increase is charged directly to the income statement. Similarly, reductions to the estimated costs exceeding the carrying value of the mine
asset, that portion of the decrease is credited directly to the income statement. For closed sites, changes to estimated costs are recognised
immediately in the income statement.
Workers’ profit sharing and other employee benefits
In accordance with Peruvian legislation, companies in Peru must provide for workers’ profit sharing equivalent to 8% of taxable income of each year.
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.
(n) 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 personnel expenses. 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 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.
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Notes to the consolidated financial statements continued
2 Significant accounting policies continued
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).
(o) Contingencies
Contingent liabilities are not recognised in the financial statements and are disclosed in notes to the financial statements 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.
(p) Revenue recognition
The Group is involved in the production and sale of gold and silver from doré and concentrate containing both gold and silver. Doré 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 gold and silver from doré and concentrate is recognised in the income statement when all significant risks and
rewards of ownership are transferred to the customer, usually when title has passed to the customer. Revenue excludes any applicable sales taxes.
The revenue is subject to adjustment based on inspection of the product by the customer. Revenue is initially recognised on a provisional basis using
the Group’s best estimate of contained gold and silver. Any subsequent adjustments to the initial estimate of metal content are recorded in revenue
once they have been determined.
In addition, certain sales are ‘provisionally priced’ where the selling price is subject to final adjustment at the end of a period, normally ranging
from 15 to 90 days after the start of the delivery process to the customer, based on the market price at the relevant quotation point stipulated
in the contract. Revenue is initially recognised when the conditions set out above have been met, using market prices at that date. The price exposure
is considered to be an embedded derivative and hence separated from the sales contract at each reporting date. The provisionally priced metal is
revalued based on the forward selling price for the quotational period stipulated in the contract until the quotational period ends. The selling price
of gold and silver can be measured reliably as these metals are actively traded on international exchanges. The revaluation of provisionally priced
contracts is recorded as an adjustment to revenue.
Income from services provided to related parties (note 30) is recognised in revenue when services are provided.
Deferred revenue results when cash is received in advance of revenue being earned. Deferred revenue is recorded as a liability until it is earned. Once
earned, the liability is reduced and revenue is recorded. The Group analyses when revenue is earned or deferred.
(q) Finance income and costs
Finance income and costs comprise interest expense on borrowings, the accumulation of interest on provisions, interest income on funds invested,
unwind of discount, 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.
(r) 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.
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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.
(s) Uncertain tax positions
An estimated tax liability is recognised when the Group has a present obligation as a result of a past event, it is probable that the Group will be
required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The provision is the best estimate of the
consideration required to settle the present obligation at the balance sheet date, taking into account risks and uncertainties surrounding the
obligation. Separate provisions for interest and penalties are also recorded if appropriate.
Movements in interest and penalty amounts in respect of tax provisions are not included in the tax charge, but are disclosed in the income
statement. Tax provisions are based on management’s interpretation of country specific tax law and the likelihood of settlement. This involves a
significant amount of judgement as tax legislation can be complex and open to different interpretation. Management uses in-house tax experts,
professional firms and previous experience when assessing tax risks. Where actual tax liabilities differ from the provisions, adjustments are made
which can have a material impact on the Group’s profits for the year. Refer to note 34(b) for specific tax contingencies.
(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(y)), as appropriate. The Group determines the classification of its financial
assets and liabilities at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. When financial
assets and liabilities are recognised initially, they are measured at fair value, being the transaction price plus, in the case of financial assets not at fair
value through profit or loss and borrowings, directly attributable transaction costs. The Group considers whether a contract contains an embedded
derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract if it is not measured at fair value
through profit or loss and when the economic characteristics and risks are not closely related to those of the host contract. Reassessment only occurs
if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. All regular way purchases
and sales of financial assets are recognised on the trade date, being the date that the Group commits to purchase or sell the asset. Regular way
transactions require delivery and receipt of assets within the timeframe generally established by regulation or convention in the marketplace. The
subsequent measurement of financial assets depends on their classification, as follows:
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss includes financial assets held for trading and financial assets designated upon initial recognition
as at fair value through profit and loss.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee
contract. Gains or losses on financial assets held for trading are recognised in the income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify
as trading assets and have not been designated as either fair value through profit and loss or available-for-sale. Such assets are carried at amortised
cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in the income statement when the
loans and receivables are derecognised or impaired, as well as through the amortisation process.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not classified as loans and receivables,
held-to-maturity investments or financial assets at fair value through profit and loss. After initial recognition, available-for-sale financial assets are
measured at fair value with unrealised gains or losses being recognised as a separate component of equity until the investment is derecognised
or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the
income statement.
Loans and borrowings
Borrowings are recognised initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured
at amortised cost using the effective interest rate method.
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Financial Statements
Notes to the consolidated financial statements continued
2 Significant accounting policies continued
Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 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.
Available-for-sale financial assets
For available-for-sale (AFS) 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.
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
Dividends on the Company’s ordinary shares are recognised when they have been appropriately authorised and are no longer at the Company’s
discretion. Accordingly, interim dividends are recognised when they are paid and final dividends are recognised when they are declared following
approval by shareholders at the Company’s Annual General Meeting.
(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.
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(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 or write offs of assets, assets held for sale, property, plant and equipment and evaluation and exploration assets;
• gains or losses arising on the disposal of subsidiaries, investments or property, plant and equipment;
fair value gains or losses arising on financial instruments not held in the normal course of trading;
•
• any gain or loss resulting from restructuring within the Group;
• taxes and interests owed by the Group following a change in circumstances surrounding tax disputes, resulting in the exposure being assessed
as probable;
• the impact of infrequent labour action related to work stoppages in mine units;
• the penalties generated by the early termination of agreements with providers of the Group;
• the reversal of an accumulation of prior year’s tax expenses that resulted from an agreement with the government; and
• the related tax impact of the above items.
(y) Hedging
The Group uses commodity swaps and zero cost collar contracts 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 these forward contracts is determined by reference to market values for similar instruments.
These forward contracts 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 transaction.
At the inception of a hedging relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to
apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification
of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such
hedges are expected to be highly effective in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine their
effectiveness in the financial reporting periods for which they were designated.
Where the commodity forward contracts 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. In the case of zero
cost collar contracts, the time value has to be accounted for at fair value through profit or loss, in consequence the change in the time value will
be recognised 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.
(z) 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 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.
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Financial Statements
Notes to the consolidated financial statements continued
2 Significant accounting policies continued
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 categorised within the fair value hierarchy, as
described in note 36 (e).
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.
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 similar 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 units – Arcata and San Jose, which generate revenue from the sale of gold, silver, doré and concentrate.
• Operating unit – Pallancata, which generates revenue from the sale of concentrate.
• Operating unit – Inmaculada, which generates revenue from the sale of gold, silver and doré.
• 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, absorbed by Empresa de
Transmisión Aymaraes S.A.C. on 1 June 2016), Empresa de Transmisión Aymaraes S.A.C. (a power transmission company), Ares unit, 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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(a) Reportable segment information
Arcata
US$000
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Year ended 31 December 2016
Revenue from external customers
117,358
54,456
235,961
280,108
Inter segment revenue
Total revenue
–
–
–
–
117,358
54,456
235,961
280,108
–
–
–
Adjustment
and
eliminations
US$000
Total
US$000
–
688,242
(2,062)
(2,062)
–
688,242
Other1
US$000
359
2,062
2,421
Segment profit/(loss)
Others2
Profit from continuing operations
before income tax
Other segment information
Depreciation3
Amortisation
Impairment and write-off of assets
Assets
Capital expenditure
Current assets
Other non-current assets
Total segment assets
Not reportable assets4
Total assets
22,924
11,284
57,259
97,595
(9,155)
(2,273)
(462)
(22,196)
(10,606)
–
(87)
–
(885)
(53,012)
(1,060)
(278)
(98,243)
–
(414)
(1,834)
(462)
(2)
(4,877)
(138)
(246)
20,819
16,105
35,311
54,199
4,910
301
6,721
48,843
55,564
–
7,017
55,380
62,397
–
53,299
196,056
249,355
–
22,899
589,666
612,565
–
30
185,825
185,855
–
55,564
62,397
249,355
612,565
185,855
3,911
65,077
68,988
220,001
288,989
–
–
–
–
–
–
–
–
–
177,172
(68,893)
108,279
(190,768)
(1,660)
(1,912)
131,645
93,877
1,140,847
1,234,724
220,001
1,454,725
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C. and Empresa de Transmisión Aymaraes S.A.C.
1
2 Comprised of administrative expenses of US$47,979,000, other income of US$35,798,000, other expenses of US$24,533,000, impairment and write-off of assets
of US$1,912,000, finance income of US$2,074,000, finance expense of US$30,541,000, and foreign exchange loss of US$1,800,000.
Includes depreciation capitalised in the Crespo project (US$2,215,000), San Jose unit (US$2,640,000), Arcata unit (US$117,000) and the Pallancata unit (US$3,000).
3
4 Not reportable assets are comprised of available-for-sale financial assets of US$991,000, other receivables of US$57,016,000, income tax receivable of US$20,988,000, deferred income
tax asset of US$1,027,000 and cash and cash equivalents of US$139,979,000.
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Financial statements
Adjustment
and
eliminations
US$000
–
(2,437)
(2,437)
(1,397)
–
–
–
–
–
–
–
–
–
Total
US$000
469,146
–
469,146
32,991
(289,166)
(256,175)
(150,612)
(1,504)
(207,146)
238,159
132,638
1,211,668
1,344,306
198,743
1,543,049
Financial Statements
Notes to the consolidated financial statements continued
3 Segment reporting continued
(a) Reportable segment information
Arcata
US$000
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Year ended 31 December 2015
Revenue from external customers
107,425
73,045
186,097
102,303
Inter segment revenue
Total revenue
–
–
–
–
107,425
73,045
186,097
102,303
–
–
–
Other1
US$000
276
2,437
2,713
(1,340)
(17,002)
13,297
49,759
(10,710)
384
Segment profit/(loss)
Others2
Loss from continuing operations
before income tax
Other segment information
Depreciation3
Amortisation
Impairment and write-off of assets, net
(72,718)
(39,245)
(33,506)
(35,415)
–
–
(45,286)
(1,013)
(57)
(32,093)
–
–
(1,496)
(457)
(95,113)
(2,816)
(34)
(13)
Assets
Capital expenditure
Current assets
Other non-current assets
Total segment assets
Not reportable assets4
Total assets
14,600
10,683
38,451
166,336
4,011
4,078
17,456
53,458
70,914
–
13,818
50,591
64,409
–
63,941
220,307
284,248
–
31,958
633,169
665,127
–
30
181,662
181,692
–
70,914
64,409
284,248
665,127
181,692
5,435
72,481
77,916
198,743
276,659
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C. and Empresa de Transmisión Aymaraes S.A.C.
1
2 Comprised of administrative expenses of US$38,148,000, other income of US$8,021,000, other expenses of US$15,264,000, impairment and write-off of assets of US$207,146,000,
finance income of US$1,898,000, finance expense of US$32,900,000, and foreign exchange loss of US$5,627,000.
Includes US$1,793,000 and US$6,077,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.
3
4 Not reportable assets are comprised of available-for-sale financial assets of US$366,000, other receivables of US$72,662,000, income tax receivable of US$20,431,000, other financial
assets of US$21,267,000 and cash and cash equivalents of US$84,017,000.
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Hochschild Mining plc Annual Report 2016
(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 Kingdom1
Korea
Bulgaria
Japan
Total
Inter-segment
Peru
Total
Year ended 31 December
2016
US$000
2015
US$000
225,073
78,248
181,569
4,506
89,838
(1,689)
92,769
16,334
1,594
229,229
63,328
58,154
7,428
12,174
17,273
81,580
–
(20)
688,242
469,146
2,062
690,304
2,437
471,583
1 Corresponds to the realised loss on the silver zero cost collar contract with JP Morgan Chase Bank, National Association, London Branch, settled on 30 December 2016 (2015:
Corresponds to the realised gain on the gold and silver swap contracts with JP Morgan Chase Bank, National Association, London Branch, settled on 30 and
31 December 2015 respectively) (refer to note 5).
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:
Asahi Refining Canada Ltd.
Republic Metals Corporation
Auramet Trading LLC.
LS Nikko
Year ended 31 December 2016
Year ended 31 December 2015
US$000
% Revenue
Segment
160,312
103,405
97,616
92,769
23%
Arcata and Inmaculada
15% Arcata, Inmaculada and San Jose
14%
14%
Arcata and Inmaculada
Pallancata and San Jose
US$000
34,362
106,339
14,781
81,580
% Revenue
Segment
7%
Arcata and Inmaculada
23% Arcata, Inmaculada and San Jose
3%
17%
Arcata and Inmaculada
Pallancata and San Jose
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
Total non-current segment assets
Available-for-sale financial assets
Trade and other receivables
Income tax receivable
Deferred income tax assets
Total non-current assets
As at 31 December
2016
US$000
850,605
196,056
30,990
63,196
2015
US$000
897,824
220,307
31,005
62,532
1,140,847
1,211,668
991
25,717
–
1,027
366
10,187
47
–
1,168,582
1,222,268
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95
Financial statements
Financial Statements
Notes to the consolidated financial statements continued
4 Disposals of subsidiaries
HMX S.A. de C.V.
