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OUR VISION
FOR THE
FUTURE OF
MINING
Hochschild Mining PLC
Annual Report & Accounts 2019
CONTENTS
READ MORE
hochschildmining.com
Strategic report
At a glance
Market review
Chairman’s statement
Chief Executive Officer’s review
Business model
Our strategy
Key Performance Indicators
Operating review
Financial review
Sustainability report
Risk management & viability
Governance
Board of Directors
Senior management
Directors’ Report
Corporate Governance Report
Supplementary information
Directors’ Remuneration Report
Statement of directors’ responsibilities
02
10
12
14
16
18
20
22
34
40
50
56
58
59
61
78
81
95
Financial statements
Independent Auditor’s Report to the
members of Hochschild Mining PLC
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of
financial position
Consolidated statement of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Parent company statement
of financial position
96
103
103
104
105
106
107
149
Parent company statement of cash flows 150
Parent company statement
of changes in equity
Notes to the parent company
financial statements
Further information
Profit by operation
Reserves and resources
Change in attributable
reserves and resources
Shareholder information
151
152
160
161
163
164
OUR PURPOSE
RESPONSIBLE AND INNOVATIVE
MINING COMMITTED TO
A BETTER WORLD
Hochschild’s vision is for responsibility
and innovation to underpin our
strategy. We are focused on generating
long-term stakeholder value through
the transparent delivery of key minerals
and a commitment to creating
a positive global impact.
HOW OUR VISION DRIVES
WHAT WE DO
OUR CORE BUSINESS
Focusing on life-of-mine additions
and improving the quality of our resources
PAGE 04
OUR FUTURE BUSINESS
From innovation to exploration to acquisitions,
investment in optionality is key
PAGE 06
OUR SOCIAL RESPONSIBILITY
Our commitment to our employees, communities
and the environment we operate in
PAGE 08
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01
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTS
AT A GLANCE
WHO WE ARE
AND WHERE
WE OPERATE
We are a leading underground precious metals company,
focusing on the exploration, mining, processing and sale
of gold and silver in the Americas.
KEY HIGHLIGHTS
4.82
ECO SCORE
2018: 5.37
$0.09
ADJUSTED BASIC EPS
2018: $0.05
1.05
LTIFR
2018: 1.74
$343m
ADJUSTED EBITDA
2018: $268m
2.335C/SHARE
FINAL DIVIDEND
2018: 1.959c/share
$33m
NET DEBT
2018: $77m
$11.9/OZ AG EQ
AISC
2018: $12.0/oz Ag Eq
269,892OZ
ATTRIB. GOLD PRODUCTION
2018: 260,436oz
16.8mOZ
ATTRIB. SILVER PRODUCTION
2018: 19.7moz
02
Hochschild Mining PLC / Annual Report & Accounts 2019 MINING OPERATIONS
Hochschild operates three underground epithermal
deposits, two of which are located in the south west
of Peru in our “Southern Peru cluster” and one in the
southern Argentinian province of Santa Cruz.
Gold
production
Silver
production
All-in
sustaining
costs
189,000 oz
5.7m oz $798/oz Au Eq
26,000 oz
7.3m oz
$13.5oz Ag Eq
105,000 oz
6.8m oz $13.8/oz Ag Eq
Operation
Inmaculada
Peru
Pallancata
Peru
San Jose
Argentina
PROJECT PIPELINE
Hochschild currently has a number of exploration
projects in Peru and Chile. These include former
operations that still have strong geological potential
through to our early stage opportunities and
regional targets close to our current mines.
WHERE WE OPERATE
10
11
13
12
Operation
Ares
Peru
Arcata
Peru
Selene
Peru
Azuca
Peru
Condor
Peru
Crespo
Peru
Volcan
Chile
Huacullo
Peru
Huachuilca
Peru
Pacapausa
Peru
Gaby Marina
Peru
Macarena
Peru
Sayrosa
Peru
BioLantanidos
Chile
Category
Former operations
Early-stage
Regional targets
2
1
6
7
8
4
5
9
3
Others
Operational sites
Exploration sites
GREENFIELD PROSPECTS
Hochschild has a portfolio of greenfield prospects
across the Americas.
Inmaculada (Peru)
Snip (Canada)
Pallancata (Peru)
Cooke Mountain (US)
San Jose (Argentina)
Illipah (US)
Asset
Condor
Ana Lucia
Icas
Farallon
Casma
Alto Ruri
Cueva Blanca
Josnitoro
Cooke Mountain
Illipah
Horsethief
Snip
Country
Exploration projects
Horsethief (US)
Arcata (Peru)
Ares (Peru)
Azuca (Peru)
Crespo (Peru)
Condor (Peru)
Volcan (Chile)
Read more
Operating Review
PAGE 22
Peru
US
Canada
03
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OUR VISION: THE CORE BUSINESS
MAXIMISING
THE VALUE OF
OUR ASSETS
This year we continued our ongoing programme
to extend the lives of our current mines, improve
the quality of our reserves and resources and
incorporate innovative technologies into our
operational toolkit.
INNOVATING THROUGHOUT THE VALUE CHAIN
Ore sorting
technology
New Inmaculada resources can be materially
improved with ore sorting
Feeding of
unsorted material
HIGH-TECH SENSORS
TO IDENTIFY MINERAL
Initial bulk testing done in Germany with both
Steinert and TOMRA
20t pilot scale testing in Brazil with Steinert
Pre-Feasibility Study with Ausenco almost complete
Team from SRK working on optimising blasting
technique
Modelling with zero cut-off and Deswik technology
to better estimate additional resources and
potential inclusion of more vein width
Hochschild developing initial economic model
Read more
Operating Review
PAGE 22
04
High speed processing of information
(material, shape, size, colour, defect,
damage and location of objects)
ORE
WASTE
NEXT STEPS
Start Feasibility Study to:
Confirm sorting efficiency robustness
Improve plant layout
Optimise sorting cut-off and sampling
approach.
Deliver more accurate CAPEX, OPEX, NPV
estimates
Hochschild Mining PLC / Annual Report & Accounts 2019 MINE DIGITALISATION
Data from in-mine used to be
collected manually leading to
inaccuracies and delays
Plan to digitalise in-mine data
collection at Inmaculada developed
Sensors installed in May 2019 and
machines selected for three month
pilot test
Results indicated productivity
of drillers/scoops could increase
34%/42%
Full scale implementation given green
light with conclusion in May 2020
Increase in productivity allows for
significant reduction in fleet size
and costs
34%
INCREASED PRODUCTIVITY
OF DRILLERS AND SCOOPS
Sensors used
WIFI ANTENNA
INDUCTION SENSOR
RFID
RFID ANTENNA
INDUCTION SENSOR
MT
MT BOX
Metrics measured
– Operating time
– Scoops per shift
– Origin-destination correlations
for each cycle
05
OPERATIONAL DELIVERY
EXCEEDING GUIDANCE
Inmaculada
– Record production in 2019
– AISC in line with guidance
– Further 46moz resources added
Pallancata
– Production of 9.4moz Ag Eq in 2019
– AISC in line with guidance
– Drilling commenced at Pablo Sur
San Jose
– Record production in 2019
– AISC in line with guidance
– Drilling at Aguas Vivas and Telken
INNOVA
– Operations teams often submit
efficiency ideas
– Previous submission/evaluation
process inefficient
– Bespoke idea management platform
(“Innova”) implemented company-wide
– Automatically redirects ideas to
appropriate evaluators and allows others
to provide feedback
– Incentivisation developed to promote/
reward ideas submission
– Ideas guided through ‘campaigns’-
themes that focus idea submission
towards specific topics
– Launched in October 2019
IDEAS
52
151
479
COMMENTS
VOTES
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OUR VISION: THE FUTURE BUSINESS
INVESTING
TO SECURE
FUTURE GROWTH
Investment in the future is a key part of
our vision. This year we have not only
continued our efforts in brownfield and
greenfield exploration but also completed
an acquisition that broadens our horizons.
Dysprosium
Gold
BROWNFIELD EXPLORATION
We are aiming not only to increase the life-of-mine of our
assets but also the quality of our resources. We have a long
and successful track record of discovering low cost resource
additions and are currently executing a comprehensive
programme at all our deposits across Peru and Argentina.
GREENFIELD
Our strategy with regards to our greenfield exploration
programme is to maintain and drill a balanced portfolio of
early-stage to advanced opportunities. We’ll do this with a
combination of earn-in joint ventures, private placements with
junior exploration companies and the staking of properties.
Inmaculada
San Jose
Exploration targets
Execution
– Focused on adding additional high
grade resources close to main
Angela vein
– Titan geophysical surveys being
employed
– Extensive infill drilling programme
– Strong potential in wider district
– Focused on near-mine targets and
Aguas Vivas deposit to north west
– Also exploring close to Newmont’s
Cerro Negro deposit to the south
– San Jose district still under-explored
Other Peruvian projects
– Precious metals focused
– Epithermal veins and larger
mineralisation styles
Project generation
– Data driven
– Past producers and districts with
Pallancata
– Ambitious 2020 drilling programme
>1 moz Au potential
at other Peruvian deposits
– Data rich/high risk projects with
– Exploring to the north and south
– Advanced and near-term projects:
>5 moz Au potential
of current operations
Azuca, Crespo, Condor
– Drilling exciting Cochaloma and
Pablo Sur targets in 2020
– Titan geophysical surveys
scheduled at Selene
– Also scheduled to drill former
operations: Arcata, Ares, Selene
– Increasing project reviews but with
quality more important than quantity
– Optimal permit jurisdictions – Peru,
Chile, North America
– Projects secured from third parties
– Maximising investment in ground
via low overheads
– Maximising use of reverse
circulation drilling
– Choose the best junior explorers
Portfolio diversification
– Different deposit styles
– Different levels of advancement
– Different geographies to diversify
risk of changing regulations
06
Hochschild Mining PLC / Annual Report & Accounts 2019
RARE EARTHS ACQUISITION
– Acquisition of BioLantanidos Ionic Clay
Rare Earth deposit in Chile for $56 million
– These deposits are lowest cost sources
of rare earths
– Special concentration of high demand
rare earth elements
– Simple, low cost, no explosives
– Environmentally friendly process with
no tailings dam
– Low capex, modular processing facility
– Significant upside potential
– Low risk and proven mining jurisdiction
NEXT STEPS
Advancing project to revised
feasibility in 18 months
Separate local management
team appointed
Ionic clay vs hard rock deposits
Competitive advantage comes from ionic clay deposits...
Ion Adsorption Clay deposits allow
production at low costs even on a small
scale unlike rock deposits, which also are
associated with metallurgical and
radioactive complexities.
ROCK
QUARTZ
MONAZITE
RE
ALLANITE
ZIRCON
CLAY
RE
Strong physical and chemical bonding
Weak electric bonding
...That requires a simpler process than more common hard rock deposits
Mining
Conditioning
Bastnaesite
Flotation
Cleaning
Concentration
Tailings
Grinding
Milling
Traditional REE
rock operation
BioLantanidos Ionic
Clay operation
Pre-stripping
Stripping
Blasting
Hauling
Transportation
Tailings
Pre-stripping
Hauling
Transportation
Tailings
TIME
Processing
Monazite
Screening
Shaking
Flotation
Tailings
Several processing stages
Tailings
Radioactivity
Desorption
Filtration
Precipitation
Calcination
Xenotime
Gravity
Magnetic
Acid
Tailings
Product
REO concentrate
40%
REO concentrate
92%
07
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OUR VISION: OUR SOCIAL RESPONSIBILITY
RESPONSIBLE
MINING IS AT THE CORE
OF OUR PURPOSE
As a responsible mining company,
Hochschild is committed to its employees
and their safety, the environment in which
we operate and our communities.
SAFETY CULTURE TRANSFORMATION PLAN
2019 – A year of outstanding safety performance
The Group’s safety performance in 2019 was
industry-leading and is the result of the collective
efforts of not only our safety team but also those
tasked with ensuring that we embed a safety-first
culture at Hochschild. This has been achieved
primarily through the Safety Culture Transformation
Plan – an initiative that was launched in 2017 and
comprises the following aspects:
40%
REDUCTION IN LTIFR
08
LEADERSHIP
COMMUNICATION
TRAINING
SYSTEM
LTIFR1
Change over time
2019
2018
2017
1.05
1.74
2.69
1. Calculated as total number of accidents per million labour hours.
Hochschild Mining PLC / Annual Report & Accounts 2019 SOUND ENVIRONMENTAL PERFORMANCE
The ECO Score
Our innovative internally-
designed KPI measuring our
environmental performance.
The ECO Score, adopted in 2017, distils
our environmental performance on
numerous fronts encompassing the
management of waste water, outcome
of regulatory inspections and sound
environmental practices relating to
water consumption and the recycling
of materials.
50%
REDUCTION IN WATER CONSUMPTION
SINCE 2015
(from 408.35 lt/person/day to 206.01 lt/person/day)
60%
INCREASE IN RECYCLED INDUSTRIAL WASTE
SINCE 2018
Read more
Sustainability
PAGE 49
COMMITTED TO OUR PEOPLE
Talent development
In 2019, Hochschild continued with its People
Review process, mapping talent within the
organisation and implementing development
plans to help maximise potential.
Promoting gender diversity
A taskforce was established to increase the
number of women in our workforce. Having
already taken a number of significant actions,
the foundations have been laid to generate a
broader pipeline of talent.
Read more
Sustainability
PAGES 45 AND 46
09
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
MARKET REVIEW
WORKING IN
CHANGING
MARKETS
Hochschild is subject to external market dynamics associated
with the precious metals industry that inform decision-making
and influence our business performance. In addition, our
operations, located in Peru and Argentina, are exposed to
changing country specific factors that can impact our business.
GOLD MARKET SUMMARY
Gold prices rose 9.8% on an annual
average basis for the fourth consecutive
year during 2019, reaching a six-year high
and ending the year 18.9% higher than at
the end of 2018.
The most influential factor was the
reversal in Fed policy to one of loosening
interest rates, which was followed by
several other central banks around the
world. Central banks also played a key
role by being large net buyers of gold as a
reserve asset. In addition, the escalation
of trade tensions between the US and
China helped to slow growth and disturb
markets further, enhancing the attraction
of holding gold.
Net purchases by central banks are
estimated to have been close to 20 million
ounces in 2019 - the strongest since 2015.
They have been net buyers since 2008
with the focus on diversifying their
reserves away from the dollar/euro in
response to loose monetary policies and
increased tension between the US and
other countries. Central banks are
expected to continue diversifying their
reserves in 2020 and beyond.
Investors continued to add to their
holdings during 2019, up 3.2% from 2018
levels to 12.3 million ounces. However, the
gains were driven by short-term investors
in futures, options, forwards and
exchange traded funds whereas
long-term investors buying physical gold
were far less aggressive. Physical gold
demand from investors in 2018 and 2019
was at its lowest level since 2001.
10
Total gold supply rose in 2019 to
128.6 million ounces, up 2% from 2018
driven by an increase both in mine supply
as well as scrap. Mine supply stood at
97.6 million ounces in 2019, up from
95.8 million ounces in 2018 with gains
resulting from various new mines coming
on-stream during 2018 and 2019.
Secondary supply meanwhile was helped
by the strength in prices and stood at
31 million ounces during 2019, up from
30.3 million ounces in 2018.
Fabrication demand stood at 96.3 million
ounces in 2019, down 1.8% with the decline
driven by factors including the strong gold
prices adversely affecting jewellery demand
and slower global economic growth.
Possible drivers for gold in 2020
– Central banks expected to remain
large net buyers of gold during 2020
– Expected increase in investment
demand to provide good support
– Net gold investment demand forecast
to rise 17% to 13.3 million ounces
– Further political and economic
uncertainty affecting record high
equity markets
– Total supply forecast to rise to
129.9 million ounces due to increase
in both mine supply and scrap
– Gold fabrication demand is forecast
to reach 96.6 million ounces in 2020
Demand %
Supply %
Jewellery 63.1%
Electronics 9.0%
Official sector purchases 15.5%
Private investment demand 9.6%
Dental and other 2.8%
Mine production 71.8%
Secondary supply 24.1%
Net exports from
transitional economies 4.0%
Source: CPM Group LLC
Hochschild Mining PLC / Annual Report & Accounts 2019
Gold and silver prices in 2019
Daily settlement of nearby active Comex
futures, indexed to 2 January 2020
Gold
Silver
Country production
Latin American production rankings
125
120
115
110
105
100
95
90
Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov 19 Dec 19
Peru
Argentina
Mexico
Chile
2019
2018
Gold
Silver
Gold
Silver
6
13
9
19
2
11
1
5
6
13
8
22
3
11
1
6
SILVER MARKET SUMMARY
Silver prices rose along with the rest of
the precious metals complex during
2019 and ended up 15% higher at the
end of 2019.
Silver continued to underperform gold
with the gold/silver ratio rising over the
course of 2019. In the first half of the year,
the ratio reached an average of 92.6x
(June) but silver recovered in the second
half and finished the year at 83.9.
It is not unusual for silver to lag gold’s
performance in the early stages of a
precious metal revival but then later
outperform.
The most important factor influencing
silver prices is investor demand which
slipped to 14.3 million ounces in 2019,
down from 20.1 million ounces in 2018.
The greatest influences over investor
sentiment are broader financial market,
macro-economic, and political issues.
The disconnect in investor demand for
the two metals in 2019 leaves a gap to
be made up.
Total silver supply in 2019 slipped to its
lowest since 2008 at 943.6 million ounces,
down from 947.6 million ounces in 2018
with the decline driven by a fall in mine
supply. Secondary supply was essentially
flat year-on-year. Relative softness in the
silver price is beginning to negatively
affect supply, which is most evident in
primary mine supply and recovery of
silver from scrap.
Silver fabrication demand continued to
rise during 2019, reaching 929.3 million
ounces, and was at its highest since 2005
principally helped by growth in demand
from electronics, solar panels, and
biocides. Meanwhile, silver demand from
the jewellery sector was essentially flat
during 2019 at 305.8 million ounces.
Possible drivers for silver In 2020
– Silver investment demand forecast to rise
to 16.7 million ounces in 2020, up 16.8%
from 2019
– Fragile US and global growth built on
ultra-low interest rates and large
government deficit spending in most
parts of the world
– Total silver fabrication demand is
forecast to continue rising in 2020
to reach 945 million ounces
– Demand expected to be strongest
in electronics sector
– Demand from jewellery also expected
to recover as silver remains relatively
cheap compared to other metals
– Demand from photovoltaics is forecast
to reach a record in 2020
– Total silver supply forecast to rise
to 961.7 million ounces driven by
an increase in scrap supply
– Mine production declining due to
prolonged weak silver prices, the lack
of new silver projects in the pipeline
and the closing/suspension of various
silver mining operations. e.g. the
Escobal mine in Guatemala
Demand %
Supply %
Other industrial uses 56.6%
Jewellery and silverware 30.6%
Coin fabrication 7.2%
Investment demand, (excl coins) NA
Photography 5.6%
Mine production 78.7%
Secondary supply 21.3%
Source: CPM Group LLC
11
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CHAIRMAN’S STATEMENT
FOCUSING ON
DELIVERY AND
PROGRESSION
Eduardo Hochschild
Chairman
“ The Company will continue to be
governed by a financially disciplined
approach, emphasising a high
quality portfolio and managing
risk in a way that protects value.”
IN DIVIDENDS PAID SINCE 2016
$73m
90%
INCREASE IN PRODUCTION
SINCE 2012
2019 was another busy year for
Hochschild Mining and I believe we
have delivered further strong progress.
Our team continued to drive a
responsible and innovative mining
strategy that aims to combine world
class operational performance with
exploration-led growth in a safe and
environmentally friendly manner. In this
regard, I am pleased to report that our
delivery in these key areas has been
very encouraging.
12
Upholding the Company’s high standards
is not only critical to our operational
success, but to our reputation with our
communities, host governments and
investors. I also believe that we are
continuing to create a stimulating,
inclusive and forward-thinking workplace
environment where our people can grow
their careers and develop new skills
and expertise.
2019 was a year in which the efforts of
the management team in the design
and implementation of our Safety Culture
Transformation Plan bore fruit. I am
delighted to report that we had our safest
year on record. Our key indicators, the
accident frequency index and accident
severity index, were at their lowest and
saw year-on-year reductions of 40%
and 94% respectively. The wide-ranging
transformation plan, in addition to
incorporating the traditional elements
of training and internal communications,
also saw technology play a key role in
monitoring day-to-day activities and
the safe transportation of our personnel.
The Group has performed well with
regards to environmental management,
exceeding our target ECO Score for the
year. It is also a matter of pride that I can
report that the ECO Score itself has won
an international award for its innovative
approach to sustainability, raising
environmental awareness across the
entire organisation and its potential
application to other industries. Moreover,
following on from the successful Safety
Culture Transformation Plan, we intend
to launch a similar initiative recognising
our responsibilities with regards to
the environment.
Hochschild Mining PLC / Annual Report & Accounts 2019 Our people are crucial to our success and
therefore it is incumbent on the Board
and management to attract and retain a
diverse pipeline of talent. An internal study
revealed that although Hochschild’s gender
diversity is better than the average among
our peers in Peru, it is a stark fact that
women remain significantly under-
represented. In order to tackle this
imbalance, a working group has been
established and an action plan has been
developed to achieve the Group’s target
of increasing workforce diversity. Further
details on this and all of the activities
mentioned above can be found in the
Sustainability section of this Annual Report.
Turning to our operations, we delivered
a strong year of production despite the
decision to place our Arcata mine on
temporary care and maintenance in the
first quarter. We saw record performances
at Inmaculada and San Jose and we were
able to once again meet our cost targets.
Furthermore, with precious metal prices
recovering significantly in the second half
of the year, our business generated strong
free cash flow allowing us to strengthen
our balance sheet, further invest in our
exploration initiatives and add value
accretive projects to our portfolio. Towards
the end of the year, we also augmented our
strong financial position by refinancing our
existing $150 million of short-term debt
with a new $200 million five-year loan at
a highly competitive rate.
Brownfield exploration remains the focus for
our Company and we made good progress
in the year with substantial resource
additions at Inmaculada and encouraging
results at the Palca and Corina zones close
to our Pallancata mine. In addition, although
there were some delays in the permitting
process in Peru for our exciting Cochaloma
and Pablo Sur targets, we did receive the
requisite approvals in January 2020 and
can now look forward to an early start to this
year’s programme at these two sites. We are
confident that there remains a wide array of
promising targets, not only surrounding all
our operations but also at our early-stage
projects and at former operations such as
Arcata, Ares and Selene. Many of these are
expected to be drilled during 2020 and 2021.
Technology is all pervasive and can help
drive efficiencies, improve performance
and provide insights on a wide range of
activities at Hochschild. In the last few
years, we have implemented a plan to
build a more progressive organisation
which drives innovation and also looks
to capitalise on our existing skillsets.
For example, we have made substantial
progress in 2019 with the implementation
of our mine digitalisation programme as
well as the introduction of our Innova
platform across the Group to facilitate
efficiency ideas. But in the last few years,
we have also aimed to leverage off the
talent and experience within the Company
and explore the potential for investment in
other minerals where we believe we can
create shareholder value and where the
future demand characteristics are strong.
I believe that the acquisition of the unique
BioLantanidos rare earth deposit in Chile in
October is a key example of this. It brings
the Company optionality in an exciting
market that benefits from a more
technological and environmentally
friendly world.
Outlook
2019 was a strong year for precious
metals, particularly gold, which was
driven by declining US interest rates
and heightening geopolitical and global
trade risk and represented the largest
annual year-end gain since 2010. This
was almost matched by silver which
rose by around 15%. Such a supportive
environment has reinforced our belief
in our long-term strategy: a central focus
on low-cost brownfield exploration;
selective greenfield initiatives across the
Americas; further development of our
numerous early-stage projects; and a
targeted approach to acquisitions.
Consequently, in light of such a solid
strategic and financial position the
Board is pleased to recommend
a final dividend of 2.335 cents per
share ($12 million).
The Company will continue to be
governed by a financially disciplined
approach, emphasising a high quality
portfolio and managing risk in a way
that protects value, while our assets will
be supported by operational practices
that meet the highest safety and
environmental standards. Finally, I would
like to thank all of Hochschild’s people,
who work with such determination and
give their very best to contribute to
making Hochschild a success.
Eduardo Hochschild
Chairman
18 February 2020
13
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CHIEF EXECUTIVE OFFICER’S REVIEW
STRENGTHENING
OUR BALANCE SHEET
AND INVESTING IN
THE FUTURE
Ignacio Bustamante
Chief Executive Officer
“ I firmly believe that we have set a
good course for the future with a
focus on low-cost growth and a
determination to further increase
the life-of-mine across the Group.”
I am pleased to report that 2019 was
another year of achievement for
Hochschild. Our safety performance
was considerably improved and our
environmental performance delivered
another robust year, which helped
create strong operational reliability
leading to solid production, precise cost
control and impressive cash flow
generation. Our exploration programme
was again a key focus and we made
encouraging steps in our aim to add
low-cost resources and to deliver
long-term growth opportunities.
We believe that our portfolio is well
positioned to further transform our
business and deliver value and returns
for our shareholders.
GOLD EQUIVALENT OUNCES PRODUCED IN 2019
477,400
46m
SILVER EQUIVALENT OUNCES DISCOVERED AT INMACULADA IN 2019
14
Operations
Hochschild’s operational results were
once again able to surpass forecasts,
producing 477,400 gold equivalent ounces
(38.7 million silver equivalent ounces) which
improved on our 2019 target of 457,000
ounces (37.0 million silver equivalent
ounces). This represented only a 5%
reduction versus 2018 (2018: 503,640 gold
equivalent ounces or 40.8 silver equivalent
ounces) despite the decision to place our
Arcata mine on temporary care and
maintenance in the first quarter and
included record production results
from both Inmaculada and San Jose.
All-in sustaining costs were in line with
expectations at $11.9 per silver equivalent
ounce ($965 per gold equivalent ounce).
Inmaculada was again the cornerstone
with production of 260,126 gold equivalent
ounces at $798 per gold equivalent ounce
whilst San Jose delivered another strong
year with production of 15.4 million silver
equivalent ounces at $13.8 per silver
equivalent ounce. This was achieved
despite a complex economic environment
in Argentina. At Pallancata, production
was broadly similar to 2018 at
9.4 million silver equivalent ounces
(2018: 9.6 million ounces) at a cost
of $13.5 per silver equivalent ounce.
Exploration
Our ambitious brownfield exploration
programme continued in 2019 with the key
highlight being the 46 million silver
equivalent ounces of additional resources
discovered at Inmaculada close to the
Angela vein and at approximately
456 grams per tonne silver equivalent.
Furthermore, we also carried out a
comprehensive infill drilling programme on
the veins discovered in 2018. At San Jose,
we have continued to evaluate the Aguas
Vivas polymetallic deposit to the north west
of existing operations as well as preparing
Hochschild Mining PLC / Annual Report & Accounts 2019 share was higher at $0.09 per share (2018:
$0.05 per share) resulting from the higher
profitability and lower interest costs and
partially offset by the above-mentioned
increase in selling expenses and a rise in
mine closure provisions for our former
operations at Ares and Sipan ($13.6 million).
Outlook
We expect attributable production in
2020 of 422,000 gold equivalent ounces
(36 million silver equivalent ounces)
assuming the silver to gold ratio of 86:1
(the average ratio for 2019). This will be
driven by: 252,000 gold equivalent ounces
from Inmaculada; a contribution of
14.5 million silver equivalent ounces from
San Jose; and 7.2 million ounces from
Pallancata. All-in sustaining costs for
operations are expected at between
$1,040 to $1,080 per gold equivalent ounce
($12.1 to $12.5 per silver equivalent ounce).
This forecast includes a $22 million
investment to expand the tailings storage
facility at Inmaculada. Excluding this
project, all-in sustaining costs for
operations are expected at between
$1,000 to $1,040 per gold equivalent ounce
($11.6 to $12.0 per silver equivalent ounce).
The budget for brownfield exploration has
increased to approximately $36 million with
the greenfield and advanced project
budget set at approximately $8 million
plus approximately $7 million for advancing
the BioLantanidos project. We are also
furthering our innovation drive to aid in
the delivery of upside in our operations
and projects. Finally, we recognise that the
management of environmental, social and
governance (“ESG”) issues is of increasing
significance to investors and stakeholders
in general, particularly for those operating
in the resources sector. This year, we will
embark on a process of enhancing our
level of ESG reporting and, in particular, in
relation to the Company’s environmental
and social performance.
Although the year has started with
relatively high precious metal prices, cost
control continues to be a top priority. Our
2020 brownfield programme has already
begun at Pablo Sur and we look forward to
further results from another ambitious year
of exploration both around our existing
operations and further afield. I firmly
believe that we have set a good course for
the future with a focus on low-cost growth
and a determination to further increase
the life-of-mine across the Group. All the
elements of our strategy will be targeted
on delivering sustainable long-term value
to those most closely interested in our
Company: our shareholders, our
communities and our people.
Ignacio Bustamante
Chief Executive Officer
18 February 2020
15
to drill the Telken zone which we believe
could form the extension to veins from
Newmont’s Cerro Negro mine in the south.
Long hole drilling also started towards the
end of the year close to the mine as well
as our first use of Titan geophysics in the
area. At Pallancata, drilling campaigns
commenced at Palca to the south east
and Corina to the north. Encouraging
mineralisation was found in both zones
with further campaigns scheduled in
2020. We experienced delays in receiving
exploration permits for two other key
targets close to the operation, Pablo Sur
and Cochaloma, and have finally received
them in early 2020. As a result, we have
reduced production at Pallancata for
2020 in order to extend its life-of-mine and
recalibrate our exploration to production
cycle as well as recognising an impairment
of $14.7 million.
Business development
Our team worked on a number of business
development initiatives which balanced
early stage opportunities including
greenfield drilling and project options with
the focus on stable jurisdictions in the
Americas. In this regard, we carried out
selective drilling campaigns in Chile,
Canada and the United States. Results
from the Corina deposit in Peru were
encouraging, and, towards the end of the
year, we saw some notable drill holes at the
Snip mine in Canada from our partner,
Skeena Resources. Further preparatory
work has also been carried out at our
existing near-term projects including
Arcata, Ares, Azuca, Crespo and Condor
and an exciting drill campaign is scheduled
for 2020 and 2021 at a number of these
sites across southern Peru subject to the
receipt of the relevant exploration permits.
In October, we announced the acquisition
of the remaining 94% of the BioLantanidos
rare earth deposit in Chile for $56 million.
We believe that this acquisition in an
attractive mining jurisdiction provides
unique optionality for our shareholders
and was the direct result of an extensive
long-term effort to identify commodities
with very strong growth characteristics.
The project consists of ionic clay resources,
similar to those found in China, but very
different from most other rock-based
rare earth projects worldwide. The
process is environmentally friendly with
no requirements for the use of explosives,
no tailings dams and no potentially
harmful chemicals. Capital and operational
expenditure is projected to be low and we
are also excited by the strong geological
upside potential. Although Hochschild
remains focused on precious metals, this
diversification gives us a unique deposit in
a key industry with expected exponential
growth. We intend to deliver a revised
feasibility study in 2021 and will thereafter
decide on the appropriate path to
development to maximise value
for shareholders.
Financial position
We have continued to strengthen our
balance sheet through the year with strong
free cash flow especially in the second half
and in December with the refinancing of
our $150 million short-term debt with
a new $200 million five-year loan at
Libor + 1.15%. We ended the year with
a strong cash balance of $166 million
(2018: $80 million) and net debt therefore
fell to $33.2 million (2018: $77.4 million).
Financial results
The average gold price received in 2019
was 12% higher than the previous year with
the silver price rising 8% and therefore,
combined with a rise in gold sales, revenue
increased by 7% to $756 million (2018:
$704 million). The operational all-in
sustaining cost of $11.9 per silver
equivalent ounce (2018: $12.0 per ounce)
was at the better end of forecasts and
reflected ongoing cost efficiencies offset
by a budgeted increase in exploration
expenses investment as well as selling
expenses due to the export taxes in
Argentina. The combination of the revenue
increase and tight cost control led to
Adjusted EBITDA rising strongly by 28% to
$343 million (2018: $268 million) with profit
from continuing operations before income
tax increasing by 79% to $103.4 million
(2018: $54.7 million). Adjusted earnings per
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE BUSINESS MODEL
LONG-TERM SUSTAINABLE
VALUE FOR ALL OUR KEY
STAKEHOLDERS
The Hochschild business model is designed to not only
represent an attractive investment proposition but also
reflects our long-term commitment to our employees,
communities and society as a whole.
INPUTS
OUR CORE ACTIVITIES
Technical expertise is the
key attribute underpinning
our business model.
E nvironment
y
t
i
n
u
m
m
o
C
H
e
a
l
t
h
&
S
a
f
e
t
y
EXTRACT
DISCOVER
How we
create value
DEVELOP
Sustainabi l i t y
These inputs are key in
consistently achieving
productive, safe and
environmentally
sound operations.
Responsibility
We are focused on: operating a safe
workplace to enable our employees to
thrive; minimising our environmental
impact; and seeking to make a
positive impact within the
surrounding communities.
Expertise
We have specific expertise in mining
underground deposits in complex
geological conditions throughout
the Americas.
Experience
We have steadily built an enviable
track record in managing mines,
developing projects, identifying growth
options and utilising best practice
environmental and social policies.
Discipline
We maintain a strong balance sheet
and deploy capital in a disciplined
manner underpinned by our long-
standing financial relationships.
Governance
We maintain a high standard of
controls and processes to protect
and enhance stakeholder interests.
Innovation
We are dedicated to the development
of more efficient business practices
through the adoption of new
technologies.
16
Hochschild Mining PLC / Annual Report & Accounts 2019
Discover
We have expertise in discovering and developing
geological districts for the long term. Our highly
experienced brownfield exploration team believes
that there is strong potential across all our property
to improve the quantity and quality of the Company’s
resource base. Furthermore, our greenfield strategy is
delivering drilling campaigns at a number of premium
precious metal prospects across the Americas.
Develop
We are able to further the development of our
discoveries and acquisitions in a short space of time
with the Inmaculada project being a recent example.
Hochschild’s ability to execute projects in remote
locations and high altitudes remains a core
competitive advantage and we have extensive
knowledge of the key mining jurisdictions in the
Americas. We believe our team’s experience in
managing all project requirements including
permitting, local community and government
support and engineering places us in a strong
position with regards to the execution of precious
and non-precious opportunities.
Extract
We have developed an extensive in-house
knowledge base of the challenges inherent in a
range of different ore bodies as well as in a variety
of environments and jurisdictions throughout our
regions. This has resulted in us consistently meeting
annual operational targets, implementing significant
cost efficiency programmes and replacing and
adding to our reserves and resources. In addition,
our growing commitment to innovation is allowing
incorporation of key technological advances and
applying them to our operations and project pipeline.
OUTPUTS
The efficacy of our business model allows us to
invest in the future of our employees, redistribute
profit to our host communities through a wide
variety of collaborative programmes and deliver
long-term value for all our shareholders.
Communities
Hochschild has been able to invest in a
number of local programmes focusing on
our core themes of education, health and
socio-economic development and allowing
us to operate collaboratively with partner
communities across our regions. We have
also been able to deliver a range of innovative
employment and business opportunities
whilst retaining our respect for the
environment and cultural traditions.
Employees
The success of our business model helps
us to provide personal development,
competitive compensation and proper
working conditions. We aim to empower
our employees with constant learning
opportunities and new challenges in a
positive, healthy and safe work environment.
In addition, there is an ongoing recognition
that all should have opportunities to
contribute and develop through volunteer
work as well as direct initiatives.