On 22 February 2016 the Group sold its Mexican subsidiary HMX S.A. de C.V. to Sergio Salinas and Servicios de Integración Fiscal S.A. de C.V., for nil
consideration. The carrying value of the net assets disposed was US$60,000 and the transaction resulted in a loss of US$60,000.
Asociación Sumac Tarpuy
On 17 May 2016 the Group transferred all its rights over its non-for-profit subsidiary Asociación Sumac Tarpuy to Inversiones ASPI S.A. (“ASPI”),
recognising a gain on disposal of US$811,000. The gain on disposal was determined as follows:
Cash consideration
Assets and liabilities disposed:
Cash and cash equivalents
Other payables
Net assets and liabilities disposed
Gain on disposal
Net cash inflow arising on disposal
Consideration received in cash and cash equivalents
Less: cash and cash equivalents disposed of:
5 Revenue
Gold (from doré bars)
Silver (from doré bars)
Gold (from concentrate)
Silver (from concentrate)
Services
Total
US$000
1,100
293
(4)
289
811
US$000
1,100
(293)
807
Year ended 31 December
2016
US$000
263,010
177,450
91,348
156,075
359
688,242
2015
US$000
142,077
142,397
68,414
115,982
276
469,146
Included within revenue is a loss of US$6,667,000 relating to provisional pricing adjustments representing the change in the fair value of embedded
derivatives (2015: loss of US$7,275,000) arising on sales of concentrates and doré (refer to note 2(p) and footnote 1 of note 36(e)).
The realised loss on gold and silver swaps and zero cost collar contracts in the period recognised within revenue was US$18,722,000
(gold: US$10,030,000, silver: US$8,692,000) (2015: gain of US$18,962,000, gold: US$7,012,000, silver: US$11,950,000).
Other sources of revenue are disclosed at note 13.
6 Cost of sales
Included in cost of sales are:
Depreciation and amortisation in production costs1
Personnel expenses (notes 10 and 11)
Mining royalty (note 35)
Change in products in process and finished goods
Year ended 31 December
2016
US$000
185,655
103,130
7,506
2015
US$000
139,533
107,823
5,968
6,487
(10,255)
1 The depreciation and amortisation in cost of sales and inventory is US$180,317,000 (2015: US$135,645,000) and US$5,338,000 (2015: US$3,888,000) respectively.
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7 Administrative expenses
Personnel expenses (note 10)
Professional fees
Social and community welfare expenses1
Lease rentals
Travel expenses
Communications
Indirect taxes
Depreciation and amortisation
Technology and systems
Security
Supplies
Other2
Total
Year ended 31 December
2016
US$000
33,028
3,075
384
1,455
598
438
2,057
1,798
678
656
109
3,703
47,979
2015
US$000
22,427
3,095
597
1,415
576
560
2,147
1,534
745
790
134
4,128
38,148
1 Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.
2 Predominantly related to third party services of US$972,000 (2015: US$962,000), technical services of US$533,000 (2015: US$423,000), repair and maintenance
of US$492,000 (2015: US$527,000 and impairment of receivables of US$312,000 (2015: US$209,000).
8 Exploration expenses
Mine site exploration1
Arcata
Ares
Inmaculada
Pallancata
San Jose
Prospects2
Peru
Argentina
Chile
Generative3
Peru
Personnel (note 10)
Others
Total
Year ended 31 December
2016
US$000
2015
US$000
1,305
297
1
733
1,691
4,027
316
11
26
353
866
866
3,476
471
9,193
62
50
6
2,457
1,463
4,038
303
43
71
417
499
499
2,967
1,334
9,255
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 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.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
8 Exploration expenses continued
The Group determines the cash flows which relate to the exploration activities of the 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 outflows on exploration activities were US$1,168,000 in 2016 (2015: US$1,190,000).
9 Selling expenses
Transportation of doré, concentrate and maritime freight
Sales commissions
Personnel expenses (note 10)
Warehouse services
Taxes1
Other
Total
1 The export taxes over doré and concentrates in Argentina were reduced to zero percent on 18 December 2015 and 12 February 2016 respectively.
10 Personnel expenses1
Salaries and wages
Workers’ profit sharing2
Other legal contributions
Statutory holiday payments
Long-Term Incentive Plan
Restricted share plan
Termination benefits
Other
Total
Year ended 31 December
2016
US$000
5,410
84
254
1,861
1,495
5,071
14,175
2015
US$000
3,548
200
254
1,610
12,994
3,123
21,729
Year ended 31 December
2016
US$000
98,741
–
20,552
6,361
10,528
3,181
2,577
1,951
143,891
2015
US$000
103,433
–
20,735
6,534
1,013
2,843
3,623
1,584
139,765
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$103,130,000 (2015: US$107,823,000), US$33,028,000 (2015: US$22,427,000), US$3,476,000 (2015: US$2,967,000), US$254,000 (2015: US$254,000), US$2,406,000
(2015: US$1,218,000) and US$1,597,000 (2015: US$5,076,000) respectively.
2 As there is a taxable loss in Compañía Minera Ares S.A.C., and worker´s profit sharing is calculated over the taxable income of each year of companies in Peru, there is no provision
during 2016 and 2015 periods (refer note 2(m)).
Average number of employees for 2016 and 2015 were as follows:
Peru
Argentina
Chile
United Kingdom
Total
Year ended 31 December
2016
2,825
1,125
3
11
3,964
2015
2,575
1,129
3
10
3,717
98
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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. Unless stated, exceptional items do not correspond to a reporting segment of the Group.
Cost of sales
Termination benefits1
Total
Other income
Reversal of reserves tax2
Total
Other expenses
Work stoppage at Pallancata mine unit3
Penalty for termination of agreement4
Damage of tailings dump in Ares mine unit5
Provision for impairment of other receivables6
Total
Impairment and write-off of non-current assets
Impairment and write-off of non-current assets7
Total
Finance income
Reversal of interests on reserves tax2
Total
Finance costs
Interest on disputed tax charges8
Total
Income tax benefit9
Total
Year ended
31 December
2016
US$000
Year ended
31 December
2015
US$000
–
–
(1,514)
(1,514)
2,667
2,667
(2,474)
(4,254)
(2,150)
(1,797)
(10,675)
–
–
–
–
–
–
–
–
(1,634)
(1,634)
(207,146)
(207,146)
974
974
–
–
2,224
2,224
–
–
(1,486)
(1,486)
36,888
36,888
1 Termination benefits in 2015 paid to workers following the cashflow optimisation programme approved by management, amounting to US$1,514,000, corresponding to the San José
reporting segment.
2 Corresponds to the reversal of the reserves tax liability recorded in previous periods and their associated interests as a result of the settlement agreed between Minera Santa Cruz
S.A.C. and the Fiscal Authority in Argentina.
3 From 16 November 2016 until the end of the year, due to actions by the communities surrounding the Pallancata mine unit, the extracting and treatment operations were
temporarily suspended. At 31 December 2016 the fixed indirect costs related to abnormal decrease in production from the work stoppage amounted to US$2,474,000, corresponding
to the Pallancata reporting segment.
4 Penalty for early termination of the energy supply contract between Compañia Minera Ares S.A.C. and SDF Energia.
5 A section of the Ares tailings dam lateral walls showed unusual decay. A comprehensive study was conducted to determine long-term stability and the conclusion was that certain
areas needed to be repaired. This failure was not anticipated and required works aimed at repairing and reinforcing the walls and ensure the long-term sustainability of the dam had
to be conducted. The expenditure incurred was not part of our mine closure provision and reflects an unexpected, one-off event.
6 Provision for impairment of the account receivable with a third party due to the uncertainty surrounding the outcome of the legal dispute and hence its recoverability.
7 As at 31 December 2016 corresponds to the write-off of non-current assets of Compañia Minera Ares S.A.C. of US$1,634,000 arising from events falling outside the entity's ordinary
activities. The charge was generated by the change of the exploitation method in the Pallancata mine unit, from mechanised to conventional. As at
31 December 2015 corresponds to the impairment of the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the
Azuca project of US$12,766,000, the Volcan project of US$57,070,000 and the San Felipe project of US$10,927,000, and to the write-off of non-current assets of US$583,000.
Interest on overdue tax charges owed by the Group following a change in circumstances surrounding a tax dispute with the Peruvian tax authority, resulting in
the exposure now being assessed as ‘probable’, rather than ‘possible’.
8
9 Mainly corresponds to the current tax credit arising from the costs of the work stoppage at Pallancata mine unit, the penalty for early termination of agreement in Compañia Minera
Ares S.A.C., the costs incurred due to the damage to the tailings dump in the Ares mine unit and the reversal of reserves tax in Argentina (US$1,212,000) and the deferred tax credit
arising from the write-off of non-current assets and the account receivable (US$1,012,000). For the period ended December 2015, primarily related to the deferred tax benefit arising
from the impairment recorded.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
12 Other income and other expenses before exceptional items
Other income
Decrease in provision for mine closure (note 26(3))
Export credits
Lease rentals
Gain on sale of other assets1
Gain on sale of subsidiaries (refer to note 4)
Logistic services
Other
Total
Other expenses
Increase in provision for mine closure (note 26(3))
Tax on mining reserves in Argentina (note 35)
Provision of obsolescence of supplies
Contingencies
Donations (refer to note 30)
Write off of value added tax
Corporate social responsibility contribution in Argentina2
Other3
Total
Year ended
31 December
2016
Before
exceptional
items
US$000
Year ended
31 December
2015
Before
exceptional
items
US$000
6,346
19,029
391
1,550
751
4,288
776
33,131
–
–
(2,162)
(570)
(1,000)
(1,208)
(3,146)
(5,772)
(13,858)
–
2,743
443
–
–
3,699
1,136
8,021
(7,590)
(441)
(1,046)
(108)
–
(795)
–
(5,284)
(15,264)
1 Corresponds to a gain in Compañía Minera Arcata S.A. generated by the sale of a royalty purchase agreement signed with Minera Bateas S.A.C. to Lemuria Royalties Corp.
2 Relates to a new contribution in Argentina to the Santa Cruz province, effective since January 2016 and calculated as a proportion of sales.
3 Mainly corresponds to the expenses in Ares mine unit of US$1,910,000 (2015: US$2,308,000), concessions of US$1,210,000 (2015: US$447,000) and rentals of US$440,000
(2015: US$333,000)
13 Finance income and finance costs before exceptional items
Year ended
31 December
2016
Before
exceptional
items
US$000
Year ended
31 December
2015
Before
exceptional
items
US$000
1,011
1,011
–
89
1,100
(2,602)
(1,106)
(23,925)
(27,633)
(46)
(2,257)
–
(605)
(30,541)
648
648
856
394
1,898
(5,842)
(1,657)
(22,096)
(29,595)
(69)
(436)
(116)
(1,198)
(31,414)
Finance income
Interest on deposits and liquidity funds
Interest income
Gain on repurchase of bonds
Other
Total
Finance costs
Interest on secured bank loans (note 25)
Other interest
Interest on bond (note 25)
Interest expense
Unwind of discount on mine rehabilitation
Loss on discount of other receivables
Loss from changes in the fair value of financial instruments
Other
Total
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
14 Income tax expense
Current corporate income tax from
continuing operations
Current corporate income tax charge
Current mining royalty charge (note 35)
Current special mining tax charge (note 35)
Withholding taxes
Deferred taxation
Origination and reversal of temporary differences from continuing
operations (note 28)
Effect of change in tax rate1
Total taxation charge/(credit) in the income statement
Year ended 31 December 2016
Year ended 31 December 2015
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
4,941
1,778
755
(142)
7,332
31,701
3,882
3,869
552
40,004
6,364
1,273
7,637
47,641
(1,212)
30,489
–
–
–
3,882
3,869
552
(1,212)
38,792
5,200
1,778
755
(142)
7,591
(259)
–
–
–
(259)
(961)
(51)
(1,012)
(2,224)
5,403
1,222
6,625
45,417
12,637
(36,629)
(23,992)
142
12,779
20,370
–
(36,629)
(36,888)
142
(23,850)
(16,518)
1
In December 2016, the Peruvian government approved an increase of the statutory income tax rate, from its current level of 28% to 29.5% with effect from the
1 January 2017.
The weighted average statutory income tax rate was 30.1% for 2016 and 25.4% for 2015. This is calculated as the average of the statutory tax rates
applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group companies in their respective countries
as included in the consolidated financial statements.
The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various
jurisdictions in which the Group operates.