Shareholders
We are committed to our aims of profitable
and safe operations, a strong local and
international reputation and stability. We
believe that if we can deliver sustainable
low-cost growth and consequently generate
solid free cash flow, we can use that to repay
shareholders and other stakeholders. Since
the middle of 2016 we have paid out
$61 million in equity dividends.
33%
WORKFORCE FROM
LOCAL COMMUNITIES
98%
WORKFORCE
TRAINED IN 2019
$12m
DIVIDEND ANNOUNCED
FOR FULL YEAR 2019
17
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OUR STRATEGY
STRATEGIC
DEVELOPMENT
AND GROWTH
Our strategy focuses on four key paths to
secure low-cost growth.
Brownfield
Greenfield
– Life-of-mine increases
– Improve quality of resources
– Spare capacity available
– Staking properties
– Streamlining portfolio
– Progressing drill-ready projects
2019 activities
– 46m silver equivalent resource ounces added
at Inmaculada
2019 activities
– Maintaining balanced portfolio of advanced/early
stage opportunities
– Drilling campaigns begun at Palca and Corina zones close
to Pallancata – mineralisation discovered at both deposits
– Combination of JVs and private placements to
lock in project options
– Drilling permits received for Cochaloma and Pablo Sur
– Q4 drilling at Snip project in Canada displaying
2020 priorities
– 2020 budget of $36 million
– Drilling for new potential at Inmaculada close to
current operations
– Infill drilling scheduled at Inmaculada for resources
added in 2019
– Drilling Cochaloma and Pablo Sur
– Further drilling at Palca and Corina
– Long hole drilling at San Jose to test geophysical targets
– Titan geophysical work ongoing
Risks
– Political, legal and regulatory
– Community relations
– Personnel: recruitment and retention
promising results
– Also drilled Ferguson Mountain and Mars in Nevada
in Peru and Agni & Indra in Chile
2020 priorities
– 2020 greenfield exploration budget expected
to be $8 million
– Drilling to continue at Snip in Canada
– Drilling to begin at Huilacro and Casma in Peru,
Cooke Mountain, Horsethief and Illipah Nevada
– Mapping and permitting activities continuing at other
projects in Peru including Farallon, Ana Lucia, Las Icas,
Josnitoro, Alto Ruri and Cueva Blanca
Risks
– Political, legal and regulatory
– Community relations
– Personnel: recruitment and retention
18
Hochschild Mining PLC / Annual Report & Accounts 2019 Early-stage projects
Strategic alliances
– Optimising early-stage projects
– Further drilling
– Advancing BioLantanidos deposit
2019 activities
– Optimising ounces at early-stage projects
– Evaluating ore sorting and mineral transportation
– Drilling programme underway at Ares
– Permitting on a number of drill targets including
former operations, early-stage projects and regional
exploration targets
2020 priorities
– Drilling at 12 different projects in Peru including
Crespo, Azuca, Condor, Arcata, Ares and Selene
– Ongoing ore sorting tests
Risks
– Political, legal and regulatory
– Community relations
– Personnel: recruitment and retention
– Early-stage
– Control (Acquisition/JVs)
– Geological upside
– ROIC: 12-15%
2019 activities
– Focusing on stable jurisdictions in Americas
– Precious and non-precious metal deposits
being considered
– Acquired 100% of BioLantanidos rare earth
project in Chile for $56m
– Ongoing alliance with Skeena Resources for
Snip project in Canada
2020 priorities
– Progressing current options to decision stage
– Further options/JVs being considered in Americas
– Larger acquisitions also being assessed
– Progressing to definitive feasibility at BioLantanidos
Risks
– Political, legal and regulatory
– Commodity prices
19
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE KEY PERFORMANCE INDICATORS
CAPTURING
OUR PROGRESS
FINANCIAL MEASURES
Production
Links to
strategy
38.7m oz
AG EQUIVALENT
Definition
Silver equivalent production equals total attributable
gold production multiplied by a gold/silver ratio for
2018-2019 of 81x, for 2015-2017 of 74x and added to the
total attributable silver production.
Brownfield
Greenfield
Early-stage
projects
Strategic
alliances
Links to
remuneration
Yes
Performance
Total silver equivalent production
decreased by 5% versus 2018 due to
decision to place the Arcata mine on
care and maintenance early in the first
quarter of 2019.
Outlook
Total silver equivalent production is
forecast to be 36.0 million silver equivalent
ounces in 2020 assuming a gold/silver
conversion ratio of 86x.
Risks
Operational performance.
‘19
‘18
‘17
‘16
‘15
38.7
40.8
38.0
35.5
27.0
Revenue
$756m
‘19
‘18
‘17
‘16
‘15
756
704
723
688
469
Adjusted EBITDA
$343m
‘19
‘18
‘17
‘16
‘15
139
343
268
301
329
Links to
strategy
Links to
remuneration
Yes
Definition
Revenue presented in the financial statements is
disclosed as net revenue and is calculated as gross
revenue less commercial discounts.
Performance
Total revenue increased by 7% versus
2018 due to an increase in the price of
silver and gold.
Outlook
Total silver equivalent production is
forecast to be 36.0 million silver equivalent
ounces in 2020 assuming a gold/silver
conversion ratio of 86x.
Risks
Operational performance and precious
metal prices.
Links to
strategy
Links to
remuneration
Yes
Definition
Calculated as profit from continuing operations
before exceptional items,
net finance costs, foreign exchange
loss and income tax plus depreciation, and
exploration expenses other than personnel and other
exploration related fixed expenses and other
non-cash (income)/expenses.
Performance
Adjusted EBITDA decreased by 29%
versus 2018 due to an increase in
prices and a fall in the cost of sales.
Outlook
Adjusted EBITDA result for 2020 will
depend on precious metal prices and
cost and expenses performance.
Risks
Operational performance and precious
metal prices.
Basic earnings per share
Links to
strategy
Links to
remuneration
No
Definition
The per-share profit available to equity shareholders
of the Company from continuing operations before
exceptional items (using the weighted average
number of shares outstanding for the period).
Performance
Earnings per share increased by
60% due to the increase in EBITDA
in addition to a decrease in
interest expenses.
$0.09m
PRE-EXCEPTIONAL
‘19
‘18
‘17
‘16
‘15
0.09
0.05
0.08
0.11
(0.14)
Links to
remuneration
No
Performance
Dividend per share increased by 11%.
Dividend per share
Links to
strategy
Definition
The per-share dividend paid to
equity shareholders of the Company
as recommended by the Board
(using the weighted average number
of shares outstanding for the period).
¢4.335
‘19
‘18
‘17
‘16
‘15
Nil
4.335
3.92
3.35
2.76
20
Outlook
Pre-exceptional earnings per share will
depend on EBITDA performance and the
effective tax rate which may be impacted if
local currencies including the Peruvian sol
and Argentinian peso continue to depreciate.
Risks
Operational performance, precious metal
prices, costs, levels of financial costs and
income, and tax charge.
Outlook
Dividend per share for 2020 will depend
on the level of profitability of the Company
and the available uses of cash and is at the
discretion of the Board.
Risks
Company profitability.
Hochschild Mining PLC / Annual Report & Accounts 2019
All-in sustaining costs
Links to
strategy
Links to
remuneration
Yes
$11.9oz
$/OZ AG EQUIVALENT
‘19
‘18
‘17
‘16
‘15
11.9
12.0
12.3
11.2
12.9
Definition
Calculated before exceptional items and
includes cost of sales less depreciation
and change in inventories, administrative
expenses, brownfield exploration,
operating capex and royalties divided by
silver equivalent ounces produced using
a gold/silver ratio of 74:1.
Performance
All-in sustaining costs for operations
was flat versus 2018 due to Inmaculada’s
competitive $799 per gold equivalent
ounce in addition to a solid result from
Pallancata.
Outlook
All-in sustaining cost from operations in
2020 is expected to be between $1,040 and
$1,080 per gold equivalent ounce (or $12.1
and $12.5 per silver equivalent ounce).
Risks
Operational performance, local cost
inflation and increases in brownfield
exploration investment .
Total silver cash costs
Links to
strategy
Links to
remuneration
No
$7.9oz
$/OZ AG EQUIVALENT
‘19
‘18
‘17
‘16
‘15
7.9
8.3
8.8
8.2
10.0
Definition
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.
Performance
Total silver cash costs for the
Company decreased by 5% versus
2018 due to decreases in unit costs
at Pallancata and at San Jose due
to further significant devaluation
of the Argentinian peso along with
increases in grade at Inmaculada.
Outlook
Cash costs performance in 2020 is
expected to be dependent on operational
performance, levels of local cost inflation
and levels of local currency devaluation
in Argentina.
Risks
Operational performance including
dilution, grade and tonnage control
and local inflation.
NON-FINANCIAL MEASURES
Links to
remuneration
Yes
Definition
Calculated as total number of accidents
per million labour hours.
Performance
LTIFR decreased by 40% and remains
low relative to the industry.
Links to
remuneration
Yes
Definition
Calculated as total number of days lost
per million labour hours.
Performance
The Accident Severity index was
reduced by 94% to 54 in 2019.
Links to
strategy
Links to
remuneration
Yes
Definition
Total attributable silver equivalent metal
resources as at 31 December 2019.
Performance
Total attributable silver equivalent
metal resources decreased by 4% in
2019 due to the new inferred resources
discovered at Inmaculada.
LTIFR
1.05
‘19
‘18
‘17
‘16
‘15
1.05
1.74
2.69
2.20
1.85
Accident Severity Index
54
‘19
54
‘18
‘17
‘16
‘15
138
112
930
1,264
Resource base
1,446
‘19
‘18
‘17
‘16
‘15
1,446
1,453
1,340
1,370
1,260
Outlook
The Company has implemented the
“Hochschild Safety CultureTransformation”
plan, has rolled out a safety software tool
“Safety HOC” and has received Level 6
safety certification from DNV (7th edition).
Risks
Health and safety risks.
Outlook
The Company has implemented the
“Hochschild Safety Culture Transformation”
plan, has rolled out a safety software tool
“Safety HOC” and has received Level 6
safety certification from DNV (7th edition).
Risks
Health and safety risks.
Outlook
Resource increases in 2020 will depend
on the level of ongoing success in finding
potential resources and the ability to turn
these resources into the inferred and
measured and indicated categories
through drilling.
Risks
Implementing and maintaining the annual
exploration drilling programme.
21
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
OPERATING REVIEW
DELIVERING
STRONG
OPERATIONAL
PERFORMANCE
Production
In 2019, Hochschild’s attributable production was
38.7 million silver equivalent ounces (477,400 gold
equivalent ounces) exceeding its full year guidance
of 37.0 million attributable silver equivalent ounces
(457,000 gold equivalent ounces). This comprised
269,892 ounces of gold and 16.8 million ounces of
silver. This was mostly due to record years at
Inmaculada and San Jose offsetting the decision
to place the Arcata mine on care and maintenance
in early 2019. The overall attributable production
target for 2020 is 422,000 gold equivalent ounces
or 36.0 million silver equivalent ounces.
AU EQ OZ TARGET FOR 2020
422,000
$1,040-
1,080/OZ
(AU EQ)
2020 AISC TARGET
Note: 2019 and 2018 (restated) equivalent
figures calculated using the previous Company
gold/silver ratio of 81x. All 2020 forecasts assume
the average gold/silver ratio for 2019 of 86x.
22
Hochschild Mining PLC / Annual Report & Accounts 2019 Main Peruvian operating sites
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 2019
Year ended
31 Dec 2018
20,163
22,720
321.58
307.77
46,210
47,650
570.50
20,062
317.52
588.27
22,687
304.51
Total production includes 100% of all production, including
production attributable to Hochschild’s minority shareholder
at San Jose.
Attributable Group production
Silver production
(koz)
Gold production
(koz)
Silver equivalent
(koz)
Gold equivalent
(koz)
Year ended
31 Dec 2019
Year ended
31 Dec 2018
16,808
19,700
269.89
260.44
38,669
40,795
477.40
503.64
Attributable production includes 100% of all production from
Arcata, Inmaculada, Pallancata and 51% from San Jose.
2020 Production forecast split
Gold
production
(oz approx)
Silver
production
(m oz approx)
Inmaculada
Pallancata
San Jose (100%)
Total
181,400
19,300
93,300
294,000
6.1
5.5
6.5
18.1
Costs
All-in sustaining cost from operations in
2019 was $965 per gold equivalent ounce
or $11.9 per silver equivalent ounce (2018:
$973 per gold equivalent ounce or $12.0 per
silver equivalent ounce), in line with guidance
of between $960 and $1,000 per gold
equivalent ounce or $11.8 and $12.3 per
silver equivalent ounce. This was driven by
Inmaculada’s competitive $798 per gold
equivalent ounce (2018: $751 per ounce)
in addition to a solid result from Pallancata
($13.5 per silver equivalent ounce). Please
see page 36 of the Financial Review for
further details on costs.
The all-in sustaining cost from operations in
2020 is expected to be between $1,040 and
$1,080 per gold equivalent ounce (or $12.1
and $12.5 per silver equivalent ounce), which
includes a $22 million project to expand the
tailings storage facility at Inmaculada.
2020 AISC forecast split
Inmaculada
Pallancata
San Jose
AISC
($/oz)
930-960 Au Eq
13.5-13.9 Ag Eq
13.4-13.8 Ag Eq
23
ARCATA
INMACULADA
PALLANCATA
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE Inmaculada 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 Au co-product)
All-in sustaining cost ($/oz Au Eq)
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
1,338,569
1,323,525
163
4.71
5,747
189.18
21,070
260.13
5,732
188.59
93.3
504
798
150
4.36
5,690
174.20
19,800
244.45
5,676
172.40
84.7
481
751
1
9
8
1
9
6
6
1
9
10
5
6
OPERATING REVIEW CONTINUED
INMACULADA
PERU
The 100% owned Inmaculada
gold/silver underground operation
is located in the Department of
Ayacucho in southern Peru.
It commenced operations in
June 2015.
PRODUCTION
Inmaculada has delivered record gold
equivalent production of 260,126 ounces
in 2019, a 6% improvement on 2018
(2018: 244,445 ounces) with the key
factors being better than forecast
extracted grades and steady tonnage.
Costs
All-in sustaining costs were $798 per gold
equivalent ounce (2018: $751 per ounce), at the
better end of guidance of between $790 and
$830 per gold equivalent ounce. The impact
of higher than expected grades and cost
efficiencies was more than offset by increased
mine development and infill drilling capex to
access the vein discoveries from 2018.
24
Hochschild Mining PLC / Annual Report & Accounts 2019 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.
PRODUCTION
Pallancata’s production for the year
was 9.4 million silver equivalent ounces,
broadly in line with the 2018 result
(2018: 9.6 million ounces) and reflecting
a full year of production from wider
(and therefore higher tonnage) but
lower grade veins.
Costs
All-in sustaining costs were $13.5 per silver
equivalent ounce (2018: $11.9 per ounce), at the
better end of guidance of between $13.5 and $14.0
per silver equivalent ounce. The increase versus
2018 reflected a full year of production from the
above-mentioned wider but lower-grade veins.
Pallancata summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
915,877
717,652
278
1.01
7,259
25.95
9,361
362
1.30
7,449
26.40
9,588
Gold equivalent produced (koz)
115.57
118.37
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)
All-in sustaining cost ($/oz Ag Eq)
7,161
25.45
83.8
9.6
13.5
7,439
26.23
93.6
8.1
11.9
SILVER PRODUCED
7,259koz
25.95koz
GOLD PRODUCED
28
(23)
(22)
(3)
(2)
(2)
(2)
(4)
(3)
(10)
19
13
25
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OPERATING REVIEW CONTINUED
SAN JOSE
ARGENTINA
The San Jose silver/gold mine is located in
Argentina, in the province of Santa Cruz,
1,750 kilometres south west of Buenos Aires.
San Jose commenced production in 2007.
Hochschild holds a controlling interest of
51% and is the mine operator. The remaining
49% is owned by McEwen Mining Inc.
PRODUCTION
San Jose’s overall total for 2019 was
a record 15.4 million silver equivalent
ounces (2018: 14.0 million ounces),
an impressive 10% increase versus
2018 mostly due to better than
expected grades.
Costs
All-in sustaining costs were $13.8 per silver
equivalent ounce (2018: $13.8 per ounce) in line
with 2018 with the devaluation of the Argentinian
peso and higher gold and silver grades being
offset by the reintroduction of export taxes and
local inflation.
San Jose summary
Ore production (tonnes)
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Gold equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)
All-in sustaining cost ($/oz Ag Eq)
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
544,165
556,185
(2)
443
6.81
6,846
105.48
15,390
190.00
6,846
102.82
219.2
9.6
13.8
397
6.20
6,165
96.60
13,989
172.70
6,175
96.60
218.6
10.1
13.8
12
10
11
9
10
10
11
7
–
(5)
–
SILVER PRODUCED
6,846koz
105.48koz
GOLD PRODUCED
26
Hochschild Mining PLC / Annual Report & Accounts 2019 ARCATA
PERU
The 100% owned Arcata underground
operation is located in the Department of
Arequipa in southern Peru. It commenced
production in 1964.
PRODUCTION
On 13 February 2019, Hochschild
announced the suspension of
operations at Arcata with the mine
subsequently placed on temporary care
and maintenance. Production for the full
year equalled Q1 2019 at 0.4 million silver
equivalent ounces.
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 Ag Eq)
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
37,049
373,106
298
0.94
311
0.97
390
4.81
323
0.66
182.2
20.2
22.8
321
0.99
3,416
10.57
4,273
52.75
3,397
9.93
167.7
16.9
19.2
(90)
(7)
(5)
(91)
(91)
(91)
(91)
(90)
(93)
9
20
19
27
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OPERATING REVIEW CONTINUED
EXPLORATION
Vein
Juliana
Noelia
Rosa
Susana Beatriz
Inmaculada
During 2019, almost 8,500m of potential resource drilling was
carried out at the newly-discovered Susana Beatriz, Juliana and
Salvador structures to the west of the Angela vein. Thereafter
resource drilling commenced in the area and also included work at
other structures including Angela, Pilar, Noelia, Dora, Jose and the
Sandra veins. Over 35,000m of drilling was executed with the result
that approximately 535,000 gold equivalent ounces (46 million
silver equivalent ounces) of inferred resources were added to
Inmaculada’s resource base in 2019 at a grade of approximately
475 silver equivalent grams per tonne. Selected intercepts are
detailed below:
Vein
Salvador
Susana Beatriz
Lady
Juliana
Results (potential resource drilling)
ANG-19-012: 2.1m @ 41.0g/t Au & 480g/t Ag
ANE-19-010: 4.2m @ 2.9g/t Au & 280g/t Ag
IMM-19-001: 1.5m @ 8.1g/t Au & 114g/t Ag
IMM-19-002: 2.5m @ 2.5g/t Au & 105g/t Ag
IMS-19-003: 1.1m @ 6.3g/t Au & 58g/t Ag
HUA-19-001: 3.1m @ 6.0g/t Au & 136g/t Ag
M.Mamani
MM-19-001: 1.0m @ 2.2g/t Au & 155g/t Ag
Results (resource drilling)
ANE-19-010: 0.8m @ 16.7g/t Au & 349g/t Ag
ANE-19-011: 0.8m @ 20.7g/t Au & 667g/t Ag
ANE-19-013: 0.8m @ 5.9g/t Au & 399g/t Ag
ANE-19-020: 1.6m @ 3.0g/t Au & 370g/t Ag
ANE-19-021: 1.4m @ 7.1g/t Au & 318g/t Ag
ANE-19-022: 3.0m @ 2.0g/t Au & 165g/t Ag
ANE-19-025: 1.2m @ 2.8g/t Au & 133g/t Ag
ANE-19-027: 0.8m @ 3.6g/t Au & 192g/t Ag
ANE-19-028: 0.9m @ 7.8g/t Au & 357g/t Ag
ANE-19-029: 0.9m @ 267g/t Au & 1,783g/t Ag
ANE-19-031: 0.8m @ 5.5g/t Au & 700g/t Ag
ANE-19-032: 1.6m @ 8.4g/t Au & 509g/t Ag
ANE-19-035: 0.8m @ 29.6g/t Au & 794g/t Ag
ANE-19-037: 1.5m @ 2.7g/t Au & 120g/t Ag
IMM-19-001: 1.1m @ 31.9g/t Au & 5,053g/t Ag
IMM-19-007: 0.6m @ 3.6g/t Au & 98g/t Ag
IMM-19-025: 1.4m @ 5.0g/t Au & 261g/t Ag
IMM-19-032: 1.0m @ 2.2g/t Au & 168g/t Ag
HUA-19-005: 2.2m @ 7.7g/t Au & 335g/t Ag
HUA-19-006: 1.0m @ 8.4g/t Au & 534g/t Ag
ANG-18-023: 0.5m @ 5.0g/t Au & 236g/t Ag
ANG-19-011A: 2.3m @ 7.4g/t Au & 250g/t Ag
ANG-19-012: 2.2m @ 41.0g/t Au & 480g/t Ag
IMM-19-001: 1.1m @ 31.9g/t Au & 5,053g/t Ag
IMM-19-003: 1.9m @ 1.4g/t Au & 110g/t Ag
IMM-19-008: 1.5m @ 3.7g/t Au & 203g/t Ag
IMM-19-011: 3.1m @ 4.1g/t Au & 176g/t Ag
IMM-19-014: 5.8m @ 17.7g/t Au & 751g/t Ag
IMM-19-015: 1.4m @ 5.4g/t Au & 254g/t Ag
IMM-19-016: 1.0m @ 4.9g/t Au & 52g/t Ag
IMM-19-017: 2.1m @ 4.2g/t Au & 253g/t Ag
IMM-19-020: 1.1m @ 23.1g/t Au & 268g/t Ag
IMM-19-025: 2.1m @ 6.2g/t Au & 271g/t Ag
IMM-19-026: 1.8m @ 7.2g/t Au & 279g/t Ag
IMM-19-028: 1.1m @ 1.9g/t Au & 69g/t Ag
IMM-19-029: 1.0m @ 1.8g/t Au & 87g/t Ag
IMM-19-032: 1.5m @ 2.5g/t Au & 250g/t Ag
HUA-19-003: 1.4m @ 19.4g/t Au & 438g/t Ag
HUA-19-005: 1.3m @ 4.2g/t Au & 169g/t Ag
HUA-19-007: 1.7m @ 3.1g/t Au & 180g/t Ag
HUA-19-008: 0.8m @ 3.6g/t Au & 150g/t Ag
Vein
Salvador
Pilar
28
Results (resource drilling)
HUA-19-002: 1.1m @ 3.7g/t Au & 78g/t Ag
HUA-19-002: 5.2m @ 5.1g/t Au & 88g/t Ag
HUA-19-005: 1.3m @ 2.7g/t Au & 109g/t Ag
ANE-19-020: 1.5m @ 16.8g/t Au & 1,843g/t Ag
ANE-19-021: 1.1m @ 3.3g/t Au & 101g/t Ag
IMM-19-017: 1.0m @ 1.1g/t Au & 73g/t Ag
IMM-19-025: 1.9m @ 13.6g/t Au & 682g/t Ag
HUA-19-005: 1.1m @ 12.2g/t Au & 300g/t Ag
ROS-19-001: 3.2m @ 3.5g/t Au & 43g/t Ag
ROS-19-002: 1.0m @ 2.5g/t Au & 122g/t Ag
ANE-19-020: 3.8m @ 4.3g/t Au & 340g/t Ag
ANE-19-021: 3.6m @ 3.1g/t Au & 142g/t Ag
ANE-19-022: 8.5m @ 3.6g/t Au & 188g/t Ag
ANE-19-023: 1.2m @ 3.3g/t Au & 372g/t Ag
ANE-19-025: 3.0m @ 5.6g/t Au & 386g/t Ag
ANE-19-029: 1.8m @ 2.7g/t Au & 219g/t Ag
ANE-19-030: 2.3m @ 3.1g/t Au & 253g/t Ag
ANE-19-037: 2.2m @ 1.7g/t Au & 136g/t Ag
HUA-19-005: 3.1m @ 8.6g/t Au & 333g/t Ag
HUA-19-006: 1.3m @ 3.3g/t Au & 272g/t Ag
HUA-19-007: 1.5m @ 3.7g/t Au & 102g/t Ag
HUA-19-008: 1.6m @ 3.3g/t Au & 122g/t Ag
IMM-19-011: 1.0m @ 13.0g/t Au & 553g/t Ag
IMM-19-017: 0.9m @ 4.0g/t Au & 263g/t Ag
IMM-19-024: 1.0m @ 1.3g/t Au & 31g/t Ag
Angela Sur
IMS-19-008: 1.2m @ 1.5g/t Au & 121g/t Ag
IMS-19-010: 1.5m @ 1.6g/t Au & 191g/t Ag
Angela extension
ANE-19-029: 1.3m @ 266.5g/t Au & 1,783g/t Ag
Dora
Jose
Sandra
IMM-19-025: 1.5m @ 13.6g/t Au & 682g/t Ag
IMM-19-026: 3.0m @ 7.2g/t Au & 279g/t Ag
IMM-19-030: 0.9m @ 6.9g/t Au & 231g/t Ag
SP-19-0223: 1.5m @ 9.6g/t Au & 351g/t Ag
SP-19-0238: 0.9m @ 6.0g/t Au & 235g/t Ag
MIL-19-033: 3.5m @ 2.6g/t Au & 12g/t Ag
MIL-19-040: 1.6m @ 10.7g/t Au & 135g/t Ag
MIL-19-047: 5.7m @ 3.8g/t Au & 119g/t Ag
MIL-19-050: 1.6m @ 4.2g/t Au & 7g/t Ag
MIL-19-052: 1.5m @ 2.3g/t Au & 40g/t Ag
MIL-19-053: 0.9m @ 3.0g/t Au & 259g/t Ag
MIL-19-058: 2.0m @ 4.3g/t Au & 146g/t Ag
MIL-19-062: 0.6m @ 6.2g/t Au & 781g/t Ag
MIL-19-063: 1.8m @ 3.8g/t Au & 191g/t Ag
MIL-19-071: 0.9m @ 3.3g/t Au & 115g/t Ag
MIL-19-083: 1.4m @ 3.8g/t Au & 97g/t Ag
MIL-19-086: 3.7m @ 2.4g/t Au & 55g/t Ag
MIL-19-042: 0.8m @ 3.9g/t Au & 151g/t Ag
MIL-19-059: 3.6m @ 1.3g/t Au & 62g/t Ag
MIL-19-060: 13.2m @ 3.0g/t Au & 148g/t Ag
MIL-19-068: 1.5m @ 5.5g/t Au & 235g/t Ag
MIL-19-074: 1.2m @ 8.0g/t Au & 155g/t Ag
MIL-19-077: 1.8m @ 2.2g/t Au & 81g/t Ag
MIL-19-079: 1.3m @ 8.0g/t Au & 349g/t Ag
MIL-19-084: 1.6m @ 3.1g/t Au & 54g/t Ag
MIL-19-088: 3.1m @ 5.7g/t Au & 323g/t Ag
MIL-19-090: 1.4m @ 2.5g/t Au & 178g/t Ag
Hochschild Mining PLC / Annual Report & Accounts 2019 Infill drilling commenced in the first half of the year targeting the
key Millet vein, which was discovered in 2018, with further
campaigns also targeting the Divina, Keyla, Angela and Susana
Beatriz veins. Infill drilling across the entire known Millet vein has
now increased the resource grade by 15% from the December
2018 figure of 367 silver equivalent grams per tonne to 424 grams
per tonne. Total contained ounces have also risen from 57.0 to
60.6 million silver equivalent ounces whilst tonnage has reduced.
Vein
Divina
Vein
Millet
Results (infill drilling)
MIL-19-001: 0.9m @ 1.7g/t Au & 80g/t Ag
MIL-19-002: 4.5m @ 2.6g/t Au & 204g/t Ag
MIL-19-003: 2.8m @ 3.6g/t Au & 153g/t Ag
MIL-19-004: 1.3m @ 0.9g/t Au & 42g/t Ag
MIL-19-005: 0.9m @ 3.2g/t Au & 25g/t Ag
MIL-19-006: 4.2m @ 0.8g/t Au & 67g/t Ag
MIL-19-007: 2.7m @ 7.0g/t Au & 129g/t Ag
MIL-19-008: 1.5m @ 2.5g/t Au & 139g/t Ag
MIL-19-009: 2.0m @ 4.8g/t Au & 557g/t Ag
MIL-19-010: 5.0m @ 3.3g/t Au & 104g/t Ag
MIL-19-011: 0.9m @ 2.0g/t Au & 37g/t Ag
MIL-19-012: 6.8m @ 2.4g/t Au & 81g/t Ag
MIL-19-013: 1.2m @ 1.3g/t Au & 8g/t Ag
MIL-19-014: 2.0m @ 3.8g/t Au & 342g/t Ag
MIL-19-015: 1.2m @ 0.9g/t Au & 97g/t Ag
MIL-19-016: 5.9m @ 1.9g/t Au & 88g/t Ag
MIL-19-017: 1.4m @ 2.0g/t Au & 344g/t Ag
MIL-19-018: 1.2m @ 1.4g/t Au & 30g/t Ag
MIL-19-019: 4.6m @ 1.3g/t Au & 67g/t Ag
MIL-19-020: 1.2m @ 0.2g/t Au & 52g/t Ag
MIL-19-021: 2.6m @ 9.4g/t Au & 184g/t Ag
MIL-19-022: 4.0m @ 1.2g/t Au & 61g/t Ag
MIL-19-023: 3.5m @ 3.1g/t Au & 208g/t Ag
MIL-19-024: 1.0m @ 2.8g/t Au & 213g/t Ag
MIL-19-025: 5.8m @ 2.9g/t Au & 174g/t Ag
MIL-19-026: 6.2m @ 2.1g/t Au & 167g/t Ag
MIL-19-027: 5.1m @ 2.7g/t Au & 264g/t Ag
MIL-19-028: 3.0m @ 2.7g/t Au & 162g/t Ag
MIL-19-029: 4.0m @ 2.9g/t Au & 470g/t Ag
MIL-19-030: 0.7m @ 1.4g/t Au & 67g/t Ag
MIL-19-031: 2.3m @ 1.6g/t Au & 113g/t Ag
MIL-19-032: 2.5m @ 1.7g/t Au & 133g/t Ag
MIL-19-033: 3.3m @ 3.0g/t Au & 14g/t Ag
MIL-19-034: 1.4m @ 0.7g/t Au & 41g/t Ag
MIL-19-035: 3.0m @ 2.7g/t Au & 77g/t Ag
MIL-19-036: 2.3m @ 2.1g/t Au & 71g/t Ag
MIL-19-037: 2.8m @ 4.5g/t Au & 509g/t Ag
MIL-19-038: 1.0m @ 1.0g/t Au & 93g/t Ag
MIL-19-039: 0.8m @ 0.9g/t Au & 68g/t Ag
MIL-19-040: 3.5m @ 3.0g/t Au & 111g/t Ag
MIL-19-041: 0.6m @ 0.2g/t Au & 347g/t Ag
MIL-19-043: 12.5m @ 3.8g/t Au & 394g/t Ag
MIL-19-044: 2.4m @ 6.5g/t Au & 720g/t Ag
MIL-19-045: 10.5m @ 7.8g/t Au & 622g/t Ag
MIL-19-046: 14.0m @ 3.8g/t Au & 44g/t Ag
MIL-19-047: 12.5m @ 4.9g/t Au & 311g/t Ag
MIL-19-048: 3.2m @ 9.8g/t Au & 374g/t Ag
MIL-19-049: 1.4m @ 4.0g/t Au & 188g/t Ag
MIL-19-051: 5.8m @ 3.8g/t Au & 138g/t Ag
MIL-19-053: 9.2m @ 4.1g/t Au & 88g/t Ag
MIL-19-056: 1.2m @ 8.2g/t Au & 804g/t Ag
MIL-19-059: 10.5m @ 3.4g/t Au & 127g/t Ag
MIL-19-060: 4.4m @ 11.0g/t Au & 432g/t Ag
MIL-19-062: 1.6m @ 3.9g/t Au & 199g/t Ag
MIL-19-072: 12.5m @ 4.5g/t Au & 51g/t Ag
MIL-19-075: 2.5m @ 4.4g/t Au & 122g/t Ag
MIL-19-080: 1.3m @ 3.5g/t Au & 263g/t Ag
MIL-19-082: 3.3m @ 66.0g/t Au & 835g/t Ag
MIL-19-088: 6.6m @ 4.7g/t Au & 184g/t Ag
MIL-19-093: 3.1m @ 4.3g/t Au & 108g/t Ag
MIL-19-096: 2.0m @ 5.9g/t Au & 79g/t Ag
MIL-19-098: 9.9m @ 7.1g/t Au & 106g/t Ag
Alesandra
Veronica
Results (infill drilling)
DIV-19-027: 6.8m @ 6.3g/t Au & 347g/t Ag
DIV-19-029: 0.8m @ 5.0g/t Au & 406g/t Ag
DIV-19-030: 8.4m @ 1.4g/t Au & 72g/t Ag
DIV-19-031: 3.4m @ 1.7g/t Au & 72g/t Ag
DIV-19-032: 4.2m @ 3.6g/t Au & 104g/t Ag
DIV-19-033: 1.0m @ 7.5g/t Au & 153g/t Ag
DIV-19-034: 7.4m @ 4.1g/t Au & 96g/t Ag
MIL-19-074: 7.3m @ 4.5g/t Au & 166g/t Ag
MIL-19-077: 8.2m @ 3.4g/t Au & 189g/t Ag
MIL-19-088: 0.8m @ 7.0g/t Au & 261g/t Ag
SP-19-0284: 0.8m @ 12.8g/t Au & 25g/t Ag
MIL-19-042: 1.8m @ 4.7g/t Au & 350g/t Ag
MIL-19-045: 2.0m @ 21.3g/t Au & 2,373g/t Ag
MIL-19-049: 1.3m @ 4.0g/t Au & 188g/t Ag
MIL-19-053: 0.8m @ 8.6g/t Au & 55g/t Ag
MIL-19-066: 0.8m @ 3.9g/t Au & 222g/t Ag
MIL-19-082: 1.0m @ 5.4g/t Au & 10g/t Ag
MIL-19-090: 2.2m @ 2.1g/t Au & 233g/t Ag
MIL-19-096: 1.7m @ 3.8g/t Au & 113g/t Ag
MIL-19-102: 0.9m @ 5.1g/t Au & 15g/t Ag
Current plans for infill drilling are for a 110,000m programme from
January to July in the Millet west, Divina, Susana Beatriz, Salvador,
Dora, Pilar, Barbara, Veronica, Lola, Lizina and Keyla veins.
29
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OPERATING REVIEW CONTINUED
Pallancata
At Pallancata, almost 10,000m of potential and resource drilling
was executed in the year using conventional surface and
underground horizontal drilling towards the Pablo, Marco, Mariel,
Alizze, Royropata, Mercedes and additional as-yet-unnamed
veins, all close to current operations. Results towards the end of
the year indicated the continuation of the Rina 4 vein to the
north-east. Also, in the Marco and Pablo vein zones, a further
2,400m of resource drilling was executed in the Juan, Simon and
Andres structures with economic intercepts indicating new
resources in this area. A Titan geophysical programme was also
completed in Q4 to define targets for the 2020 programme.