The tax related to items charged or credited to equity is as follows:
Deferred taxation:
Deferred income tax relating to fair value (losses)/ gains on cash flow hedges
Total tax (credit)/charge in the statement of other comprehensive income
As at 31 December
2016
US$000
2015
US$000
(5,955)
(5,955)
4,739
4,739
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
14 Income tax expense continued
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:
Profit/(loss) from continuing operations before income tax
At average statutory income tax rate of 30.1% (2015: 25.4%)
Expenses not deductible for tax purposes
Deferred tax recognised on special investment regime
Movement in unrecognised deferred tax1
Change in statutory income tax rate2
Withholding tax
Special mining tax and mining royalty3
Derecognition of deferred tax asset
Foreign exchange rate effect4
Other
At average effective income tax rate of 41.9% (2015: 6.4%)
Taxation charge/(credit) attributable to continuing operations
Total taxation charge/(credit) in the income statement
As at 31 December
2016
US$000
108,279
32,570
1,051
(1,715)
2,705
1,222
552
7,751
316
2,383
(1,418)
45,417
45,417
45,417
2015
US$000
(256,175)
(65,017)
1,040
(691)
16,565
142
(142)
2,533
1,251
24,964
2,837
(16,518)
(16,518)
(16,518)
1
Includes the income tax credit on mine closure provision of US$1,925,000 (2015: includes the effect of the impairment of Volcan and San Felipe projects of US$11,414,000 and
US$3,278,000 respectively).
In December 2016, the Peruvian Government approved an increase in the statutory income tax rate, from its current level of 28% to 29.5% with effect from 1 January 2017.
2
3 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 35).
4 Mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the functional currency.
15 Basic and diluted earnings per share
Earnings per share (‘EPS’) is calculated by dividing profit/(loss) for the year attributable to equity shareholders of the Company by the weighted
average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As a result of the rights issue being at a discounted price, the number of ordinary shares outstanding has increased due to the bonus element
resulting in the calculation of basic and diluted earnings per share for all periods presented having been adjusted retrospectively.
As at 31 December 2016 and 2015, EPS has been calculated as follows:
Basic earnings/(loss) per share from continuing operations
Before exceptional items (US$)
Exceptional items (US$)
Total for the year and from continuing operations (US$)
Diluted earnings/(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
2016
2015
0.11
(0.02)
0.09
0.10
(0.01)
0.09
(0.14)
(0.38)
(0.52)
(0.14)
(0.38)
(0.52)
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Hochschild Mining plc Annual Report 2016
Profit/(loss) from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:
Profit/(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)
Profit/(loss) from continuing operations before exceptional items attributable to equity holders of the parent (US$000)
Profit/(loss) from continuing operations before exceptional items attributable to equity holders of the parent for the purpose
of diluted earnings per share (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)
Effect of dilutive potential ordinary shares related to contingently issuable shares (thousands)1
Weighted average number of ordinary shares in issue for the purpose of diluted earnings per share (thousands)
As at 31 December
2016
45,550
7,604
53,154
2015
(234,610)
172,758
(61,852)
53,154
(61,852)
As at 31 December
2016
505,521
9,435
514,956
2015
449,511
–
449,511
1 The potential ordinary shares related to 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 2015 as they had an antidilutive effect.
16 Property, plant and equipment
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
Year ended 31 December 2016
Cost
At 1 January 2016
Additions
Change in discount rate
Change in mine closure estimate
Disposals
Write-offs
Transfer to intangibles
Transfers and other movements2
At 31 December 2016
Accumulated depreciation
and impairment
At 1 January 2016
Depreciation for the year
Disposals
Write-offs
Transfers and other movements2
At 31 December 2016
Net book amount at 31 December 2016
1,097,107
80,565
472,093
6,695
480,747
15,379
–
–
–
–
–
–
–
–
–
–
3,232
1,180,904
9,698
488,486
678,547
112,526
179,036
39,243
–
–
–
–
568
(156)
791,641
389,263
218,123
270,363
–
–
(3,420)
(8,500)
–
52,723
536,929
253,388
33,921
(3,361)
(6,591)
335
277,692
259,237
6,151
–
–
–
(298)
(85)
–
442
6,210
4,447
462
(283)
(82)
10
4,554
1,656
103,386
–
(2,367)
(5,629)
–
–
–
–
95,390
59,790
4,616
–
–
74
64,480
30,910
62,392
25,514
2,221,876
128,153
–
–
(56)
–
(44)
(62,863)
(2,367)
(5,629)
(3,774)
(8,585)
(44)
3,232
24,943
2,332,862
1,152
1,176,360
–
–
–
(263)
889
190,768
(3,644)
(6,673)
568
1,357,379
24,054
975,483
There were borrowing costs capitalised in property, plant and equipment amounting to US$825,000 (2015: US$8,252,000). The capitalisation rate
used was 7.23% (2015: 6.79%).
1 Mining properties and development costs related to Crespo project (2016: US$27,321,000, 2015: US$24,797,000) are not currently being depreciated.
2 Net of transfers and other movements of US$2,664,000 were transferred from evaluation and exploration assets (note 17).
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
16 Property, plant and equipment continued
At the end of 2015, given the continued challenging environment for the mining sector, the Group carried out an impairment review of all of its
operating mines (Arcata, Pallancata, Inmaculada and San Jose), and its growth projects (Crespo, Azuca, San Felipe and Volcan). As a result of this
review the Group recognised an impairment charge in the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the
Crespo project of US$14,350,000, the Azuca project of US$12,766,000, San Felipe project of US$10,927,000 and the Volcan project of US$57,070,000.
The impairment recognised in property plant and equipment was US$118,653,000, in evaluation and exploration assets was US$74,550,000 and in
intangibles was US$13,360,000 (refer to note 17 and 18).
The recoverable values of these CGUs were determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD was determined using
a combination of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that would be paid by a willing third
party in an arm's length transaction. The key assumptions on which management has based its determination of FVLCD, and the associated
recoverable values calculated are presented below.
Gold and silver prices
US$ per oz.
Gold
Silver
Other key assumptions
Discount rate (post tax)
Value per in-situ ounce (per tonne in the case of San Felipe) (US$)
2016
1,175
16
Arcata
Pallancata
San Jose
Inmaculada
6.3%
n/a
6.3%
n/a
9.7%
n/a
6.3%
n/a
2017
1,200
17
Crespo
7.8%
n/a
2018
2019
Long-term
1,213
1,240
1,224
18
19
18
Azuca
San Felipe
Volcan
n/a
0.25
n/a
16.21
n/a
6.55
1 With respect to the Azuca, Volcan and San Felipe 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, Volcan which includes the water permits held by the Group,
and San Felipe CGUs. The enterprise value used in the calculation performed at 31 December 2015 was US$6.55 per gold equivalent ounce of resources (Volcan), US$0.25 per silver
equivalent ounce of resources (Azuca) and US$16.21 per zinc equivalent tonne of resources (San Felipe).
The enterprise value figures are based on observable external market information.
Current carrying value of CGU, net of deferred tax (US$000)
Arcata
Pallancata
San Jose
Inmaculada
31 December 2015
42,956
49,331
160,055
587,208
Crespo
46,275
Azuca
San Felipe
Volcan
26,102
4,218
62,512
Crespo, Azuca and San Felipe projects correspond to the exploration segment.
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:
Approximate impairment resulting from the following changes
(US$000)
Prices (10% decrease)
Post tax discount rate (3% increase)
Production costs (10% increase)
Value per in-situ ounce (per tonne in the case of San Felipe)
(10% decrease)
Arcata
Pallancata
San Jose
Inmaculada
Crespo
Azuca
San Felipe
Volcan
(42,956)
(14,892)
(5,354)
(42,956)
(3,525)
(8,082)
(89,961)
(28,570)
(48,914)
(86,439)
(50,812)
(20,495)
(16,308)
(12,348)
(7,397)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(2,610)
(422)
(6,251)
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Year ended 31 December 2015
Cost
At 1 January 2015
Additions
Change in discount rate
Change in mine closure estimate
Disposals
Write-offs
Transfer from intangibles
Transfers and other movements1
At 31 December 2015
Accumulated depreciation and impairment
At 1 January 2015
Depreciation for the year
Disposals
Impairment
Write-offs
Transfers and other movements1
At 31 December 2015
Net book amount at 31 December 2015
Mining
properties and
development
costs
US$000
999,777
91,862
–
–
–
582
4,886
1,097,107
526,824
91,129
–
60,259
–
335
678,547
418,560
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
257,171
632
–
–
(195)
–
214,485
472,093
134,638
23,333
(179)
20,752
–
492
179,036
293,057
389,042
31,455
–
–
(952)
(2,382)
–
63,584
480,747
193,210
32,053
(223)
30,451
(1,839)
(264)
253,388
227,359
6,030
–
–
–
(196)
(118)
–
435
6,151
3,663
913
(124)
71
(83)
7
4,447
1,704
96,213
–
(755)
7,928
–
–
–
103,386
49,486
3,184
–
7,120
–
–
59,790
43,596
237,308
106,737
1,985,541
230,686
–
–
–
(5)
–
(281,648)
(755)
7,928
(1,343)
(2,505)
582
1,742
62,392
2,221,876
1,410
–
–
–
–
(258)
1,152
61,240
909,231
150,612
(526)
118,653
(1,922)
312
1,176,360
1,045,516
1 Net of transfers and other movements of US$1,430,000 were transferred from evaluation and exploration assets.
17 Evaluation and exploration assets
Cost
Balance at 1 January 2015
Additions
Transfers to property, plant and equipment
Balance at 31 December 2015
Additions
Transfers to property plant and equipment
Balance at 31 December 2016
Accumulated impairment
Balance at 1 January 2015
Impairment1
Transfers to property, plant and equipment
Balance at 31 December 2015
Transfers to property, plant and equipment
Balance at 31 December 2016
Net book value as at 31 December 2015
Net book value as at 31 December 2016
Azuca
US$000
Crespo
US$000
San Felipe
US$000
Volcan
US$000
Others
US$000
Total
US$000
79,954
25,556
55,950
211
–
80,165
1,237
–
81,402
33,292
12,584
–
45,876
–
45,876
34,289
35,526
224
–
–
–
25,780
55,950
251
–
–
–
26,031
55,950
5,510
4,368
–
9,878
–
9,878
15,902
16,153
14,907
10,927
–
25,834
–
25,834
30,116
30,116
92,035
958
–
92,993
691
–
93,684
–
44,381
–
44,381
–
44,381
48,612
49,303
9,244
5,468
(1,742)
12,970
1,299
(3,232)
11,037
1,740
2,290
(312)
3,718
(568)
3,150
9,252
7,887
262,739
6,861
(1,742)
267,858
3,478
(3,232)
268,104
55,449
74,550
(312)
129,687
(568)
129,119
138,171
138,985
There were no borrowing costs capitalised in evaluation and exploration assets.
1
In 2015 the Group recognised an impairment charge of US$74,550,000, mainly related to the Volcan project (refer to note 16). The FVLCD calculation is detailed in note 16.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
18 Intangible assets
Cost
Balance at 1 January 2015
Additions
Transfer
Balance at 31 December 2015
Additions
Transfer
Balance at 31 December 2016
Accumulated amortisation and impairment
Balance at 1 January 2015
Amortisation for the year4
Impairment5
Balance at 31 December 2015
Amortisation for the year4
Balance at 31 December 2016
Net book value as at 31 December 2015
Net book value as at 31 December 2016
Transmission
line1
US$000
Water
permits2
US$000
Software
licences
US$000
Legal rights3
US$000
Total
US$000
22,157
26,583
–
–
–
–
22,157
26,583
–
–
–
–
22,157
26,583
11,124
946
–
12,070
1,004
13,074
10,087
9,083
–
–
12,686
12,686
–
12,686
13,897
13,897
1,773
25
–
1,798
14
44
1,856
1,248
67
–
1,315
56
1,371
483
485
6,681
587
(582)
6,686
–
–
6,686
2,007
491
674
3,172
600
3,772
3,514
2,914
57,194
612
(582)
57,224
14
44
57,282
14,379
1,504
13,360
29,243
1,660
30,903
27,981
26,379
1 The transmission line is amortised using the units of production method. At 31 December 2016 the remaining amortisation period is approximately nine years.
2 Corresponds to the acquisition of water permits of Andina Minerals Group (“Andina”). They have an indefinite life according to Chilean law. 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 2016 was
US$6.90 (2015: US$6.55) per gold equivalent ounce of resources. The enterprise value figures are based on observable external market information.
3 Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production.
At 31 December 2016 the remaining amortisation period is from 8 to 20 years.
4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
5 Corresponds to the impairment of the Crespo and Volcan projects (refer to note 16).
The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess of its
recoverable amount.
Key assumptions
Risk adjusted value per in-situ (gold equivalent ounce) US$
US$000
Current carrying value Volcan CGU
Sensitivity analysis
2016
6.90
2015
6.55
2016
2015
63,187
62,512
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the
carrying value to exceed its recoverable amount.
The estimated recoverable amount is not materially greater than its carrying value; consequently, a change in the value in situ assumption could
cause an impairment loss or reversal of impairment to be recognised in 2016:
Approximate impairment resulting from the following changes (US$000)
Value per in-situ ounce (10% decrease)
2016
2015
(3,896)
(6,251)
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
19 Available-for-sale financial assets
Beginning balance
Fair value change recorded in equity
Disposals
Ending balance
Year ended 31 December
2016
US$000
2015
US$000
366
774
(149)
991
455
(86)
(3)
366
The fair value of the listed shares is determined by reference to published price quotations in an active market.
The carrying value of available for sale financial assets relate only to listed shares. All unlisted investments (Pembrook Mining Corp. and ECI
Exploration and Mining Inc.) are recognised at cost less any recognised impairment loss as there is no active market for these investments. These
investments are fully impaired as at 31 December 2015 and 2016.