Vein
Pablo
Results (potential resource drilling)
DLEP-A49: 3.4m @ 1.4g/t Au & 553g/t Ag
Marco
Pedro
DLMARC-A03: 0.8m @ 0.7g/t Au & 297g/t Ag
DLMARC-A05: 1.0m @ 0.7g/t Au & 245g/t Ag
DLMARC-A06: 1.2m @ 1.0g/t Au & 331g/t Ag
DLMARC-A07: 1.7m @ 1.0g/t Au & 381g/t Ag
DLMARC-A10: 1.1m @ 0.5g/t Au & 161g/t Ag
DLEP-A43: 0.7m @ 1.4g/t Au & 283g/t Ag
DLEP-A44: 1.2m @ 1.7g/t Au & 485g/t Ag
Ramal Pablo
DLEP-A43: 3.7m @ 1.9g/t Au & 111g/t Ag
Ramal Mariana
DLMA-A27: 0.7m @ 1.0g/t Au & 172g/t Ag
Santa Beatriz
Palca
The Palca drilling programme started late in the first half of the
year with potential resource drilling in the Roxana, Santa Beatriz
and Prometida structures and continued with 6,874m of drilling in
the third quarter in the Roxana, Santa Beatriz, Prometida,
Alejandra, Escondida and Kimberly structures testing continuity to
a depth of 300m. Results confirmed mineralisation with 200m of
depth. The brownfield team is continuing with efforts to interpret
the geology of the Palca zone including the optimum levels of
mineralisation and the orientation of the vein structures. The next
drilling campaign is scheduled for the second quarter of 2020.
Vein
Roxana
Prometida
Escondida
Results (potential resource drilling)
PLC-195-001: 1.8m @ 1.0g/t Au & 27g/t Ag
PLC-195-004: 0.8m @ 1.0g/t Au & 33g/t Ag
PLC-195-001: 1.2m @ 0.7g/t Au & 13g/t Ag
PLC-195-009: 3.5m @ 0.4g/t Au & 13g/t Ag
PLC-195-006: 2.9m @ 5.0g/t Au & 35g/t Ag
PLC-195-025: 1.9m @ 4.7g/t Au & 33g/t Ag
PLC-195-027: 2.8m @ 7.7g/t Au & 72g/t Ag
PLC-195-031: 0.7m @ 3.9g/t Au & 50g/t Ag
PLC-195-033 1.7m @ 2.5g/t Au & 202g/t Ag
Prometida North
PLC-195-030: 1.0m @ 1.2g/t Au & 15g/t Ag
PLC-195-031: 0.4m @ 2.6g/t Au & 24g/t Ag
Rina
Simon
DLVC-A61: 0.8m @ 1.0g/t Au & 425g/t Ag
Prometida South
DLMARC-A17: 2.4m @ 1.2/t Au & 366g/t Ag
PLC-195-006: 4.1m @ 3.7g/t Au & 26g/t Ag
PLC-195-031: 3.7m @ 1.3g/t Au & 13g/t Ag
PLC-195-039: 1.0m @ 3.7g/t Au & 37g/t Ag
Following a delay, in January 2020, the Peruvian government
granted the requisite permits for surface drilling to begin at the
Pablo Sur and Cochaloma zones close to Pallancata. Later in
January 2020, a 4,500m potential drilling programme started at
Pablo Sur whilst a 2,000m programme is also set for Cochaloma.
North east vein
PLC-195-009: 0.4m @ 12.8g/t Au & 19g/t Ag
30
Hochschild Mining PLC / Annual Report & Accounts 2019 San Jose
At San Jose, potential drilling was executed at the Aguas Vivas
system in the first half with structures corresponding to an
intermediate sulphidation system with associated grades of
zinc and lead.
Potential drilling was also executed earlier in the year at the Pluma
19 structure, the south-east Kospi projection and East and West
Antonella. In Q3 2019, just over 5,000m of potential and inferred
resource drilling was carried out with the majority concentrating
on an area including the Kospi, Kospi South East, Ramal Huevos
Verdes and the new Milagro structures. The team has also
executed a 1,800m long drill hole to the west of Huevos Verdes.
Towards the end of the year, further potential drilling was carried
out at the Micaela, Ayelen extension, Kospi Norte and Tonio veins.
Finally, almost 4,000m of resource drilling was executed around
the current operations.
A magnetometry study was performed on the potential extension
of Cerro Negro structures (Telken) covering a total area of 14.3km2.
Vein
Results (potential resource drilling)
Aguas Vivas SJD-1627: 3.0m @ 0.1g/t Au, 43/t Ag, 0.2% Cu, 8.2% Pb & 5.5% Zn
SJD-1686: 1.1m @ 3.6g/t Au, 85g/t Ag, 0.1% Cu, 19.0% Pb & 10.3% Zn
SJD-1703: 1.4m @ 0.2g/t Au, 55g/t Ag, 0.6% Pb & 1.9% Zn
SJD-1720: 0.8m @ 2.4g/t Au, 9g/t Ag
SJD-1851: 3.4m @ 0.3g/t Au, 44g/t Ag, 1.2% Cu, 4.6% Pb & 6.4% Zn
SJD-1853: 1.1m @ 0.4g/t Au, 98g/t Ag, 1.6% Cu, 5.3% Pb & 4.2% Zn
SJD-1855: 2.8m @ 0.9g/t Au, 9g/t Ag, 0.2% Cu, 0.7% Pb & 1.4% Zn
SJD-1857: 0.9m @ 1.6g/t Au, 18g/t Ag, 0.1% Cu, 2.7% Pb & 2.2% Zn
SJD-1865: 1.3m @ 0.4g/t Au, 12g/t Ag, 0.2% Cu, 2.1% Pb & 3.9% Zn
SJD-1870: 1.1m @ 5.0g/t Au, 64g/t Ag, 0.4% Cu, 2.3% Pb & 3.9% Zn
Ares
In the fourth quarter of 2020, 1,711m of potential drilling was
carried out at Ares following previous results from long drill holes.
New structures were identified with grades but were generally
narrow. New surveys east of the Victoria target are scheduled
for 2020.
Vein
Lula
New structure
Results (potential resource drilling)
DDHVIC-1901: 0.3m @ 0.4g/t Au & 124g/t Ag
DDHVIC-1901: 0.3m @ 3.7g/t Au & 737g/t Ag
DDHVIC-1901: 0.3m @ 2.8g/t Au & 262g/t Ag
DDHVIC-1902: 0.3m @ 1.8g/t Au & 56g/t Ag
DDHVIC-1902: 0.9m @ 4.2g/t Au & 49g/t Ag
DDHVIC-1902: 0.6m @ 1.9g/t Au & 31g/t Ag
DDHVIC-1902: 0.3m @ 1.2g/t Au & 3g/t Ag
DDHVIC-1902: 0.3m @ 1.4g/t Au & 146g/t Ag
DDHVIC-1902: 0.4m @ 9.7g/t Au & 61g/t Ag
DDHVIC-1902: 1.5m @ 4.8g/t Au & 13g/t Ag
Other brownfield projects
During 2019, a considerable range of preparatory geological
work and permit applications was carried out on a number of
Hochschild’s former mines and near-term projects with the result
that in 2020, the brownfield team intends to drill a number of
targets across the Company’s southern Peru cluster subject to the
receipt of final exploration permits. In addition to work mentioned
above at the Corina and Ares deposits, this includes: Titan
geophysics and drilling at the former Selene mine; geophysics and
a drilling programme at Arcata; drilling at the Crespo project; and
drilling at the Huacullo area, which is adjacent to Azuca.
Antonella
SJM-429: 3.9m @ 8.1g/t Au & 239/t Ag
Roma
SJD-1963: 1.0m @ 2.0g/t Au & 228g/t Ag
Kospi SE
SJD-1980: 0.9m @ 7.1g/t Au & 467g/t Ag
Kospi SE 02
SJD-1980: 0.5m @ 46g/t Au & 11,416g/t Ag
Kospi
SJM-432: 2.5m @ 4.8g/t Au & 502g/t Ag
RHVN K
SJM-433: 2.0m @ 3.3g/t Au & 155g/t Ag
RHVN D
SJM-433: 1.1m @ 30.4g/t Au & 1,991g/t Ag
RMLHVND
SJM-434: 1.0m @ 2.7g/t Au & 266g/t Ag
Milagro
SJD-2001: 1.0m @ 6.3g/t Au & 355g/t Ag
Sigmoide Luli SJD-2013: 0.9m @ 1.0g/t Au & 142g/t Ag
SJD-2014: 4.1m @ 1.5g/t Au & 45g/t Ag
Luli Sur
Shala
Mara
SJD-2013: 3.1m @ 7.0g/t Au & 727g/t Ag
SJD-2014: 0.8m @ 4.2g/t Au & 753g/t Ag
SJD-2013: 0.9m @ 1.2g/t Au & 90g/t Ag
SJD-2013: 1.0m @ 13.3g/t Au & 1,259g/t Ag
Ramal Luli
SJD-2014: 1.9m @ 2.7g/t Au & 43g/t Ag
Ramal Ayelen SJD-2018: 1.6m @ 24.3g/t Au & 1,302g/t Ag
New vein
SJM-446: 2.0m @ 1.7g/t Au & 78g/t Ag
In 2020, the programme at San Jose involves further long hole
drilling, a Titan geophysics programme to the south, 5,000m of
drilling at the Telken structures close to Cerro Negro and an
assessment of the regional opportunities also to the south of the
land package.
31
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE OPERATING REVIEW CONTINUED
GREENFIELD
AND BUSINESS
DEVELOPMENT
Hochschild’s strategy with regards to its greenfield exploration
programme is to maintain and drill a balanced portfolio of
early-stage to advanced opportunities using a combination of
earn-in joint ventures, private placements with junior exploration
companies and the staking of properties.
Corina
At Corina, drilling in the third quarter of the year confirmed
promising mineralisation within two sub-parallel structures, Corina
and Micky. Drill results are included below and do not necessarily
represent true widths.
Hochschild has the option to purchase the Corina Project from
Lara Resources by making staged cash payments totalling
$4 million of which $0.3 million has been paid to date, with the next
instalment of $0.4 million due by July 2020. The Company must
also carry out $2.0 million in exploration expenditures, which has
been almost fulfilled by the most recent programme, and pay a
2% net smelter return royalty on any future production. The
project has now been transferred to Hochschild’s brownfield
exploration team and a new drilling campaign will begin in 2020
to define inferred resources.
Drillhole
From (m)
To (m) Width (m)
g/t Au
COR19001
including
COR19001
COR19002
COR19002
COR19003
COR19004
COR19005
including
COR19005
COR19005
COR19006
including
COR19006
COR19007
including
and
COR19007
COR19007
COR19008
COR19008
including
COR19009
COR19009
including
COR19009
including
COR19010
including
COR19010
including
COR19010
including
including
201.55
203.40
218.80
253.15
330.20
142.85
219.80
152.00
265.00
91.10
92.10
117.90
160.80
209.60
210.70
284.85
126.40
132.30
132.30
184.60
200.75
209.40
220.80
220.80
144.80
152.50
156.50
160.40
164.50
189.10
195.10
206.90
207.90
222.65
222.65
224.45
204.75
204.75
228.20
254.45
348.50
146.85
221.00
156.85
266.35
94.60
93.65
122.90
162.80
211.10
211.10
287.10
142.10
135.00
133.70
189.20
201.75
211.00
223.00
221.80
149.00
157.60
157.00
165.40
165.40
202.60
198.10
210.60
208.90
230.30
228.40
224.95
3.20
1.35
9.40
1.30
18.30
4.00
1.20
4.85
1.35
3.50
1.55
5.00
2.00
1.50
0.40
2.25
15.70
2.70
1.40
4.60
1.00
1.60
2.20
1.00
4.20
5.10
0.50
5.00
0.90
13.50
3.00
3.70
1.00
7.65
5.75
0.50
1.13
1.80
0.43
0.43
0.26
0.28
0.46
0.07
0.61
8.97
15.90
0.60
1.18
1.71
2.89
0.27
4.56
15.94
19.55
1.10
1.32
0.52
3.20
5.73
0.82
1.05
2.63
1.08
1.86
6.15
16.08
7.66
17.35
4.08
4.95
8.14
g/t Ag
24.00
31.00
7.11
4.40
1.35
1.57
67.40
0.78
9.00
32.00
47.00
4.99
2.90
7.65
7.90
0.87
53.69
207.20
290.00
27.64
14.50
2.05
25.66
51.00
6.71
14.19
53.70
6.98
2.40
31.10
82.60
17.66
126.00
37.39
45.85
77.60
Snip
Hochschild has the right to enter into an option to earn a 60%
undivided interest in Skeena Resources’ Snip gold project
located in the Golden Triangle of British Columbia by spending
twice the amount Skeena has spent since it originally optioned
Snip from Barrick.
The 2019 Phase I drilling programme was designed to validate
an isolated, historical and incompletely sampled high-grade
intersection in the 200 Footwall Corridor. The original target
in the 200 Footwall was identified by 1997 underground drill
hole UG-2610 which intersected 26.8 g/t Au over 3.4m in an
incompletely sampled zone. The recent intercept in drill hole
S19-044 has discovered a new occurrence of very high-grade
mineralisation averaging 1,132 g/t Au over 1.5m, including a
significant subinterval containing abundant visible gold grading
3,390 g/t Au over 0.5m. Additional intercepts reported include:
Target
Snip
Results
S19-035: 5.1m @ 16.6g/t Au
Including 0.5m@ 96.2g/t Au and 0.9m @ 39.8g/t Au
S19-041: 0.7m @ 57.9g/t Au
S19-041: 0.5m @ 57.0g/t Au
S19-043: 1.4m @ 12.0g/t Au
Phase I drill hole S19-043 was completed prior to the newly
discovered mineralisation in drill hole S19-044 and intersected
anomalous gold grades associated with sheared veining including
12.0 g/t Au over 1.4m. Recently completed modelling of the 200
Footwall mineralisation indicates that this drill hole did not extend
deep enough to adequately test the 200 Footwall and will be
deepened during the next phase of drilling.
Other projects
In 2020, the team and its joint venture/strategic alliance partners
are planning to drill properties across the Americas in Peru and
the United States. This includes: the Cooke Mountain gold project
owned by Adamera Minerals Corp in Washington State, United
States; the Horsethief project owned by Allianza Minerals Ltd, also
in Nevada; and the Condor project in Peru.
32
Hochschild Mining PLC / Annual Report & Accounts 2019 BioLantanidos
On 2 October 2019, Hochschild announced the acquisition of
93.8% of the BioLantanidos rare earth deposit in Chile that it did
not already own for a consideration of $56.4 million and therefore
consolidated 100% of the project. BioLantanidos was previously
controlled by the private fund FIP Lantanidos, managed by private
equity firm Mineria Activa SpA. Hochschild initially invested
$2.5 million in the project during 2018 and early 2019 in exchange
for a 6.2% equity stake with an option to increase ownership.
The deposit has a high concentration of key rare earth minerals
and in particular those with permanent magnetic properties
such as Terbium, Dysprosium, Praseodymium and Neodymium.
These metals offer highly attractive enhancement properties for
a wide range of end-use applications and play a pivotal role in
driving the efficiency of motors, particularly in electric vehicles
and wind turbines.
The project consists of ionic clay resources, similar to those found
in China, but very different from most other hard rock-based rare
earth projects worldwide. Mineralisation occurs from the surface
to 20-30 metres deep and mining will not require explosives. The
clay undergoes a simple washing process in which rare earths
will be desorbed into a solution, concentrated and calcined to
obtain a rare earth oxide. Furthermore, there is no requirement
for a tailings dam as the washed clay is expected to be returned
to the open pits. The process is environmentally friendly as it
does not require potentially harmful chemicals whilst capital
and operational expenditure is projected to be low with the
result that the project is expected to be one of the lowest cost
rare earth producers.
An initial modular project has been developed in the Penco area in
an area of 500 hectares, approximately 15km from Concepción in
Chile and with excellent access to infrastructure and energy. Other
modules are expected to be evaluated in the future, providing
significant low capital expenditure growth potential.
Prior to the acquisition, BioLantanidos constructed an on-site pilot
plant that has demonstrated both technical and commercial
viability, and the opportunity to scale up into industrial operations.
Although the company prepared a feasibility study, it is Hochschild’s
intention to revise the study over the next 14 months and has
recently appointed a dedicated management team to oversee
development of the project.
33
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE FINANCIAL REVIEW
GENERATING
HEALTHY
CASH FLOW
Ramón Barúa
Chief Financial Officer
The reporting currency of
Hochschild Mining plc is US dollars.
In discussions of financial
performance, the Group removes
the effect of exceptional items,
unless otherwise indicated, and in
the income statement results are
shown both pre and post such
exceptional items.
Exceptional items are those items
which, due to their nature or the
expected infrequency of the events
giving rise to them, need to be
disclosed separately on the face
of the income statement to enable
a better understanding of the
financial performance of the Group
and to facilitate comparison with
prior years.
34
REVENUE
2018: $704.3m
ADJUSTED EBITDA
2018: $268.0m
$755.7m
$343.3m
$103.4m
$0.09
PROFIT BEFORE INCOME TAX
2018: $54.7m
ADJUSTED BASIC EARNINGS PER SHARE
2018: $0.05
Hochschild Mining PLC / Annual Report & Accounts 2019 Revenue
Gross revenue
Gross revenue from continuing operations increased by 6% to
$780.4 million in 2019 (2018: $733.6 million) due to an increase in
the average precious metals prices received as well as a rise in
gold sales offsetting a fall in ounces sold of silver in line with
decreased silver production.1
Gold
Gross revenue from gold in 2019 increased to $449.0 million
(2018: $386.2 million) due to a 5% increase in the total amount
of gold ounces sold in 2019. This resulted from increases at the
Inmaculada and the San Jose mines.
Silver
Gross revenue fell in 2019 to $331.2 million (2018: $347.0 million)
mainly due to a fall in silver sales resulting from the decision to
place the predominantly silver producing Arcata mine on care
and maintenance in the first quarter of 2019.
Gross average realised sales prices
The following table provides figures for average realised prices
(before the deduction of commercial discounts) and ounces sold
for 2019 and 2018:
Average realised prices
Silver ounces sold (koz)
Avg. realised silver price ($/oz)
Gold ounces sold (koz)
Avg. realised gold price ($/oz)
Year ended
31 Dec 2019
Year ended
31 Dec 2018
20,062
16.5
317.52
1,414
22,687
15.3
304.51
1,268
1 Includes revenue from services.
Commercial discounts
Commercial discounts refer to refinery treatment charges, refining
fees and payable deductions for processing concentrate, 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 2019, the Group recorded
commercial discounts of $24.7 million (2018: $29.4 million) with the
decrease explained by the significant decrease in production from
the concentrate-only Arcata mine. The ratio of commercial
discounts to gross revenue in 2019 was 3% (2018: 4%).
Net revenue
Net revenue was $755.7 million (2018: $704.3 million), comprising
net gold revenue of $441.6 million (2018: $378.8 million) and net
silver revenue of $314.0 million (2018: $325.1 million). In 2019, gold
accounted for 58% and silver 42% of the Company’s consolidated
net revenue (2018: gold 54% and silver 46%).
Reconciliation of gross revenue by mine to Group net revenue
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
$000
Silver revenue
Arcata
Inmaculada
Pallancata
San Jose
Commercial discounts
Net silver revenue
Gold revenue
Arcata
Inmaculada
Pallancata
San Jose
4,984
90,110
121,494
114,623
(17,258)
313,953
873
262,033
37,237
148,901
52,292
86,810
113,108
94,804
(21,958)
325,056
12,573
219,293
33,176
121,202
Commercial discounts
Net gold revenue
Other revenue
Net revenue
(7,460)
(7,395)
441,584
378,849
139
340
755,676
704,290
(90)
4
7
21
(21)
(3)
(93)
19
12
23
1
17
(59)
7
35
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE FINANCIAL REVIEW CONTINUED
Costs
Total cost of sales was $512.7 million in 2019 (2018: $531.8 million).
The direct production cost excluding depreciation was lower at
$327.7 million (2018: $363.9 million) mainly due to lower production
and lower cost per tonne both resulting from the decision to place
Arcata on temporary care and maintenance in early 2019. This
was partially offset by higher production cost at Inmaculada and
Pallancata, in line with higher production tonnage, higher mine
backfill, detoxification costs and personnel expenses at
Inmaculada, as well as higher costs at San Jose mainly due to the
start of the new backfill and water recovery plants. Depreciation
in production cost increased to $184.4 million (2018: $164.2 million)
due to higher estimated unit cost to put resources into production,
therefore affecting future capex. Other items, which principally
includes personnel-related provisions, increased to $4.4 million
in 2019 (2018: $1.1 million) mainly due to the return of the workers’
profit sharing provision ($3.9 million). Change in inventories was
$3.8 million in 2019 (2018: $2.5 million) due to a slight rise in
products in process.
$000
Direct production cost
excluding
depreciation
Depreciation in
production cost
Other items2
Change in inventories
Cost of sales
Year ended
31 Dec 2019
Year ended
31 Dec 2018
% change
327,660
363,922
184,388
164,244
4,445
(3,782)
512,711
1,141
2,481
531,788
(10)
12
290
(252)
(4)
Unit cost per tonne
The Company reported unit cost per tonne at its operations
of $115.8 per tonne in 2019, a 4% decrease versus 2018
($121.1 per tonne) mainly due to the decision to place Arcata
on temporary care and maintenance, good cost control and
increased mined tonnage at Inmaculada and Pallancata.
These effects were partially offset by higher mine backfill,
detoxification costs, personnel expenses and permitting costs
at Inmaculada. There were also higher costs at San Jose related
to the operation of the new backfill and water recovery plants.
Unit cost per tonne by operation (including royalties)3:
Operating unit ($/tonne)
Year ended
31 Dec 2019
Year ended
31 Dec 2018
% change
Peru4
Inmaculada
Pallancata
Arcata
Argentina
San Jose
Total
89.4
93.3
83.8
182.2
219.2
115.8
99.7
84.7
93.6
167.7
218.6
121.1
(10)
10
(10)
9
–
(4)
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 reconciliation5:
$000 unless
otherwise indicated
Group cash cost
(+) Cost of sales
(-) Depreciation and
amortisation in cost of sales
(+) Selling expenses
(+) Commercial deductions6
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co product Au
Co product Ag
By product Au
By product Ag
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
378,931
512,711
409,719
531,788
(182,676)
(164,819)
21,071
27,825
7,674
20,151
755,676
441,584
313,953
139
317.5
20,062
698
7.8
141
(3.5)
10,068
32,682
7,558
25,124
704,290
378,849
325,056
340
304.5
22,687
724
8.3
195
1.0
(8)
(4)
11
109
(15)
2
(20)
7
17
(3)
(59)
4
(12)
(4)
(6)
(28)
(450)
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.
2 Other items in and workers profit sharing in costs of sales.
3 Unit cost per tonne is calculated by dividing mine and treatment production costs (excluding depreciation) by extracted and treated tonnage respectively.
4 2018 unit cost per tonne for Peru includes the Arcata mine. 2019 does not include the Arcata mine.
5 Cash costs are calculated to include cost of sales, commercial discounts and selling expenses items less depreciation included in cost of sales.
6 Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore.
36
Hochschild Mining PLC / Annual Report & Accounts 2019 All-in sustaining cost reconciliation
All-in sustaining cash costs per silver equivalent ounce
Year ended 31 Dec 2019
$000 unless otherwise indicated
Inmaculada Pallancata
San Jose
Main
operations
(+) Production cost excluding depreciation
124,814
75,590
120,529
320,933
(+) Other items and workers’ profit sharing in cost of sales
(+) Operating and exploration capex for units 7
(+) Brownfield exploration expenses
(+) Administrative expenses (excl depreciation) 8
(+) Royalties and special mining tax 9
Sub-total
Au ounces produced
Ag ounces produced (000s)
Ounces produced (Ag Eq 000s oz)
Sub-total ($/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)
All-in sustaining costs ($/oz Au Eq)
Year ended 31 Dec 2018
1,902
66,435
3,976
3,917
3,510
204,554
189,180
5,747
21,070
9.7
2,580
481
3,061
188,585
5,732
21,008
0.1
9.9
798
567
4,445
41,406
134,446
9,753
6,215
–
178,470
105,478
6,846
15,390
20,845
11,774
4,981
497,424
320,611
19,851
45,821
11.6
10.9
13,336
19,444
32,780
27,049
20,921
47,970
102,824
316,855
6,846
15,174
2.2
13.8
19,738
45,404
1.1
11.9
965
1,097
1,114
Arcata
6,727
–
42
1,065
44
47
Corporate &
others
–
–
2,470
3,954
31,669
3,429
Total
327,660
4,445
136,958
25,864
43,487
8,457
7,925
41,522
546,871
966
311
390
20.3
776
150
926
662
323
377
2.5
22.8
1,847
–
–
–
–
–
–
–
–
–
–
321,577
20,163
46,210
11.8
27,825
21,071
48,896
317,515
20,062
45,780
1.1
12.9
1,045
Total
363,922
1,141
$000 unless otherwise indicated
Arcata Inmaculada Pallancata
San Jose
Main
operations
Corporate &
others
(+) Production cost excluding depreciation
62,559
114,291
68,907
118,165
363,922
–
–
1,141
1,141
57,678
28,939
42,849
129,992
634
130,626
–
–
(+) Other items in cost of sales
(+) Operating and exploration capex for units
(+) Brownfield exploration expenses
(+) Administrative expenses (excl depreciation)
(+) Royalties and special mining tax 10
Sub-total
Au ounces produced
Ag ounces produced (000s)
Ounces produced (Ag Eq 000s oz)
Sub-total ($/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)
All-in sustaining costs ($/oz Au Eq) 11
2,162
1,560
1,381
4,224
6,952
–
17,142
12,679
4,494
3,563
31,618
2,746
20,705
44,297
7,240
102,949
173,331
529,370
38,561
567,931
26,399
96,595
307,768
7,499
9,588
10.7
10,441
728
11,169
26,234
7,439
9,564
1.2
11.9
964
6,165
13,989
22,720
47,650
12.4
11.1
11,180
7,997
19,177
32,682
10,068
42,750
96,595
304,505
6,175
22,687
13,947
47,352
1.4
13.8
1,115
0.9
12.0
973
–
–
–
–
–
–
–
–
–
–
–
–
–
307,768
22,720
47,650
11.9
32,682
10,068
42,750
304,505
22,687
47,352
0.9
12.8
1,039
1,976
26,605
7,116
1,642
1,471
114,400
25,952
7,259
9,361
§12.2
11,133
996
12,129
25,446
7,161
9,222
1.3
13.5
1,732
3,516
3,113
180,330
174.,199
5,690
19,800
9.1
2,788
344
3,132
172,395
5,676
–
526
9,024
651
–
72,760
10,575
3,416
4,273
17.0
8,273
999
9,272
9,926
3,397
4,201
19,640
2.2
19.2
1,558
0.2
9.3
751
7 Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments.
8 Administrative expenses does not include expenses from the BioLantanidos project ($160,000).
9 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line.
10 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line.
11 Calculated using a gold silver ratio of 81:1.
37
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE FINANCIAL REVIEW CONTINUED
Administrative expenses
Administrative expenses was similar to 2018 at $45.9 million
(2018: $45.8 million) primarily due to personnel expenses
remaining broadly unchanged although the Company has started
to again provision the workers’ profit sharing in Peru ($1.4 million)
after being in a tax loss position over the last six years. This was
partially offset by lower bonus provisions (specifically LTIP).
Exploration expenses
In 2019, exploration expenses increased to $38.0 million
(2018: $34.4 million) in line with the overall rise in the Company’s
investment in brownfield and greenfield exploration. 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 categories. In 2019, the
Company capitalised $6.0 million relating to brownfield exploration
compared to $9.2 million in 2018, bringing the total investment in
exploration for 2019 to $44.0 million (2018: $43.6 million).
Selling expenses
Selling expenses increased to $21.1 million (2018: $10.1 million)
principally due to the reintroduction of export taxes in Argentina
in September 2018 ($16.3 million).
Other income/expenses
Other income was slightly higher at $9.0 million (2018: $8.1 million)
due to adjustments to electrical services receivables in Peru. Also,
other income includes revenue from logistic services in the Matarani
warehouse and net income from services provided to contractors.
Other expenses before exceptional items were higher at $33.9 million
(2018: $17.1 million) mainly due to an increase in the provision for
mine closure adjustments at Ares and Sipan ($13.6 million). This has
resulted from the latest review completed by the Group’s consultant
on these former operations’ mine closure plans. At Ares, the variation
($7.7 million) is the result of improvements to the Tailings Storage
Facility water treatment plant as part of its final closure. The figure
also includes the operational cost of the plant over two years. For
Sipan, the review ($5.2 million) incorporates the operating cost of the
two water treatment plants for an additional five years. In addition,
there is an additional negative impact on mine closure provision
($0.6 million) due to a change in the discount rate. Other expenses
also include care and maintenance expenses, corporate social
responsibility tax in Argentina and adjustments to receivables.
Adjusted EBITDA
Adjusted EBITDA increased by 28% to $343.3 million (2018:
$268.0 million) primarily due to the increase in the average
precious metal prices received and good cost control offsetting
the reintroduction of export taxes in Argentina in September 2018.
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.
54
11
67
10
7
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
$000
Profit from continuing operations
before exceptional items, net
finance income/(cost), foreign
exchange loss and income tax
Depreciation and amortisation in
cost of sales
Depreciation and amortisation in
administrative expenses and other
expenses
112,276
72,804
182,676
164,819
2,480
1,486
Exploration expenses
37,965
34,381
Personnel and other exploration
related fixed expenses
(6,316)
(5,916)
Other non-cash income, net 12
14,251
436
3,169
Adjusted EBITDA
343,332
268,010
28
Adjusted EBITDA margin
45%
38%
Finance income
Finance income before exceptional items of $2.9 million increased
from 2018 ($2.0 million) due to a small increase in interest on
deposits.
Finance costs
Finance costs before exceptional items decreased from
$11.2 million in 2018 to $10.0 million in 2019, principally due
to the reduction in interest payments resulting from the
repayment of the Company’s Senior Notes in H1 2018 and
lower average interest rates.
Foreign exchange (losses)/gains
The Group recognised a foreign exchange loss of $1.8 million
(2018: $8.9 million loss) as a result of exposures in currencies other
than the functional currency – mainly the Argentinean peso which
again depreciated in 2019 ($1.9 million loss) and the Peruvian sol
which appreciated during the year ($0.3 million loss).
Income tax
The Company’s pre-exceptional income tax charge was
$43.3 million (2018: $36.5 million). The increase in the charge is
explained by the Company’s increase in profitability in 2019.
Income tax includes royalties ($5.0 million), Special Mining Tax
($3.4 million) and withholding tax on dividends paid from Peru to
the UK ($3.3 million). Excluding these effects, the effective tax rate
was 29% (2018: 27%).
Exceptional items
Exceptional items in 2019 totalled an $18.6 million loss after tax
(2018: $11.5 million loss after tax). Exceptional items included the
payment of termination benefits due to the restructuring process
generated by the temporary suspension of operations at the
Arcata mine unit ($12.2 million) and the impairment of the
Pallancata mine unit of $14.7 million. 2018 exceptional items
included the payment of the premium to redeem early the Senior
Notes and the reversal of capitalised Senior Notes issuance costs.
The tax effect of these exceptional items was a $7.9 million tax
gain (2018: $4.8 million tax gain). The total effective tax rate was
46% (2018: 83%).
12 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.
38
Hochschild Mining PLC / Annual Report & Accounts 2019 Cash flow and balance sheet review
Cash flow
Net debt
$000
Net cash generated from
operating activities
Year ended
31 Dec 2019
Year ended
31 Dec 2018 % change
283,259
185,942
97,317
Net cash used in investing activities
(203,613)
(129,981)
(73,632)
$000 unless otherwise indicated
Cash and cash equivalents
Long-term borrowings
Short-term borrowings 13
Cash flows generated from/
(used in) financing activities
Net increase/(decrease) in cash and
cash equivalents during the period
9,211
(228,300) 237,511
Net debt
88,857
(172,339) 261,196
As at
31 December
2019
As at
31 December
2018
166,357
(199,308)
(234)
(33,185)
79,704
(50,000)
(107,067)
(77,363)
The Group’s reported net debt position was $33.2 million as at
31 December 2019 (31 December 2018: $77.4 million). In December
2019, the Company repaid $150 million of short-term loans using
a new $200 million medium-term loan with Scotiabank and BBVA
($100 million each). This refinancing helped increase the cash and
cash equivalents balance to $166.4 million, which also benefited
from strong cash flow generation.
Capital expenditure14
$000
Arcata
Pallancata
San Jose
Inmaculada
Operations
BioLantanidos15
Other
Total
As at
31 December
2019
As at
31 December
2018
42
26,605
43,623
66,435
136,663
60,726
7,727
205,116
526
28,939
44,632
57,678
131,775
–
2,630
134,405
2019 capital expenditure of $205.1 million (2018: $134.4 million)
mainly comprised operational capex of $136.7 million
(2018: $131.8 million) with the increase versus 2018 resulting
from increased capex at Inmaculada due to a rise in mine
developments to access veins discovered in 2018 and the
acquisition of BioLantanidos.
Net cash generated from operating activities increased from
$185.9 million in 2018 to $283.3 million in 2019 mainly due to higher
Adjusted EBITDA of $343.3 million (2018: $268.0 million) and lower
interest expense of $5.0 million (2018: $28.8 million).
Net cash used in investing activities increased to $203.6 million in
2019 from $130.0 million in 2018 mainly due to the acquisition of
the BioLantanidos project and higher mine developments as well
as infill drilling at Inmaculada to access veins discovered in 2018.
Cash from financing activities increased to an inflow of $9.2 million
from an outflow of $228.3 million in 2018, primarily due the new
medium-term loan of $200.0 million, which was used to prepay
existing short-term loans of $150.0 million partially offset by
dividends paid. The 2018 outflow included mainly the repayment
of the Company’s Senior Notes ($294.8 million), the repayment of
bank loans and dividends paid.
Working capital
$000
Trade and other receivables
Inventories
Other financial assets
Income tax (payable)/receivable
Trade and other payables
Provisions
Working capital
As at
31 December
2019
As at
31 December
2018
73,618
62,600
–
(11,005)
(120,537)
(16,249)
(11,573)
78,736
58,035
47
17,462
(125,475)
(3,153)
25,652
The Group’s working capital position reduced from $25.7 million
to $(11.6) million in 2019. The key drivers were: higher income tax
payable $(28.5) million in line with 2019 profit; higher provisions
of $(13.1) million principally due to the increase of mine closure
estimates at Ares and Sipan; and lower trade receivables of
$(5.1) million. These effects were partially offset by higher
inventories of $4.6 million which were mainly precipitates and
spare parts for the new backfill plant in Argentina; and lower
trade payables of $4.9 million mainly explained by the suspension
of Arcata.
13 Includes pre-shipment loans and short-term interest payables.
14 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.
15 Capital expenditure from BioLantanidos includes the fair value of the asset plus additions since the acquisition.
39
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SUSTAINABILITY REPORT
OUR PURPOSE
REFLECTS OUR
COMMITMENT TO
RESPONSIBILITY
Hochschild is defined by its
approach to responsible and
innovative mining committed
to a better world.
40%
REDUCTION IN ACCIDENT
FREQUENCY INDEX (OR LTIFR)
(2019: 1.05 – 2018: 1.74)
$9.3m
AMOUNT SPENT OR DONATED TO
BENEFIT LOCAL COMMUNITIES
(2018: $8.3m)
OUR AREAS
OF FOCUS
Safety
Health &
Hygiene
Our
people
Our
communities
Environmental
management
40
PAGE 42
PAGE 44
PAGE 45
PAGE 47
PAGE 48
Hochschild Mining PLC / Annual Report & Accounts 2019 DEAR SHAREHOLDER
I am pleased to report on the
Company’s activities during 2019
which acknowledge our social licence to
operate and demonstrate the collective
sense of responsibility which is a key
tenet of Hochschild’s corporate purpose.
Safety
It is with immense pride that we are able
to report on the impact of the Safety
Culture Transformation Plan which was
launched in 2017. As discussed later in
this report, the range of training
programmes and initiatives during 2019
has brought about impressive year-on-
year reductions in the accident frequency
index and accident severity rates of 40%
and 94% respectively. These results are
testament to the efforts of all involved,
and I can assure you of our commitment
to continue on this path as we proceed to
roll out the action plan for the current year,
known as “Safety 2.0”.
Our communities
Our Community Relations team has
had an equally active year. As part of our
strategy of supporting projects targeting
education, health and socio-economic
development, we launched a new
scholarship programme for young people
living close to the Inmaculada mine and our
Travelling Doctor programme has extended
its reach following our collaboration with
local authorities.
Our environment
From an environmental perspective, the
Group performed well as reflected by the
ECO Score for the year which is explained
further on page 49. This initiative, which has
undeniably raised the level of awareness
across the organisation, has also been the
subject of several external commendations
including the Mines & Money 2019
Innovation in Sustainability award.
Our people
Hochschild would not be able to achieve
its current successes without its people
and, in this report, we have set out how
the Group’s Human Resources (“HR”)
team have contributed to strengthening
employee relations. I would like to
highlight two aspects in particular. Firstly,
the Attributes’ Weeks where employees
across the Group participated in a
week-long series of events that were
thematically designed around a key value
which underlines our corporate purpose.
Secondly, the Gender Diversity project
which was launched with the aim of
redressing the imbalance in the make-up
of our workforce, which is regrettably
representative of the sector.
This year, in addition to actively reviewing
the opportunities we have to improving
our energy efficiency across the
organisation, we are also looking to
enhance our sustainability reporting and
will be engaging with our stakeholders in
this regard.
I hope you will find this report informative.
If you should have any questions or
comments, please do not hesitate to
contact me at sustainability@hocplc.com
Graham Birch
Chairman
Sustainability Committee
Governance of sustainability
The Board has ultimate responsibility for
establishing Group policies relating to
sustainability and the Sustainability
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
– encouraging sustainability by
respecting the communities of the
localities in which we operate.
We look to achieve all of the above in
compliance with applicable laws, regulations
and the Company’s own standards.
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
Sustainability Committee has been
established as a formal committee of the
Board with delegated responsibility for
various issues, focusing on compliance
and ensuring that appropriate systems
and practices are in place Group-wide
to ensure the effective management of
sustainability-related risks.
As Chairman of the Committee, Graham
Birch has Board level responsibility for
sustainability issues to whom the Vice
Presidents of Operations, Legal & Corporate
Affairs, and Human Resources report.
The Sustainability Committee’s work in 2019
During the year, the Sustainability
Committee:
– approved the 2018 Sustainability Report
for inclusion in the 2018 Annual Report;
– monitored the execution of the yearly
plan in each of the five key areas of focus
(Health, Safety, Community Relations,
Environmental Management and
Employee Engagement);
– received a detailed presentation on the
Group’s Tailing Storage Facilities (“TSFs”)
and approved the implementation of
enhanced systems of monitoring and
a programme of third-party reviews;
– undertook periodic reviews of the
Group’s exposure to sustainability risks
and the controls and action plan to
mitigate them; and
– considered and recommended to the
Board, for adoption, revised Terms of
Reference which formalised the
Committee’s role in overseeing methods
of engagement with the Group’s
workforce to understand their views and
to communicate them to the Board.
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 2020 are
available on the Company’s website.
41
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE High Potential Events Review
Committee
Since 2017, the Company has
monitored the occurrence of “High
Potential Events” (“HPEs”). HPEs are
events which could have caused
serious injury and encompass
near misses as well as lost time
events. Each time an HPE occurs,
the CEO convenes a meeting of the
Vice Presidents of Operations and
Human Resources, the country
managers as well as site managers
and the corporate safety team. The
site leader where the HPE occurred
presents his investigation and the
Committee feeds into the root
cause analysis and proposed action
plan. The lessons learnt are then
conveyed by site managers at other
operations to their respective units.
SUSTAINABILITY REPORT CONTINUED
SAFETY
The safety of our people is
our number one priority.
2019 HIGHLIGHTS
Continued implementation of the
Safety Culture Transformation Plan
(See opposite for further details)
All safety management systems at
operating units achieved Level 6
re-certification by Det Norske
Veritas GL (“DNV”). As a sign of the
Group’s commitment to achieve
Level 7, eight new safety
sub-processes have been certified
The Hochschild approach to safety
Given the inherently high risk profile of
mining, safety is always our highest priority.
Ensuring the safety of our employees is a
key measure of our corporate success.
Our achievements in 2019
– 40% reduction in LTIFR and rate of High
Potential Events vs 2018 (see right
for an explanation of this internal
measurement)
– 94% reduction in the Accident Severity
Index vs 2018
– Technological enhancements to
personnel transportation to regulate
speed and detect driver fatigue
(see opposite)
Behaviour Based Safety Checklists
As reported in the 2018 Annual Report,
the Group’s Behaviour Based Safety
Checklists were incorporated into a
mobile app, known as “the OTO app”.
The app, which has been designed
in-house, enables users to log safety-
related observations (an “OTO”) during
a 10-15 minute audit. By submitting
an OTO, users earn points to transfer
between levels of the programme
and prizes are awarded based on the
nature and number of OTOs submitted.
42
Hochschild Mining PLC / Annual Report & Accounts 2019 THE SAFETY CULTURE TRANSFORMATION PLAN
The Group’s safety performance in 2019 was industry-leading and is the result of the collective efforts of not only our safety team
but also those tasked with ensuring that we embed a safety-first culture at Hochschild. This has been achieved primarily through
the Safety Culture Transformation Plan – an initiative that was launched in 2017 and comprises the following aspects:
LEADERSHIP
Leadership Programme
Coaching programme for site
managers delivered through
third-party specialist providers.
In addition, internal sessions
were delivered by Hochschild’s
in-house safety professionals
and senior management.
TRAINING
Mines’ Annual Training Programme
Redesign of induction programme
(both general and individual) and
the continuation of a two-year
training course for rescue brigades.
COMMUNICATION
Safety Plan communications support
A campaign was run during the
year promoting the new Company
purpose and corporate values.
Safety achievements and risks
were communicated to all
individuals through a corporate
communication plan.
SYSTEM
Risk Management System (RMS)
Internal audits carried out across
all mine sites, with results of over
75% indicating a strong level of
safety awareness. In addition, the
implementation of eight new
safety sub-processes to progress
to Level 7 certification for RMS.
Personnel transportation enhancements
During the year, management identified the heightened risk of accidents
during the transportation of personnel to and from the mine site particularly
given the distances between the mines and the nearest towns as well as the
road conditions. Digital displays have been installed on dashboards to alert the
driver to the speed limit at any given point and sensors installed to detect driver
fatigue which, if triggered, will alert the driver as well as a central control centre.
43
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SUSTAINABILITY REPORT CONTINUED
HEALTH &
HYGIENE
The work of Health & Hygiene
is to provide an integrated
approach to employee welfare.
2019 HIGHLIGHTS
Supporting the delivery of the Safety
Culture Transformation Plan
Full implementation of a new data
platform encompassing health,
hygiene and mental wellbeing
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
– Developing leaders dedicated to
prioritising the wellbeing of their
teams and maintaining high levels
of occupational health and
hygiene standards
Our achievements in 2019
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
– the team actively participated in the
delivery of the Safety Culture
Transformation Plan
– implementation of the HOCSHP software
in Peru and Argentina which manages
data relating to preventative and
recovery activities in health and
psychology, as well as monitors data
on other aspects of industrial hygiene
Supporting our families
The Health & Hygiene team held events in
Abancay aimed at providing mineworkers’
families with support and advice.
The sessions gave families the opportunity
to share their experiences. Members of the
Health & Hygiene team who are trained in
medicine and psychology gave
presentations with advice on dealing with
the pressures of shift-working on family life.
44
Hochschild Mining PLC / Annual Report & Accounts 2019 OUR
PEOPLE
Hochschild Mining’s success
relies on its people.
2019 HIGHLIGHTS
Launch of corporate purpose and
related events
Gender Diversity taskforce and
strategy established (see overleaf
for further details)
58%
OF OUR TOTAL WORKFORCE IS
REPRESENTED BY A TRADE UNION
OR SIMILAR BODY
(2018: 58%)
The Hochschild approach to our people
Training and development
The quality of our people is key to the
success of the business. Thus, the ability for
the Group to attract and retain high quality
personnel is imperative. The Human
Resources team seeks to achieve this goal
by actively monitoring the market to identify
the best talent and providing competitive
remuneration, a positive working
environment and continuous opportunities
for learning and professional development.
New corporate purpose
Amongst the primary responsibilities
of the Human Resources team is the
communication of the Group’s corporate
purpose which was launched in early 2019:
“Responsible and innovative mining
committed to a better world”. In order to
achieve the purpose, the following cultural
attributes were identified: “We innovate”,
“We inspire and promote talent”, “We are
always responsible” and “We always look
for efficiencies”. The objective of the HR
team is to ensure that employees feel part
of the cultural transformation.
Labour relations and human rights
Our Code of Conduct 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 58% of our total workforce is
represented by a trade union or similar
body. As a signatory of the Global
Compact of the United Nations, Hochschild
Mining respects the human rights of all of
the Company’s stakeholders including
those of our employees, our contractors
and suppliers, as well as the members of
our local communities.
Activities in 2019
The people-focused initiatives during the
year included the following:
Putting Safety First
As part of the Safety Culture Transformation
Plan, a multi-year leadership programme
focusing on promoting our safety culture
was launched in 2018. This programme
encourages participation across all levels at
the mining units and administrative offices
and has been successfully carried out over
its first two years.
Keeping our talent
The People Review process was
undertaken which maps talent within
the organisation and identifies key
positions and succession plans. Strategic
development plans have been designed
and implemented for those in critical
roles across the business.
45
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SUSTAINABILITY REPORT CONTINUED
OUR
PEOPLE
CONTINUED
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. This year the
Company decided to participate in the
“Great Place to Work” survey. The results
will be presented in Q1 2020 and will form
the base of an action plan to implement
improvements in the mining units and
administrative offices.
Attributes’ Weeks
In 2019, a series of week-long events
was held to reinforce each of the attributes
that emanate from the corporate purpose.
The events, which were thematically
designed around Innovation, the Inspiration
and Promotion of Talent, and Responsibility,
comprised lectures by internal and external
speakers, volunteering sessions, workshops
and exhibitions.
Diversity and inclusion
In recognition of the Company’s
commitment to promoting a workforce
that is gender diverse, a taskforce was
established in 2019. As further detailed
above right, the taskforce has made
significant progress as it embarks on
increasing female representation in
the workforce from the current level.
Promoting a diverse pipeline of talent
The Group has taken active steps to
redress the imbalance that exists in
Hochschild’s workforce and which is,
regrettably, typical for the mining sector.
A Diversity taskforce was established
during the year comprising the CEO, the
Vice Presidents of Legal & Corporate
Affairs, Operations and Human
Resources and a designated Diversity
Champion. The taskforce oversees
policy matters such as strategies and
targets and is supported by working
groups at the Head Office in Lima and at
the Inmaculada and Pallancata mines.
In its inaugural year, the taskforce
was responsible for:
– a baseline study of Hochschild’s
workforce in Peru (with the same
planned for Argentina in the
current year);
– a review of Group policies such as
those relating to recruitment and the
Whistleblowing facility. In relation to
the latter, a campaign has been
designed to raise awareness of its use
to report any aspect of gender-based
harassment or discrimination;
– securing a collaboration with mining
contractors to establish a programme
to recruit at least 15 women to operate
trucks;
– holding of workshops on diversity as
part of the Group’s series of events
reinforcing Hochschild’s corporate
purpose; and
– investment in new accommodation
and the procurement of suitably sized
Protective Personal Equipment for
female employees.
People indicators
Gender diversity statistics1
Number of employees
Male
Female
Number of senior managers2
Male
Female
Number of Board members
Male
Female
2019
2018
2017
2016
3,024
218
3,894
245
3,849
235
3,859
222
37
1
7
1
37
1
7
1
36
1
7
1
35
1
8
1
1 As at 31 December.
2 Defined as those who qualify under the UK statutory definition of ‘senior manager’.
46
Hochschild Mining PLC / Annual Report & Accounts 2019 WORKING WITH
OUR COMMUNITIES
Our relations with host
communities form the
foundation of our sustainability
and our commitment to
facilitate local development.
$9.3m
AMOUNT SPENT OR DONATED TO
BENEFIT LOCAL COMMUNITIES
(2018: $8.3m)
2019 HIGHLIGHTS
Successful implementation
of educational initiatives
Launch of scholarship fund
for Inmaculada communities
Re-organisation of the Group’s social
information with use of community
relationship-tracking software
The Hochschild approach to
working with our communities
The Group recognises its responsibilities to
host communities and invests significant
resources to understand their needs and
expectations. The Hochschild way is to
promote close collaboration with respect
for customs and social dynamics which
enables the Community Relations team
to develop a strategy which implements
social investment programmes focusing
in the areas of education, health and
socio-economic development.
Our achievements in 2019
We have continued to provide a range of
social programmes aligned with the needs
of our communities. We have targeted
enhancements in delivery and focused on
communicating effectively with key
stakeholders whether directly with
communities or the local authorities.
Health
Medico de Cabecera
(the Travelling Doctor programme)
Through the Travelling Doctor programme,
the Group formed an alliance with the
Health Ministry to extend the reach of
medical services to the remote communities
living close to our operations. In addition to
the provision of general medical care
through the mobile clinic, the scheme has
facilitated home visits as well as campaigns
to promote good health and illness
prevention. In 2019, the programme
delivered over 9,000 consultations.
Socio-economic development
Business networks
This initiative, which is focused on bringing
economic development within our local
spheres of influence, brings technical
knowledge and technical assistance for
local producers and breeders. For the first
time, the programme also established local
community banks which supported
producers to save money and leverage
new business opportunities through the
provision of loans. This year we supported
around 250 businesses with a diversified
range of produce. In 2019, the programme
generated revenue of over 480,000 soles
(approximately US$145,000).
Argentina
In conjunction with its joint venture
partner, the Group supported a number
of initiatives at the San Jose operation
in Argentina. These have included
scholarship opportunities for 50 students
from the local town of Perito Moreno
and support for local cultural events.
The key developments are
as follows:
Education
Elementary education
This year we reinforced our approach to
the use of technology in schooling younger
children. Through the provision of laptop
computers and educational software,
we were able to enhance the teaching of
numeracy and literacy. From a teaching
perspective, the Group supported
teachers on the use of IT in planning
and delivering classes.
In 2019, we were able to support over
300 students across 12 schools in remote
areas within our sphere of influence.
Secondary education
Hochschild focused its support for high
school students on the development and
strengthening of soft skills for adult life and
entrepreneurship. Over the course of 2019,
we have collaborated with close to 600
secondary students and almost 100
teachers across seven educational
establishments.
Digital centres
2019 saw the second intake of students on
technical courses delivered by our digital
centres in the areas of IT, educational
computing and audiovisual & technical
support. Over 100 students were enrolled
on the one-year programme with teaching
provided by staff from the well-established
college TECSUP. In addition to facilitating
these courses, the digital centres were also
used by local communities for general use.
Scholarship programme
In collaboration with the Julian Baring
Scholarship Fund, the Group launched a
scholarship programme for the
communities close to the Inmaculada
mine. The programme, which sought to
address the issue of gender inequality
in its selection of students, will see six
students pursue mining-related technical
courses at CETEMIN. The Group has
currently funded over 30 young people
on similarly funded schemes.
47
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SUSTAINABILITY REPORT CONTINUED
MANAGING OUR
ENVIRONMENTAL
IMPACT
Hochschild is committed
to leading in environmental
performance and operating
and producing metals with the
least possible environmental
footprint.
2019 HIGHLIGHTS
Continued robust environmental
performance
External recognition of in-house
designed ECO Score
Responsible closure
In 2019, the Company incurred
additional cost by making a higher
provision for the liabilities associated
with the closure of two of the Group’s
former mines; Ares and Sipan. This was
prompted by an annual review of these
operations’ mine closure plans by a
third-party consultant. The additional
provision reflects improvements to, and
the operation of, the Tailings Storage
Facility water treatment plant at Ares
as well as the operating cost of the two
water treatment plants at Sipan for a
longer period than originally planned.
See page 38 of the Financial
Review for further details
The Hochschild approach to
environmental management
Hochschild Mining is committed to being a
leading global mining company in
environmental performance, sourcing
minerals with the smallest environmental
footprint possible. 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 and the Company operates a
policy of progressively closing historic mine
components (see inset box left).
Environmental policy
In order to achieve the Company’s
environmental mission, the Environmental
team is committed to:
– ensuring compliance with all legal and
environmental regulations in place;
– setting an annual environmental
performance goal for all Company
employees;
– requiring an efficient use of resources,
aiming for savings by implementing
the best industrial and mining
practices, modern technologies and
solid procedures for environmental
management and control;
– requiring all Company employees to
adopt an environmentally conscious
culture;
– providing all Company employees with
the necessary resources and training
to take environmentally appropriate
decisions;
– promoting innovative and forward
thinking in the development and execution
of new concepts and designs related to
environmental management; and
– requiring those who perform activities
for the Company to abide by the
Corporate Environmental Policy.
Our achievements in 2019
– A robust environmental performance
The ratio of observations per inspection
carried out by OEFA has fallen by 11%
Complied with 100% of treated water
discharge permissible limits
Drinking water consumption and
domestic waste generation per person
were reduced by 8% year on year
Recycled 60% more industrial waste
than in 2018
Continued focus on maintaining
awareness of environmentally
responsible culture with over 500
environmental events organised
– External recognition of the ECO Score
Industry recognition, most notably the
Mines & Money 2019 Innovation in
Sustainability award
Finalist for the “Most Innovative Company
in Peru” award in the environmental
management category from the Peruvian
University of Applied Sciences
ECO Score selected for presentation in
the International Association for Impact
Assessment Congress in Spain
– Continued support of operational and
exploration activities
Secured critical environmental permits
Completed environmental infrastructure
improvement action plan
Successful interaction with
environmental regulators
48
Hochschild Mining PLC / Annual Report & Accounts 2019 ECO Score
Hochschild Mining has endeavoured to
comply with the highest environmental
and social standards in the mining
industry.
Ever since 2015, with the collective
efforts of our people, we have developed
and implemented an innovative, original
and efficient tool which allows us to
quantify and distil in a single number our
environmental performance. In this way
we have succeed in expressing
intangible environmental management
in a way that is universally understood.
Minimising our footprint
The ECO Score objective was officially
adopted in 2017, and has been used with
other Corporate Performance objectives
to determine the level of employee
bonuses.
The ECO Score is calculated by
monitoring performance at two levels: at
each mining operation, and overall for the
entire Group using a range of KPIs which
reflect, among other things, compliance
with discharge limits and zero-tolerance
to environmental incidents, regulatory
findings, and sound environmental
management (relating to water
consumption and waste generation).
As part of its commitment to minimise its
environmental footprint, the Company
continually seeks ways to improve its
consumption of resources, whether
through reducing water usage or
increasing the amount of waste that is
recycled. This approach also
incorporates initiatives to improve our
energy efficiency at our operations
which, during 2019, was achieved
through a number of ways including:
– the replacement of conventional
diesel-powered equipment such
as scoops, jumbos and drills with
battery-operated models; and
– the installation of capacitor banks
at our electrical substations at
Inmaculada and Pallancata
Water usage
Regarding our water footprint, since
the implementation of the ECO Score,
consumption of potable water
(measured on a per person basis) has
been reduced by almost 50%.
Water consumption
(litres/person/day)
408.35
293.71
214.08
224.78
206.01
2015
2016
2017
2018
2019
Industrial Waste
Likewise, we have reduced the amount
of domestic waste generated and
recycled 60% more industrial waste
than in 2018.
Generation of waste
(Kg/person/day)
1.94
1.33
1.13
1.13
1.04
2019 ECO Score Performance
The Company’s overall ECO Score in
2019 was 4.82 out of 6, which exceeded
the most stretching target set for the
year of 4.5. Since 2015, the ECO Score
has improved by 45% which reflects a
significantly higher level of environmental
efficiency.
Find out more at www.hochschildmining.
com/en/responsibility/environment
The Company will be instigating a review
in the current year to assess the energy
efficiency of our operations and to
identify the areas of biggest opportunity
to reduce our overall energy footprint.
In 2019, we saved
OF DRINKING WATER
290,468 m3
=470 million
BOTTLES OF WATER OF 625ML
In 2019, we achieved a reduction of
46%
IN THE GENERATION OF SOLID WASTE
In 2019, we reduced
domestic waste by more than
1.2 million Kg
GHG footprint
2015
2016
2017
2018
2019
Greenhouse gas emissions data1 (tonnes of CO2e)
Emissions from combustion of fuel and operation of facilities (tCO2e)
Emissions from purchased electricity (tCO2e)
20192
2018 2,3
2017 2
2016 2
2015
39,341 38,939 47,265 46,033 46,790
82,869 80,056 94,249 91,893 78,163
Emissions intensity, per thousand ounces of total silver equivalent produced (CO2e/k oz)3
3.50
3.39
4.05
4.24
5.53
Method used based on ISO 14064-1 Standard and GHG Protocol Corporate Accounting and Reporting Standard using IPCC and Peruvian emission factors.
1
2 Includes data for the whole year for Ares, Arcata, Selene, Pallancata, Inmaculada, San Jose and office locations.
3 Restated following a review of underlying data.
4 Total production includes 100% of all production, including that attributable to the joint venture partner at San Jose. Emissions include combustion of fuel
and operation of facilities (Scope 1), purchased electricity (Scope 2) and other indirect sources (Scope 3).
For our 2020 environmental objectives, please visit www.hochschildmining.com/responsibility
49
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE RISK MANAGEMENT & VIABILITY
RISK
MANAGEMENT
Hochschild Mining has implemented a framework of
risk management and internal controls that ensures
that key risks are identified and, where they cannot
be eradicated, are mitigated to within tolerable levels.
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, Country
General Managers and the head of the
Internal Audit function. A ‘live’ risk matrix is
reviewed which maps the significant risks
faced by the business as well as those
considered to be emerging risks. The matrix
IDENTIFY
MEASURE
MANAGE
MONITOR
REPORT
1
2 3 4 5
is updated at each Risk Committee
meeting, and the most significant current
and emerging risks, as well as potential
actions to mitigate them, are reported to
the Group’s Audit Committee, which has
oversight of risk management on behalf
of the Board. In addition, during 2019, the
Board agreed that the Sustainability
Committee would monitor actions plans
to mitigate sustainability risks.
2019 Risks
The key business risks affecting the Group
set out in this report remain unchanged
compared to those disclosed in the 2018
Risk Management report.
Reasons for the year-on-year change in
the profile of a specific risk can be found
in the commentary section of the relevant
risk, which also provides an outlook on the
risk for the current financial year.
RISK HEAT MAP
To assist the reader in assessing the
relative significance of each risk discussed
in this section, the heat map (see right),
indicates the Board’s assessment of
the likelihood of the unmitigated risk
occurring as well as the extent of the
impact on the Group.
50
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Commodity price
Commercial counterparty
Operational performance
Business interruption
Information security
and cybersecurity
Exploration and resources
replacement
Personnel: recruitment
and retention
Personnel: labour relations
Political, legal and regulatory
Health and safety
Environmental
Community relations
h
g
H
i
t
c
a
p
m
I
1
6
9
11
12
10
4
3
2
7
8
5
w
o
L
Low
Probability
High
Hochschild Mining PLC / Annual Report & Accounts 2019 Change in risk profile vs 2018
Unchanged
Higher
Lower
FINANCIAL RISKS
Risk
Impact
Mitigation
Commentary
1.
Commodity
price
Adverse movements in
precious metal prices
could materially impact
the Group in various ways
beyond a reduction in
the financial results of
operations. These include
impacts on the feasibility
of projects, the economics
of mineral resources,
heightened personnel
retention and sustainability
related risks.
– Constant focus on maintaining
a low all-in sustaining cost of
production and an efficient level
of administrative expense.
– Policy to maintain low levels
of financial leverage to ensure
flexibility through price cycles.
– 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 the Market
Review on pages
10 to 11 for further
details on how
commodity prices
performed in 2019
The Group’s principal strategy to mitigate against commodity price
volatility is focused on conserving capital and optimising cash flow.
In 2019 this was achieved by:
– Debt refinancing;
– Controlling operating and administrative costs;
– Optimising sustaining capital expenditure; and
– Maintaining low working capital.
As previously reported, in December 2019 the Group refinanced its
short-term debt with a $200 million medium-term loan at a comparable
rate which, in addition to providing a two-year grace period, has
supplemented the Group’s cash resources with a further $50 million.
In addition, as reported in the Finance Review, 2019 working capital and
production costs have been kept under control.
As reported earlier in this report, the Inmaculada mine had another
record year in 2019 in terms of production and, as the lowest cost
operation in the Group’s portfolio, it has been key in reducing overall
average production costs.
Even though currently no part of 2020 production has been hedged, the
Group’s flexible policy enables the Board to approve hedging contracts
to protect cash flow as and when appropriate.
Risk
Impact
Mitigation
Commentary
2.
Commercial
counterparty
Insolvency of a customer or
other business counterparty
(bank, insurance company,
contractor, etc) could result
in the Group’s inability to
collect accounts receivable
or to access funds or to
receive services which
could adversely impact
the Group’s profitability.
– Periodic assessment of
customers and business
counterparties.
– Risk mitigation practices
seeking to diversify the Group’s
customer base and/or to limit
the size of shipments.
– Ongoing assessment of
methods to mitigate collection
risk.
Prompted by a long-standing customer entering into bankruptcy
protection in 2018, the Group strengthened its risk assessment
procedures by taking the following steps:
– Enhanced counterparty analysis: the enhancement of initial financial
and business quality checks of both new customers and business
counterpartie, and more robust and more frequent evaluations of
existing customers. These evaluations incorporated analysis of
corporate governance, balance sheet strength and other aspects of
credit quality. As a result, a revision of terms of sale to mitigate the
Group’s exposure has been implemented, emphasising prepayments
before a sale is completed.
– Review of financial counterparties: the Group has implemented
policies to identifying suitable financial counterparties to support the
Group’s treasury and insurance needs.
On an ongoing basis, the Group has adopted a number of practices
such as the placing of limits on cash balances invested with financial
institutions, monitoring of advanced payments from customers and
identifying alternative suppliers for critical supplies and spare parts.
As a 2019 Audit Committee objective, see page 69 for more information
51
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
RISK MANAGEMENT & VIABILITY CONTINUED
OPERATIONAL RISKS
Risk
Impact
Mitigation
Commentary
3.
Operational
performance
Failure to meet production
targets and manage the
cost base could adversely
impact the Group’s
profitability. Failure in
handling and storing
tailings could result in
environmental liabilities
including fines, corrective
measures and stoppage.
– Close monitoring of operational
performance, costs and capital
expenditure as well as the
overall profitability at all stages
of the mining value chain.
– Monitoring the adequacy
and safety of key mining
components such as tailing
dams, waste rock deposits
and pipelines in close liaison
with relevant departments
ensuring that procurement,
construction and permitting
are undertaken appropriately.
– A specific tailings management
framework is in place, including
an independent third party
review of Tailings Storage
Facilities (TSFs)
In 2019 the Group exceeded its production target by 1.7m attributable
silver equivalent ounces with record performances at Inmaculada and
San Jose.
2019 budgets across the Group continued to focus on maintaining
controlled levels of costs, capital expenditure and expenses. As reported
in the Financial Review on page 37, the all-in sustaining cost from
operations was kept within the guidance for the year, at $11.9 per silver
equivalent ounce.
As reported last year, the decision was taken to place the high cost
Arcata mine on temporary care and maintenance. Measures have been
taken to manage associated costs efficiently, close certain mining
components, continue to explore for new resources and maintain
community relations, all in order to secure the option of re-starting
operations in the future.
The Group published information on its website regarding its TSFs,
including their construction method and risk profile. It also continues to
commission independent third party reviews of all such facilities and
monitors on an ongoing basis their stability, with particular emphasis on
older TSFs such as the Ares facility which is in the process of being
closed.
Risk
Impact
Mitigation
Commentary
4.
Business
interruption
Assets used in the Group’s
operations may cease to
function or the supply
of electricity may be
interrupted (e.g. as a result
of technical malfunction
or earthquake damage)
thereby causing
production 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 assist
management’s efforts to
understand and mitigate
operational risks.
– Negotiation of long-term power
supply contracts and the
procurement of contingent
generators.
In addition to acquiring insurance policies covering machinery
breakdown, mitigating actions during the year include the following:
– A site visit by insurance brokers and re-insurers’ engineers to assess
risk exposure;
– A thorough review of critical supplies and inventory was performed
with data uploaded onto the Maintenance Module of SAP HANA;
– Acquisition of back-up equipment to ensure power supply in Peru; and
– Design of a Business Continuity Plan (“BCP”) documenting the
procedures to be implemented on the occurrence of certain disruptive
events. Training and implementation, which was originally scheduled
for Q4 2019, will take place in Q1 2020.
Risk
Impact
Mitigation
Commentary
5.
Information
security and
cybersecurity
Failure of any of the
Group’s business critical
information systems as
a result of unauthorised
access by third parties
may affect the Group’s
ability to operate.
– Compliance with ISO 27001, an
internationally recognised
certification to evaluate
information security
management systems.
– Dedicated team within the IT
department focused on
preventing cyber-attacks.
– Audits performed by the internal
audit department and third
parties to test systems and issue
recommendations.
As previously reported, a review of the Group’s exposure to cyber risks
was commissioned by a major audit firm in 2018 with the principal
recommendations implemented, including testing which took place in
two phases during the year to assure the robustness of systems security.
In addition:
– Industrial networks were incorporated into the Group’s IS Management
System (“ISMS”) with associated security enhancements implemented;
– ISMS was successfully recertified as compliant with ISO 27001; and
– the use of SAP HANA as the Group’s management information system
incorporates best in class features to mitigate data loss risk.
Risk
Impact
Mitigation
Commentary
– Implementing and maintaining
an annual exploration drilling
plan.
The key highlight of the 2019 brownfield exploration programme
was the 46 million silver equivalent ounces of additional resources at
Inmaculada close to the Angela vein. For further details, refer to page 28.
6.
Exploration and
reserve and
resource
replacement
The Group’s future
operating margins and
profitability depend upon
its ability to find mineral
resources and to replenish
reserves.
– Ongoing evaluation of
acquisition and joint venture
opportunities to acquire
additional ounces.
– Establishment of a Permitting
Committee
Land easements have been secured and other permits have been
or are in the process of being secured to facilitate the 2020-2021
brownfield exploration programme. The Group has an internal
Permitting Committee led by two Vice Presidents to co-ordinate efforts
with a view to streamlining the permitting process. Senior executives
actively participate in industry initiatives to simplify the permitting
process.
Greenfield exploration in 2019 was driven by a number of earn-in/joint
venture opportunities being secured. These provide the Group with a
balanced portfolio of advanced and early-stage opportunities in stable
jurisdictions in the Americas. Further details are provided on pages 15
and 19.
The Group has engaged P&E Consultants to undertake the annual audit
of mineral reserve and resource estimates.
See page 161 for further details.
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.
52
Hochschild Mining PLC / Annual Report & Accounts 2019 OPERATIONAL RISKS CONTINUED
Risk
Impact
Mitigation
Commentary
7.
Personnel:
recruitment
and retention
Inability to attract or
retain 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 undertaken a number of 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. In addition, a three-year Leadership
programme continues to be implemented at all operations. The Group
has also maintained the training programme for supervisors and hourly
workers, and actively works to enhance the Group’s employee value
proposition. These include the launching of initiatives related to causes
that are valued by employees; providing them with the opportunity to
contribute to the relaunched purpose of the Company which includes
innovation, community relations and environmental performance.
Retention plans in the form of the Company’s Long-Term Incentive Plan
and Restricted Share Plan were also in place for key personnel.
Risk
Impact
Mitigation
Commentary
8.
Personnel:
labour relations
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.
– Monthly meetings with
mineworkers and unions to
ensure a complete understanding
of expectations and to keep all
parties updated on the Group’s
financial performance.
For the first time since 2012, the Group’s Peruvian operation generated
sufficient taxable income to give rise to an entitlement to statutory profit
sharing for Peruvian mineworkers.
As part of the salary increases agreed with the Peruvian labour unions,
the Company has approved an additional bonus plan incorporating
safety and productivity goals.
As reported last year, the decision was taken to place Arcata on care
and maintenance. Where possible, workers were redeployed, and the
redundancy process was completed in collaboration with the relevant
unions and without disruption to the Group’s other operations.
MACRO-ECONOMIC RISKS
Risk
Impact
Mitigation
Commentary
9.
Political, legal
and regulatory
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.
– Local specialist personnel
continually monitor and react,
as necessary, to policy changes.
– Participation in local industry
organisations.
Peru went through a constitutional crisis which led to President Vizcarra
dissolving Congress and calling for new congressional elections in
January 2020. This situation led to increased political risk and
reductions in public and private investment with lower than expected
economic growth in 2019.
Mining continues to be a highly regulated industry where multiple permits
are required leading to increased delays and costs. Moreover, the prior
consultation process for indigenous communities has caused substantial
delays in the permitting process for exploration and operational
activities. In addition, in October 2019, President Vizcarra announced that
he would be introducing legislation to modify the mining legal framework.
A government-led commission has been tasked with studying potential
reforms. This initiative has increased the legal and regulatory risk for the
industry as the outcome is uncertain.
In terms of social conflicts, protests relating to the Las Bambas and Tia
Maria projects have increased social demands and expectations, and
have led to wider social unrest. Governmental authorities remain
sensitive to conflicts between communities and mining companies and
typically take a cautious approach by prioritising dialogue between
parties.
Congressional elections in January 2020 resulted in the election of nine
different political parties, with no single party having a majority. Given
this fragmented nature, it is unlikely that any major reforms may be
approved. Left wing and radical anti-establishment parties have
increased their representations in the new Congress. Some of those
radical parties obtained a majority of the vote in the regions where our
mines are located, increasing the risk of populism and anti-mining
sentiment in these regions.
In Argentina, 2019 was marked by the election of President Fernandez
from the Peronist party. While the new President has publicly stated that
he will promote the mining industry, it is still very early in the new
Administration to fully understand the impact on the overall investment
climate in Argentina and particularly on the extractive industry sector. It
is expected, however, that in order to support the fragile Argentinian
economy, new taxes may be under consideration by the Government.
53
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE RISK MANAGEMENT & VIABILITY CONTINUED
SUSTAINABILITY RISKS
Risk
Impact
Mitigation
Commentary
10.
Health and
safety
Group employees working
in the mines may be
exposed to health and
severe safety risks.
– Health & Safety operational
policies and procedures reflect
the Group’s zero tolerance
approach to accidents.
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.
– 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.
– Systematic 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.
2019 was a record breaking year in terms of safety performance with
the Company meeting its ongoing objective of Zero Fatalities and key
indicators demonstrating year-on-year reductions of 40% and 94%
in accident frequency and accident severity respectively.
Management continued the implementation of the Safety Culture
Transformation Plan to reinforce the Group’s commitment to safety.
The Plan comprises the following pillars:
– Leadership, with mine management enhancing safety awareness through
support from specialist consultants and internally run lectures
– Communications, focusing on initiatives to motivate and incentivise
safe working practices
– Training, covering induction of new personnel and improvements in
operational practices throughout the mining and exploration process
– Technical, with re-certification of the Group’s risk information
management systems to DNV´s Level 6. Work has begun in order to
advance to Level 7 during 2020.
In addition, during the year:
– The recommendations made in a third-party audit of the Group’s safety
procedures were fully implemented;
– A High Potential Events Committee, led by the CEO, was established to
investigate such cases and issue reports on lessons learned; and
– The Group launched two technology based solutions to improve safety:
a mobile app to log safety-related observations at the operations and
the installation of software on the dashboard of personnel
transportation to regulate speed and detect driver fatigue.