20 Trade and other receivables
Trade receivables (note 36(c))
Advances to suppliers
Duties recoverable from exports of Minera Santa Cruz1
Receivables from related parties (note 30(a))
Loans to employees
Interest receivable
Receivable from Kaupthing, Singer and Friedlander Bank
Other2
Provision for impairment3
Assets classified as receivables
Prepaid expenses
Value Added Tax (VAT)4
Total
As at 31 December
2016
Non-current
US$000
–
–
19,065
–
856
–
–
2,188
–
22,109
44
3,564
25,717
Current
US$000
36,821
2,458
–
71
230
151
198
10,205
(6,342)
43,792
2,590
21,738
68,120
2015
Non-current
US$000
–
–
4,698
–
991
–
–
1,567
–
7,256
60
2,871
10,187
Current
US$000
62,352
6,567
–
11
149
36
252
13,518
(5,327)
77,558
1,157
46,112
124,827
The fair values of trade and other receivables approximate their book value.
1 Relates to export benefits through Port Patagonico and silver refunds in Minera Santa Cruz, discounted over 24 months (2015: 24 months) at a rate of 6.39% (2015: 5.72%) for dollar
denominated amounts and 23.31% (2015: 28.90%) for Argentinian pesos. The loss on discount is recognised within finance costs.
2 Mainly corresponds to account receivables from contractors for the sale of supplies of US$3,968,000 (2015: US$4,791,000), and other tax claims of US$5,333,000
3
(2015: US$2,840,000).
Includes the provision for impairment of trade receivable from a customer in Peru of US$1,043,000 (2015: US$1,108,000), the impairment of deposits in Kaupthing, Singer and
Friedlander of US$198,000 (2014: US$252,000), the impairment of the account receivable from a third party of US$1,797,000 and other receivables of US$3,304,000 (2014:
US$3,967,000) that mainly relates to an exploration project that would be recovered through an ownership interest if it succeeds.
4 Primarily relates to US$16,030,000 (2015: US$13,078,000) of VAT receivable related to the San Jose project that will be recovered through future sales of gold and
silver and also through the sale of these credits to third parties by Minera Santa Cruz S.A. It also includes the VAT of Compañía Minera Ares S.A.C. of US$4,776,000
(2015: US$32,086,000) and Empresa de Transmisión Aymaraes S.A.C. of US$3,665,000 (2015: US$2,909,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
At 1 January 2015
Provided for during the year
Released during the year
At 31 December 2015
Provided for during the year
Released during the year
At 31 December 2016
As at 31 December 2016 and 2015, none of the financial assets classified as receivables (net of impairment) was past due.
Individually
impaired
US$000
5,136
446
(255)
5,327
2,061
(1,046)
6,342
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
21 Inventories
Finished goods valued at cost
Finished goods at net realisable value
Products in process valued at cost
Products in process at net realisable value
Raw materials
Supplies and spare parts
Provision for obsolescence of supplies
Total
As at 31 December
2016
US$000
3,515
–
20,727
–
33
40,241
64,516
(7,460)
57,056
2015
US$000
14,120
1,856
13,632
1,121
–
44,855
75,584
(5,298)
70,286
Finished goods include ounces of gold and silver, doré and concentrate.
Products in process include stockpile and precipitates.
The Group either sells doré bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining into gold and silver
ounces which are then sold. In the latter scenario, the doré bars are classified as products in process. The amount of doré on hand at 31 December
2016 included in products in process is US$nil (2015: US$3,827,000).
Concentrate is sold to smelters, but in addition could be used as a product in process to produce doré.
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$86,754,000 (2015: US$78,525,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$2,162,000 (2015: US$1,046,000) and the reversal of US$nil
relating to the sale of supplies and spare parts, that had been provided for (2015: US$nil).
22 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
2016
US$000
353
203
68,643
70,780
139,979
2015
US$000
368
337
47,717
35,595
84,017
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 16 days as at
31 December 2016 (2015: average of 14 days).
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of three days (2015: Average of two days) (refer to note 36(g)).
4 As at 31 December 2015 funds deposited in Argentinian institutions were effectively restricted for transfer to other countries and were invested locally. Included within cash and cash
equivalents at 31 December 2015 was US$11,696,000, which was not readily available for use in subsidiaries outside of Argentina.
23 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
2016
US$000
25,000
2015
US$000
25,000
These payments reduce the total consideration IMSC will be required to pay upon exercise of the option by 1 December 2017, and constitute an
advance of the final purchase price, rather than an option premium and, as such, they were recorded as deferred income. On 30 November 2016,
IMSC renegotiated terms of the agreement, extending the validity of the agreement to 1 December 2017.
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
24 Trade and other payables
Trade payables1
Salaries and wages payable2
Dividends payable
Taxes and contributions
Guarantee deposits
Mining royalty (note 35)
Accounts payable to related parties (note 30)
Account payable to Graña & Montero3
Other
Total
2016
Non-current
US$000
–
–
–
43
–
–
–
–
1,223
1,266
As at 31 December
Current
US$000
55,381
28,500
75
4,962
5,073
679
94
–
3,720
98,484
2015
Non-current
US$000
–
–
–
57
–
–
–
20,322
–
20,379
Current
US$000
58,655
20,278
826
9,605
7,163
796
40
–
4,529
101,892
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 relates to remuneration payable. There were Board members’ remuneration payables of US$2,000 (2015: US$nil) and long-term incentive plan payable of
US$6,279,000 (2015: US$nil) at 31 December 2016.
3 Related to the construction of Inmaculada mine unit. Included the principal of US$20,000,000 plus interest calculated at a 5% interest rate. The payment of the amount owing was to
be made in four instalments every six months starting in September 2017. This amount, together with the related interest of US$1,080,000, was fully repaid on 29 September 2016.
25 Borrowings
Bond payable (a)
Secured bank loans (b)
• Pre-shipment loans in Minera Santa Cruz (note 21)
• Medium-term bank loan
• Short-term bank loans
Total
(a) Bond payable
Effective
interest rate
2016
Non-current
US$000
8.56%
291,073
2.70% to
3.00%
–
0.65%
–
–
–
As at 31 December
Current
US$000
8,778
Effective
interest rate
2015
Non-current
US$000
8.56%
290,230
Current
US$000
8,777
2,524
29.64%
–
10,554
–
25,010
3.82%
49,548
0.70% to
1.35%
–
229
75,200
291,073
36,312
339,778
94,760
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 is paid semi-annually, until maturity in 23 January 2021. During
November and December 2015, the Group repurchased bonds amounting to US$55,225,000 for US$54,369,000, giving rise to a gain on repurchase
of US$856,000 (see note 13). The balance at 31 December 2016 comprises the carrying value, including accrued interest payable, of US$299,851,000
(2015: US$299,007,000) determined in accordance with the effective interest method.
The following options could be taken before the maturity:
• Optional Redemption with Make-Whole Premium: At any time prior to 23 January 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 if 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.
• Change of Control Offer: 101% of principal amount plus accrued and unpaid interest.
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109
Financial statements
Financial Statements
Notes to the consolidated financial statements continued
25 Borrowings continued
(b) Secured bank loans
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. On November 2015, the Group paid US$50,000,000 of principal and modified the schedule of repayments, starting on 30 March 2018 until
maturity on 30 December 2019. On July 2016, the Group paid the remaining principal amount of US$50,000,000. The carrying value including
accrued interest payable at 31 December 2016 of US$nil (2015: US$49,777,000) was determined in accordance with the effective interest method.
Short-term bank loans
Two credit agreements signed by Compañía Minera Ares S.A.C. with BBVA Continental. The loans have an interest rate of 0.65% (2015: from 0.70%
to 1.35%). The carrying value including accrued interest payable at 31 December 2016 is US$25,010,000 (2015: US$75,200,000). The due date of both
loans is 7 February 2017.
The movement of short-term bank loans during the 2016 period is as follows:
Short-term bank loans
Accrued interests
Total
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
1 January
2016
US$000
75,000
200
75,200
Additions
US$000
Repayments
US$000
As at
31 December
2016
US$000
55,000
(105,000)
25,000
608
(798)
10
55,608
(105,798)
25,010
As at 31 December
2016
US$000
–
291,073
–
291,073
2015
US$000
–
49,548
290,230
339,778
The carrying amount of current borrowings differs in 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
2016
US$000
–
291,073
291,073
2015
US$000
49,548
290,230
339,778
2016
US$000
–
318,062
318,062
2015
US$000
48,223
274,878
323,101
The fair value of secured bank loans as at 31 December 2015 was determined by discounting the remaining principal and interest payments at the
three month U.S. LIBOR rate plus 2.6%. 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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Hochschild Mining plc Annual Report 2016
26 Provisions
At 1 January 2015
Additions
Accretion
Change in discount rate
Change in estimates
Foreign exchange effect
Payments
At 31 December 2015
Less current portion
Non-current portion
At 1 January 2016
Additions
Accretion
Change in discount rate
Change in estimates
Foreign exchange effect
Transfer to trade and other payables
Payments
At 31 December 2016
Less: current portion
Non-current portion
Provision
for mine closure1
US$000
107,787
–
69
(755)
15,5173
–
(2,538)
120,080
2,000
118,080
120,080
–
46
(2,367)
(11,975)3
–
–
(3,355)
102,429
3,580
98,849
Long-Term
Incentive
Plan2
US$000
594
544
–
–
(175)
–
–
963
–
963
963
9,965
–
–
–
–
(6,279)
–
4,649
–
4,649
Other
US$000
6,240
108
–
–
–
126
–
6,474
4,115
2,359
6,474
570
–
–
–
(547)
(2,048)
–
4,449
1,826
2,623
Total
US$000
114,621
652
69
(755)
15,342
126
(2,538)
127,517
6,115
121,402
127,517
10,535
46
(2,367)
(11,975)
(547)
(8,327)
(3,355)
111,527
5,406
106,121
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 2016 and 2015 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 0.25% (2015: 0.07%).
Expected cash flows will be over a period from two to nine years.
2 Corresponds to the provision related to awards granted under the Long-Term Incentive Plan (‘LTIP’) to designated personnel of the Group. Includes the following benefits: (i) 2016
awards, granted in March 2016, payable in March 2019 (ii) 2015 awards, granted in March 2015, payable in March 2018. 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 percentage of the award granted is determined
70% by the Company’s TSR ranking relative to a tailored peer group of mining companies, and 30% by the Company’s TSR ranking relative to a peer group of FTSE 350 companies. The
liability for the LTIP is measured, initially and at the end of each reporting period until settled, at the fair value of the awards, by applying the Monte Carlo pricing model, taking into
account the terms and conditions on which the awards were granted, and the extent to which the employees have rendered services to date. Changes to the provision of
US$9,965,000 (2015: US$369,000) have been recorded as administrative expenses US$9,298,000 (2015: US$372,000) and exploration expenses US$667,000 (2014: US$-3,000 credit).
The following tables list the inputs to the Monte Carlo model used for the LTIPs for the years ended 31 December 2014, 2015 and 2016, respectively:
For the period ended
Dividend yield (%)
Expected volatility (%)
Risk–free interest rate (%)
Expected life (years)
Weighted average share price (pence £)
LTIP 2014
LTIP 2015
LTIP 2016
31 December
2016
US$000
31 December
2015
US$000
31 December
2016
US$000
31 December
2015
US$000
31 December
2016
US$000
31 December
2015
US$000
–
–
–
–
–
0.00
3.47
0.38
1
0.49
3.89
0.12
1
0.00
3.47
0.74
2
146.03
100.68
100.68
0.49
3.89
0.12
2
63.49
–
–
–
–
–
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the awards and is indicative of future trends, which may not necessarily be
the actual outcome.
3 Based on the 2016 internal and external review of mine rehabilitation estimates, the provision for mine closure decreased by US$11,975,000. The net decrease mainly corresponds to
the Arcata mine unit of US$6,648,000, the Ares mine unit of US$1,622,000, the Selene mine unit of US$698,000, the Pallancata mine unit of US$447,000, and the San José mine unit of
US$4,166,000, net of the increase in Inmaculada mine unit of US$1,651,000. US$2,320,000 related to mines already closed and US$4,026,000 related to the Arcata mine unit which
reduction of the estimated costs exceeded the carrying value of the mine asset. Therefore, both effects have been recognised as a credit directly in the income statement. In 2015, the
internal review of mine rehabilitation budgets determined a recognition of an increase of US$15,517,000. The net increase mainly corresponds to the Arcata mine unit of
US$1,746,000, the Inmaculada mine unit of US$1,133,000, the Selene mine unit of US$922,000, the Crespo project of US$116,000, the San José mine unit of US$5,071,000, and the
Sipan mine unit of US$6,750,000 net of the decrease in Pallancata mine unit of US$171,000 of which US$7,590,000 related to mines already closed has been recognised directly in the
income statement.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
27 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2016 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2015 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
507,232,310 £126,808,078
Issued
Number
Amount
505,571,505 £126,392,876
At 31 December 2016 and 2015, all issued shares with a par value of 25 pence each were fully paid (2016: weighted average of US$0.442 per share,
2015: weighted average of US$0.443 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 20 March 2015 the Group issued 587,015 ordinary shares under the Deferred Bonus Plan, to certain employees of the Group.
On 20 October 2015 a rights issue was completed and 137,883,138 shares with an aggregate nominal value of US$53,195,659 were issued
for a cash consideration of US$100,007,840 (137,883,138 shares at GBP 0.47 per share, amounting to GBP 64,805,075) net of transaction costs
of US$4,792,135.
On 30 December 2016 the Group issued 1,660,805 ordinary shares under the Restricted Share Plan, to certain employees of the Group.
The changes in share capital are as follows:
Shares issued as at 1 January 2015
Shares issued according the Deferred Bonus Plan benefit on 20 March 2015
Shares issued and paid pursuant to the rights issue on 20 October 2015
Shares issued as at 31 December 2015
Shares issued according the Restricted Share Plan benefit on 30 December 2016
Shares issued as at 31 December 2016
(b) Treasury shares
Number of
shares
367,101,352
Share capital
US$000
170,389
587,015
220
Share premium
US$000
396,021
–
137,883,138
53,196
42,020
505,571,505
223,805
438,041
1,660,805
510
–
507,232,310
224,315
438,041
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(n)). 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 2015 and 2016. On 20 March 2016, 66,727 Treasury shares with a value of US$472,000
(being the cost incurred to acquire the shares) were transferred to the CEO of the Group with respect to the Deferred Bonus Plan benefit. Treasury
shares at 31 December 2016 is 60,042 (2015: 126,769) ordinary shares with a value of US$426,000 (2015: US$898,000).
(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 which 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(y)).
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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Hochschild Mining plc Annual Report 2016
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.
Share-based payment reserve
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.
Restricted Share Plan (‘RSP’)
(i)
At the beginning of 2015, the Group introduced the RSP, which is a new one-off share-based long-term incentive plan for some executives and key
employees who play a fundamental role in the performance of the business.
On 30 December 2014 and 16 February 2015, 1,319,392 and 6,026,089 share options with a fair value of 86.8p (US$1.35) and 92.3p (US$1.42) per
share were granted to the CEO and certain key employees, respectively under the RSP of the Group. Following the rights issue in October 2015, the
number of share options were adjusted to 1,491,572 and 6,812,485 with a fair value of 76.7p (US$1.19) and 81.6p (US$1.25) per share respectively.
The vesting of the options is subject to the satisfaction of certain performance as well as service conditions classified as non-market conditions.
The options vest over a five-year period in tranches of 20% of the shares after each of 2, 3 and 4 years and the balance after 5 years.
If the service conditions are not met, the options lapse. As the performance conditions are non-market-based they are not reflected in the fair value
of the award at grant date, and therefore the Company will assess the likelihood of these conditions being met with a relevant adjustment to the
cumulative charge as required at each financial year end.
The fair value of the option was determined with respect to the market price of the shares on the grant date. The awards do not entitle the recipients
to dividends or payment in lieu of dividends during the vesting period.
The carrying amount of the share based payment reserve relating to the RSP at 31 December 2016 is US$3,958,000 (2015: US$2,843,000) with the
amount recognised in the consolidated income statement of US$3,181,000 (2015: US$2,843,000).
On 30 December 2016 the Group issued 1,660,805 ordinary shares under the Restricted Share Plan, to certain employees of the Group, including
the CEO.
(ii) Deferred Bonus Plan (‘DBP’)
At the beginning of 2014, the Group introduced the DBP, as a mechanism to pay the annual bonuses to the employees. Before the approval of DBP
the annual bonuses were paid entirely in cash. Under the DBP rules a part of the annual bonuses could be deferred into shares for one or two years.
A Deferred Bonus award granted under the Plan, and the terms of that Deferred Bonus award, must be approved in advance by the Directors.
The fair value of the awards was determined with respect to the market price of the shares on the grant date. The awards do not entitle the
recipients to dividends or payment in lieu of dividends during the vesting period. The carrying amount of the share based payment reserve relating
to the DBP at 31 December 2016 is US$57,000 (2015: US$138,000) with the amount recognised in the consolidated income statement of US$76,000
(2015: US$469,000).
On 20 March 2016, 66,727 Treasury shares were transferred to the CEO of the Group with respect to the DBP. On 20 March 2015 the Group issued
587,015 ordinary shares under the DBP, to certain employees of the Group, including the CEO.
(iii) Enhanced Long-Term Incentive Plan (‘ELTIP’)
In April 2011 and March 2014, the CEO was granted awards 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 and numbers of awards granted are included in the Directors Remuneration Report.
The fair value of the option was determined using the Monte Carlo model. The carrying amount of the share based payment reserve relating to the
ELTIP at 31 December 2016 is US$1,854,000 (2015: US$1,674,000). The amount recognised in the consolidated income statement amounts to
US$180,000 (2015: US$327,000) which is net of a reversal of US$$383,000 (2015: US$316,000) relating to options that lapsed during the year.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
28 Deferred income tax
The changes in the net deferred income tax assets/(liabilities) are as follows:
Beginning of the year
Income statement (credit)/charge (note 14)
Deferred income tax arising on net unrealised gains on cash flow hedges recognised in equity (note 14)
End of the year
As at 31 December
2016
US$000
(64,274)
(6,625)
5,955
(64,944)
2015
US$000
(83,385)
23,850
(4,739)
(64,274)
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 2015
Income statement (credit)/charge
Deferred income tax arising on net unrealised gains on cash flow hedges recognised
in equity
At 31 December 2015
Income statement (credit)/charge
Deferred income tax arising on net unrealised gains on cash flow hedges recognised
in equity
Transfer
At 31 December 2016
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Financial
instruments
US$000
41,917
6,050
–
47,967
(6,319)
79,981
(19,874)
–
60,107
8,235
–
–
–
–
3,325
–
4,739
8,064
–
(5,955)
(2,109)
Others
US$000
Total
US$000
2,174
2,588
–
4,762
(1,938)
–
–
127,397
(11,236)
4,739
120,900
(22)
(5,955)
(2,109)
41,648
68,342
–
2,824
112,814
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
28 Deferred income tax continued
Deferred income tax assets
At 1 January 2015
Income statement credit/(charge)
At 31 December 2015
Income statement credit/(charge)
Transfer
At 31 December 2016
Differences
in cost
of PP&E
US$000
9,547
(1,685)
7,862
8,463
–
Provision
for mine
closure
US$000
14,535
8,318
22,853
(3,319)
–
16,325
19,534
Tax
losses
US$000
Mine
development
US$000
Financial
instruments
US$000
8,551
8,263
16,814
(15,868)
–
946
697
257
954
(42)
–
912
2,262
(9)
2,253
160
(2,109)
304
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:
Unrecognised
Expire in one year
Expire in two years
Expire in three years
Expire in four years
Expire after four years
Other unrecognised deferred income tax assets comprise (gross amounts):
Provision for mine closure1
Impairments of assets2
Others
US$000
8,420
(2,530)
5,890
3,959
–
9,849
Total
US$000
44,012
12,614
56,626
(6,647)
(2,109)
47,870
As at 31 December
2016
US$000
1,027
2015
US$000
–
(65,971)
(64,274)
As at 31 December
2016
US$000
2015
US$000
2,268
3,231
4,594
2,295
111,630
124,018
1,075
2,733
3,903
3,978
109,315
121,004
As at 31 December
2016
US$000
54,197
14,692
2015
US$000
66,577
14,692
1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected against which the expenditure can
be offset.
2 Related to the impairment of San Felipe and Volcan project (note 17).
Unrecognised deferred tax liability on retained earnings
At 31 December 2016, there was no recognised deferred tax liability (2015: 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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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
29 Dividends
Dividends paid and proposed during the year
Equity dividends on ordinary shares:
Final dividend for 2015: nil US cent per share (2014: nil US cent per share)
Interim dividend for 2016: 1.38 US cent per share (2015: nil US cent per share)
Total dividends paid on ordinary shares
Proposed dividends on ordinary shares:
Final dividend for 2016: 1.38 US cent per share (2015: nil US cent per share)
Dividends paid to non-controlling interests: 10.05 US cent per share (2015: nil US cent per share)
Dividends paid to non-controlling interest related to 2014 and previous periods
Total dividends paid to non-controlling interests
Dividends per share
2016
US$000
2015
US$000
–
6,998
6,998
7,000
16,983
753
17,736
–
–
–
–
–
964
964
The interim dividends paid in September 2016 were US$6,998,398 (1.38 US cent per share). A proposed dividend in respect of the year ending
31 December 2016 of 1.38 US cent per share, amounting to a total dividend of US$7,000,000, is subject to approval at the Annual General Meeting
on 11 May 2017 and is not recognised as a liability as at 31 December 2016.
30 Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and transactions during the years ended 31 December 2016 and 2015. 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
2016
US$000
2015
US$000
2016
US$000
2015
US$000
71
71
11
11
94
94
40
40
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 2016 and 2015, all accounts are, or were, non-interest bearing.
No security has been granted or guarantees given by the Group in respect of these related party balances.
Principal transactions between affiliates are as follows:
Income
Gain on sale of Asociacion Sumac Tarpuy to Inversiones ASPI S.A.
Expenses
Donation to the Universidad de Ingenieria y Tecnologia “UTEC”
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.
Transactions between the Group and these companies are on an arm’s length basis.
(b) Compensation of key management personnel of the Group
Compensation of key management personnel (including Directors)
Short-term employee benefits
Long-Term Incentive Plan, Deferred Bonus Plan and Restricted Share Plan
Total compensation paid to key management personnel
Year ended
2016
US$000
2015
US$000
811
(1,000)
(200)
–
–
(285)
As at 31 December
2016
US$000
5,459
6,622
12,081
2015
US$000
5,613
2,641
8,254
This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$5,487,769 (2015: US$4,155,759).
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Hochschild Mining plc Annual Report 2016
(c) Participation in rights issue by Pelham Investment Corporation (“Pelham”) and Inversiones ASPI SA (“ASPI”)
As at the record date of the Rights Issue, Eduardo Hochschild held his investment in the Company through Pelham. Following receipt of its
entitlement under the Rights Issue, Pelham transferred, for nil consideration, its Nil Paid Rights in respect of 74,745,101 new ordinary shares to ASPI
an entity that is also under the control of Eduardo Hochschild. Under the terms of an irrevocable undertaking signed between Pelham, ASPI and the
Company, it was agreed that:
(i) ASPI would, among other things, subscribe for at least 68,887,508 new ordinary shares at an issue price of 47 pence per new ordinary share
(the “Subscription Commitment”); and
(ii) the Company would, among other things, pay ASPI a fee of 1% of the Subscription Commitment of approximately US$500,000.
31 Auditor’s remuneration
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2016 and 2015 is as follows:
Audit fees pursuant to legislation1
Audit-related assurance services
Taxation compliance services
Taxation advisory services
Services relating to corporate finance transactions
Total
Amounts paid to Ernst & Young
in the year ended 31 December
2016
US$000
597
53
–
63
–
713
2015
US$000
788
75
41
55
398
1,357
1 The total audit fee in respect of local statutory audits of subsidiaries is US$358,000 (2015: US$458,000).
In 2016 and 2015, all fees are included in administrative expenses, with the exception of 2015 fees related to the issuance of shares by the
Group (US$398,000 which excludes 20% of value added taxes).
32 Notes to the statement of cash flows
Reconciliation of loss for the year to net cash generated from operating activities
Profit/(loss) for the year
Adjustments to reconcile Group loss to net cash inflows from operating activities
Depreciation (note 3(a))
Amortisation of intangibles (note 18)
Write-off of assets
Impairment of assets
Impairment of available-for-sale financial assets
Gain on sale of available-for-sale financial assets
Gain on sale of property, plant and equipment
Provision for obsolescence of supplies
Gain on sale of subsidiary
(Decrease)/increase of provision for mine closure
Finance income
Finance costs
Income tax expense/(benefit)
Other
Increase/(decrease) of cash flows from operations due to changes in assets and liabilities
Trade and other receivables
Income tax receivable
Other financial assets and liabilities
Inventories
Trade and other payables
Provisions
Cash generated from operations
As at 31 December
2016
US$000
2015
US$000
62,862
(239,657)
185,793
142,742
1,660
1,912
–
–
(66)
(48)
2,162
(751)
(6,346)
(2,008)
30,541
45,417
5,483
1,504
583
206,563
105
–
(245)
1,046
–
7,590
(1,898)
32,795
(16,518)
11,031
27,949
26,155
(423)
585
11,068
(21,595)
1,661
–
(393)
(12,915)
7,140
606
345,856
166,234
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
33 Commitments
(a) Mining rights purchase options
During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third parties. Generally,
under the terms of these agreements, the Group has the option to acquire the concession or invest in the entity holding the concession. In order to
exercise these options the Group must satisfy certain financial and other obligations during the term of the agreement. The options lapse in the
event that the Group does not meet its financial obligations. At any point in time, the Group may cancel the agreements without penalty, except
where specified below.
The Group continually reviews its requirements under the agreements and determines, on an annual basis, whether to proceed with its financial
commitment. Based on management’s current intention regarding these projects, the commitments at the statement of financial position date are
as follows:
Commitment for the subsequent 12 months
More than one year
(b) Operating lease commitments
The Group has a number of operating lease agreements, as a lessee.