For further details on the above, please refer to the safety section of the
Sustainability Report on pages 42 and 43.
Risk
Impact
Mitigation
Commentary
The Group may suffer from
reputational risk and 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.
11.
Environmental
a) In relation to
those risks arising
from the Group’s
environmental
performance/
infrastructure
b) In relation to
those risks arising
from the
increased
oversight by the
environmental
regulator
– The Group has a dedicated
team responsible for
environmental management.
– The Group has adopted a
number of policies and
procedures to manage its
environmental footprint.
– The Group has developed a tool
which allows it to measure and
manage environmental
performance.
– The Group continues to adopt
measures to minimise natural
resource use, with particular
emphasis on water
consumption in its operations.
– A specific tailings management
framework is in place for TSFs,
including independent third
party review.
With regards to the countries where the Group operates, environmental
permitting and agency oversight in Peru in particular remained rigorous
during the year.
In 2019, the Group performed highly in its ECO Score (with a score of
4.82 out of 6), which allows us to quantify and distil in a single number
our environmental performance and recognises the following aspects
of environmental management:
– Compliance with discharge regulatory limits;
– Minimising the number of environmental incidents;
– Minimising the number of findings from regulatory audits;
– Efficient water consumption; and
– Minimising domestic waste generation and maximising recycling
of industrial waste.
For further details, please refer to the environmental section of the
Sustainability Report on pages 48 and 49.
In addition, during the year, the Environmental team:
– Secured permits to support the Group’s exploration programme
and operational requirements;
– Held over 500 events, training and housekeeping campaigns across
all mine sites;
– Is in the process of completing the proposed environmental
infrastructure improvement action plan set in 2015. 22 water
treatment plants have been installed and overhauled with the
final two installations to be completed at Inmaculada;
– Continued with the progressive closure of certain discontinued
mining components; and
– Adopted measures to minimise water consumption, particularly at San
Jose, which is located in an area with very low annual rainfall and which
is experiencing a severe drought, which can lead to water shortages.
Risk
Impact
Mitigation
Commentary
12.
Community
relations
Communities living in the
areas surrounding the
Group’s operations may
oppose the activities carried
out 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 production,
increased costs and
decreased revenues,
longer lead times,
additional costs for
exploration and have an
adverse impact on the
Group’s ability to obtain
the relevant permits.
– The Group has a dedicated
team responsible for
Community Relations.
– Constructive engagement with
local communities based on
several years of positive relations.
– Community Relations strategy
focuses on promoting
education, health and nutrition,
and sustainable development.
– Policy to actively recruit workers
from local communities.
– Policy of hiring service providers
from local communities.
– The Group has also engaged
with local governments to
support public investment
initiatives through technical
assistance and direct investment.
In Peru, protests relating to the Las Bambas and Tia Maria projects have
increased social demands and expectations, and have led to wider social
unrest.
A number of actions were taken during the year to maximise the Group’s
ability to work with partner communities which included:
– Increased efforts to collect and process information and intelligence
regarding potential social conflicts;
– increased interaction with local governments and other key stakeholders;
– the re-launching of its social programmes based on the results of a
survey conducted among surrounding communities;
– the launch of a collaboration with the Julian Baring Scholarship Fund
to fund six scholars from the local communities close to Inmaculada to
pursue higher education in a number of mining-related disciplines.
Further details on the Group’s activities to mitigate sustainability risks can
be found in the Sustainability Report from page 41.
54
Hochschild Mining PLC / Annual Report & Accounts 2019 VIABILITY
In accordance with provision 31 of the UK
Corporate Governance 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
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:
– 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
– 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 a number of
scenarios which are within reasonable
contemplation taking into account the
principal risks to which the Group is
exposed (as set out in the earlier part
of this report).
The Group’s largest asset is the
Inmaculada mine, which currently
represents approximately 75% of the
Group’s attributable cash flows. The
application of the scenarios at the Group’s
other operations would have a significantly
reduced impact on the Group.
The modelling for the above scenarios
incorporates operational and financial
forecasts based on a life-of-mine plan.
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:
– the use of excess cash;
– the use of lines of credit with relationship
banks;
– claims under the Group’s insurance
policies;
– administrative cost reduction;
– rescheduling the execution of care
and maintenance and mine closure
programmes and their associated costs;
– working capital management; and
– asset sales.
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 the occurrence of more than
one of the above referenced scenarios
could threaten the solvency and liquidity
of the Company over the next three years,
the Directors have assessed the impact
of each scenario, using the Assumed
Prices and other factors considered to be
reasonable, and, accordingly, can confirm
that they have a reasonable expectation
that the Company will be able to continue
in operation and meet its obligations over
the next three years.
The Strategic Report, as set out from
page 2 to page 55, has been reviewed
and approved by the Board of Directors
and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
18 February 2020
The following scenarios were analysed
with respect to the Inmaculada mine:
Scenario 1: The occurrence of a material
safety accident
A severe fatal accident occurs which
results in a three-month stoppage of
operations. The impact analysis takes into
account other financial liabilities that may
result including the cost of remedial work
and regulatory fines.
Scenario 2: The occurrence of a material
environmental incident
A key part of Inmaculada’s plant
infrastructure is compromised which
results in a major spillage of contaminants.
The impact analysis assumes a suspension
of operations of one month and takes
into account the cost of repairs,
remediation and regulatory fines
and other associated expenses.
Scenario 3: A strike by mineworkers
A widespread mineworkers’ strike results in
a suspension of operations for one month.
The impact analysis takes into account the
cost of negotiating a settlement and other
associated expenses.
Scenario 4: A community-led protest
blocks a principal road to/from the mine
A protest by a local community obstructs
the access road to Inmaculada for two
months. The impact analysis takes into
account the cost of negotiating a
settlement and other associated expenses.
Scenario 5: The failure of the mill or other
critical plant component
A major failure of one of the mills at
Inmaculada’s plant causes a stoppage
of six months which requires civil works,
repairs and the acquisition of spare
equipment. The impact analysis takes
into account the cost of the works and
replacement costs as well as contributions
from relevant insurance policies.
In their assessment of the financial impact
of each of the above scenarios, the
Directors assumed conservative prices of
Au: $1,300/oz and Ag: $15/oz (the “Assumed
Prices”) and concluded that the Company
would be viable.
Should prices fall further than the
Assumed Prices, the Board would oversee
the implementation of contingency actions,
such as the elimination of discretionary
expenditure e.g. exploration 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.
55
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE BOARD OF DIRECTORS
1
4
7
2
5
8
3
6
9
Balance of independence
on the Board
Nationality of
Board members
Audit Committee
Nomination Committee
Remuneration Committee
Sustainability Committee
Chair
56
Peruvian 3 Argentinian 1 United Kingdom 2 United States 2 Independent Directors 5 Non-independent Directors 3Hochschild Mining PLC / Annual Report & Accounts 2019 1
Eduardo Hochschild
Chairman
2
Ignacio Bustamante
Chief Executive Officer
3
Dr Graham Birch
Independent
Non-Executive Director
Joined the Group in 1987 and appointed Chairman
in 2006.
Key skills and competencies
– Over 30 years’ involvement with the Group
– Extensive board experience of companies in
Latin America
– Proven ability to implement long-term strategies
in both the non-profit and corporate sectors
Current external appointments
Commercial: Cementos Pacasmayo S.A.A.
(Chairman), Non-Executive Director of Banco de
Crédito del Perú.
Non-profit: UTEC (Chairman), TECSUP,
Museum of Contemporary Art, Lima (Chairman),
Conferencia Episcopal Peruana.
Previous experience
Eduardo joined the Hochschild Group in 1987
as Safety Assistant at the Arcata unit, becoming
Head of the Hochschild Mining Group in 1998.
Eduardo is the Company’s majority shareholder
with a c.50% interest.
Appointed to the Board in 2010.
Key skills and competencies
– Significant operational experience
– Extensive knowledge of financial and
general management
– Strong leadership skills
Current external appointments
Commercial: Non-Executive Director of Profuturo
AFP and Scotiabank Peru S.A.A.
Previous experience
Ignacio previously served as Chief Operating Officer
and General Manager of the Group’s Peruvian
operations. Between 1998 and 2003, Ignacio served
as Chief Financial Officer of Cementos Pacasmayo
S.A.A., an affiliate of the Company, and as a Board
member from 2003 to 2007.
Appointed to the Board in July 2011. Designated
Non-Executive Director for workforce engagement.
Key skills and competencies
– Geology (PhD from the Royal School of Mines,
Imperial College, London)
– Extensive knowledge of the operational and
technical aspects of mining
– In-depth knowledge of the precious metals sector
Current external appointments
Commercial: Non-Executive Director of Sprott Inc
Non-profit: Lawes Agricultural Trust.
Previous experience
Graham started his 25-year career as a mining
equity analyst and then as a portfolio manager in
the mining and gold sectors. He was subsequently
appointed a Director of BlackRock Commodities
Investment Trust plc and acted as manager of
BlackRock’s World Mining Trust and Gold and
General Unit Trust.
4
Jorge Born Jr.
Independent
Non-Executive Director
5
Eileen Kamerick
Independent
Non-Executive Director
6
Michael Rawlinson
Senior Independent Director
Appointed to the Board in 2006.
Appointed to the Board in November 2016.
Key skills and competencies
– Extensive experience of managing international
businesses
– Deep understanding of sociopolitical issues in
Latin America
– Corporate finance
Current external appointments
Commercial: Consult & Co. (President and CEO),
Caldenes S.A., Dufry AG (Deputy Chairman).
Non-profit: Bunge and Born Charitable Foundation
(President).
Previous experience
Jorge served as a Director and Deputy Chairman of
international agribusiness, Bunge between 2001 and
2010. He previously served as Head of European
operations and Head of the UK operations.
Key skills and competencies
– Strong background in audit and financial reporting
– Extensive experience on listed company boards
– In-depth knowledge of corporate governance/
finance
Current external appointments
Commercial: Associated Banc-Corp. (Chair of the
Nominating and Governance Committee), Legg
Mason Closed End Mutual Funds (Chair of the Audit
Committee), AIG Funds and Anchor Series Trust
(Audit Committee Financial Expert).
Non-profit: Eckerd Connects.
Previous experience
Eileen spent the majority of her career in senior
financial roles and as CFO in the oil & gas and mining
sectors. She has an MBA in Finance and International
Business and is a Board Leadership Fellow of the US
National Association of Corporate Directors.
Appointed to the Board in 2016 and as Senior
Independent Director in January 2018.
Key skills and competencies
– Significant knowledge of the mining sector
– Corporate finance, strategy and M&A
– Listed company governance
Current external appointments
Commercial: Non-Executive Director of Capital
Drilling Limited and Adriatic Metals plc
Previous experience
Michael’s career of over 20 years culminated in his
role as Global Co-Head of Mining and Metals at
Barclays Investment Bank. Before that, he was one of
the co-founding directors at boutique investment
bank, Liberum Capital having worked as a corporate
financier and equity research analyst covering the
mining sector at JP Morgan, Cazenove and Flemings.
7
Dionisio Romero Paoletti
Non-Executive Director
8
Sanjay Sarma
Independent
Non-Executive Director
9
Raj Bhasin
Company Secretary
Appointed to the Board in January 2018.
Appointed to the Board in January 2017.
Key skills and competencies
– Extensive experience of managing international
businesses in Latin America
– In-depth knowledge of regional macro-economic
issues
– Corporate finance
Current external appointments
Commercial: Executive Chairman of Credicorp and
its subsidiary, Banco de Crédito del Peru, Peru’s
largest bank.
Dionisio sits on the boards of numerous Credicorp
Group and Grupo Romero controlled companies as
well as TSX-listed Sierra Metals Inc.
Non-profit: Fundacion Romero.
Previous experience
Dionisio served as the Chief Executive Officer of
Credicorp between 2009 and 2018.
Key skills and competencies
– Application of technology in business
– Emerging trends in the resources sector
– Extensive knowledge of management theory to
facilitate organisational change
Current external appointments
Sanjay is Professor of Mechanical Engineering at
Massachusetts Institute of Technology (‘MIT’) and
Vice President for Open Learning at MIT.
Commercial: Top Flight Technologies.
Non-profit: G1S US and edX, the entity set up by MIT
and Harvard to facilitate the distribution of free
online education worldwide.
Previous experience
Sanjay was the founder and Chief Technology
Officer of OATSystems (subsequently acquired by
Checkpoint Systems) and has worked at
Schlumberger Oilfield Services.
Joined the Group and appointed Company
Secretary in 2007.
Key skills and competencies
Raj is a solicitor and Chartered Secretary with over 20
years’ experience in FTSE-listed companies. He has
significant experience in corporate and commercial
law.
Previous experience
Raj previously served as Deputy Company Secretary
and Commercial Counsel at Burberry Group plc.
57
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SENIOR MANAGEMENT
Ramón Barúa
Chief Financial Officer
Isac Burstein
Vice President, Exploration
& Business Development
Oscar Garcia
Vice President,
Brownfield Exploration
Experience
Ramón Barúa was appointed CFO of Hochschild
Mining on 1 June 2010. Prior to his appointment, he
served in various positions with other companies
associated with the Group, namely CEO of Fosfatos
del Pacifico S.A., General Manager for Hochschild
Mining’s Mexican operations and Deputy CEO and
CFO of Cementos Pacasmayo. Prior to joining
Hochschild, Ramon was a Vice President of Debt
Capital Markets with Deutsche Bank and a sales
analyst with Banco Santander. Ramón is an
economics graduate of Universidad de Lima and
holds an MBA from Columbia Business School.
Ramón serves as an Independent Director of
Goldspot Discoveries Inc, a technology company
that supports mineral exploration activity in which
Hochschild Mining is an investor.
Experience
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.
Experience
Oscar Garcia was promoted to the position of VP,
Brownfield Exploration on 1 January 2019 having
joined Hochschild Mining in 2007 as an Ore Control
geologist. He has previously worked at Hochschild as
Corporate Manager for Underground Geology, Ore
Control and Brownfield Exploration. Prior to
Hochschild Mining, Oscar worked as a geologist at
Barrick Gold, Lonrho Mining Group and Compañia
Minera Aguilar. Oscar qualified as a geologist at the
Universidad Nacional de Cordoba on 1981.
Eduardo Landin
Chief Operating Officer
José Augusto Palma
Vice President, Legal
& Corporate Affairs
Eduardo Villar
Vice President,
Human Resources
Experience
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 worked 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 and
New York. Prior to his current role, José served as VP
Legal. José serves as Vice Chairman of the Board of
the Mining, Electricity and Petroleum Industry
Association of Peru.
Experience
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. In
addition, Eduardo has postgraduate qualifications in
Business from IESE Business School and Harvard
Business School and in Human Resources from
London Business School and the University of
Michigan.
Experience
Eduardo Landin was appointed COO of Hochschild
Mining in March 2013. Eduardo joined Hochschild in
January 2008 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 the
Inmaculada and Crespo Advanced Projects. Before
joining Hochschild, Eduardo held the position of
Corporate Development Manager at Cementos
Pacasmayo and, prior to that, he worked in the
Peruvian Ministry of Energy and Mines. Eduardo
began his career at Repsol S.A. where he worked for
over 10 years in England, Spain and Peru. Eduardo is
a Chartered Mechanical Engineer and holds a B.Eng
(Honours) in Mechanical Engineering from Imperial
College, London and an Executive MBA from the
Universidad de Piura, Peru. He is a Fellow of the
Institution of Mechanical Engineers.
58
Hochschild Mining PLC / Annual Report & Accounts 2019 DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their
report for the year ended
31 December 2019.
Information in Directors’ Report
The Directors’ Report comprises the
Corporate Governance Report from pages
61 to 77, this Report on pages 59 and 60,
and the Supplementary Information on
pages 78 to 80. Other information that is
relevant to the Directors’ Report, and which
is incorporated by reference comprises:
– Greenhouse gas emissions data and the
steps taken by the Company to increase
its energy efficiency are included in the
Sustainability Report on page 49; and
– Policy on Financial Risk Management in
note 36 to the consolidated financial
statements.
For the purposes of compliance with
Disclosure Guidance and Transparency
Rules 4.1.5R(2) and 4.1.8R, 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
totalling $10.2 million (2.0 US cents per
ordinary share) in the year ended 31
December 2019 and are recommending a
final dividend of $12 million (2.335 US cents
per ordinary share) subject to approval at
the forthcoming Annual General Meeting
(‘AGM’), making a total dividend of $22.2
million (2018 total dividend: $20 million).
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 pages 56 and 57.
All of the Directors were in office for the
duration of the year under review.
Each of the Directors will be retiring and
seeking re-election by shareholders at the
2020 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
or donated a total of $9.3 million to benefit
local communities (2018: $8.3 million
(restated to also include community/social
donations made at a corporate level)).
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 66 and, with regard to the right to
appoint Directors to the Board, are set
out on page 67.
As required by the Listing Rules, the
Directors confirm that, with respect
to the year under review:
– the Company has complied with the
independence provisions included in
the Relationship Agreement; and
– so far as the Company is aware:
– the independence provisions
included in the Relationship
Agreement have been complied
with by the Controlling Shareholders
or any of their associates; and
– 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.
59
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE 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
18 February 2020
AGM
The 14th AGM of the Company will be held
at 9am on 21 May 2020. 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 is 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 is aware of
that information.
This confirmation is given, and should be
interpreted, in accordance with the
provisions of Section 418(2) of the
Companies Act 2006.
Statement of Directors with respect to the
Annual Report and financial statements
As required by the UK Corporate
Governance Code, the Directors confirm
that they consider that the Annual Report,
taken as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders to
assess the Company’s performance,
business model and strategy.
DIRECTORS’ REPORT CONTINUED
Going concern
The Group’s business activities, its future
development and the factors likely to affect
its performance and position are set out in
the Strategic Report from page 1 to page
33. The financial position of the Group,
its cash flows, liquidity position and
borrowings are described in the Financial
Review on pages 34 to 39 and discussion of
the Group’s viability on the occurrence of
certain scenarios is provided in the Viability
Statement on page 55. 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 its exposure to
credit risk and liquidity risk.
As previously reported, the Group’s
average realisable price for gold in 2019
was 11.5% higher than in 2018 and silver
was 7.8% higher.
The Group achieved attributable
production of 38.7 million silver equivalent
ounces (477.4k gold equivalent ounces)
driven by record production at Inmaculada
and San Jose. In light of this strong
operational performance, costs controlled
within expected levels and the refinancing
of debt at a comparable rate of interest
with a longer maturity, the Group is in a
robust financial position.
As part of its risk management
responsibilities, the Board continually
reviews its capital structure, initiatives to
reduce operating costs and, furthermore,
contingency measures that can be
implemented in the event of a downturn in
precious metal prices.
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.
60
Hochschild Mining PLC / Annual Report & Accounts 2019 CORPORATE GOVERNANCE REPORT
“ Governance
undoubtedly protects
value, but a sound
framework of
governance
and controls is
value-enhancing.”
Dear Shareholder
I am delighted to present the Corporate
Governance Report for 2019.
In this section of the Annual Report, we report,
for the first time, on the Company’s compliance
with the provisions of the 2018 edition of the UK
Corporate Governance Code (the “Code”) and
the application of its principles. Through this
report, your Board seeks to demonstrate the
effectiveness of the governance framework and,
in light of the Code, two new areas are discussed:
how the Board has assessed and monitored the
corporate culture and our engagement with
stakeholders.
I would like to highlight the following activities
undertaken by the Directors during the year.
Eduardo Hochschild
Chairman
Board review
In 2019, we continued with our internally-led Board
evaluation process which was managed by Michael
Rawlinson, as our Senior Independent Director. The
process, which is described in more detail in this report,
reviewed many aspects of the functioning of the
Board, the Committees and the roles played by the
Directors. This exercise has always resulted in a
number of recommendations which undoubtedly
enhance our governance arrangements. As reported
later, the findings are varied and include improvements
to the reporting of our brownfield and greenfield
exploration programmes and seeking a better
understanding of the methodologies applied by third
parties in assessing our performance with regards to
environmental, social and governance matters
(commonly referred to as “ESG”).
Workforce
A common theme in among the work of the Board and
its Committees during 2019 is that of the workforce.
This is, in part, a reflection of the requirements of the
Code but also acknowledges that businesses do not
operate in a vacuum. In this report and the Committee
reports that follow, I hope you gain an insight into how
the Board has sought a better understanding of the
needs of our people and the initiatives to ensure that
there is an alignment of values across the entire
organisation.
If you should have any queries arising from this
report, please do not hesitate to contact me at
Chairman@hocplc.com.
61
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
INTRODUCTION
This report, together with the Directors’
Remuneration Report, describes how the
Company has applied the Principles of
the UK Corporate Governance Code
(‘the Code’) (2018 edition) in respect
of the year ended 31 December 2019.
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 78 to 80.
LEADERSHIP & PURPOSE
The Board
The Board is responsible for approving
the Company’s strategy and monitoring
its implementation, for overseeing the
management of operations and for
providing leadership and support to the
senior management team in achieving
sustainable added value for shareholders.
It is also responsible for enabling the
efficient operation of the Group by
providing adequate financial and human
resources and an appropriate system of
financial control to ensure these resources
are fully monitored and utilised.
There is an agreed schedule of matters
reserved for the Board which includes the
approval of annual and half-yearly results,
the Group’s strategy, the annual budget and
major items of capital expenditure.
2019 Board meetings
Seven Board meetings were held during the
year, of which four were scheduled meetings
and three were convened at short notice. All
scheduled meetings were fully attended.
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 exceptions noted below:
Provision
Explanation
The Chairman has been in post beyond nine
years from the date of his first appointment to
the Board
The Company has not adopted (a) a formal
policy for post-employment shareholding
requirements (“PESR”) and (b) remuneration
schemes and policies with provisions that
would enable the Company to recover sums
or share awards (i.e. clawback)
An externally facilitated evaluation of
the Board has not been undertaken
Governance Framework
As the major shareholder of the Company and
given his significant experience of mining in
Peru, the Directors consider Mr Hochschild’s
continued chairmanship to be in the best
interests of the Company. As described later in
this report, there are checks and balances in
place to ensure ongoing objectivity and that Mr
Hochschild does not exercise undue influence.
While the Group has adopted a wide malus
policy, neither clawback nor PESR has been
adopted due to difficulties in enforcing such
provisions in Peru. The Remuneration
Committee is, however, looking into alternative
arrangements that could achieve the same
objectives as PESR.
Please refer to the Board evaluation section
below for further details on the internally-led
approach to the Board’s performance
evaluation.
1
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3 Non-Independent Directors
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BOARD
Report to the Board
Audit
Remuneration
Nomination
Sustainability
Exploration
Working
Group2
1
Terms of reference are available at www.hochschildmining.com (see pages 69 to 77 for further details on the
Committees’ activities during 2019)
2 A working group consisting of management and Non-Executive Directors which reviews detailed reports on,
and progress against, brownfield and greenfield exploration programmes.
In addition to the regular updates from
across the business, the principal matters
considered by the Board during 2019 are
detailed below. In keeping with Board
practice, meetings incorporate reports
from each of the Committee Chairs on the
business considered at their respective
meetings. Any significant matters arising
from those meetings are discussed by the
full Board and feature among the matters
described below.
Safety
– Updates on the ongoing implementation
of the Safety Culture Transformation Plan
including the use of technology to enhance
safety on Company transportation
(see pages 42 and 43 for further details).
Financial
– The stress-tested scenarios and the
underlying assumptions in support of the
going concern and viability statements;
– Considered recommendations of the
Audit Committee to adopt the 2018
Annual Report and Accounts and the
2019 Half-Yearly Report including the
recommended 2018 final dividend and
the 2019 interim dividend;
– The Group’s ongoing financial position;
– Approval of the $200m medium-term
loan taken by the Group and
guaranteed by the Company; and
– The 2020 budget.
62
Hochschild Mining PLC / Annual Report & Accounts 2019
Strategy
Sustainability
Our corporate values
We innovate
We inspire and
promote talent
We are always
responsible
We always look for
efficiencies
Read more
Business model
PAGE 16
Strategy
PAGE 18
These values not only represent key inputs
in our business model in the performance
of our core activities but they also inform
our approach to our four-pronged growth
strategy.
Setting the tone
The Board sets the tone from the top,
reflecting these values in its deliberations
and decision-making. The Chief Executive
Officer (‘CEO’) is the crucial conduit
through which the tone is cascaded
throughout the organisation. By way
of example, during the year, the CEO
communicated with all employees on a
number of matters including environmental
performance, the Safety Cultural
Transformation Plan and diversity and
inclusion.
For further details on the programme of
employee events launched in 2019 around
each of the 2019 attributes, see page 46
of the Sustainability Report.
– Strategic options to facilitate the Group’s
growth;
– Updates on the Group’s innovation
projects;
– The Group’s strategic plan; and
– Reviews of the due diligence and
subsequent acquisition of the
BioLantanidos rare earths project as well
as its short and medium-term strategies.
Business performance
– The decision to place the Arcata mine on
care and maintenance (see page 27 for
further details);
– Business development projects;
– Unbudgeted strategic initiatives; and
– Presentations from the Vice President of
Brownfield Exploration on progress
against the Group’s brownfield objectives
and, in particular, the significant level of
resources identified at Inmaculada.
Risk
– The Risk Matrix which details the
significant and emerging risks faced by
the Group and the corresponding
mitigation plans; and
– The terms of the Group’s Directors’ and
Officers’ Liability Insurance.
Governance
– Adoption of a revised schedule of
matters reserved for the Board and
terms of reference for the Board
Committees in light of the 2018 edition of
the UK Corporate Governance Code;
– Updates from the Company Secretary on
governance developments affecting the
Company and the Directors’
responsibilities;
– An update on the implementation of the
2018 Board evaluation
recommendations, the outcome of the
2019 Board evaluation and the form of
the 2020 process;
– Review of the Group’s whistleblowing
arrangements; and
– The annual reviews of Directors’ conflicts
of interest and independence of Non-
Executive Directors.
– Reviews of the social and political climate
in Peru, Argentina and Chile and their
potential impact on the Group;
– Updates on reviews of the Group’s Tailing
Storage Facilities; and
– Performance of the Group against the
internally-designed environmental
corporate scorecard (the ECO Score).
Investors’ views
– Feedback from investors and proxy
agencies on the 2019 AGM business,
both before and after the meeting
(see overleaf for further discussion
on specific matters raised); and
– Feedback from the Inmaculada site visit
arranged by the Company for buy and
sell-side analysts.
Senior executives of the organisation are
invited to attend Board meetings and to
make presentations on their areas of
responsibility. 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.
In between Board meetings, Directors are
kept informed of latest developments
through monthly management reports on
the Company’s operations, safety
performance, exploration activity and
financial position.
Purpose & culture
The Group was established over a
hundred years ago and over time it has
characterised itself not only through sound
operations but also in striving to achieve
the highest standards of safety and with
regard to its social impact. This approach is
reflected and described in further detail in
the Code of Conduct, adopted in 2010,
which sets out the standards and
behaviours expected from all levels within
the Company as well as our partners:
professionalism, honesty, integrity, respect
for our stakeholders and a commitment to
safety, our communities and the
environment. These are further reiterated in
the Group’s anti-bribery and corruption
policies.
As reported in last year’s Annual Report,
the Company launched its reformulated
corporate purpose as part of a rebranding
- “Responsible and Innovative Mining
Committed to a Better World” – and, in
tandem, set out the values which create a
culture that is aligned with the purpose.
63
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
2019 AGM
At the 2019 AGM, the resolution seeking
the re-election of Dionisio Romero Paoletti
was opposed by c.24% of the votes cast.
After engagement with the Company’s
major shareholders who had voted against
Mr Romero’s re-election, it was clear that
the result reflected concern with Mr
Romero’s time commitment due to the
number of directorships that he holds in
addition to his executive position at
Credicorp.
The Nomination Committee considered
the views expressed as part of its
deliberations on the composition of the
Board and, taking into account (a) Mr
Romero’s reassurances on his ongoing
availability and commitment to Hochschild
Mining and (b) the fact that Mr Romero
acts as a nominee director of the
Company’s major shareholder under
the Relationship Agreement, the Directors
are unanimous in their conclusion that
the Company benefits greatly from
Mr Romero’s extensive experience and
knowledge, not only of doing business in
Peru and within the wider region, but also
of financial markets and corporate finance.
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.
CORPORATE GOVERNANCE REPORT CONTINUED
Assessing and monitoring culture
The Board assessed and monitored the
Company’s culture using a dashboard of
measures, some of which are reported on a
monthly basis.
Responsibility:
Safety - Accident Frequency Index (LTIFR),
Accident Severity Index, High Potential
Event rate
Environmental - ECO Score
Ethical practices/Integrity - Whistleblowing
reports (online and offline channels),
Internal Audit reports
Innovation:
Submissions to the Innova platform to
improve operational efficiency
Inspire and promote talent:
Team and Individual development
plans , Staff turnover/retention rates
Efficiency:
Operational KPIs e.g. AISC, Production
An organisational climate survey was
carried out amongst employees during the
year, the results of which will be available
during Q1 2020. This will be analysed
versus the prior survey’s results and will
result in an action plan to make any
improvements to the working environment.
The actions taken on all of the above
aspects are detailed in the Strategic
Report on pages 1 to 55.
Engagement
The Directors have received briefings from
the Company Secretary and legal advisers
on their duties under English law to promote
the success of the Company. As in other
large companies, these duties are in
part discharged through a framework of
delegated authorities. This notwithstanding,
the Board ensures there is regular and
sustained engagement with its
shareholders and other stakeholders
which is fed back to the Board and taken
into consideration in discussions and
decision-making. This section of the
report constitutes the s172(1) statement
and summarises how engagement was
undertaken and how stakeholders were
considered in the key decisions taken
during the year.
(1) Shareholders
Our approach
The Chairman, with the support of the
Senior Independent Director and the
Company Secretary, is available to
engage with major shareholders on
matters of governance and performance
against strategy.
The Chief Executive Officer is responsible
for discussing strategy and business
performance with the Company’s
shareholders and conveying their views
to the other members of the Board.
He is supported in this regard by the
Chief Financial Officer and the Head
of Investor Relations who is based in
the London corporate office.
In addition to the direct means of contact
as detailed in the table below, 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.
Shareholder engagement in 2019
The following table summarises the
principal means by which the Group
communicated with investors during
the year:
Date
Event
January
(and April,
July, October)
February
March
May
June
July
August
Conference calls following the
Quarterly Production Report
BMO Global Metals
& Mining Conference
2019 Annual Results
presentation
UK Roadshow
Citi Resources Conference
BoA Merrill Lynch Global
Metals, Mining and Steel
Conference
Annual General Meeting
Site visit to Inmaculada
for buy and sell-side analyst
2019 Half-Yearly Results
presentation
September
UK Roadshow
Denver Gold Forum
December
Scotia Capital Conference
An extensive Investor Relations schedule
resulted in management holding over 100
investor meetings during the year.
64
Hochschild Mining PLC / Annual Report & Accounts 2019
(2) Other stakeholders
In light of the extensive reporting elsewhere in the Annual Report, the table below summarises how we have engaged with our other
principal stakeholders (cross-referencing, where appropriate, to where further details are available).
Employees
Social
Our approach
The quality of our
people is key to the
success of our business.
We seek to attract,
retain and develop our
people through
competitive
remuneration, positive
working environment
and developmental
opportunities.
Engagement
during 2019
See Our People on
page 45.
See Commentary in Risk
Management and
Viability report on
personnel risks.
We recognise our social
commitments to (a)
produce the smallest
environmental footprint
possible and (b)
understand the needs
and expectations of our
host communities.
Through close
collaboration we
implement social
investment
programmes in our
areas of focus.
See Working With Our
Communities and
Managing our
Environmental Impact
on pages 47 to 49.
See commentary in Risk
Management and
Viability report on
Community relations
and Environmental risks.
Suppliers
Customers
Government /
Regulators
To maintain a
constructive
relationship and open
dialogue with the
various governmental
authorities we interact
with in each of the
countries we operate in.
As a key influence on
how we operate our
business, we seek a
relationship of mutual
benefit while requiring
high standards of
conduct.
The Vice President of
Corporate Affairs
oversees regular
interaction with relevant
authorities and
regulators in Peru. The
equivalent role in our
Argentinian
joint-venture is
undertaken by the
General Manager.
The General Managers
of our Peruvian and
Argentinian operations
maintain ongoing
dialogue with suppliers
to the mine sites. Other
suppliers are managed
by the relevant
functional department
such as IT, Group
Finance, etc.
Due to the nature of what
we produce, Hochschild
has relatively few
customers. As a result,
relations with our
customers are key to our
success. Our sales and
logistics teams oversee a
relationship of
co-operation and
constant dialogue.
In addition to usual
relationship
management,
engagement during 2019
primarily related to
changes to the terms and
conditions of sale to
protect the Company
against defaulting
payments arising from
bankruptcy.
See commentary in Risk
Management and
Viability report on
Commercial
Counterparty risk.
Material matters would
be reported to the Board
by the Chief Financial
Officer who is responsible
for managing the sales
and logistics department.
There were no material
matters raised during the
year.
Reported to the
Sustainability
Committee, which feeds
back to the Board.
Reported to the Board
as part of its
consideration of the
quarterly Risk
Management updates
on the governmental/
regulatory climate.
Reported to the Board
as part of its
consideration of the
quarterly Risk
Management updates
in relation to Business
Interruption risks.
How the Board
receives feedback
Graham Birch, as
Chairman of the
Sustainability
Committee, is our
designated Director to
oversee workforce
engagement and
received quarterly
updates from the Vice
President of Human
Resources on
discussions with trade
unions and other
employee group
meetings.
Impact on wider stakeholder group of key decisions in 2019
Of the material decisions taken by the Board during the year, the placing of the Arcata mine on care and maintenance was the sole
decision which required detailed consideration of the wider implications.
The potential decision to suspend operations had been highlighted by the Company over an extensive period in advance to investors
and other stakeholders in light of the geological and permitting challenges that were being faced. There was extensive consultation
with labour unions and suppliers with the Company’s priority being, where possible, redeployment at the Group’s other operations.
Communities were also kept informed along the decision-making process and the Board oversaw the continuation of social initiatives
for those living close to the mine even after the commencement of care and maintenance activities.
65
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
DIVISION OF RESPONSIBILITIES
Board composition
Throughout the year, the Board comprised
the Chairman, the Chief Executive Officer
and six Non-Executive Directors, of whom
five are considered, by the Board, to be of
independent judgement and character.
As a result, at all times during the year,
the Board comprised a majority of
Independent Non-Executive Directors.
Dionisio Romero Paoletti is the only
non-independent Non-Executive Director
as he has been nominated to the Board by
the Company’s major shareholder under
its rights pursuant to the Relationship
Agreement (further details of which
can be found on page 59 of the
Directors’ Report).
Chairman and Chief Executive
The Board is led by the Chairman, Eduardo
Hochschild, who is also the majority
shareholder of the Company with a c.50%
holding.
The Board has approved a document
which sets out the division of
responsibilities between the Chairman and
Chief Executive Officer.
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.
Firstly, the significant presence of
Independent Directors and the active role
of the Senior Independent Director ensure
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, which was
revised in 2014 in light of new rules
governing such agreements (the ‘2014
Listing Rules’), contains undertakings from
each of Eduardo Hochschild and Pelham
Investment Corporation (being the entity
through which Mr Hochschild holds his
shares in the Company) (the ‘Major
Shareholder’) that:
– all transactions with the Company (and
its subsidiaries) will be conducted at
arm’s length and on normal commercial
terms;
– 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;
– 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
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 Relevant Parties will not take any
action that would preclude or inhibit
any member of the Group from carrying
on its business independently of any
of them.