As at 31 December
2016
US$000
350
4,500
2015
US$000
550
6,450
The lease expenditure charged to the income statement during the years 2016 and 2015 is included in production costs (2016: US$12,265,000,
2015: US$9,692,000), administrative expenses (2016: US$1,455,000, 2015: US$1,415,000), exploration expenses (2016: US$321,000,
2015: US$266,000) and selling expenses (2016: US$3,000, 2015: US$1,000).
As at 31 December 2016 and 2015, 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
2016
US$000
3,802
1,931
2015
US$000
3,615
3,433
For the year ended
31 December
2016
US$000
14,296
3,682
17,978
2015
US$000
7,684
4,509
12,193
34 Contingencies
As at 31 December 2016 the Group is subject to various claims which arise in the ordinary course of business. No provision has been made in the
financial statements and none of these claims are currently expected to result in any material loss to the Group.
(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 2016, the Group had exposures totalling
US$43,931,000 (2015: US$34,969,000) which are assessed as ‘possible’, rather than ‘probable’. No amounts have been provided in respect of these
items. This predominantly relates to potential tax penalties and related interest on intercompany loans.
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) Guarantees
The Group is required to provide guarantees in Peru in respect of environmental restoration and decommissioning obligations. The Group has
provided for the estimated cost of these activities (see note 26).
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Hochschild Mining plc Annual Report 2016
35 Mining royalties
Peru
In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and non-metallic
resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate or equivalent sold, based on
quoted market prices.
In October 2011 changes came into effect for mining companies, with the following features:
(a)
Introduction of a Special Mining Tax (‘SMT’), levied on mining companies at the stage of exploiting mineral resources. The additional tax is
calculated by applying a progressive scale of rates ranging from 2% to 8.4% of the quarterly operating profit.
(b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%, of the quarterly
operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.
The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12 “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 left the tax stability agreement, but has maintained 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 2016, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining royalty (for the
Ares, Pallancata and Inmaculada mining units), and the SMT amounted to US$170,000 (2015: US$272,000), US$769,000 (2015: US$1,080,000),
and US$737,000 (2015: US$745,000) 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$1,759,000
(2015: US$1,205,000) representing the former mining royalty, classified as cost of sales, US$3,882,000 (2015: US$1,778,000) of new mining royalty
and US$3,869,000 (2015: US$755,000) 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 collect 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 doré 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 doré 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. As at 31 December 2016, the amount payable as mining royalties amounted to US$509,000 (2015: US$524,000). The
amount recorded in the income statement as cost of sales was US$5,747,000 (2015: US$4,763,000).
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 were required to 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 applicable regulations, the tax applied only
on “proved reserves” and certain deductions (related to the production cost) applied to Minera Santa Cruz S.A. (a subsidiary of Hochschild Mining plc).
On 20 December 2013, Minera Santa Cruz S.A. filed before the Argentinian Supreme Court a legal claim against the tax on mining reserves. Such
legal claim challenged the legality of the tax on mining reserves arguing its unconstitutionality on the grounds that it violated the Federal Mining
Policy created by national law No. 24.196. Additionally, on 2 November 2015, Minera Santa Cruz S.A. filed a precautionary measure under which it
requested the Argentinian Supreme Court to order the Province of Santa Cruz not to claim from Minera Santa Cruz S.A. the payment of any amount
related to the tax on mining reserves until a final decision on the constitutionality of the tax is rendered. The precautionary measure was granted on
9 December 2015, with no tax was paid during 2015. The tax on mining reserves was eliminated on 30 December 2015. On 1 March 2016 Minera
Santa Cruz S.A. and the Province of Santa Cruz entered into an agreement under which each party agreed not to make to the other party any claim
related to the tax on mining reserves. Consequently, the amount payable as at 31 December 2015 as tax on mining reserves of US$4,054,000, which
was presented as ‘Trade and other payables’, have been written back and credited to the income statement within other income (US$2,667,000) and
financial income (US$974,000) (see footnote 2 of note 11). The expense recognised as other expenses in
the year ended 31 December 2015 with respect to this tax amounted to US$441,000 (note 12).
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
36 Financial risk management
The Group is exposed to a variety of risks and uncertainties which may have a financial impact on the Group and which also impact the achievement
of social, economic and environmental objectives. These risks include strategic, commercial, operational and financial risks and are further
categorised into risk areas to facilitate consolidated risk reporting across the Group.
The Group has made significant developments in the management of the Group’s risk environment which seeks to identify and, where appropriate,
implement the controls to mitigate the impact of the Group’s significant risks. This effort is supported by a Risk Committee with the participation of
the CEO, the Vice Presidents, and the head of the internal audit function. The Risk Committee is responsible for implementing the Group’s policy on
risk management and internal control in support of the Company’s business objectives, and monitoring the effectiveness of risk management within
the organisation.
(a) Commodity price risk
Silver and gold prices have a material impact on the Group’s results of operations. Prices are significantly affected by changes in global economic
conditions and related industry cycles. Generally, producers of silver and gold are unable to influence prices directly; therefore, the Group’s
profitability is ensured through the control of its cost base and the efficiency of its operations.
The Group´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 years ended 31 December 2016 and 2015 the (loss)/gain recognised in the income statement for the commodity swaps contracts signed
during the year is as follows:
Year
2016
2015
Oz Ag
8,999,997
Oz Au
115,000
Average price
per oz Ag
US$
Average price
per oz Au
US$
Effect on
income
statement
US$000
From 14 to
17.60
1,181
(18,722)
6,000,000
76,000
17.75
1,229
18,962
The fair value of unsettled commodity forward contracts as at 31 December is as follows:
Year
2016
2015
Oz Ag
–
Oz Au
–
6,000,000
100,000
Average price
per oz Ag
US$
Average price
per oz Au
US$
Effect on
equity
US$000
–
–
15.94
–
1,151
21,267
At 31 December 2016 the Group is not exposed to commodity price risk on commodity forward contracts. At 31 December 2015, a 10% favourable
or adverse change in the price of gold and silver would have an impact on amounts recognised in the comprehensive income of approximately +/-
US$10,561,000 and +/-US$8,265,000 respectively.
The Group has embedded derivatives arising from the sale of concentrate and doré which were provisionally priced at the time the sale was recorded
(refer to notes 5 and 36(e)). 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
2016
2015
Increase/
decrease in price of
ounces of:
Gold +/-10%
Silver+/-10%
Gold +/-10%
Silver+/-10%
Effect on
profit before tax
US$000
+/-647
+/-495
+/-216
+/-511
120
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in pounds sterling, Peruvian
nuevos soles, Canadian dollars, Argentinian pesos and Mexican pesos. Accordingly, the Group’s financial results may be affected by exchange rate
fluctuations between the US dollar and the local currency. The long-term relationship between commodity prices and currencies in the countries
in which the Group operates provides a certain degree of natural protection. The Group does not use derivative instruments to manage its foreign
currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their respective currencies,
to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group’s profit before tax and the
Group’s equity.
Year
2016
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
2015
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
(c) Credit risk
Increase/
decrease in
US$/other
currencies’
rate
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
Effect
on profit
before tax
US$000
+/-45
-/+263
-/+1,857
+/-834
+/-9
-/+55
+/-52
-/+970
-/+467
+/-2,808
+/-35
-/+153
Effect
on equity
US$000
+/-95
–
–
–
+/-3
–
+/-25
–
–
–
–
–
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 2016 and 31 December 2015:
Summary commercial partners
Trade receivables
Cash and cash equivalents - Credit rating1
A*+
A+
A-
BBB+
BBB
BBB-
NA
Total
1 The long-term credit rating as at 31 January 2017 (2015: 3 March 2016).
As at
31 December
2016
US$000
36,821
% collected
as at
6 March
2017
As at
31 December
2015
US$000
76%
62,352
% collected
as at
7 March
2016
64%
As at
31 December
2016
US$000
As at
31 December
2015
US$000
–
64,017
8,877
65,023
1,549
–
513
139,979
40,175
36
32,846
4,059
5,158
15
1,728
84,017
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
36 Financial risk management continued
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 the 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 20, 22 and 36(e).
(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 amount held of investments at year end (note 19) is not significant and the sensitivity to reasonable movements in the share price of available-
for-sale financial assets is immaterial.
(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 2016 and 2015, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Equity shares (note 19)
Liabilities measured at fair value
Embedded derivatives1
Assets measured at fair value
Equity shares (note 19)
Commodity swaps and zero cost collar agreements (note 36(a))
Liabilities measured at fair value
Embedded derivatives1
31 December
2016
US$000
991
Level 1
US$000
991
(1,726)
–
31 December
2015
US$000
366
21,267
Level 1
US$000
366
–
Level 2
US$000
–
–
Level 2
US$000
–
21,267
Level 3
US$000
–
(1,726)
Level 3
US$000
–
–
(1,141)
–
–
(1,141)
1 Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of
time (usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the doré into gold and silver), with the Group either
paying or receiving the difference between the provisional price and the final price. This price exposure is considered to be an embedded derivative in accordance with IAS 39 ‘Financial
Instruments: Recognition and Measurement’. The gain or loss that arises on the fair value of the embedded derivative is recorded
in ‘Revenue’ (note 5).
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
During the period ending 31 December 2016 and 2015, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Balance at 1 January 2015
Gain from the period recognised in revenue
Balance at 31 December 2015
Gain from the period recognised in revenue
Balance at 31 December 2016
(f) Liquidity risk
Embedded
derivatives
liabilities
US$000
(1,533)
392
(1,141)
(585)
(1,726)
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 2016
Trade and other payables
Embedded derivative liability
Borrowings
Total
At 31 December 2015
Trade and other payables
Embedded derivative liability
Borrowings
Total
(g) Interest rate risk
Less than
1 year
US$000
90,373
1,726
50,408
142,507
85,124
1,141
111,811
198,076
Between
1 and
2 years
US$000
340
–
22,845
23,185
–
–
24,476
24,476
Between
2 and
5 years
US$000
1,020
–
351,888
352,908
23,250
–
120,369
143,619
Over
5 years
US$000
227
–
–
227
–
–
306,198
306,198
Total
US$000
91,960
1,726
425,141
518,827
108,374
1,141
562,854
672,369
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.
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Financial statements
Financial Statements
Notes to the consolidated financial statements continued
36 Financial risk management continued
Fixed rate
Assets
Liabilities
Floating rate
Assets
Fixed rate
Assets
Liabilities
Floating rate
Assets
Liabilities
As at 31 December 2016
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
–
–
–
–
(291,073)
–
–
–
–
Total
US$000
71,133
(327,385)
203
As at 31 December 2015
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
–
–
–
–
–
–
35,963
(20,322)
(290,230)
(405,083)
–
(49,548)
–
–
337
(49,777)
Within
1 year
US$000
71,133
(36,312)
203
Within
1 year
US$000
35,963
(94,531)
337
(229)
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Interest on financial instruments classified
as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the above tables are
non-interest bearing and are therefore not subject to interest rate risk.
The sensitivity to a reasonable movement in the interest rate, with all other variables held constant, of the financial instruments with a floating rate,
determined as a +/-50bps change in interest rates has a +/-6,000 effect on profit before tax (2015: +/-477,000). The Group is exposed to fluctuations
in market interest rates.
This assumes that the amount remains unchanged from that in place at 31 December 2016 and 2015 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.
(h) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
shareholders, benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. Management considers
as part of its capital, the financial sources of funding from shareholders and third parties (notes 25 and 27).
In 2015 the Group collected capital of US$95,216,000 following a rights issue and US$175,948,000 due to proceeds of borrowings while
$209,173,000 of debt was repaid.
In 2016 the Group collected US$70,000,000 due to proceeds of borrowings while US$177,431,000 of debt was repaid.
Management also retains the right to fund operations (fully owned and with joint venture partners) with a mix of equity and joint venture
partners’ debt.
37 Subsequent events
(a) On 7 February 2017, US$25,000,000 of short-term debt was repaid.
(b) The Group received a letter of intent dated 26 January 2017 outlining a proposed transaction between Americas Silver Corporation and
Santacruz Mining Ltd (IMSC). Following this letter, the Group signed the following agreements which supersede all previous contracts:
On 20 February 2017, the Group and IMSC signed a new agreement pursuant to which IMSC will acquire properties comprising the El Gachi
project (part of San Felipe) for a total consideration of US$500,000 which is due on 31 March 2017.
On 28 February 2017, the Group signed a new option agreement with IMSC for the remaining San Felipe properties amounting to
US$10,000,000. An initial payment of US$2,000,000 was due to the Group on 7 March 2017. The IMSC option expires on 1 December 2017.
On 2 March 2017 it was announced that IMSC had entered into an agreement with Americas Silver Corporation to assign 100% of its interest in
the San Felipe Project.
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Hochschild Mining plc Annual Report 2016
Parent company statement of financial position
As at 31 December 2016
ASSETS
Non-current assets
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
Total liabilities
Total equity and liabilities
The financial statements were approved by the Board of Directors on 7 March 2017 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
7 March 2017
As at 31 December
2016
US$000
2015
US$000
Notes
5
6
7
8
8
8
9
10
9
1,844,725
1,844,725
642,121
642,121
8,824
10,402
19,226
6,043
21,885
27,928
1,863,951
670,049
224,315
458,267
(426)
5,869
949,863
1,637,888
5,194
419
5,613
220,450
220,450
226,063
1,863,951
223,805
458,267
(898)
4,655
(244,605)
441,224
7,545
82
7,627
221,198
221,198
228,825
670,049
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www.hochschildmining.com
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Financial statements
Financial Statements
Parent company statement of cash flows
For the year ended 31 December 2016
Reconciliation of loss for the year to net cash used in operating activities
Profit/(loss) for the year
Adjustments to reconcile Company profit/(loss) to net cash outflows from operating activities
(Reversal)/impairment on investment in subsidiary
Share-based payments
Finance income
Finance costs
Income tax
(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
Net cash used in operating activities
Cash flows from investing activities
Loans to subsidiaries
Net cash generated from investing activities
Cash flows from financing activities
Dividends paid
Repayment of borrowings
Proceeds from issue of ordinary shares
Cash flows (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents during the year
Exchange difference
Other
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended 31 December
2016
US$000
2015
US$000
Notes
1,199,842
(269,954)
5
(1,202,604)
563
(2,696)
16
1
476
(541)
337
(4,606)
121
(4,485)
–
–
(6,998)
–
–
(6,998)
(11,483)
(44)
44
21,885
10,402
7
268,895
–
(4,933)
41
–
(1,791)
489
37
(7,216)
9
(7,207)
6
6
–
(71,299)
95,216
23,917
16,716
209
1,667
3,293
21,885
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Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
Parent company statement of changes in equity
For the year ended 31 December 2016
Other reserves
Equity share
capital
US$000
Notes
Share premium
US$000
Treasury Shares
US$000
Share-based
payment
reserve
US$000
170,389
416,247
(898)
2,576
Balance at 1 January 2015
Other comprehensive income
Loss for the year
Total comprehensive loss for the year
Exercise of share options
Issuance of shares
Transaction costs related to issuance of shares
Share-based payments
Balance at 31 December 2015
Other comprehensive income
Profit for the year
Total comprehensive profit for the year
Exercise of share options
Dividends
Share-based payments
8
8
8
2
2
–
–
–
220
53,196
–
–
–
–
–
–
46,812
(4,792)
–
–
–
–
–
–
–
–
223,805
458,267
(898)
–
–
–
510
–
–
–
–
–
–
–
–
–
–
–
472
–
–
(426)
(1,560)
(1,560)
Total other
reserves
US$000
2,576
–
–
–
–
–
3,639
4,655
Retained
earnings
US$000
23,693
–
(269,954)
(269,954)
1,340
–
–
316
Total equity
US$000
612,007
–
(269,954)
(269,954)
–
100,008
(4,792)
3,955
(244,605)
441,224
–
–
–
–
1,199,842
1,199,842
(2,223)
–
3,437
5,869
1,241
(6,998)
383
–
1,199,842
1,199,842
–
(6,998)
3,820
–
–
–
–
–
3,639
4,655
–
–
–
(2,223)
–
3,437
5,869
Balance at 31 December 2016
224,315
458,267
949,863
1,637,888
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www.hochschildmining.com
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Financial statements
Financial Statements
Notes to the parent company financial statements
For the year ended 31 December 2016
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 17 Cavendish Square, London W1G 0PH, 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 of 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 2016 and 31 December 2015. 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 in the preparation of the financial statements are consistent with those applied in the preparation of the
consolidated financial statements for the year ended 31 December 2015. Amendments to standards and interpretations which came into force
during the year did not have a significant impact on the financial statements. The accounting policies adopted are consistent with those of the
previous financial year.
(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.
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Hochschild Mining plc Annual Report 2016
(f) Investments in subsidiaries
Subsidiaries are entities over which the Company controls operating and financial policies, generally by owning more than 50% of voting
rights. Investments in subsidiaries are recognised at acquisition cost less any provision for impairment. The 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.
(g) Dividends receivable
Dividends are recognised when the Company’s right to receive payments is established. Dividends received are recorded in the income statement.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
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Financial statements
Financial Statements
Notes to the parent company financial statements continued
For the year ended 31 December 2016
2 Significant accounting policies continued
(l) 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.
At the beginning of 2015, the Company granted a new benefit for some key employees of the Group, the Restricted Share Plan.
(m) Finance income and costs
Finance income and costs mainly comprise interest income on funds invested, interest expense on borrowings, foreign exchange gains and losses,
gains and losses from the change in fair value of derivative instruments and gains and losses on the disposal of available-for-sale investments.
Interest income and costs are recognised as they accrue, taking into account the effective yield on the asset and liability, respectively.
(n) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it
relates to items charged or credited directly to equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the 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;
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.
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Hochschild Mining plc Annual Report 2016
(o) Financial instruments
Financial assets and liabilities are recognised when the Company becomes party to the contracts that give rise to them and are classified as loans
or borrowings, receivables, payables, financial instruments at fair value through profit and loss or as available-for sale financial assets, as appropriate.
The Company determines the classification of its financial assets and liabilities at initial recognition and, where allowed and appropriate,
re-evaluates this designation at each financial year end. When financial assets and liabilities are recognised initially, they are measured at fair value,
being the transaction price plus, in the case of financial assets not at fair value through profit or loss and borrowings, directly attributable transaction
costs. The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded
derivatives are separated from the host contract if it is not measured at fair value through profit or loss and when the economic characteristics and
risks are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly
modifies the cash flows that would otherwise be required.
All regular way purchases and sales of financial assets are recognised on the trade date, being the date that the Company commits to purchase or
sell the asset. Regular way transactions require delivery and receipt of assets within the timeframe generally established by regulation or convention
in the marketplace.
Financial guarantees
Financial guarantees are guarantees 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(t)).
(p) Dividends distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which
the dividends are approved by the Company’s shareholders.
3 Profit and loss account
The Company made a profit attributable to equity shareholders of US$1,199,842,000 (2015: loss of US$269,954,000).
4 Property, plant and equipment
The ending balance at 31 December 2016 is US$nil (31 December 2015: US$nil), related to cost of equipment of US$265,000 net to accumulated
depreciation of US$265,000.
There were no additions during 2015 and 2016.
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Financial statements
Financial Statements
Notes to the parent company financial statements continued
For the year ended 31 December 2016
5 Investments in subsidiaries
Year ended 31 December 2015
Cost
At 1 January 2015
At 31 December 2015
Accumulated impairment
At 1 January 2015
Impairment loss
At 31 December 2015
Net book value at 31 December 2015
Year ended 31 December 2016
Cost
At 1 January 2016
At 31 December 2016
Accumulated impairment
At 1 January 2016
Reversal of impairment
At 31 December 2016
Net book value at 31 December 2016
Total
US$000
2,336,010
2,336,010
(1,424,994)
(268,895)
(1,693,889)
642,121
2,336,010
2,336,010
(1,693,889)
1,202,604
(491,285)
1,844,725
The Company tested its investment in subsidiary for impairment in light of increases in the prices of gold and silver, as well as increases in the
Company’s publically listed share price. As a result of this test, the Company recognised an impairment reversal of the investment in Hochschild
Mining Holdings Ltd. of US$1,202,604,000 (2015: Impairment of US$268,895,000).
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 2016 and 2015 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:
Name
Hochschild Mining Holdings Limited
Total
As at 31 December 2016
As at 31 December 2015
Country of
incorporation
Equity interest
%
Carrying value
US$000
Country of
incorporation
Equity interest
%
Carrying value
US$000
England and
Wales
100%
1,844,725
England and
Wales
100%
642,121
1,844,725
642,121
The list of indirectly held subsidiaries of the Group is presented in note 1 (Corporate information) of the notes to the consolidated financial statements.
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6 Other receivables
Amounts receivable from subsidiaries (note 11)
Prepayments
Receivable from Kaupthing, Singer and Friedlander
Interests receivable
Other receivable
Provision for impairment1
Total
Less current balance
Non-current balance
Year ended 31 December
2016
US$000
8,779
11
198
17
17
9,022
(198)
8,824
(8,824)
–
2015
US$000
5,566
477
252
–
–
6,295
(252)
6,043
(6,043)
–
Total
US$000
264
(12)
252
(54)
198
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$198,000 accrued in 2008 and partially recovered
in 2016 (2015: US$252,000).
Movements in the provision for impairment of receivables:
At 1 January 2015
Amounts recovered
At 31 December 2015
Amounts recovered
At 31 December 2016
As at 31 December 2016 and 2015, none of the financial assets classified as receivables (net of impairment) were past due.
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 3 days (2015: 2 days).
8 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2016 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2015 is as follows:
Class of shares
Ordinary shares
Year ended 31 December
2016
US$000
440
9,962
10,402
2015
US$000
635
21,250
21,885
Issued
Number
507,232,310
Amount
£126,808,078
Issued
Number
505,571,505
Amount
£126,392,876
At 31 December 2016 and 2015, all issued shares with a par value of 25 pence each were fully paid (2016: weighted average of US$0.442 per share,
2015: weighted average of US$0.443 per share).
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Financial statements
Financial Statements
Notes to the parent company financial statements continued
For the year ended 31 December 2016
8 Equity continued
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 20 March 2015 the Group issued 587,015 ordinary shares under the Deferred Bonus Plan, a benefit to the certain employees of the Group.
On 20 October 2015 a rights issue was completed and 137,883,138 shares with an aggregate nominal value of US$53,195,659 were issued
for a cash consideration of US$100,007,840 (137,883,138 shares at GBP 0.47 per share, amounting to GBP 64,805,075) net of transaction costs
of US$4,792,135.
On 30 December 2016 the Group issued 1,660,805 ordinary shares under the Restricted Share Plan, to certain employees of the Group.
The changes in share capital are as follows:
Shares issued as at 1 January 2015
Shares issued according the Deferred Bonus Plan benefit on 20 March 2015
Shares issued and paid pursuant to the rights issue on 20 October 2015
Shares issued as at 31 December 2015
Shares issued according the Restricted Share Plan benefit on 30 December 2016
Shares issued as at 31 December 2016
(b) Treasury shares
Number of
shares
367,101,352
587,015
137,883,138
Share capital
US$000
170,389
220
53,196
505,571,505
223,805
1,660,805
510
Share premium
US$000
416,247
–
42,020
458,267
–
507,232,310
224,315
458,267
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(n)). 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 during 2015 and 2016. On 20 March 2016, 66,727 Treasury shares with a value of
US$472,000 (being the cost incurred to acquire the shares) were transferred to the CEO of the Group with respect to the Deferred Bonus Plan benefit.
Treasury shares at 31 December 2016 is 60,042 (2015: 126,769) ordinary shares with a value of US$426,000 (2015: US$898,000).
(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).
Share-based payment reserve
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.
Refer to note 27(c) to the consolidated financial statements for details of the share-based payment reserve at 31 December 2016 and 2015.
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Hochschild Mining plc Annual Report 2016
9 Trade and other payables
Trade payables
Payables to subsidiaries (note 11)
Remuneration payable
Taxes and contributions
Financial guarantees1
Total
Non-current
US$000
–
–
–
–
5,194
5,194
As at 31 December
2016
Current
US$000
297
217,235
747
476
1,695
220,450
Non-current
US$000
–
–
–
–
7,545
7,545
2015
Current
US$000
1,008
217,571
325
375
1,919
221,198
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 Provisions
Beginning balance
Increase in provision, net
At 31 December
Less: current portion
Non-current portion
As at 31 December
2016
US$000
2015
US$000
82
337
419
–
419
45
37
82
–
82
1 Corresponds to the provision related to cash-settled share-based payment awards granted under the Long-Term Incentive Plan (‘LTIP)’ to designated personnel of the Company.
Includes the following benefits: (i) Long-Term Incentive Plan awards, granted in March 2016, payable in March 2019, (ii) Long-Term Incentive Plan awards, granted in March 2015,
payable in March 2018. 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. Refer to footnote 2 of note 26 to the consolidated financial statements for details of the LTIP awards and assumptions used for the valuation
as at 31 December 2016 and 2015.
11 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 2016 and 31 December 2015.
Subsidiaries
Compañía Minera Ares S.A.C.1
Hochschild Mining Holdings Ltd.2
Other subsidiaries
Total
As at 31 December 2016
As at 31 December 2015
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
7,773
487
519
8,779
279
216,932
24
217,235
4,701
488
377
5,566
Accounts
payable
US$000
253
217,294
24
217,571
1 The account receivable mainly relates to the Deferred Bonus Plan and Restricted Share Plan provision that are 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 2016 of US$279,000
(2015: US$253,000). The Company has also provided certain financial guarantees on behalf of Compañía Minera Ares S.A.C. (notes 5 and 9).
2 Relates to 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.
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Financial statements
Financial Statements
Notes to the parent company financial statements continued
For the year ended 31 December 2016
11 Related-party balances and transactions continued
(b) Compensation of key management personnel of the Company
Key management personnel include the Directors who receive remuneration. The amount of this remuneration totals US$1,420,504 (2015: US$1,518,262).