The Chief Executive Officer is responsible
for leading the executive team in the
day-to-day management of the Group’s
business.
Status of the Chairman
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 other Directors of the Board
continue to assert that Mr Hochschild
chairs the Board in an objective manner
and encourages open and full debate. The
composition of the Board and the
implementation of certain contractual
arrangements act as additional measures
which prevent the exercise of undue
influence by Mr Hochschild.
Certain confirmations are required to be
given by the Board under the 2014 Listing
Rules with regards to the Company’s
compliance with the independent
provisions which can be found in the
Directors’ Report on page 59.
Senior Independent Director
Michael Rawlinson is the Senior
Independent Director. Mr Rawlinson’s role is
not only to act as a central point of contact
for the Non-Executive Directors as a group
but to also act as a conduit between the
Non-Executive Directors and the executive
management team. To facilitate this, Mr
Rawlinson chairs meetings of the Non-
Executive Directors and of the Independent
Non-Executive Directors immediately after
each Board meeting. This provides the
opportunity to gather feedback and
thoughts on Board discussions which are
subsequently relayed to the Chairman
and/or the executive team as appropriate.
A crucial part of the role of the Senior
Independent Director is to meet with major
shareholders if concerns have not been
addressed by the executive team. No such
meetings were requested, however, Mr
Rawlinson did engage with a number of
major investors during the year.
Non-Executive Directors
The Company’s Non-Executive Directors
hold, or have held, senior positions in the
corporate sector with the exception of
Sanjay Sarma who has a background in
academia in the field of mechanical
engineering and technology. They all bring
their experience and independent
perspective to enhance the Board’s
capacity to help develop proposals on
strategy and to oversee and grow the
operations within a sound framework of
corporate governance.
Details of the tenure of appointment of
Non-Executive Directors are provided in
the Directors’ Remuneration Report.
Independence of Non-Executive Directors
The Board considers that all of the
Non-Executive Directors serving during the
year were independent of the Company. In
reaching this conclusion, the Board
considered:
– Jorge Born’s tenure on the Board of over
nine years; and
– Sanjay Sarma’s position as a director of
Top Flight Technologies, a company in
which Eduardo Hochschild has a
shareholding and a convertible note
investment.
These circumstances notwithstanding, the
Board is of the view that, in light of each
Director’s approach and contributions to
Board discussions, the above
circumstances are not considered to be of
a nature to interfere with the exercise of the
respective Director’s independent
judgement.
Company Secretary
The Company Secretary is appointed and
removed by the Board and is responsible
for advising the Board on governance
matters and the provision of administrative
and other services to the Board. All the
Directors have access to the Company
Secretary.
66
Hochschild Mining PLC / Annual Report & Accounts 2019 Implementation of 2018 Board evaluation
A number of actions were taken during the
year following the 2018 Board evaluation
process. These included:
– the inclusion, on the Sustainability
Committee agenda as a standing
item, of a tailored risk management
report focusing on the overall climate
for such risks and the details of
mitigating strategies
– informal meetings between the Directors
and those identified as successors to the
key senior management positions;
– a presentation from the Group’s joint
corporate brokers, RBC, on the precious
metal sector, and the recent corporate
activity within it;
External Board evaluation
Since the process was introduced, the
Directors unanimously consider that the
internally-led evaluation has resulted in a
number of recommendations that have
significantly enhanced the way the Board
and the Committees function. For this
reason, an externally led evaluation was
not undertaken during the year. The Board
acknowledges the benefits of an external
appraisal of the overall governance
structure and processes and, therefore,
the format of the 2020 evaluation will be
kept under review.
COMPOSITION, SUCCESSION
AND EVALUATION
Appointments and re-election of Directors
The Board has established a Nomination
Committee which recommends nominations
to the Board. The report of the Nomination
Committee appears on pages 74 and 75.
The Company has adopted the practice of
requiring Directors to seek annual re-
election by shareholders in keeping with
the UK Corporate Governance Code. The
biographies of the Directors can be found
on page 57 which, in addition to specifying
other positions, also highlight the key skills
and experience of each Board member.
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.
The Major Shareholder exercised this right
for the first time with the appointment of
Dionisio Romero Paoletti who joined the
Board on 1 January 2018.
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. In
addition, as previously stated, a part of the
Board evaluation process seeks to identify
subject matters and topics for presentation
to the Board that Directors would find
beneficial.
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. In addition, where
appointees will serve on any of the Board
Committees, sessions with the relevant
Committee Chair are organised.
Briefings
The Directors receive regular briefings from
the Company Secretary on developments
in the areas of corporate law and
corporate governance that affect their
roles as Directors of a UK listed company.
In addition, the Directors have ongoing
access to the Company’s officers and
advisers with presentations arranged
periodically.
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.
Board evaluation
The Board is committed to the process of
continuous improvement which is achieved
in particular by the robust internally-led
Board evaluation process. See following
page for a description of the process and
outcome of the 2019 Board evaluation.
67
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
2019 BOARD EVALUATION
Aug 19: Board discussion on
evaluation design
Oct 19: Discussion Sheet
distributed
Oct/Nov 19: One-on-one
interviews
Findings documented by
SID and Co Sec
Findings discussed
with Chairman
Nov 19: Board discusses
findings for implementation
Feb 20: Action plan for
implementation agreed
In keeping with past practice and the
unanimous preference of the Board, the
2019 Board evaluation process was
undertaken internally through one-to-one
interviews conducted by the Senior
Independent Director supported by the
Company Secretary.
The interviews were structured to seek the
Directors’ views on a number of subject
areas including those outlined below.
The Committees
– Composition and overall workings
of the main Board Committees. The
performance of the Audit Committee
was discussed in greater depth with
members of the Committee. In addition,
the work of the Exploration Working
Group, which comprises both Board
members and management and reviews
the Group’s crucial progress on the
brownfield and greenfield exploration
programmes, was also discussed; and
– Specific aspects of each Committee’s
role and scope of responsibilities.
The Board
– The composition of the Board, taking into
account, among other things, the issue of
gender diversity;
– The workings of the Board; and
– Consideration of specific aspects of the
Board’s role including strategy and M&A
and Governance & Risk.
Culture
– Consideration was given to perceptions
of corporate culture; and
– Discussion on the Board’s assessment
and monitoring of corporate culture.
In addition to the above, the evaluation took
in discussions on specific aspects of
performance during 2019, suggestions for
topics to be presented to the Board in 2020
and feedback on the performance of the
Chairman and fellow Board members.
2019 Board evaluation findings
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 Michael Rawlinson 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 Michael Rawlinson and considered
between the Non-Executive Directors
before being relayed to the Chairman.
Outcome
The principal recommendations arising
from the 2019 Board evaluation process
are as follows:
– Remuneration Committee members
to receive more frequent updates
on developments impacting the
governance of executive remuneration;
– Having established reporting lines to
the Chairman of the Sustainability
Committee, expanding the scope of
employee engagement and, as part
of enhancing sustainability reporting,
achieving a greater understanding
of methodologies used by third-party
agencies to assess ESG performance
(environmental, social and governance);
– Improvements to the reporting of
progress on brownfield and greenfield
exploration; and
– Consideration of innovation in mining
including periodic technological
reviews.
The Board’s Committees
The Board has delegated authority to
the Audit Committee, Sustainability
Committee, Nomination 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 Sustainability Committee and
Remuneration Committee can be found
in the Sustainability Report and Directors’
Remuneration Report respectively.
68
Hochschild Mining PLC / Annual Report & Accounts 2019 AUDIT COMMITTEE REPORT
Dear Shareholder
I am pleased to introduce the Audit
Committee report in respect of its
activities during 2019.
The Audit Committee performs a key
role in overseeing the Group’s financial
reporting, a risk management
framework and a system of internal
controls that is fit for purpose. The ways
in which the Audit Committee has
fulfilled these responsibilities are
described in this report.
Certain recurring issues arise that the
Audit Committee discusses with the
external audit team each year in the
preparation of our annual accounts.
This year, as further discussed on
page 71, we have spent time discussing
the valuation of our assets which, given
the nature of the business, can be
impacted by various macro-economic
factors. Such factors have knock-on
effects on various aspects of our
financial accounting and, in particular,
the judgements and estimations that
form part of going concern and
impairment assessments and the
provisions for mine closure costs that
are required to be made.
Eileen Kamerick
Committee Chair
The Committee has also considered,
as it does each year, the performance
of Ernst & Young LLP (“EY”) as the
Company’s external auditor. The
provision of a high quality audit is a key
form of assurance that our financial
reporting systems are robust and that,
ultimately, investors’ funds are protected.
This review incorporated both internal
and external sources of feedback as
further reported on page 71.
In addition, in keeping with past practice,
the Committee set management a
number of objectives connected with its
risk management duties. One such
objective related to the management of
counterparty risk. As reported last year,
one of the Group’s long-standing
customers entered into bankruptcy
protection while owing the Group over
$2.5m (on an attributable basis).
Following a review of the circumstances,
the Audit Committee oversaw the design
and implementation of processes to
monitor and mitigate the impact of
failure of a financial or commercial
counterparty. This was introduced as a
principal risk in last year’s Risk
Management report and further details
of this year’s developments can be
found on page 51.
2019 Meeting attendance
Members
Eileen Kamerick Non-Executive Director (Chair)
Michael Rawlinson Non-Executive Director
Graham Birch Non-Executive Director
Independent
Maximum
possible
attendance
Actual
attendance
Yes
Yes
Yes
4
4
4
4
4
4
Key roles and responsibilities
– To monitor the integrity and material
accuracy of the Company’s financial
statements and related disclosures;
– To monitor the effectiveness of the
Company’s internal controls and risk
management systems and review the
preparation of the going concern and
viability statements;
– To review, on behalf of the Board, the
Company’s procedures for detecting
fraud, the Company’s systems and
controls for the prevention of bribery and
to review and conclude on non-
compliance;
– Oversight of the Internal Audit function,
review of its annual work plan and its
findings;
– 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
Eileen Kamerick was, during the year under
review, and currently serves as, the chair of
the Audit Committee. Eileen was formerly a
Chief Financial Officer of a number of
US-based companies operating in the
mining, oil and gas, investment banking
and recruitment sectors. Eileen currently
serves as the Audit Committee Financial
Expert for the AIG Funds and Anchor Series
Trust (US mutual funds) and Audit
Committee Chair of the Legg Mason
Closed End Mutual Funds. Eileen is a
National Association of Corporate
Directors Board Leadership Fellow.
Michael Rawlinson’s career in banking
specialised in the mining sector having
initially worked as an analyst and
corporate financier, serving most recently
as Global Co-Head of Mining and Metals at
Barclays Investment Bank from 2013 until
his retirement from that role in June 2017.
69
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
“' The Committee has played an active
role in not only overseeing financial
reporting, but ensuring that audit
quality is maintained and risks are
adequately managed.”
Graham Birch was appointed a member of
the Committee on 1 January 2018 and is
also a non-executive Director of Sprott Inc.
He was formerly a director of BlackRock
Commodities Investment Trust plc and
manager of BlackRock’s World Mining
Trust and Gold and General Unit Trust.
The Committee members who served
during the year under review are
considered to be Independent Directors
and the Board is satisfied that at least one
member has recent and relevant financial
experience and that the Committee, as a
whole, has competence relevant to the
sector in which the Company operates.
For further details on the skills and
experience of the Committee members,
please refer to the biographical details
on page 57.
The performance of the Committee was
considered as part of the annual Board
evaluation process which was considered
by the whole Board.
Attendees
The lead partner of the external Auditor,
EY, the Chairman of the Company, the
Chief Executive Officer, the Chief Financial
Officer, the Vice President of Legal &
Corporate Affairs 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 Committee considered the following
principal matters during the year:
– Governance – Considered, and
recommended to the Board, the adoption
of revised terms of reference to reflect
the 2018 edition of the Corporate
Governance Code.
– Financial reporting – The 2018 Annual
Report and Accounts and the 2019
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 and any
recommendations on the Company’s
processes and controls.
– Risk management – Consideration and
challenge of risk management
assessments which incorporate a risk
matrix detailing (i) the most significant
and emerging risks facing the Group; (ii)
an evaluation reflecting the likelihood of
the occurrence of the risk and the extent
of the potential impact on the Group, and
(iii) commentary on the steps taken to
manage each specific risk. See pages 50
to 54 for a description of the process by
which the Group’s principal and
emerging risks are identified and
monitored, and the actions taken during
the year to mitigate them.
– 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 Chair 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 Chief Financial
Officer also receive copies of these
reports and robustly support the
activities of the Internal Audit function.
Twice during the year, the Committee
met with the Head of Internal of Audit
without the presence of executive
management to discuss, among other
things, the resourcing of the function
and the scheduled work plan.
– 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 – In line with the 2018
Corporate Governance Code, the Board
reviewed the adequacy of the Group’s
Whistleblowing arrangements taking into
account the feedback from the Audit
Committee Chair (“AC Chair”) on the
reports received through the various
online and offline channels established
by the Group. It has been agreed that
even though the Board will conduct an
annual review of the arrangements, the
current practice will be maintained,
whereby (i) whistleblowing reports are
circulated to a group comprising the AC
Chair, the Head of Internal Audit, the
Vice-President of Human Resources and
the Company Secretary (“the Reporting
Group”), (ii) the AC Chair has a
preliminary discussion with the Head of
Internal Audit on the approach to the
investigation, (iii) the findings of the
investigation are then reported, in the
first instance, to the AC Chair and the
Reporting Group and to the next
scheduled meeting of the Audit
Committee.
70
Hochschild Mining PLC / Annual Report & Accounts 2019 – Fraud and bribery – The Audit
– Auditor objectivity – The Audit
Committee continued to review and
challenge the actions taken by
management to promote ethical and
transparent working practices.
Committee has adopted a policy on
the use of the external Auditor for the
provision of non-audit services
(see later section for more details).
– Governance and evaluation – The Audit
Committee received updates from the
Auditor and the Company Secretary on
regulatory and other developments
impacting the Committee’s role. In
relation to the evaluation of the
Committee’s performance, this was
carried out as part of the annual Board
evaluation. Specific questions were put to
each Board member on various aspects
of the performance of the Audit
Committee including its responsibilities in
overseeing the relationship with the
Auditor, and in relation to risk
management. General feedback on
the Committee’s performance was
also sought and fed back to the
Committee Chair.
– 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.
Details of these objectives are set out
in the Committee Chair’s introductory
letter.
– Tax compliance strategy – The Audit
Committee approved on behalf of the
Board a document on the Group’s
approach to UK tax matters. The
document can be found at: www.
hochschildmining.com/en/responsibility/
tax_compliance_strategy
During the year, the Committee members
held meetings with the external Auditor
without executive management to discuss
matters relating to the 2018 annual audit
and the 2019 Half-Yearly Report. There
were no matters of significance to report
from these meetings.
The Group has adopted a Code of
Conduct which describes the values and
standards of behaviour expected of our
employees and our business partners. In
addition, the Group has adopted a
specific anti-bribery and anti-corruption
policy to reflect the Board’s zero
tolerance of these types of acts. This
policy is circulated to all employees by
the CEO on a periodic basis, highlighting
the consequences of acting in breach of
its provisions which include termination
of employment and criminal proceedings.
– External audit –The Audit Committee
oversees the relationship with the
external Auditor. EY was first appointed
by the Company as Auditor in 2006 and,
following a tender process undertaken in
Q1 2016, was reappointed. The Audit
Committee evaluated the performance
of EY in 2019 and concluded that it was
appropriate to recommend the re-
appointment of EY as external Auditor at
the 2019 Annual General Meeting. The
Audit Committee reviewed the findings of
the external Auditor and management
letters, and reviewed and approved the
audit fees.
During the year, the Audit Committee
evaluated the effectiveness of EY and
the external audit process taking into
account the results of Hochschild
management’s internal survey relating to
EY’s performance as well as views and
recommendations from management
and its own experiences with the external
Auditor. Key criteria of the evaluation
included resource and expertise,
efficiency of the audit process, quality of
communication and reporting to the
Audit Committee. In addition, the Audit
Committee considered the annual audit
quality inspection results issued by the
Financial Reporting Council (“FRC”) in
relation to EY in July 2019 and, in
particular, the impact on Hochschild of
the FRC’s key individual review findings.
The AC concluded that EY had
performed effectively and demonstrated
commitment to delivering a high quality
service.
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 2019 financial statements
and how these issues have been
addressed.
(a) Impairments
The Audit Committee assessed
management’s analysis of potential
indicators of impairment at the Group’s
operations as follows, prompting full
impairment assessments:
– Pallancata: As previously reported,
permitting delays and the lack of
incremental resources added in 2019
resulted in a change in the mine plan. In
addition, production was spread over a
longer time period in order to allow the
completion of further exploration work.
– San Jose: The discount rate used to value
the San Jose mine has increased over
the year to reflect the increase in the
country risk resulting from the macro-
economic and political situation.
In addition, the annual impairment test
was carried out with respect to the
Volcan project.
The Audit Committee considered:
– analyst consensus price forecasts for
silver and gold, which showed an
improvement vs December 2018; and
– the underlying calculation of the
impairment tests.
The Audit Committee considered, with
regards to the Volcan project, the value
in-situ analysis undertaken by
management together with the
assumptions made therein.
In conclusion, the Audit Committee
concurred with management that an
impairment of $14.7m be made for the full
year ending 31 December 2019 with respect
to Pallancata and that no impairments or
impairment reversals be recognised with
regards to San Jose and Volcan.
71
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
(b) Going concern assessment
The Directors must satisfy themselves as to
the Group’s ability to continue as a going
concern for a minimum of 12 months from
the approval of the financial statements.
The Audit Committee supported the Board
in this assessment by considering whether,
in adverse circumstances, the Company
has adequate liquid resources to meet its
obligations as they fall due. In February
2020, the Audit Committee reviewed the
Group budget and cash flow forecasts for
the going concern period taking into
account the Company’s anticipated
production profiles at each mine, budgeted
capital and exploration expenditure and
the sensitivity of the cash flow forecasts to
movements in precious metal prices. In
addition, the Audit Committee
corroborated its assessment through
consideration of the processes undertaken
by the Auditor in its testing of
management’s going concern assessment
and on the reasonableness of assumptions
therein, including their consistency with
assumptions and estimates used
elsewhere in the preparation of the
financial statements. In particular, the
Committee challenged management on
the feasibility of the mitigating actions.
In conclusion, the Committee is content
and recommended to the Board that the
Directors should continue to adopt the
going concern basis of accounting in
preparing the annual financial statements.
Please refer to the Directors’ Report
on page 60 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.
(c) Mine rehabilitation provision
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 assets.
In its assessment of the analysis
undertaken by management (and, where
relevant, by an 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.
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 consolidated
Ethical Standard for Auditors by the
Financial Reporting Council (the ‘FRC’),
the Audit Committee adopted a revised
Policy in 2016 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 requires
(i) the Audit Committee and Chief Financial
Officer to pre-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 70% of
the total audit fee for that year. Please refer
to the next section entitled ‘2019 Audit and
non-audit fees’ for details of the value and
nature of non-audit services provided
during the year.
Following the publication of a Revised
Ethical Standard by the FRC in December
2019, the Audit Committee will be reviewing
and adopting a new policy on the use of the
Auditor for non-audit services in line with
that standard.
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.
2019 Audit and non-audit fees
Details of fees paid to the external Auditor
are provided in note 31 to the consolidated
financial statements.
Compliance Statement required under
Article 7.1 of the Statutory Audit Services
for Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014 (the ‘Order’)
The Company confirms that it has
complied with the Order during the year
under review.
72
Hochschild Mining PLC / Annual Report & Accounts 2019 Audit Committee’s assessment
Based on its review of the process, the
Audit Committee is satisfied that, for the
year under review and the period from 1
January 2020 to the date of approval of
the Annual Report and Accounts, 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 emerging and 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 and 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.
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. 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;
– the external Auditor review and
observations of the Company’s internal
control environment;
– 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.
73
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
NOMINATION COMMITTEE REPORT
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;
and
– Review the Directors’ external interests
with regards to actual, perceived or
potential conflicts of interest.
Membership
The members of the Committee are listed
below. There were no changes to
committee membership during the year.
The Company Secretary acts as Secretary
to the Committee.
Activity during the year
The principal matters considered during
the year were:
– A review of the Committee’s terms of
reference in light of the 2018 edition of
the Corporate Governance Code;
– Under the procedures approved by the
Board, consideration of any conflicts
arising from external Non-Executive
Directorships proposed to be taken by
Graham Birch and Michael Rawlinson. As
is usual practice, the Non-Executive
Director whose proposed directorship
was under consideration did not
participate in the respective discussions;
Eduardo Hochschild
Committee Chair
Dear Shareholder
The Nomination Committee maintained
its efforts on planning for the future in
terms of the succession plans for Board
members and the senior executive team.
average level among our peers in Peru
and an action plan was reviewed by the
Committee which should result in this
level rising.
Finally, the annual review of the
executive succession plan saw
encouraging progress being made in the
development of the talent rising through
the organisation. Please see below
further details of the Committee’s work.
In terms of the planning for the Board, a
significant part of the discussions held
during the evaluation process was spent
discussing the skills that could be
usefully added to your Board. A skills
profile has been compiled which the
Nomination Committee will use as a
reference in recommending a candidate
and, if possible, to also increase the
diversity of the Board.
With regards to gender diversity, the
Nomination Committee considered the
initiatives being taken to create a
diverse pipeline of talent. A benchmark
study revealed that the representation
of women in our workforce is at the
2019 Meeting attendance
Members
Eduardo Hochschild Committee Chair
Graham Birch Non-Executive Director
Jorge Born Non-Executive Director
Eileen Kamerick Non-Executive Director
Michael Rawlinson Non-Executive Director
Dionisio Romero Paoletti Non-Executive Director
Sanjay Sarma Non-Executive Director
Independent
Maximum
possible
attendance
Actual
attendance
No
Yes
Yes
Yes
Yes
No
Yes
2
2
2
2
2
2
2
2
2
2
2
2
2
2
74
Hochschild Mining PLC / Annual Report & Accounts 2019 “ In addition to considering succession
plans for the Board and senior executives,
the Committee considered the steps that
need to be taken to promote a diverse
pipeline of talent.”
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.
Diversity
Policy on Board appointments
– 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 Directors
do 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, professional
background or nationality) this would be
considered to be an additional benefit
Promoting a Diverse Pipeline
See page 46 for details of how the
Company is promoting a diverse
pipeline of talent.
– The succession plan for the Non-
Executive Directors. To support these
annual deliberations, the Committee
considered a skills matrix which (a) maps
the extent to which key skills are
represented around the Board table; and
(b) identifies any skill gaps that arise on
the assumed retirements from the Board
within the next five years. The matrix
highlights other relevant considerations,
such as the requisite independent Board
representation and the potential to
increase gender diversity. Accordingly,
the Committee is able to plan for future
Non-Executive appointments both in
terms of timing and the profile of
potential appointees;
– The succession and development plan
for the level of management just below
Board level. Following last year’s
comprehensive review of the Talent
Inventory Review (‘TIR’) which identified
“critical positions” and “key roles”, in 2019
the Committee focused on the state of
preparedness of those who would
succeed the Group’s Vice Presidents;
– The findings of the 2018 Board
evaluation process and, in particular,
the training needs of the Directors;
– The format of the 2019 Board evaluation
process. As explained earlier in this
report, it was decided that in light of the
continued benefits that have been
brought about by past internally
led-evaluations, the Board favoured the
continuation of this approach in 2019.
The format of the 2020 Board evaluation
will, however, be kept under review;
– The findings of the 2019 Board
evaluation process (see earlier section of
the Corporate Governance Report); and
– A presentation on the steps being taken
and the action plan to improve the level
of female representation in the
workforce.
75
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CORPORATE GOVERNANCE REPORT CONTINUED
SUSTAINABILITY COMMITTEE REPORT
Dr Graham Birch
Committee Chair
Dear Shareholder
The Company performed very well on
numerous aspects in 2019; however, the
highlight of the year is the stellar safety
performance. We were encouraged in
2018 that the Safety Culture
Transformation Plan appeared to be
having the desired impact and it is with
great pride that we can report on 2019
as being the best year on record in
terms of safety.
Our environmental performance has
also been robust with a strong year-end
result for the Group’s ECO Score. This
innovative approach to measuring
environmental performance has won
plaudits from numerous organisations,
including the 2019 Mines & Money
Innovation in Sustainability award.
I congratulate the team on their
well-deserved achievements.
The Community Relations team
continued to focus on overseeing our
social investment in the areas of
education, health and socio-economic
development.
Additional details on the initiatives
implemented during the year can
be found on pages 40 to 49.
“ The year saw many advances in terms
of our safety and environmental
performance and our interaction with
our local communities. We remain
committed to continuing to improve
our performance in these key areas.”
2019 Meeting attendance
Members
Graham Birch Non-Executive Director (Chair)
Ignacio Bustamante Chief Executive Officer
Michael Rawlinson Non-Executive Director
Sanjay Sarma Non-Executive Director
Independent
Maximum
possible
attendance
Actual
attendance
Yes
No
Yes
Yes
4
4
4
4
4
4
4
4
76
Key roles and responsibilities
– Evaluate the effectiveness of the Group’s
policies for identifying and managing
health, safety and environmental risks
within the Group’s operations;
– Assess the performance of the Group
with regard to the impact of health,
safety, environmental and community
relations decisions and actions upon
employees, communities and other third
parties. It also assesses the impact of
such decisions and actions on the
reputation of the Group;
– Evaluate and oversee, on behalf of the
Board, the quality and integrity of any
reporting to external stakeholders
concerning health, safety, environmental
and community relations issues; and
– Oversee the methods of engagement
with the Group’s workforce to understand
their views and communicate these to
the Board such that these can be taken
into account in the Board’s discussions
and decision-making.
Membership
The members of the Committee are
listed below. There were no changes to
Committee membership during the year.
The Vice Presidents of Operations, Legal
and Corporate Affairs, and Human
Resources attended each Sustainability
Committee meeting by invitation. The
Company Secretary acts as Secretary to
the Committee.
Activity during the year
– Details relating to the Sustainability
Committee and the Group’s activities in
this area are set out in the Sustainability
Report on pages 40 to 49.
Hochschild Mining PLC / Annual Report & Accounts 2019 REMUNERATION COMMITTEE REPORT
Michael Rawlinson
Committee Chair
Finally, the Committee also considered
workforce remuneration to ensure its
linkage to the Group’s corporate values.
Further details on the Committee’s work
in 2019 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 81.
Dear Shareholder
In addition to considering the usual
matters within its terms of reference, the
Committee sought advice from its
advisers, Mercer Kepler, on external
market developments, best practice and
the latest shareholder guidelines
concerning executive remuneration.
During the year we also reviewed the
structure and terms of the Long-Term
Incentive Plan and the annual bonus.
Both of these aspects will be considered
in further depth over the course of 2020
in preparation for the submission of our
Remuneration Policy to the 2021 AGM.
“ In 2019, the Remuneration Committee
sought to maintain a clear linkage
between performance and reward
and, under its extended scope,
considered the remuneration
structure of the workforce in general.”
2019 Meeting attendance
Members
Michael Rawlinson Non-Executive Director (Chair)
Graham Birch Non-Executive Director
Eileen Kamerick Non-Executive Director
Independent
Maximum
possible
attendance
Actual
attendance
Yes
Yes
Yes
3
3
3
3
3
3
Key roles and responsibilities
– Determine and agree with the Board the
broad policy for the remuneration of the
Executive Directors, other members of
senior management and the Company
Secretary, as well as their specific
remuneration packages;
– Regularly review the ongoing
appropriateness and relevance of
the Remuneration Policy;
– Approve the design of, and determine
targets for, any performance-related pay
schemes operated by the Company and
approve the total annual payments
made under such schemes;
– Ensure that contractual terms on
termination, and any payments made, are
fair to the individual and the Company,
that failure is not rewarded, and that the
duty to mitigate loss is fully recognised;
– Review workforce remuneration and
related policies and the alignment of
incentives and reward with culture; and
– Review and note annually the
remuneration trends across the
Company.
Membership
The members of the Committee are
listed below. There were no changes to
Committee membership during the year.
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 or her own
remuneration arrangements are
considered by the Committee unless
otherwise directed 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 81.
77
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SUPPLEMENTARY INFORMATION
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 2019 was 510,553,920
ordinary shares of 25 pence each (‘shares’).
A total of 3,321,643 shares were issued
during the year under the Company’s
Restricted Share Plan and, as a result, the
number of shares in issue as at 31
December 2019 was 513,875,563 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 2019, the Company
had been notified of the interests detailed
in the table below in the Company’s shares
in accordance with Chapter 5 of the
Financial Conduct Auhority’s Disclosure
Guidance and Transparency Rules:
Current share repurchase authority
The Company obtained shareholder
approval at the AGM held in June 2019 for
the repurchase of up to 51,055,392 shares
which represented, at that time, 10% of the
Company’s issued share capital (‘the 2019
Authority’). Whilst no purchases have been
made by the Company pursuant to the
2019 Authority, it is intended that
shareholder consent will be sought on
similar terms at this year’s AGM when the
2019 Authority expires.
Additional share capital information
This section provides additional
information as at 31 December 2019.
(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;
Number of
ordinary
shares
Percentage of
voting rights
(indirect)
Percentage of
voting rights
(direct)
Eduardo Hochschild
258,565,3731
50.317%
Majedie Asset Management Limited
25,384,745
4.94%
Van Eck Associates Corporation2
24,715,437
4.81%
1 The shareholding of Mr Eduardo Hochschild is held through Pelham Investment Corporation.
2 The information disclosed is taken from the latest notification received by the Company from Van Eck Associates
Corporation in June 2018.
78
– 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:
– 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
– 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.
Hochschild Mining PLC / Annual Report & Accounts 2019 Shareholder agreements
The Relationship Agreement entered into
prior to the IPO between, amongst others,
the Major Shareholder (as defined in the
Relationship Agreement) and Eduardo
Hochschild (collectively ‘the Controlling
Shareholders’) and the Company:
– contains provisions restricting the
Controlling Shareholders’ rights to
exercise their voting rights to procure an
amendment to the Articles that would be
inconsistent with the Relationship
Agreement; and
– contains an undertaking by the
Controlling Shareholders that they will,
and will procure that their Associates will,
abstain from voting on any resolution to
approve a transaction with a related
party (as defined in the FCA Listing
Rules) involving the Controlling
Shareholders or their Associates.
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) $200m Credit Agreement
Under the terms and conditions of the
$200 million Credit Agreement between,
amongst others, the Group and Scotiabank
Peru S.A.A, a Change of Control obliges the
Group to prepay all Advances (as defined
in the agreement) unless any Lender
notifies the Group that it is declining any
such prepayment in which case the
Advances owing to such declining Lender
shall not be prepaid.
In summary, a Change of Control means
an event or series of events by which: (a)
the Permitted Holders (being Eduardo
Hochschild, his spouse, either of their
descendants or estate or guardian of any
of the aforementioned, a trust for the
benefit of one or more of the
aforementioned or any entity controlled by
any one or more of the aforementioned)
shall for any reason cease, individually or in
the aggregate, to control the Company; or
(b) the Permitted Holders shall for any
reason cease, individually or in the
aggregate, to have the power to appoint at
least a majority of the members of the
Board of Directors or other equivalent
governing body of the Company; or (c) the
Company shall for any reason cease,
directly or through one or more of its
Subsidiaries, to be the ‘beneficial owner’ (as
so defined) of more than 50% of the Equity
Interests in Compania Minera Ares S.A.C.
(b) Long-Term Incentive Plans
Awards made under the Group’s Long-
Term Incentive Plan and Enhanced
Long-Term Incentive Plan shall, upon a
change of control of the Company, vest
early unless a replacement award is made.
Vesting will be pro-rated to take account of
the proportion of the period from the
award date to the normal vesting date
falling prior to the change of control and
the extent to which performance
conditions (and any other conditions)
applying to the award have been met.
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 or she
was elected by the Company.
Approach to appointments 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 who 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/her term of office. The office of
Director shall be vacated if: (i) s/he is
prohibited by law from acting as a Director;
(ii) s/he resigns or offers to resign and the
Directors resolve to accept such offer; (iii)
s/he becomes bankrupt or compounds
with his/her creditors generally; (iv) a
relevant order has been made by any court
on the grounds of mental disorder; (v) s/he
is absent without permission of the
Directors from meetings of the Board for
six months and the Directors resolve that
his/her office be vacated; (vi) his/her
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/her to
resign and within 30 days of being given
notice of such notice s/he so fails to do.
Relationship Agreement
In addition, under the terms of the
Relationship Agreement:
– for as long as the Major Shareholder
has an interest of 30% or more in the
Company, it is entitled to appoint up
to two Non-Executive Directors and to
remove such Directors so appointed; and
– for as long as the Major Shareholder has
an interest of 15% or more of the
Company, it is entitled to appoint up to
one Non-Executive Director and to
remove such Director so appointed.
79
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE SUPPLEMENTARY INFORMATION CONTINUED
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
Interest capitalised
Location
Note 16 to the
consolidated
financial
statements
None
None
None
None
None
None
None
None
Publication of unaudited financial information
Not applicable
Details of specified long-term incentive scheme
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre-emptive issues of equity for cash
Item (7) in relation to major subsidiary undertakings
Parent participation in a placing by a listed subsidiary
(10)(a)
Contract of significance in which a Director is interested
(10)(b)
Contract of significance with controlling shareholder
(11)
(12)
(13)
(14)
Provision of services by a controlling shareholder
Directors’ Report
Shareholder waivers of dividends
Directors’ Report
Shareholder waivers of future dividends
Directors’ Report
Agreement with controlling shareholder
Directors’ Report
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
Amendment of Articles of Association
Any amendments to the Articles may be
made in accordance with the provisions of
the Companies Act by way of special
resolution.
Powers of the Directors
Subject to the Articles, the Companies
Act and any directions given by special
resolution, the business and affairs of the
Company shall be managed by the
Directors who may exercise all such
powers of the Company.
Subject to applicable statutes and other
shareholders’ rights, shares may be issued
with such rights or restrictions as the
Company may by ordinary resolution
decide or, in the absence of any such
resolution, as the Directors may decide.
Subject to applicable statutes and any
ordinary resolution of the Company, all
unissued shares of the Company are at the
disposal of the Directors. At each AGM, the
Company puts in place annual shareholder
authority seeking shareholder consent to
allot unissued shares, in certain
circumstances for cash, in accordance
with the guidelines of the Investor
Protection Committee.
Repurchase of shares
Subject to authorisation by shareholder
resolution, the Company may purchase its
own shares in accordance with the
Companies Act. Any shares which have
been bought back may be held as Treasury
shares or, if not so held, must be cancelled
immediately upon completion of the
purchase, thereby reducing the amount of
the Company’s issued share capital. The
minimum price which must be paid for
such shares is specified in the relevant
shareholder resolution.
Dividends and distributions
Subject to the provisions of the Companies
Act, the Company may by ordinary
resolution from time to time declare
dividends not exceeding the amount
recommended by the Directors. The
Directors may pay interim dividends
whenever the financial position of the
Company, in the opinion of the Directors,
justifies their payment. If the Directors act
in good faith, they are not liable to holders
of shares with preferred or pari passu
rights for losses arising from the payment
of interim dividends on other shares.
80
Hochschild Mining PLC / Annual Report & Accounts 2019 DIRECTORS’ REMUNERATION REPORT
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 2019
which is split into three sections: this Annual
Statement, a summary of the Directors’
Remuneration Policy approved at the 2018
AGM, and the Annual Report on
Remuneration.
As reported earlier in the Annual Report,
2019 was characterised by a strong
operating performance, with Inmaculada
and San Jose producing at record levels
and costs maintained within the forecast
range. It is a credit to management that
they have once again managed to deliver
against budget in what are challenging
technical environments. From an
exploration perspective, we have had more
mixed success - the highlight being the
addition of c.535,000 gold equivalent
ounces of resources discovered at
Inmaculada. Against that, permit delays
were in part a reason why we were unable
to replace mined ounces at Pallancata over
the year.
In the Sustainability Report we have
showcased the Group’s activities and
performance in 2019 in the areas of health
and safety, community relations,
environmental performance and employee
engagement. In 2017, we launched the
Safety Culture Transformation Plan,
designed to embed a safety-first culture
across the organisation. The Board is
delighted that the efforts expended in this
crucial area have resulted in
unprecedented success demonstrated by
our key safety indicators; with accident
frequency index reduced in 2019 by 40%
compared to 2018 and accident severity
index reduced by 94%. To put this into
context, these results for 2019 represent
reductions of 55% and 90% respectively
when compared to the averages over the
previous five years.
The Group continued to perform well in
relation to environmental management
despite a year-on-year reduction in the
internal ECO Score (4.82 out of 6 vs 5.37 in
2018). This score distils our environmental
performance into a single score which is
discussed further on page 49 of this
Annual Report.
Remuneration in 2019
For 2019, the Chief Executive Officer (‘CEO’)
will receive an annual bonus of 142.5% of
salary (equivalent to 95% of maximum). As a
reminder, the annual bonus is linked to a
scorecard of measures that reward
consistency in operational matters and
strong financial performance. The bonus
outcome for 2019 reflects the Company’s
achievement against objectives for
production and financial results which were
met in full and which, together, account for
55% of the bonus score. The remaining 45%
of the bonus score was dependent on the
success of our brownfield exploration
programme, the target for which was
partially met, and Hochschild’s safety and
environmental awareness targets, which
were fully achieved. Further detail on
performance against the bonus scorecard
is included on page 89.
During 2019, the CEO was granted a
Long-Term Incentive Plan (‘LTIP’) award of
200% of salary. The purpose of the LTIP at
Hochschild is to incentivise sustained
shareholder value creation over the long
term. Vesting will be based on performance
over the three financial years to 31
December 2021. Consistent with our
approach for many years, the 2019 award
will vest to the extent that relative Total
Shareholder Return (‘TSR’) targets are
achieved over the period.
Based on relative TSR performance to
31 December 2019, 34% of the six-year
tranche of the legacy 2014 Enhanced
Long-Term Incentive Plan (‘ELTIP’) award
will vest in March 2020 whereas there is nil
vesting of the 2017 LTIP award. Whilst it is
disappointing that the LTIP did not vest,
given strong operational performance over
the past few years, the ELTIP vesting level
reflects the Company’s sustained long-
term TSR performance over a six-year
period to 2019. The Committee reviewed
the formulaic vesting levels in the context of
the Company’s underlying business and
financial performance, and concluded that
they were appropriate and that no further
discretionary adjustment was required.
Implementation of Remuneration
Policy in 2020
For 2020, the maximum annual bonus
opportunity will remain 150% of salary. The
bonus payment will be subject to
performance against broadly the same
measures as those used in 2019.
An LTIP award of 200% of salary is
proposed for 2020, in line with past years.
Vesting will be based on relative TSR vs. a
tailored peer group of precious metals
mining companies (weighted 70% of the
award) and vs. the FTSE350 mining sector
(30%), measured over three years. The TSR
targets for the 2020 award will remain
unchanged vs. previous years.
With only three employees based in the UK,
the Company is not required to provide a
CEO pay ratio. Details of the year-on-year
changes in the CEO’s pay and those of
full-time salaried employees in Peru can be
found in the section headed “Percentage
change in CEO remuneration”.
Looking ahead
Our existing Directors’ Remuneration Policy
was approved by shareholders with 96.9%
support at the 2018 AGM, and we will be
seeking shareholder approval for a new
Policy at the 2021 AGM. Over the course
of 2020, the Committee will be focused
on reviewing the current suite of incentives
to ensure the appropriate alignment of
remuneration to business strategy,
culture, market best practice, and
shareholder preferences.
The new UK Corporate Governance Code,
in particular, has precipitated several
developments in remuneration practice,
which we continue to monitor closely. The
Committee believes that the current
remuneration structure is clear, simple, and
appropriately aligned with the Company’s
strategy, risk appetite and culture, and that
incentives are appropriately capped. It is
intended that the Policy review in 2020 be
focused on similar objectives. We support
the principle of long-term share ownership
and, in 2020, will be reviewing the
appropriateness, and legal enforceability
in Hochschild’s jurisdictions, of a post-
termination share ownership policy. With
regards to pensions, the CEO does not
receive a pension contribution from the
Company, and this is not expected to
change. A formal review of these matters
will be part of the review of Policy during
2020. As well as looking at governance-
driven changes, we will also be looking at
how we calibrate targets in the annual
bonus, and how we measure performance
in the LTIP and potential alternative
structural approaches.
The Committee remains committed to
continued dialogue with our shareholders,
and will be engaging with major
shareholders and other stakeholders in
advance of the 2021 AGM for input to help
shape the proposed Policy.
I hope you, our shareholders, find this report
to be informative. If you should have any
queries or comments on any aspect of this
year’s report, I would welcome engagement
and would encourage you to contact me
through the Company Secretary.
For 2020, the CEO’s salary will remain
unchanged at $700,000.
Michael Rawlinson
Chair of the Remuneration Committee
81
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
This report has been prepared according to the requirements of the Companies Act 2006 (‘the Act’), Regulation 11 and Schedule 8 of
the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and other relevant
requirements of the FCA Listing Rules. In addition, the Board has applied the principles of good corporate governance set out in the
UK Corporate Governance Code, and has considered the guidelines issued by its leading shareholders and bodies such as ISS
(Institutional Shareholder Services), the Investment Association, and the Pensions and Lifetime Savings Association.
As no changes have been made to the Remuneration Policy, which shareholders approved at the 2018 AGM, the full Policy is not
repeated here. The principal objectives of the Policy, the Policy Table for both Executive Directors and Non-Executive Directors,
details of service contracts and letters of appointment of the Board, and the updated pay scenario charts are included below for
information. The full Policy can be found in the 2017 Annual Report and Accounts.
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 TSR.
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.
Policy Table
The table below provides a summary of each element of the Remuneration Policy for Executive Directors.
Performance
metrics
None
None
Element Base salary
Objective and link to strategy To support recruitment and retention
Operation
Opportunity
Salary is reviewed annually, usually in March, or following a
significant change in responsibilities.
To avoid setting expectations, there is no prescribed
maximum salary.
Salary levels are targeted to be competitive and relevant to the
global mining sector, with reference to the relative cost of living.
The Committee also takes into consideration general pay levels
for the wider employee population.
Executive Directors receive Compensation for Time Services
(‘CTS’) and profit share, both of which are provided for by
Peruvian law, as well as certain allowances which may include
medical insurance, the use of a car and driver, and personal
security.
In respect of existing Executive Directors, it is anticipated that
salary increases will generally be in line with the wider employee
population. In exceptional circumstances (including, but not
limited to, a material increase in job size or complexity, the
reversal of a previous salary reduction, or if a Director has not
received an increase for a number of years), the Committee has
discretion to make appropriate adjustments to salary levels.
CTS is a legal entitlement for employees in Peru which provides
for a fund in the event of termination of employment. CTS in
respect of base salary is calculated as one month’s wages and
is deposited biannually in an employee’s interest-accruing bank
account and prior to the end of employment, employees can
gain access to the deposited amount to the extent it exceeds
four months’ wages. CTS in respect of other forms of
remuneration such as incentive payouts, that are considered to
be ‘non-extraordinary’, is currently calculated at a rate of 1/24th.
For the profit share, an amount equal to 8% of the relevant
Peruvian company’s taxable income for the year is distributable
to its employees. This amount is mandated by Peruvian law, and
any increases are not within the control of the Group. The
amount receivable by each Executive Director is determined
with reference to annual base salary (plus other incentive
payouts, if any) and the number of days worked during the
calendar year.
The value of the other benefits varies by role and individual
circumstances; eligibility and cost are reviewed periodically.
The Committee retains the discretion to approve a higher cost
of benefits in exceptional circumstances (for example
relocation) or in circumstances where factors outside the
Company’s control have changed materially (for example
increases in insurance premiums).
82
Hochschild Mining PLC / Annual Report & Accounts 2019 Element Annual bonus
Objective and link to strategy To achieve alignment with the Group’s strategy and commitment to operating responsibly
Operation
Opportunity
Performance metrics
Performance measures, targets and weightings are set at the
start of the year. At the end of the year, the Committee
determines the extent to which targets have been achieved,
taking into account individual performance.
The maximum
annual bonus
opportunity is
150% of salary.
Performance is determined by the Committee by reference to
Group financial measures as well as the achievement of personal/
strategic objectives. The personal/strategic objectives are
typically weighted no higher than 30% of maximum.
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
circumstances such as material misstatement or gross
misconduct.
If deferral is applied, the Committee retains the discretion to
allow dividends (or equivalent) to accrue over the deferral period
in respect of the awards that vest.
For ‘threshold’
and ‘target’ levels
of performance,
the bonus earned
is up to 50% and
up to 75% of
maximum,
respectively.
The Committee retains discretion to vary year-on-year the
weightings for individual measures, 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 and individual
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.
Malus provisions apply, i.e. the Committee has the discretion to
reduce bonus payments on the occurrence of an adverse event
that is attributable (directly or indirectly) to an act or failure to act
by the executive. Such events include those related to health and
safety, the environment or community relations. Other trigger
events include material misstatement, material failure of risk
management, action or omission resulting in serious reputational
damage.
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.
Element Long-Term Incentive Plan (‘LTIP’)
Objective and link to strategy To directly incentivise sustained shareholder value creation through operational performance and to
support the recruitment of senior positions and longer-term retention
Operation
Opportunity
Performance metrics
Awards are made annually, in the form of cash, with vesting
subject to the attainment of specific performance conditions
and continued employment.
Awards have a performance and vesting period of at least three
years. For LTIP awards made in 2018 and subsequent years, 50%
of vested awards is paid immediately on vesting in cash (less
tax), and 50% after tax is invested in Company shares and
normally required to be held for a further two years. Dividends,
if any, will accrue to shares during the holding period.
Maximum annual
award level is
200% of salary
(267% of salary in
exceptional
circumstances,
such as to aid the
recruitment or
retention of an
Executive
Director).
The current performance condition is TSR performance relative
to specific sector-based comparator groups, although the
Committee has the discretion to adjust the performance
measures and/or comparator groups before each cycle to ensure
that they remain appropriate.
Malus provisions apply, i.e. 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
act or failure to act, which is attributable (directly or indirectly) to
an award-holder has resulted in, among other things, an adverse
event related to health and safety, the environment or community
relations; or (iii) on the occurrence of certain trigger events
including material misstatement, material failure of risk
management, action or omission resulting in serious reputational
damage.
Details of the TSR comparator groups and targets used for
specific LTIP grants 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, but within the limits sets out in the Policy Table, in order to facilitate the recruitment of an individual, exercising the discretion
available under Listing Rule 9.4.2R.
The Committee also retains discretion to make non-significant changes to the Policy without going back to shareholders. The
Committee is satisfied that the Remuneration Policy is in the best interests of shareholders and does not promote excessive risk-taking.
83
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
The charts below provide an estimate of the potential future reward opportunities for the CEO, and the potential split between the
different elements of remuneration under four different performance scenarios: ‘minimum’, ‘on-target’, ‘maximum’ and ‘maximum +50%’.
Potential reward opportunities are based on the proposed Remuneration Policy, applied to the CEO’s base salary as at 1 March
2020 of $700,000.
Performance scenario ($’000)
Maximum +50%
Maximum
On-target
Minimum
24%
24%
40%
100%
33%
33%
42%
18%
1,971
787
44%
44%
3,339
3,339
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
CEO total remuneration ($000)
Fixed pay
Single-year variable
Multi-year variable
The chart above excludes the effect of any Company share price appreciation except in the ‘maximum +50%’ scenario.
The ‘minimum’ scenario shows base salary and benefits (that is, fixed remuneration), and associated CTS.
These are the only elements of the CEO’s remuneration package which are not at risk.
The ‘on-target’ scenario reflects fixed remuneration, plus a target payout of 75% of the annual bonus and threshold vesting
of 25% of the maximum award under the LTIP, and associated CTS.
The ‘maximum’ scenario reflects fixed remuneration, plus full payout of all incentives, and associated CTS.
The ‘maximum +50%’ scenario reflects the requirement for a scenario where 50% share price appreciation is included.
As the LTIP is not paid in shares, this scenario is the same as the ‘maximum’ scenario.
Service contracts
Executive Director
Date of service contract
Ignacio Bustamante
1 April 2007
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee.
Ignacio Bustamante was appointed a Director of the Company with effect from 1 April 2010 and is employed under a contract of
employment with Compañia Minera Ares S.A.C. (Ares) dated 1 April 2007. The contract is subject to Peruvian law and, as such, has no
fixed term and may be terminated (i) by the executive on 30 days’ notice and (ii) by Ares without notice. Under Peruvian law, termination
by Ares other than termination for certain prescribed reasons (such as gross negligence) gives rise to an entitlement to compensation
of no less than 1.5 times the monthly base salary for each year of service completed, up to a maximum of 12 months’ base salary.
In addition to these provisions and to reflect Peruvian market practice, the Committee has discretion to award Ignacio Bustamante
up to an additional 12 months’ base salary on termination (other than for the prescribed reasons outlined above). The prevailing
circumstances will be taken into consideration at the time of termination.
84
Hochschild Mining PLC / Annual Report & Accounts 2019 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 this, all Directors are subject to annual re-election by the Company in general meeting in line with the UK Corporate
Governance Code, and the appointments of Non-Executive Directors may be determined by the Board or the Director giving not less
than three months’ notice.
Details of the terms of appointment of the Company’s Non-Executive Directors serving during the year are shown in the table below.
The appointment and reappointment and the remuneration of Non-Executive Directors are matters reserved for the full Board.
Non-Executive Director
Eduardo Hochschild
Dr Graham Birch
Jorge Born Jr.
Eileen Kamerick
Michael Rawlinson
Sanjay Sarma
Dionisio Romero Paoletti
Letter of appointment dated
30 January 2015
20 June 2011
16 October 2006
9 September 2016
18 December 2015
13 December 2016
18 December 2017
Anticipated expiry of present
term of appointment (subject to
annual re-election)
1 January 2022
1 July 2020
16 October 2021
1 November 2022
1 January 2022
1 January 2023
1 January 2021
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 on 1 January 2015, 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
To attract and retain
Non-Executive Directors of
the highest calibre with broad
commercial and other
experience relevant to the
Company.
Fee levels are reviewed from time to time, with
any adjustments typically effective from 1
March each year.
The fee paid to the Chairman is determined by
the Committee, and base fees to
Non-Executive Directors are determined by the
Board. Additional fees are payable for acting
as Chair of the Board’s 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.
Non-Executive Director fees will typically 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.
Performance
metrics
None
In recruiting a new Non-Executive Director, the Committee will use the Policy as set out in the table above. A base fee would be
payable for Board membership, with additional fees payable for those acting as Chair of the Company’s Board Committees and
as Senior Independent Director, as appropriate.
85
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
Annual Report on Remuneration
The following section provides details of how Hochschild’s approved 2018 Remuneration Policy was implemented during the financial
year ending 31 December 2019, and how the Remuneration Committee intends to implement the Remuneration Policy in 2020.
Any information contained in this section of the report that is subject to audit has been marked as such.
Remuneration Committee membership
The Remuneration Committee was chaired during the year under review by Michael Rawlinson (Chair from 1 January 2018), and its
other members were Graham Birch and Eileen Kamerick. The Remuneration Committee has comprised, at all times, only 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 the terms of reference 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 or her own
remuneration arrangements are considered by the Committee.
The Committee’s terms of reference
The duties of the Remuneration Committee are to determine and agree with the Board the broad policy for the remuneration of the
Executive Directors, the other members of senior management and the Company Secretary, as well as their specific remuneration
packages including pension rights and, where applicable, any compensation payments. In determining such policy, the Remuneration
Committee shall take into account all factors which it deems necessary to ensure that members of the senior executive management
of the Group are provided with appropriate incentives to encourage strong performance, and are rewarded in a fair and responsible
manner for their individual contributions to the success of the Group. Following the publication of the 2018 edition of the UK Corporate
Governance Code, the Committee’s terms of reference were revised during the year to include, among other things, the extension of its
responsibilities to review workforce remuneration and related policies and their alignment with culture.
The Remuneration Committee met three times during the year (details of members’ attendance at meetings are provided in the
Corporate Governance Report on page 77) and undertook the items of business noted below.
Key activities of the Remuneration Committee in 2019:
– Considered, and recommended to the Board the adoption of, revised terms of reference in light of the 2018 edition
of the UK Corporate Governance Code;
– Considered external market developments and best practice in remuneration, and latest shareholder guidelines;
– Reviewed the structure and terms of the LTIP and the annual bonus;
– Reviewed and approved incentive outcomes for 2018 (2018 annual bonus and vesting of 2016 LTIP awards and the second
tranche of 2014 ELTIP awards);
– Reviewed the CEO’s total remuneration, including salary for 2019;
– Considered and approved the 2018 Directors’ Remuneration Report (‘DRR’);
– Considered investor feedback on the 2018 DRR;
– Approved the opportunity/award level and performance targets for 2019 annual bonus and LTIP awards;
– Considered and approved the CEO’s 2019 objectives; and
– Reviewed the remuneration structure for employees across the Group and linkages to the organisation’s cultural values.
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, Mercer Kepler. Mercer Kepler reports directly to the Committee
Chair, 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 Mercer 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 Mercer Kepler in respect of work carried out in 2019 (based on time and materials) totalled £34,785, excluding expenses and VAT.
The Committee undertakes due diligence periodically to ensure that Mercer Kepler remains independent of the Company and that the
advice provided is impartial and objective. The Committee is satisfied that the advice provided by Mercer Kepler is independent.
86
Hochschild Mining PLC / Annual Report & Accounts 2019 Summary of shareholder voting
The table below shows the results of the advisory vote on the 2018 Annual Report on Remuneration at the 2019 AGM, as well as of the
binding vote on the 2018 Remuneration Policy at the 2018 AGM:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
2018 Remuneration
Policy
2018 Annual Report
on Remuneration
Total number
of votes
392,578,326
12,459,724
405,038,050
7,681
% of votes cast
96.92%
3.08%
Total number
of votes
349,704,099
55,937,042
405,641,141
2,225,776
% of votes cast
86.21%
13.79%
Note: Votes withheld are not included in the final proxy figures as they are not recognised as votes in law.
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 2019 and the prior year:
Base salary1
Taxable benefits2
Total fixed
Single-year variable3
Multi-year variable4
Restricted shares5
Profit share6
Total variable
Compensation for Time Service (‘CTS’)7
Tax refunds8
Total remuneration
All figures are rounded to the nearest $000.
2019
(US$000)
2018
(US$000)
700
28
728
998
458
1,359
184
2,999
176
7
3,910
700
20
721
945
1,705
605
0
3,255
191
7
4,174
Notes:
1. Figures disclosed include certain statutory payments accounted for internally within base salary (‘Statutory Supplements’) as follows: 2019: $300; 2018: $300.
2. Taxable benefits include: use of a car and driver (2019: $22k; 2018: $14k) and medical insurance.
3. Payment for performance during the year under the Annual Bonus Plan. See following sections for further details.
4. 2019 value represents the third (six-year) tranche of the 2014 ELTIP vesting at 34% (comprising (a) $436k using the three-month average share price to 31 December 2019 of 179.6p
and (b) $22k, being the value of dividend entitlements from the date of award to the date of vesting, payable in cash) based on performance to 31 December 2019 and subject to
continued employment on the vesting date. The vested award is paid in shares and even though the £-based share price increased over the vesting period by 16.0%, the $-value of
the award fell due to the GBP:USD exchange rate declining by 22.0% over the same period. 2018 value comprises: (a) the 2016 LTIP award ($1,400k), and (b) a restatement, as required
by reporting regulations, of the value of the second (five-year) tranche of the 2014 ELTIP vesting at 43% (which is itself comprised of (a) $296k using the share price on the date of
vesting of 194.2p, rather than the three-month average share price to 31 December 2018 and (b) $9k, being the value of dividend entitlements from the date of award to the date of
vesting, payable in cash).
5. 2019 value comprises the fourth and final tranche of restricted shares (being 40% of the total award) granted on 30 December 2014 which vested on 30 December 2019 at a share
price of 173.5p; the Committee determined that the individual performance underpin had been met. 2018 value comprises the third tranche of restricted shares (being 20% of the
total award) granted on 30 December 2014 which vested on 30 December 2018 at a share price of 160.0p.
6. All-employee profit share mandated by Peruvian law (see policy table for further information).
7. For further details on CTS, see page 82. 2019 CTS comprises: CTS on base salary ($58k), 2019 bonus ($42k), fourth tranche of vested RSP awards ($57k), and third tranche of the 2014
ELTIP ($19k). 2018 CTS comprises: CTS on base salary ($58k), 2018 bonus ($39k), 2016 LTIP ($58k), third tranche of vested RSP awards ($25k), and second tranche of the 2014 ELTIP ($10k).
8. Refunds payable in relation to social security following a change in regulations
87
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
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 2019 and the prior year:
Eduardo Hochschild1
Dr Graham Birch
Jorge Born Jr
Eileen Kamerick
Michael Rawlinson
Dionisio Romero
Sanjay Sarma
Base fee
(US$000)
Additional fees
(US$000)
Taxable benefits
(US$000)
Total
(US$000)
2019
400
90
90
90
90
90
90
2018
400
93
93
93
93
93
93
2019
2018
0
0
0
18
36
0
0
0
0
0
19
37
0
0
2019
651
2018
531
0
0
0
0
0
0
0
0
0
0
0
0
2019
1,051
90
90
107
125
90
90
2018
931
93
93
112
131
93
93
All figures are rounded to the nearest $000.
Notes:
1. Eduardo Hochschild was an Executive Director until 31 December 2014 and, as reported in the 2015 report, Eduardo Hochschild retained eligibility to receive benefits following his
transition to the Non-Executive Chairman role comprising personal security, medical insurance and company car.
Salary and fees for the year ended 31 December 2019
Executive Director
The Committee reviewed the CEO’s salary in 2019 and determined that there would be no increase.
Executive Director
Ignacio Bustamante
Base salary from
1 March 2019 (US$000)
Base salary from
1 March 2018 (US$000)
700
700
% change
-
Base salary above excludes CTS. Ignacio Bustamante’s salary is denominated in US dollars.
Non-Executive Directors
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 Chair of the Remuneration Committee, Chair of the Audit Committee and Senior Independent Director.
No change to fees was made in 2019.
A summary of current fee levels is provided below:
Base salary from
1 March 2019 (US$000)
Base salary from
1 March 2018 (US$000)
% change
Non-Executive Chairman’s fee
Non-Executive Director base fee
Additional fees:
Senior Independent Director
Chair of the Audit Committee
Chair of the Remuneration Committee
US$400,000
£70,000
£14,000
£14,000
£14,000
US$400,000
£70,000
£14,000
£14,000
£14,000
-
-
-
-
-
88
Hochschild Mining PLC / Annual Report & Accounts 2019 Incentive outcomes for the year ended 31 December 2019 (audited)
Annual bonus in respect of 2019 performance
Objectives for the 2019 bonus were set by the Committee at the beginning of the year and assessment of performance during the
year was undertaken at the February 2020 Committee meeting.
Details of the bonus paid to the CEO for 2019, 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
Production1 (Oz Ag Eq)
Adjusted EBITDA2
Target
weighting
25%
15%
Targets
2019 Assessment
Threshold
Target
Maximum
2019 result Bonus score
36.5m
37.0m
37.8m
38.3m
US$195m US$210m US$224m
US$231.5m
AISC from operations with growth3
15% US$12.6 /Oz US$12.3 /Oz US$12.0 /Oz
US$11.8 /Oz
Brownfield exploration Inferred resources (subject to
permits available) (Oz Ag Eq)
Safety and
environmental
awareness
Accident frequency rate (LTIFR)
Accident Severity Index
ECO Score4
Bonus payable (as a percentage of maximum opportunity)
10%
15%
10%
10%
40m
3.00
540
60m
2.50
450
3.5 – 3.99
4.0 – 4.49
80m
2.00
300
≥ 4.5
56.7m
1.05
54
4.82
25%
15%
15%
5%
15%
10%
10%
95%
Notes:
1. Production is adjusted to exclude unbudgeted production from Arcata.
2. Adjusted EBITDA is used for the annual bonus and is determined based on EBITDA adjusted to neutralise price effects and to exclude the portion of unbudgeted workers’ profit
sharing and bonuses (“Unbudgeted 2019 Compensation”).
3. All-in sustaining cost is adjusted to ensure comparability with the objective set at the beginning of the year and therefore disregards the impact of Unbudgeted 2019 Compensation.
4. Refer to the Sustainability Report on page 49 for further details on the methodology of calculating the Group’s ECO Score (the internally designed measurement of the Company’s
environmental performance).
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. The bonus scores for each objective are summed which translates into a percentage
which is applied to the maximum bonus opportunity.
The Committee assessed performance against the scorecard and the CEO’s performance in 2019. 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), the higher provision for
vesting of LTIP awards (based on relative Total Shareholder Return), and any budgetary additions approved by the Board. Hochschild
has had a successful year in terms of profitable production and cost control and, accordingly, the production and financial targets have
been met in full. As stated in the Exploration Review, due to permitting delays and geological conditions, the brownfield exploration
objective was not fully met and, after consideration, the Remuneration Committee concluded that performance should result in a
partial payout. The ECO Score for the year was 4.82, meaning that the most stretching objective has been satisfied.
As stated earlier in the report, 2019 was a year of unprecedented performance in terms of safety. The Committee acknowledges
that this is largely attributed to the ‘the Safety Culture Transformation Plan designed by management which was launched in 2017.
This plan comprises short-term and longer-term actions focusing on (a) enhancing Hochschild’s risk management systems, (b)
establishing a leadership programme comprising workshops and initiatives to promote safe working, (c) the redesign of the annual
training programmes for our workers, and (d) a comprehensive programme to enhance internal communications on safety. The
Sustainability Report from page 40 describes in more detail the actions taken as part of the Safety Culture Transformation Plan
during 2019.
The Committee’s assessment of performance resulted in the award of a bonus to the CEO of 95% of the maximum opportunity, which
equates to 142.5% of salary.
89
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
2017 LTIP vesting
On 8 March 2017, Ignacio Bustamante was granted an award under the LTIP with a face value of US$1,400,000. 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
Weighting
70%
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
Relative TSR performance vs. constituents of the
FTSE350 Mining Index3
30%
Median TSR +10% p.a.: full vesting
Median TSR: 25% vesting
Straight-line vesting between these points
Notes:
1. TSR is calculated on the average of local and common currencies.
2. The 2017 LTIP peer group, at the time of the granting of the award, comprised: 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.
3. As at the start of the performance period.
The Remuneration Committee considered corporate activity affecting the 2017 LTIP peer group and the constituents of the FTSE350
Mining Index and concluded that the Company’s TSR over the performance period between 1 January 2017 and 31 December 2019
ranked 38th percentile vs. that for the tailored peer group and underperformed the median of the constituents of the FTSE350 Mining
Index by 16.3% per annum. Accordingly, the award will lapse in full.
2014 ELTIP vesting
On 20 March 2014, Ignacio Bustamante was granted an award of 1,076,122 shares under the 2014 ELTIP (as adjusted for the rights
issue in October 2015). 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
1 January 2014 to 31 December 2017 in respect of 25% of the award
1 January 2014 to 31 December 2018 in respect of 25% of the award
1 January 2014 to 31 December 2019 in respect of 50% of the award
Vesting dates (subject to performance)
20 March 2018 in respect of 269,030 shares
Performance conditions
Relative TSR performance:
20 March 2019 in respect of 269,030 shares
20 March 2020 in respect of 538,062 shares
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 as at the date of grant
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 third tranche of these shares will vest based on the six-year period ending 31 December 2019. The Remuneration Committee
considered corporate activity affecting the tailored peer group and concluded that the Company’s TSR over the performance period
between 1 January 2014 and 31 December 2019 ranked 54.5th percentile vs. that for the tailored peer group. The Committee is
satisfied that the vesting reflects the underlying financial and operational performance over the performance period. Therefore,
34% of the award will vest on 20 March 2020, subject to continued employment on the vesting date.
90
Hochschild Mining PLC / Annual Report & Accounts 2019 Scheme interests awarded in 2019 (audited)
On 20 February 2019, Ignacio Bustamante was granted a cash-settled award under the LTIP with a face value of $1,400,000.
Vesting is dependent on three-year relative TSR from 1 January 2019 to 31 December 2021, 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, (ii) an
act or failure to act, which is attributable (directly or indirectly) to an award-holder has resulted in, among other things, an adverse event
related to health and safety, the environment or community relations, or (iii) on the occurrence of certain trigger events including
material misstatement, material failure of risk management, action or omission resulting in serious reputational damage. After payment
of tax, 50% of the vested award is settled in cash and 50% will be required to be invested in Hochschild shares and held for a further
period of two years. Dividends, if any, will accrue to shares during the holding period. Further details, including vesting schedules, are
provided in the table below:
Executive Director
Grant date
Performance period
Ignacio Bustamante
20 February 2019
1 January 2019 to
31 December 2021
Performance measure
Relative TSR1 performance vs. tailored peer group2
Weighting
70%
Face value of
award at grant
Award value for
threshold performance
$1,400,000
$350,000
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
Relative TSR performance vs. constituents of the
FTSE350 Mining Index3
30%
Median TSR +10% p.a.: full vesting
Median TSR: 25% vesting
Straight-line vesting between these points
Notes:
1. TSR is calculated on the basis of common currency.
2. The 2019 LTIP peer group, at the date of grant, comprised: Acacia Mining, Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold, Centamin, 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, Silver Standard Resources, Tahoe Resources, and Volcan Compania Minera.
3. As at the start of the performance period.
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.
91
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
Implementation of Remuneration Policy for 2020
A summary of how the Remuneration Policy will be applied for the year ended 31 December 2020 is provided below.
Salary
The Committee reviewed the CEO’s salary and has determined that it will remain unchanged at $700,000 (excluding CTS).
Annual bonus
The maximum annual bonus opportunity for the CEO for the 2020 financial year will remain at 150% of salary. The bonus payment will
be subject to performance against broadly the same measures as those used in 2019. Further disclosure of measures and targets,
where not commercially sensitive, will be provided in next year’s Annual Report on Remuneration. In line with Remuneration Policy,
payout for ‘threshold’ and ‘target’ performance will be 50% and 75% of the maximum opportunity, respectively.
As in 2019, the Committee will assess performance against the objectives set and calculate an overall bonus score which will be
applied to the maximum bonus opportunity. The bonus will be subject to malus provisions in line with the Remuneration Policy.
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 2020 within the maximum limits described in the Remuneration Policy.
The performance conditions will be the same as for 2019 awards.
50% of any vested LTIP award will be paid immediately in cash, with the remaining 50% invested (on a post-tax basis) in the Company’s
shares which are required to be held for a further two years.
Malus provisions will apply to LTIP awards granted in 2020 in line with the Remuneration Policy.
Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration from the prior year compared with the percentage change
in remuneration for all other employees.
Base salary2
Taxable benefits3
Single-year variable4
CEO remuneration US$000
Other employees1
2019
700
28
1,182
2018
700
20
945
% change
0%
+40%
+25.1%
% change
+6.74%
n/a
+71.5%
Notes:
1. ‘Other employees’ comprise full-time salaried employees in Peru.
2. Base salary only (i.e. excluding Statutory Supplements – see footnote 1 to table on single figure of total remuneration for Executive Directors on page 87).
3. Taxable benefits include the use of a car and driver, and medical insurance. See footnote 2 to table on single figure of total remuneration for Executive Directors on page 87).
4. Single-year variable comprises (a) bonus (calculated with reference to base salary only, i.e. before CTS and tax rebates) and (b) estimate of statutory profit-share due to the
unavailability of final data as at the date of this report.
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 2018 to the financial year ended 31 December 2019.
Distribution to shareholders (US$000)1
Employee remuneration (US$000)
2019
22,200
2018
20,000
% change
11%
2019
152,440
2018
153,566
% change
-0.73%
Notes:
1. Comprises the interim dividend and the final dividend (or in the case of 2019, the proposed final dividend).
The Directors are recommending the payment of a final dividend of US$12m for the year ended 31 December 2019.
Pay for performance
The following graph shows the TSR for the Company compared to the FTSE350 Mining Index and FTSE250 Index, assuming £100
was invested on 31 December 2009. The Board considers that the FTSE350 Mining Index is an appropriate published index as it
reflects the sector that Hochschild operates in, and the FTSE250 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 10 years. The table below details the CEO’s single figure
remuneration and actual variable pay outcomes over the same period.
92
Hochschild Mining PLC / Annual Report & Accounts 2019
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the 10 years to 31 December 2019
700
600
500
400
300
200
100
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Hochschild
FTSE250
FTSE350 Mining Index
CEO
Miguel
Aramburú
20101
20101
2011
2012
2013
2014
2015
2016
2017
2018
2019
Ignacio
Bustamante
CEO single figure
of remuneration ($000)
Annual bonus
outcome
(% of maximum)
1,019
1,525
1,120
1,852
999
924
1,328
3,474
4,519
4,174
3,910
46%
100%
100%
90%
81%
67%
67%
83%
83%
90%
95%
LTI vesting outcome
(% of maximum)
0%
47%
(LTIP)
0%
98%
(LTIP)
0%
0%
0%
Notes:
1. Miguel Aramburú resigned on 31 March 2010. Ignacio Bustamante was appointed on 1 April 2010.
0%
(ELTIP)
90%
(LTIP)
86%
(ELTIP)
100%
(LTIP)
43%
(ELTIP)
100%
(LTIP)
34%
(ELTIP)
0%
(LTIP)
93
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
Directors’ interests (audited)
The interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2019 are detailed in the table below.
The Company has adopted shareholding guidelines whereby all Executive Directors (currently only the CEO) are required to acquire and
retain a beneficial shareholding in the Company equal to at least 250% of base salary. The CEO is required to invest 20% of a vested
LTIP award granted before 2018 (on a net basis) and retain 50% of the after-tax vested ELTIP shares until such time as he has met the
shareholding guideline. In respect of LTIP awards granted from 2018, the CEO will be required to invest 50% of the cash-settled award
(on a net basis) regardless of his achievement of the shareholding guideline.
Owned
outright or
vested at
31 Dec 2018
(or date of
appointment
if later)
Shares held
Owned
outright or
vested at
31 Dec 2019
(or date of
retirement if
earlier)
1,221,317
1,933,629
258,565,373 258,565,373
33,750
0
0
0
0
15,000
33,750
0
0
0
0
0
Ignacio Bustamante
Eduardo Hochschild
Dr Graham Birch
Jorge Born Jr
Eileen Kamerick
Michael Rawlinson
Dionisio Romero
Sanjay Sarma
Vested but
subject to
holding
period
Unvested and
subject to
performance
conditions
Unvested
and subject
to deferral
only
Shareholding
requirement
(% of salary)
Current
shareholding
(% of salary)
Requirement
met?
0
538,062
0
250%
670%1
Yes
Notes:
1. Using the Company’s closing share price and GBP/USD exchange rate as at 31 December 2019 (being the last trading day of the year) of 182.99p and £1: $1.3262 respectively.
There have been no changes to Directors’ shareholdings since 31 December 2019.