Compensation of key management personnel (including Directors)
Short-term employee benefits
Long-Term Incentive Plan
Total compensation
12 Dividends paid and proposed
Dividends per share
As at 31 December
2016
US$000
857
563
1,420
2015
US$000
875
643
1,518
The interim dividends declared in August 2016 were US$6,998,398 (1.38 US cent per share). A final dividend in respect of the year ending
31 December 2016 of 1.38 US cent per share, amounting to a total dividend of US$7,000,000 is to be proposed at the Annual General Meeting on
11 May 2017. These financial statements do not reflect this dividend payable. The Directors of the Company did not recommend the payment of
a dividend in respect of the year ended 31 December 2015.
13 Financial risk management
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and economic objectives.
These risks include strategic, operational and financial risk and are further categorised into risk areas to facilitate risk assessment. The Company is
not exposed to significant sources of commodity price, equity or interest rate risk.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling and Canadian dollars.
Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company does not use derivative instruments
to manage its foreign currency risks. The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date
denominated in their respective currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant,
of the Company’s profit before tax and the Company’s equity.
Year
2016
Pound sterling
2015
Pound sterling
(b) Credit risk
Increase/
decrease in
US$/other
currencies rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/-10%
+/-35
+/-10%
-/+39
–
–
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);
• 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.
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Hochschild Mining plc Annual Report 2016
(c) Liquidity risk
Liquidity risk arises from the Company’s inability to obtain the funds it requires to comply with its commitments, including the inability to
sell a financial asset quickly enough and at a price close to its fair value. Management constantly monitors the Company’s level of short- and
medium-term liquidity and their access to credit lines on reasonable terms in order to ensure appropriate financing is available for its operations.
The Company is funded by Hochschild Mining Holdings Ltd through loans in order to meet its obligations. Liquidity is supported by the balance of
cash and cash equivalent held by the Company and Hochschild Mining Holdings Ltd at 31 December 2016 of US$10,402,000 (2015: US$21,885,000)
and US$17,218,000 (2015: US$335,000) 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 2016
Trade and other payables
At 31 December 2015
Trade and other payables
Less than
1 year
US$000
218,279
218,904
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
–
–
–
–
Over
5 years
US$000
–
–
Total
US$000
218,279
218,904
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 2016
Financial guarantees1
At 31 December 2015
Financial guarantees1
1 Not including any accumulated interest that may be payable at the call date.
(d) Capital risk management
Less than
1 year
US$000
294,775
344,775
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
–
–
–
–
Over
5 years
US$000
–
–
Total
US$000
294,775
344,775
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 and 9). In order to ensure an appropriate
return for shareholders’ capital invested in the Company, management monitors capital thoroughly and evaluates all material projects and potential
acquisitions before submission to the Board for ultimate approval, where applicable.
www.hochschildmining.com
www.hochschildmining.com
137
137
Financial statements
Profit by operation
(Segment report reconciliation) as at 31 December 2015
Company (US$000)
Revenue
Cost of sales (Pre consolidation)
Consolidation adjustment
Cost of sales (Post consolidation)
Production cost excluding depreciation
Depreciation in production cost
Other items
Change in inventories
Gross profit
Administrative expenses
Exploration expenses
Selling expenses
Other income/expenses
Operating profit before impairment
Impairment and write-off of assets
Finance income
Finance costs
FX loss
Arcata
Pallancata
Inmaculada
117,358
(92,461)
(132)
(92,329)
(68,155)
(22,083)
(462)
(1,629)
24,897
–
–
(1,973)
–
54,456
(42,451)
600
(43,051)
(33,650)
(10,989)
(241)
1,829
12,005
–
–
(721)
–
22,924
11,284
–
–
–
–
–
–
–
–
280,108
(181,383)
2,499
(183,882)
(83,796)
(101,207)
(506)
1,627
98,725
–
–
(1,130)
–
97,595
–
–
–
–
Profit/(loss) from continuing operations before income tax
22,924
11,284
97,595
Income tax
–
–
–
Profit/(loss) for the year from continuing operations
22,924
11,284
97,595
1 On a post exceptional basis.
Consolidation
adjustment
and others
359
(3,056)
3,056
–
–
–
–
–
(2,697)
(47,979)
(9,193)
–
11,265
(48,604)
(1,912)
2,074
(30,541)
(1,800)
(80,783)
(45,417)
(126,200)
San Jose
235,961
(168,351)
89
(168,440)
(108,209)
(51,376)
(541)
(8,314)
67,610
–
–
(10,351)
–
57,259
–
–
–
–
57,259
–
57,259
Total/HOC
688,242
(487,702)
–
(487,702)
(293,810)
(185,655)
(1,750)
(6,487)
200,540
(47,979)
(9,193)
(14,175)
11,265
140,458
(1,912)
2,074
(30,541)
(1,800)
108,279
(45,417)
62,862
138
138
Hochschild Mining plc Annual Report 2016
Hochschild Mining plc Annual Report 2016
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 139 to 141 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
elapsed 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 2016, 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$16.5 per ounce.
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2016
Proved and
probable
(t)
Reserve category
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
OPERATIONS1
Arcata
Proved
Probable
Total
Inmaculada
Proved
Probable
Total
Pallancata
Proved
Probable
Total
San Jose
Proved
Probable
Total
Proved
Probable
TOTAL
479,515
811,996
1,291,511
3,254,366
2,568,907
5,823,274
632,793
371,752
1,004,545
593,089
333,455
926,544
4,959,763
4,086,111
9,045,874
371
327
343
144
182
161
477
331
423
502
401
465
252
242
247
1.1
1.1
1.1
3.9
4.7
4.3
2.0
1.4
1.8
7.3
6.6
7.1
3.8
3.9
3.8
5.7
8.5
14.3
15.1
15.0
30.1
9.7
4.0
13.7
9.6
4.3
13.9
40.1
31.8
71.9
17.3
29.7
47.0
412.7
388.9
801.6
40.8
17.2
58.0
139.9
70.4
210.4
610.7
506.2
1,116.9
7.0
10.7
17.7
45.7
43.8
89.4
12.7
5.2
18.0
19.9
9.5
29.4
85.3
69.2
154.5
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 Operations were audited by P&E Consulting.
www.hochschildmining.com
139
Further information
Reserves and resources continued
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 20161
Ag
(g/t)
Resource category
Tonnes
(t)
Au
(g/t)
Zn
(%)
Pb
(%)
Cu
(%)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
Zn
(kt)
Pb
(kt)
Cu
(kt)
OPERATIONS
Arcata
Measured
Indicated
Total
Inferred
Inmaculada
Measured
Indicated
Total
Inferred
Pallancata
Measured
Indicated
Total
Inferred
San Jose
Measured
Indicated
Total
Inferred
GROWTH PROJECTS
Crespo
Measured
Indicated
Total
Inferred
Azuca
Measured
Indicated
Total
Inferred
Volcan
Measured
Indicated
Total
Inferred
OTHER PROJECTS 2
Measured
Indicated
Total
Inferred
GRAND TOTAL
Measured
Indicated
Total
Inferred
1,109,214
1,942,187
3,051,401
4,030,857
2,977,597
2,635,187
5,612,784
3,165,478
1,052,621
693,465
1,746,086
3,637,800
840,329
964,641
1,804,970
529,566
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
1,393,716
1,354,261
2,747,977
13,445,001
118,693,138
315,509,563
434,202,700
74,083,472
414
385
395
341
178
219
197
133
453
332
405
357
564
404
479
404
47
38
40
46
244
187
188
170
–
–
–
–
69
82
76
8
20
13
15
62
1.25
1.29
1.28
1.25
4.83
5.58
5.19
3.37
1.92
1.45
1.74
1.37
8.20
6.26
7.16
6.40
0.47
0.40
0.42
0.57
0.77
0.77
0.77
0.89
0.738
0.698
0.709
0.502
0.02
0.06
0.04
0.30
0.89
0.74
0.78
0.75
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.12
6.14
6.64
0.58
0.08
0.03
0.04
0.10
3.10
2.73
2.92
0.21
0.04
0.01
0.02
0.04
0.39
0.31
0.35
1.22
0.00
0.00
0.00
0.22
506
481
490
433
535
632
581
383
596
439
534
459
1,171
867
1,009
878
82
67
71
88
301
243
245
236
55
52
52
37
315
295
305
160
88
69
74
14.8
24.0
38.8
44.1
17.0
18.6
35.6
13.6
15.3
7.4
22.7
41.8
15.2
12.5
27.8
6.9
7.9
21.0
28.8
1.1
1.5
41.2
42.7
37.9
44.7
80.7
125.4
162.1
18.1
30.0
48.1
56.1
462.7
473.0
51.2
53.6
935.7
104.8
343.3
39.0
65.1
32.4
97.5
160.7
20.2
9.8
30.0
53.7
221.6
31.6
194.1
415.7
109.0
26.9
58.5
14.9
78.6
222.5
301.0
14.2
4.7
168.8
173.5
199.5
13.7
37.4
51.1
2.2
1.8
53.7
55.5
52.7
–
–
–
–
2,513.1
186.0
6,368.0
471.2
8,882.7
657.3
670.7
49.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.1
3.6
6.7
3.4
0.9
2.4
3.3
14.1
12.9
99.3
83.2
27.0
182.4
43.1
37.0
80.1
5.5
4.2
9.7
128.6
69.0
77.8
28.5
163.6
74.8
3,391.5
336.8
128.3
7,541.9
695.5
99.3
83.2
203.1 10,934.9 1,032.3
182.4
43.1
37.0
80.1
5.5
4.2
9.7
142
148.9
1,788.0
337.3
77.8
28.5
163.6
1 Prices used for resources calculation: Au: $1,200/oz and Ag: $16.5/oz.
2
Includes the Jasperoide copper project and the San Felipe zinc/silver project. The silver equivalent grade (147 g/t Ag Eq) has been calculated applying the following ratios,
Cu/Ag=96.38 and Au/Ag=60.
140
Hochschild Mining plc Annual Report 2016
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Ag equivalent content (million ounces)
Arcata
Inmaculada
Pallancata
San Jose
Crespo
Azuca
Volcan
Other projects total
Total
Category
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Reserve
Resource
Reserve
Resource
Reserve
Percentage
attributable
December
2016
100%
100%
100%
51%
100%
100%
100%
100%
December
2015
Att.1
December
2016
Att.1
Net
difference
122.3
20.1
159.1
104.2
102.3
14.9
92.8
31.2
53.3
–
108.2
–
706.9
–
–
96.0
–
104.2
17.7
143.8
89.4
83.6
18.0
73.5
29.4
53.3
–
108.2
–
706.9
–
–
96.0
–
(18.1)
(2.3)
(15.3)
(14.8)
(18.7)
3.1
(19.4)
(1.8)
–
–
–
–
–
–
–
–
–
%
change
(14.8%)
(11.5%)
(9.6%)
(14.2%)
(18.3%)
20.9%
(20.9%)
(5.7%)
–
–
–
–
–
–
–
–
–
1,441.1
170.4
1,369.6
154.5
(71.5)
(15.8)
(5.0%)
(9.3%)
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
www.hochschildmining.com
141
Further information
Shareholder information
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, and 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: 0371 664 0300 (Calls charged at the
standard geographic rate and will vary by provider. Lines are open
8.30am-5.30pm Mon to Fri).
If calling from overseas: +44 371 664 0300 (Calls charged at the
applicable international rate).
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars should
contact the Company’s registrars to request a currency election form.
This form should be completed and returned to the registrars by
28 April 2017 in respect of the 2016 final dividend.
The Company’s registrars can also arrange for the dividend to be paid
directly into a shareholder’s UK bank account. To take advantage of this
facility in respect of the 2016 final dividend, a dividend mandate form,
also available from the Company’s registrars, should be completed and
returned to the registrars by 28 April 2017. This arrangement is only
available in respect of dividends paid in UK pounds sterling.
Shareholders who have already completed one or both of these forms
need take no further action.
Financial Calendar
Dividend dates
Ex-dividend date
Record date
Deadline for return of currency election forms
Payment date
17 Cavendish Square
London
W1G 0PH
United Kingdom
2017
20 April
21 April
28 April
17 May
142
Hochschild Mining plc Annual Report 2016
Forward looking statements
The constituent parts of this Annual Report, including those that make up the Directors’ Report, contain certain forward-looking statement,
including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy,
investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its
current goals, assumptions and expectations relating to its future financial condition, performance and results.
Forward-looking statements include, without limitation, statements typically containing words such as “intends”, “expects”, “anticipates”,
“targets”, “plans”, “estimates” and words of similar import. By their nature, forward looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of
Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such
forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements
of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive
conditions, technological developments, exchange rate fluctuations and general economic conditions. Past performance is no guide to future
performance and persons needing advice should consult an independent financial adviser.
The forward looking statements reflect knowledge and information available at the date of preparation of this Annual Report. Except
as required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any
forward looking statements to reflect events occurring after the date of this announcement. Nothing in this Annual Report should be
construed as a profit forecast.
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HOCHSCHILD MINING PLC
17 Cavendish Square
London W1G 0PH
United Kingdom
Tel: +44 (0) 203 709 3260
Fax: +44 (0) 203 709 3261
info@hocplc.com
www.hochschildmining.com
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