Directors’ interests in share options, shares and cash awards in Hochschild long-term incentive plans and all employee plans
Details of Directors’ interests in shares and cash awards under Hochschild’s long-term incentives are set out in the table below.
Ignacio
Bustamante
2014 ELTIP
2014 ELTIP
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP3
RSP4
Date
of grant
Share price
at grant 1
Exercise price
at grant
20.03.14
20.03.14
09.03.16
08.03.17
25.05.18
20.02.19
30.12.14
155p
155p
n/a
n/a
n/a
n/a
77p
Nil
Nil
n/a
n/a
n/a
n/a
Nil
Number
of shares
awarded 1
269,030
538,062
n/a
n/a
n/a
n/a
596,630
Face value
at grant 2
Performance
period
£416,996
£833,996
01.01.14 – 31.12.18
01.01.14 – 31.12.19
$1.4m 01.01.16 – 31.12.18
$1.4m 01.01.17 – 31.12.19
$1.4m 01.01.18 – 31.12.20
$1.4m 01.01.19 – 31.12.21
n/a
£458,094
Vesting
date
20.03.19
20.03.20
09.03.19
08.03.20
25.05.21
20.02.22
30.12.19
Notes:
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 penny.
2. The face values of equity-settled incentives are stated in Pounds Sterling, and cash-settled incentives, namely LTIP awards, are stated in US dollars (to be paid in
US dollars or its equivalent in Peruvian Nuevos Soles). These figures have been updated for the October 2015 rights issue.
3. See ‘Scheme interests awarded in 2019’ for further details.
4. This tranche of the 2014 RSP vested on 30 December 2019.
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
The table below details the fees received and retained by Ignacio Bustamante, who was the only Executive Director in office during 2019,
in respect of his external Directorships.
Name of company
Profuturo AFP
Scotiabank Peru SAA
Signed on behalf of the Board
Michael Rawlinson
Chair of the Remuneration Committee
18 February 2020
94
Fee received
US$42,000
US$60,000
Hochschild Mining PLC / Annual Report & Accounts 2019 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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.
95
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC
INDEPENDENT
AUDITOR’S REPORT
Opinion:
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 2019 and of the Group’s
profit for the year then ended;
– the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(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.
We have audited the financial statements of Hochschild Mining
PLC which comprise:
Group
Parent Company
Consolidated statement
of financial position as at
31 December 2019
Statement of financial position as
at 31 December 2019
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
Consolidated statement of
changes in equity for the year
then ended
Statement of cash flows for the
year then ended
Related notes 1 to 13 to the
financial statements including
a summary of significant
accounting policies
Consolidated statement of cash
flows for the year then ended
Related notes 1 to 37 to the
consolidated financial statements,
including a summary of significant
accounting policies
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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report below. We are independent of the Group and
Parent Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council’s (FRC) Ethical Standard
as applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
96
Conclusions relating to principal risks, going concern
and viability statement
We have nothing to report in respect of the following information in
the Annual Report, in relation to which the ISAs (UK) require us to
report to you whether we have anything material to add or draw
attention to:
– the disclosures in the Annual Report set out on pages 50 to 54
that describe the principal risks and explain how they are being
managed or mitigated;
– the Directors’ confirmation set out on page 55 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 Directors’ statement set out on page 60 in the Annual Report
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 12 months from the
date of approval of the financial statements;
– whether the Directors’ statement in relation to going concern
required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit; or
– the Directors’ explanation set out on page 55 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.
Overview of our audit approach
Key audit
matters
of the Group’s mining assets
– Recoverability of the carrying value
Audit
scope
– Revenue recognition
– Mine rehabilitation provisions
– We performed an audit of the complete financial
information of three components, audit procedures
on specific balances for a further three components
and for the remaining 12 components we
performed other audit procedures.
– The components where we performed full or
specific audit procedures accounted for 99% of
Adjusted EBITDA, 100% of Revenue and 96% of
Total assets.
Materiality
– Overall Group materiality of US$6.9m which
represents 2% of Adjusted EBITDA.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Hochschild Mining PLC / Annual Report & Accounts 2019 Key observations
communicated to
the Audit Committee
As a result of the audit
procedures performed,
we have concluded that
management’s
impairment indicator
analysis and impairment
assessment for the
Group’s CGUs has been
carried out appropriately
and in accordance with
the requirements of IFRS.
We further concluded that
the significant assumptions
used in the recoverable
value models prepared
by management were
appropriate, and when
applicable, fell within the
range of acceptable
outcomes that we
had calculated.
Based on the procedures
performed, we consider
the impairment charge of
$14.7m recognised in
respect of the Pallancata
CGU to be appropriate
and that the carrying
values of the San Jose
and Volcan CGUs are not
impaired nor require a
reversal of impairment as
at 31 December 2019.
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 71);
Accounting policies (page 109); and Notes 16, 17
and 18 to the Consolidated Financial
Statements.
Our approach focused on the following procedures:
–We obtained an understanding of management’s process and key controls
over impairment of mining assets, and walked through the controls, in
order to assess their design effectiveness in supporting the prevention,
detection or correction of material errors in the financial statements
–We obtained management’s assessment of whether any indicators of
At 31 December 2019 the carrying values of the
Group’s mining assets were:
impairment or reversal of impairment were present during 2019, following
the requirements of IFRS
–Property, plant and equipment: US$795.3m
–We challenged the validity and completeness of the indicators identified
(2018: US$849.2m);
–Evaluation and exploration assets: US$181.6
(2018: US$155.2); and
–Intangible assets: US$22.4m (2018: US$24.4m).
IFRS requires companies to test cash generating
units (CGUs) for impairment whenever an
indicator exists. 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.
For the Group, CGUs represent individual mines
and advanced exploration projects.
Additionally, IFRS requires companies to test
the CGUs for impairment reversal at the end
of each reporting period by assessing whether
there is any indicator that an impairment loss
recognised in prior periods (for an asset other
than goodwill) may no longer exist, or may
have decreased.
For the Group, the appropriate CGUs are:
by management. For this purpose, we considered management’s
assessment by reference to our knowledge of the business and the
following procedures:
– We independently obtained spot and analysts’ forecasts of future gold
and silver prices as at 31 December 2018 and 2019, and assessed
whether the movements were indicators of impairment or impairment
reversal
– We independently obtained and tested relevant support of
management’s position on market interest rates and other macro-
economic factors
– For all operating mines, we assessed the economic performance of the
CGUs during the year and identified progress against approved mine
plans and budgets, taking into account updated reserves and resources
estimates
– For exploration projects we obtained an understanding of
management’s plans to recover the carrying value in full from
successful development or sale
–We obtained the recoverable value models from management for all
those CGUs requiring a full impairment assessment and assessed the
appropriateness of the methodology applied in preparing the model as
well as the arithmetical accuracy of management’s model.
–Operating mines: Pallancata, Inmaculada and
–With respect to the recoverable value model for the San Jose and
San Jose; and
Pallancata CGUs, we performed the following procedures:
–Advanced exploration projects: Volcan, Azuca
– We challenged the appropriateness of key assumptions such as price,
and Crespo.
The Volcan CGU includes an intangible asset
with an indefinite useful life and therefore is
tested for impairment at least annually and
whenever there is an indication that the asset
might be impaired.
As disclosed in note 16 to the financial
statements, indicators of impairment were
identified in 2019 with respect to the San Jose
and Pallancata CGUs, and therefore
management performed impairment tests
on those CGUs.
As a consequence of the above indicators,
management estimated the recoverable
amount of these assets and determined no
impairment charge nor reversal of impairment
was required in respect of the San Jose CGU
and recognised an impairment charge of
$14.7m in respect of the Pallancata CGU.
There is a risk that the carrying values
of the Group’s mining assets might not be
recoverable or could require additional
reversal of impairments previously recognised.
The risk relating to recoverability of the
carrying value of mining assets has remained
stable in comparison to the prior year.
production volumes, grades, operating cost and capex by comparing to
third party/independent sources or other evidence (including searching
for contra-evidence) and performed sensitivity analyses on significant
inputs
– We undertook a rigorous assessment of management’s track record of
accuracy in forecasting to determine the reliability of current forecast.
We agreed the main inputs to the approved mine plans or budgets, and
compared them with historical actual figures where appropriate
– We involved our valuation specialists to assist us in assessing the
appropriateness of the discount rates used in the calculations
–With respect to the recoverable value model for the Volcan CGUs, we
agreed the main inputs used to information from third party/independent
sources and involved our valuation specialists to assist us in assessing
the appropriateness of the methodology applied to determine the
carrying value of the CGU as well as the reasonableness of the risk
premium used therein
–We compared the calculated recoverable value of the San Jose,
Pallancata and Volcan CGUs to the associated carrying value, assessing
whether any impairment charges, or reversal of previously recognised
impairment charges, were necessary
–Furthermore, we considered the appropriateness, sufficiency, and clarity
of the impairment-related disclosures provided in the financial
statements, including sensitivity disclosures
We performed audit procedures at the Group level over this risk area
covering 100% of the amount at risk.
97
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC CONTINUED
Key observations
communicated to
the Audit Committee
As a result of the
procedures performed,
we concluded that the
Group has appropriately
accounted for the
revenue transactions in
accordance with IFRS.
Risk
Our response to the risk
Revenue recognition
Our approach focused on the following procedures:
Accounting policies (page 113); and Note 5 to
the Consolidated Financial Statements.
For the year ended 31 December 2019 the
Group recognised revenue from operations
of US$755.7m (2018: US$704.3m).
The complexity of terms that define when
control passes to the customer and the high
value of transactions, gives rise to the risk
that revenue is materially misstated through
recognition in the incorrect period. Cut-off is
the key area of risk.
–We obtained an understanding of management’s process and key
controls around the revenue recognition process. We walked through the
controls in order to assess their design effectiveness in supporting the
prevention, detection and correction of misstatements in the reported
revenue figures
–We read the terms and conditions of the sales contracts and ensured that
they have been accounted for in line with the Group’s revenue recognition
policy
–We performed detailed substantive testing procedures over 100% of the
revenue transactions. This included: agreeing the main inputs to
supporting evidence (such as provisional and final invoices, credit/debit
notes, bill of ladings, market prices, agreements and bank statements),
recalculating the amounts invoiced and recorded as revenue and
performing cut-off testing to ensure revenue was recognised in the
correct period
–For open sales where provisional pricing applies, we verified with external
sources that inputs used were appropriate and recalculated the
provisional price adjustment to ensure it was correctly measured
–We performed analytical review procedures comparing current year to
prior year, investigating unusual variances taking into account: commodity
type, quantities sold, prices (including discounts) and customers
–We investigated and understood the nature of any significant credits
raised post year-end to ensure that transactions were recorded at the
correct value in the relevant period
–We tested the reconciliation of year-end inventory by agreeing the annual
movement of production and sales transactions to the respective reports.
We assessed whether there is any performance obligation related to CIF
Incoterm shipping services that would need to be deferred, as required by
IFRS 15
–We read and assessed the financial statements’ disclosures to ensure
that all presentation and disclosure requirements in respect of revenue
and provisional pricing have been included
We performed audit procedures in two components subject to a full scope
audit, covering 100% of the amount at risk, supervised by the Group team.
Mine rehabilitation provisions
Our approach consisted of the following procedures:
Refer to the Audit Committee Report (page 72);
Accounting policies (page 113); and Note 26 to
the Consolidated Financial Statements.
At 31 December 2019 management has
recorded a mine rehabilitation provision of
US$106.7m (2018: US$93.9m).
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 in assessing the method, timing
and quantum of the cash flows required to
rehabilitate mines, there is a risk that the
provision is not appropriately valued.
–We obtained an understanding of management’s process to estimate the
future restoration costs
–We obtained a detailed understanding 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
–We assessed the objectiveness and competence of the external and
internal specialists used by management
–We understood the main changes or lack of changes in estimates and
new restoration costs and challenged the rationale 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
–In addition, we proactively sought out potential contrary evidence that
could indicate the need for further changes to estimates, considering, for
example, changes in the life of mine, acquisitions, press releases, Board
minutes and management inquiries
The risk relating to mine rehabilitation
provisions has remained stable in comparison
to the prior year. However, as certain mines are
approaching the end of their life, this matter
had a greater effect on directing the efforts
of the engagement team and therefore we
consider it as a key audit matter.
–We performed an overall recalculation of the mine rehabilitation provision,
including assessing the appropriateness of the discount rate applied by
agreeing the nominal risk- free rate according to the life of each mine unit
to independent sources
–We assessed the appropriateness of 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 on two full scope components covering
100% of this risk amount, under the supervision of the Group team.
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 procedures
performed, we consider
the judgements and
assumptions made by
management and the
external specialists to
be reasonable.
The key audit matters in the current year audit report have not changed since the prior year.
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.
98
Hochschild Mining PLC / Annual Report & Accounts 2019 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 Group audit engagement
team, or by component auditors from other EY global network
firms operating under our instruction. The audit procedures on
two of the full scope components were performed by component
team auditors and for the other full scope component, the audit
procedures were performed directly by the Group audit team.
For the three specific scope components, the Group audit team
performed the audit procedures.
The Group audit team continued to follow a programme of
planned visits that has been designed to ensure that the Senior
Statutory Auditor visits each of the primary operating locations
where the Group audit scope was focused. During the current
year’s audit cycle, one visit was undertaken by the Group audit
team (including the Senior Statutory Auditor) to the component
team in Peru and one visit to the component team in Argentina.
These visits involved discussing the audit approach with the
component team and any issues arising from their work, and
meetings with local management. In addition, the Group team
interacted regularly with the component teams where appropriate
during various stages of the audit, were responsible for the scope
and direction of the audit process, including attending planning
and closing meetings, and reviewed key audit working papers on
risk areas. This, together with the additional procedures
performed at Group level, gave us appropriate evidence for our
opinion on the Group financial statements.
An overview of 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, risk profile, the organisation of the Group
and effectiveness of Group-wide controls, changes in the business
environment and other factors such as recent Internal Audit results
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 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.
We performed an audit of the complete financial information of
three components (“full scope components”) which were selected
based on their size or risk characteristics. In addition to this, for
three components (“specific scope components”), we performed
audit procedures on specific accounts within those components
that we considered had the potential for the greatest impact on
the financial statements either because of the size of these
accounts or their risk profile.
The reporting components where we performed audit
procedures accounted for 99% (2018: 98%) of the Group’s Adjusted
EBITDA (on an absolute basis), 100% (2018: 100%) of the Group’s
Revenue and 96% (2018: 97%) of the Group’s Total assets. For the
current year, the three full scope components contributed 99%
(2018: 98%) of the Group’s Adjusted EBITDA, 100% (2018: 100%) of
the Group’s Revenue and 84% (2018: 89%) of the Group’s Total
assets. The three specific scope components contributed 12%
(2018: 8%) of the Group’s Total assets. The audit scope of these
specific scope components may not have included testing of all
significant accounts of the component but will have contributed to
the coverage of significant accounts tested for the Group.
Of the remaining 12 components that together represent
less than 1% of the Group’s Adjusted EBITDA (2018: 2%), none
are individually greater than 1% of the Group’s Adjusted EBITDA.
For these components, we performed other procedures, including
analytical reviews, testing of consolidation journals and enquiry of
management about unusual transactions in these components,
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 %
Full scope
components 99%
Other procedures 1%
Full scope
components 100%
Full scope
components 84%
Specific scope
components 12%
Other procedures 4%
99
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC CONTINUED
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
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$6.9 million
(2018: US$5.4 million), which is 2% (2018: 2%) of the Group’s
Adjusted EBITDA as reported in the Strategic Report. We believe
that Adjusted EBITDA provides us with an earnings-based
measure that is significant to users of the financial statements.
This is considered 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.
In addition, the Adjusted EBITDA measure is used to assess
the Group’s compliance with key restrictive covenants on the
Group’s borrowings.
We determined materiality for the Parent Company to be US$15.5
million (2018: US$14.1 million), which is 1% (2018: 1%) of Equity. The
Parent Company materiality is higher than the Group materiality
as it is based on Equity, which we considered to be an appropriate
basis for materiality for a holding company, as the users of the
financial statements focus on a capital-based measure.
Starting basis
– Profit from continuing operations
before exceptional items, net of
finance cost, foreign exchange loss
and income tax (US$112.3m)
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, our
judgement was that performance materiality was 75% (2018: 75%)
of our planning materiality, namely US$5.2m (2018: US$4.0m). 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$2.0m to US$5.2m
(2018: US$1.8m to US$4.0m).
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$345k (2018:
US$270k), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
– Add: Depreciation and amortisation
in cost of sales and in administrative
expenses (US$185.1m)
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.
Adjustments
– Add: Exploration expenses other than
personnel and other exploration
related fixed expenses (U$31.7m)
– Add: Other non-cash expenses
(US$14.2m)
– US$343.3m Adjusted EBITDA
– Materiality of US$6.9m (2% of
Materiality
materiality basis)
Other information
The other information comprises the information included in the
Annual Report set out on pages 1 to 95, including Strategic Report
and Governance sections (including Directors’ Report, Corporate
Governance Report, Supplementary Information, Directors’
Remuneration Report and Statement of Directors’
Responsibilities), other than the financial statements and our
auditor’s report thereon. The Directors are responsible for the
other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion
thereon.
100
Hochschild Mining PLC / Annual Report & Accounts 2019 In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report
that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that
those items meet the following conditions:
– Fair, balanced and understandable set out on page 60 – the
statement given by the Directors that they consider the Annual
Report and financial statements taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance,
business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
– Audit Committee reporting set out on pages 69 to 73 – the
section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit
Committee; or
– Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 62 – the parts of the
Directors’ statement required under the Listing Rules relating to
the Company’s compliance with the UK Corporate Governance
Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK Corporate
Governance Code.
Opinions 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.
In our opinion, 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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us 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.
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement
set out on page 95, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control as
the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group and Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
101
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC CONTINUED
Other matters we are required to address
– We were appointed by the Company on 16 October 2006 to
audit the financial statements for the year ending 31 December
2006 and subsequent financial periods. Following a competitive
tender process, we were reappointed as auditor of the Company
for the period ending 31 December 2016 and subsequent
financial periods.
– The period of total uninterrupted engagement including
previous renewals and reappointments is 14 years, covering
periods from our initial appointment in 2006 through to the year
ended 31 December 2019.
– The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company and we
remain independent of the Group and the Parent Company in
conducting the audit.
– The audit opinion is consistent with the additional report to the
Audit Committee.
Use of our report
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.
William Binns (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor, London
19 February 2020
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are: to identify
and assess the risks of material misstatement of the financial
statements due to fraud; to obtain sufficient appropriate audit
evidence regarding the assessed risks of material misstatement
due to fraud, through designing and implementing appropriate
responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility
for the prevention and detection of fraud rests with both those
charged with governance of the entity and management.
Our approach was as follows:
– We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined
that the most significant and directly relevant to specific
assertions in the financial statements are those related to the
report framework (IFRSs, the Companies Act 2006 and the UK
Corporate Governance Code) and the relevant tax compliance
regulations in UK, Peru and Argentina.
– We understood how Hochschild Mining plc is complying with
those frameworks through enquiries of management, internal
audit, those responsible for legal and compliance procedures
and the Company Secretary. We corroborated our enquiries
through our review of Board minutes and papers provided to
the Audit Committee.
– We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud might
occur, by meeting with management from various parts of the
business to understand what areas were susceptible to fraud.
We also considered performance targets and their propensity to
influence on efforts made by management to manage earnings.
We considered the programmes and controls that the Group
has established to address risks identified, or that otherwise
prevent, deter and detect fraud; and how senior management
monitors those programmes and controls. Where risk was
considered as higher, we performed audit procedures to
address each identified fraud risk. These procedures included
testing manual journals and were designed to provide
reasonable assurance that the financial statements were free
of fraud or error.
– Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved: journal entry testing, with a focus on manual
consolidation journals and journals indicating large or unusual
transactions based on our understanding of the business;
enquiries of legal counsel, Group management, internal audit
and all full and specific scope management; and focused testing,
as referred to in the key audit matters section above.
– In addition, we concluded that there are certain significant laws
and regulations which may have an effect on the determination
of the amounts and disclosures in the financial statements
being the Listing Rules of the UK Listing Authority, and those
laws and regulations relating to health and safety and
environmental matters.
A further description of our responsibilities for the audit
of the financial statements is located on the FRC’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
102
Hochschild Mining PLC / Annual Report & Accounts 2019 FINANCIAL
STATEMENTS
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
Year ended 31 December 2019
Exceptional
items
(note 11)
US$000
Before
exceptional
items
US$000
Total
US$000
Year ended 31 December 2018
Exceptional
items
(note 11)
US$000
Before
exceptional
items
US$000
Total
US$000
Notes
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, net
Profit/(loss) from continuing operations before net finance
income/(cost), foreign exchange loss and income tax
Finance income
Finance costs
Foreign exchange loss, net
7
8
9
12
12
13
13
4,5
755,676
–
755,676
704,290
6
(512,711)
– (512,711)
(531,788)
242,965
(45,920)
(37,965)
(21,071)
9,014
–
–
–
–
–
242,965
(45,920)
(37,965)
(21,071)
9,014
172,502
(45,783)
(34,381)
(10,068)
8,062
(33,894)
(12,199)
(46,093)
(17,144)
(853)
(14,378)
(15,231)
(384)
112,276
(26,577)
85,699
2,938
72,804
2,048
2,938
(10,038)
(1,757)
–
–
–
(10,038)
(11,194)
(16,346)
(27,540)
(1,757)
76,842
(8,946)
–
54,712
(16,346)
(8,946)
38,366
–
–
–
–
–
–
–
–
–
–
–
704,290
(531,788)
172,502
(45,783)
(34,381)
(10,068)
8,062
(17,144)
(384)
72,804
2,048
Profit/(loss) from continuing operations before income tax
103,419
(26,577)
Income tax (expense)/benefit
14
(43,336)
7,933
(35,403)
(36,487)
4,822
(31,665)
Profit/(loss) for the year from continuing operations
60,083
(18,644)
41,439
18,225
(11,524)
6,701
Attributable to:
Equity shareholders of the parent
Non-controlling interests
47,598
(18,644)
12,485
–
60,083
(18,644)
28,954
12,485
41,439
24,360
(11,524)
(6,135)
–
18,225
(11,524)
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
0.09
(0.03)
0.09
(0.03)
0.06
0.06
0.05
(0.02)
0.05
(0.02)
12,836
(6,135)
6,701
0.03
0.03
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019
Profit for the year
Other comprehensive income that might be reclassified to profit or loss in subsequent periods, net of tax:
Exchange differences on translating foreign operations
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods, net of tax:
Net gain/(loss) on equity instruments at fair value through other comprehensive income (‘OCI’)
19
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity shareholders of the parent
Non-controlling interests
Year ended
31 December
2019
US$000
41,439
2018
US$000
6,701
Notes
(327)
(327)
3,628
3,628
3,301
44,740
32,255
12,485
44,740
4
4
(6,447)
(6,447)
(6,443)
258
6,393
(6,135)
258
103
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019
ASSETS
Non-current assets
Property, plant and equipment
Evaluation and exploration assets
Intangible assets
Financial assets at fair value through other comprehensive income (‘OCI’)
Trade and other receivables
Other financial assets
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Income tax receivable
Cash and cash equivalents
Assets held for sale
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the parent
Equity share capital
Share premium
Other reserves
Retained earnings
Non-controlling interests
Total equity
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Deferred income
Deferred income tax liabilities
Current liabilities
Trade and other payables
Borrowings
Provisions
Deferred income
Income tax payable
Liabilities directly associated with asset held for sale
Total liabilities
Total equity and liabilities
As at
31 December
Notes
2019
US$000
2018
US$000
16
17
18
19
20
36(e)
28
21
20
22
23
795,277
181,562
22,359
6,159
5,188
–
1,627
849,172
155,241
24,363
5,296
5,451
47
1,504
1,012,172
1,041,074
62,600
73,618
206
166,357
38,295
341,076
58,035
78,736
20,733
79,704
–
237,208
1,353,248
1,278,282
27
27
226,506
438,041
225,409
438,041
(221,800)
(223,156)
290,263
733,010
74,631
807,641
526
199,308
99,322
172
63,103
362,431
120,537
234
16,249
400
11,211
34,545
183,176
545,607
278,995
719,289
71,003
790,292
787
50,000
94,640
31,966
71,231
248,624
125,475
107,067
3,153
400
3,271
–
239,366
487,990
1,353,248
1,278,282
24
25
26
28
24
25
26
23
These financial statements were approved by the Board of Directors on 18 February 2020 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
18 February 2020
104
Hochschild Mining PLC / Annual Report & Accounts 2019 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Payment of mine closure costs
Income tax, special mining tax and mining royalty paid1
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
Purchase of financial assets at fair value through OCI
Purchase of Argentinian bonds
Proceeds from sale of Argentinian bonds
Proceeds from sale of financial assets at fair value through OCI
Proceeds from sale of other assets
Proceeds from deferred income
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Transaction costs related to borrowings
Repayment of borrowings
Payment of lease liabilities
Purchase of treasury shares
Dividends paid to non-controlling interests
Dividends paid
Cash flows generated from/(used in) 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
1 Taxes paid have been offset with value added tax (VAT) credits of US$3,717,000 (2018 US$4,320,000).
Year ended
31 December
Notes
2019
US$000
2018
US$000
32
290,316
222,667
26
17
18
19
19
23
2,622
2,337
(4,955)
(28,758)
(3,488)
(1,236)
(4,494)
(5,810)
283,259
185,942
(133,724)
(114,498)
(68,632)
(10,221)
(2)
(1,907)
(1,100)
(6,433)
(14,795)
11,835
421
–
2,250
134
–
–
954
30
2,000
94
(203,613)
(129,981)
25
316,500
266,500
(692)
–
25
(272,500)
(463,393)
2(a)
(2,506)
(309)
–
(579)
(11,069)
(10,829)
29
(20,213)
(19,999)
9,211
(228,300)
88,857
(172,339)
(2,204)
(4,945)
79,704
256,988
22
166,357
79,704
105
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019
Other reserves
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
US$000
Notes
Fair value
reserve of
financial
assets at
fair value
through
OCI
US$000
Dividends
expired
US$000
Cumulative
translation
adjustment
US$000
Merger
reserve
US$000
Share-
based
payment
reserve
US$000
Total
other
reserves
US$000
Retained
earnings
US$000
Capital and
reserves
attributable
to
shareholders
of the parent
US$000
Non-
controlling
interests
US$000
Total
equity
US$000
Balance at 1 January 2018
224,315
438,041
(140)
(937)
(13,712) (210,046)
7,634 (217,061)
286,356
731,511
90,177 821,688
Other comprehensive
income/(expense)
Profit for the year
Total comprehensive
income/(expense)
for the year
Sale of financial assets at
fair value through OCI
19
–
–
–
–
Issuance of shares
27(a)
1,094
Exercise of share options
27(b)
Expiration of dividends
Dividends
Dividends to non–
controlling interests
29
29
Purchase of treasury
shares
27(b)
Share-based payments
27(c)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at
31 December 2018
Other comprehensive
income/(expense)
Profit for the year
Total comprehensive
income/(expense) for
the year
Sale of financial assets at
fair value through OCI
Transfer of financial
assets at fair value
through OCI to subsidiary
19
3
–
–
–
–
–
Issuance of shares
27(a)
1,097
Exercise of share options
27(b)
Expiration of dividends
Dividends
Dividends to non–
controlling interests
29
29
Purchase of treasury
shares
27(b)
Share-based payments
27(c)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
719
–
–
–
(579)
–
–
–
–
–
–
–
–
309
–
–
–
(309)
–
–
–
–
–
–
–
–
–
62
–
–
–
–
(6,447)
–
(6,447)
3,060
–
–
–
–
–
–
–
4
–
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6,443)
–
(6,443)
–
(6,443)
–
12,836
12,836
(6,135)
6,701
(6,443)
12,836
6,393
(6,135)
258
3,060
(3,060)
–
–
–
1,094
(4,675)
(4,675)
2,862
(1,094)
62
–
62
–
–
–
–
–
1,094
(1,094)
62
–
–
–
(19,999)
(19,999)
– (19,999)
–
–
–
–
(13,039)
(13,039)
(579)
1,901
(579)
–
1,901
1,901
1,901
3,628
–
3,628
1,658
(944)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37
–
–
–
–
(327)
–
(327)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,301
–
3,301
–
3,301
–
28,954
28,954
12,485
41,439
3,301
28,954
32,255
12,485
44,740
1,658
(1,658)
(944)
–
944
–
–
–
1,097
(4,647)
(4,647)
3,241
(1,097)
37
–
37
–
–
–
–
2
–
–
1,097
(1,097)
39
–
–
–
(20,213)
(20,213)
– (20,213)
–
–
–
–
(8,859)
(8,859)
(309)
1,951
(309)
–
1,951
1,951
1,951
18
99
(14,035) (210,046)
2,164 (221,800)
290,263
733,010
74,631 807,641
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
225,409
438,041
(4,324)
62
(13,708) (210,046)
4,860 (223,156)
278,995
719,289
71,003 790,292
Balance at
31 December 2019
226,506
438,041
106
Hochschild Mining PLC / Annual Report & Accounts 2019 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 two operating mines (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, United States and Chile at various stages of development.
These consolidated financial statements were approved for issue by the Board of Directors on 18 February 2020.
The Group´s subsidiaries are as follows:
Company
Hochschild Mining (Argentina) Corporation S.A.1
MH Argentina S.A.2
Minera Santa Cruz S.A.1 and 9
Minera Hochschild Chile S.C.M. 3
Andina Minerals Chile Ltd. 3
REE UNO SpA 4
Southwest Minerals (Yunnan) Inc. 5
Hochschild Mining Holdings Limited6
Hochschild Mining Ares (UK) Limited6
Southwest Mining Inc. 5
Southwest Minerals Inc. 5
Minera Hochschild Mexico, S.A. de C.V. 7
Hochschild Mining (Peru) S.A. 5
Compañía Minera Ares S.A.C. 5
Compañía Minera Arcata S.A. 5
Empresa de Transmisión Aymaraes S.A.C. 5
Minera Antay S.A.C. 5
Hochschild Mining (US) Inc. 8
Principal activity
Holding company
Exploration office
Country of incorporation
Argentina
Argentina
Production of gold and silver
Argentina
Exploration
Exploration
Exploration
Exploration
Chile
Chile
Chile
China
Holding company
England and Wales
Administrative office
England and Wales
Exploration
Exploration
Exploration
Holding company
Production of gold and silver
Production of gold and silver
Power transmission
Exploration
Holding company
Mauritius
Mauritius
Mexico
Peru
Peru
Peru
Peru
Peru
USA
Equity interest at
31 December
2019
%
2018
%
100
100
51
100
100
100
100
100
100
100
100
100
100
100
99.1
100
100
100
100
100
51
100
100
–
100
100
100
100
100
100
100
100
99.1
100
100
100
1 Registered address: Av. Santa Fe 2755, floor 9, Buenos Aires, Argentina.
2 Registered address: Sargento Cabral 124, Comodoro Rivadavia, Provincia de Chubut, Argentina.
3 Registered address: Av. Las Condes 7700, office 408 A, Comuna Las Condes, Santiago de Chile, Chile.
4 On 2 October 2019 the Group acquired 100% interest on REE UNO SpA, a Chilean exploration company with a project of rare earths named BioLantanidos. Registered address: Av.
Presidente Riesco 5335, office 2104, Las Condes, Santiago de Chile, Chile.
5 Registered address: La Colonia 180, Santiago de Surco, Lima, Peru.
6 Registered address: 17 Cavendish Square, London, W1G0PH, United Kingdom.
7 Registered address: Bustamante N 2106, Col Altavista, CP 31200, Chihuahua, Ciudad de Mexico, Mexico.
8 Registered address: 1025 Ridgeview Dr. 300, Reno, Nevada 89519, USA.
9 The Group has a 51% interest in Minera Santa Cruz S.A. (Minera Santa Cruz), 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 2019 and 2018 is as follows:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
Revenue
Profit 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
2019
US$000
2018
US$000
164,190
173,637
81,564
67,317
(56,926)
(56,894)
(39,382)
(42,015)
(149,446)
(142,045)
250,715
205,367
25,480
74,996
(12,518)
38,707
(43,583)
(44,488)
(24,293)
(22,617)
Profit attributable to non-controlling interests in the consolidated income statement, non-controlling interest in the consolidated
statement of financial position, and dividends declared to non-controlling interests in the consolidated statement of changes in equity
are solely related to Minera Santa Cruz.
107
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Significant accounting policies
(a) Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU) and the Companies
Act 2006.
The basis of preparation and accounting policies used in
preparing the consolidated financial statements for the years
ended 31 December 2019 and 2018 are set out below. The
consolidated financial statements have been prepared on a
historical cost basis except for the revaluation of certain financial
instruments that are measured at fair value at the end of each
reporting period, as explained below. These accounting policies
have been consistently applied, except for the effects of the
adoption of new and amended accounting standards.
The financial statements are presented in US dollars (US$) and all
monetary amounts are rounded to the nearest thousand ($000)
except when otherwise indicated.
The 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 Group applied IFRS 16 Leases and IFRIC 23 Uncertainty over
Income Tax Treatments for the first time from 1 January 2019.
The nature and effect of these changes as a result of the adoption
of the new standard and interpretation are described below.
Other than the changes described below, 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 2018.
Several other amendments and interpretations applied for the
first time in 2019 but did not have an impact on the consolidated
financial statements of the Group and, hence, have not been
disclosed.
– 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, including the exemptions to recognise assets
and liabilities for all leases unless the lease term is 12 months or
less or when the underlying asset has a low value. Lease costs will
be recognised in the income statement over the lease term in the
form of depreciation on the right-of-use asset and finance
charges representing the unwinding of the discount on the lease
liability. Lessors continue to classify leases as operating or
finance, with IFRS 16’s approach to lessor accounting
substantially unchanged from its predecessor, IAS 17 Leases.
The Group has adopted IFRS 16 Leases from 1 January 2019 but
has not restated comparatives for the 2018 reporting period, as
permitted under the specific transitional provisions in the
standard (“modified retrospective approach, alternative 2”).
The adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 January 2019.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17. These liabilities
were measured at the present value of the remaining lease
payments, discounted using the incremental borrowing rate as
of 1 January 2019. The weighted average lessee’s incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 4.12% for contracts denominated in US dollars. Contracts in
other currencies are not material.
The associated right-of-use assets were measured at the
amount equal to the lease liability, therefore there was no
adjustment to retained earnings on adoption.
.
108
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
– The use of a single discount rate to a portfolio of leases with
reasonably similar characteristics.
– The accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-
term leases,
– The accounting for operating leases related to low value
assets (below US$5,000).
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the
leased asset is available for use by the Group. Each lease
payment is allocated between the liability and finance cost. The
finance cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-of-
use asset is depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee’s incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic
environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
– The amount of the initial measurement of lease liability
– Any lease payments made at or before the commencement
date less any lease incentives received
– Any initial direct costs, and
– Restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss.
The resulting lease liability as of 1 January 2019 was determined
as follows:
Operating lease commitments as at 31 December 2018
Previous not disclosed operating lease commitments
Discounted using the lessee’s incremental borrowing rate
at the date of initial application
Less: short-term leases recognised on a straight-line
basis as expense
Less: low-value leases recognised on a straight-line basis
as expense
Less: other adjustments
Lease liability recognised as at 1 January 2019
Less: current portion
Non-current portion
The effect of adoption of IFRS 16 is as follows:
US$000
2,448
5,579
8,027
7,785
(730)
(1,474)
(244)
5,337
(2,553)
2,784
Right-of-
use assets
vehicles 1
US$000
Lease
liabilities 2
US$000
Recognised on transition as at 1 January 2019
5,337
(5,337)
Depreciation expense
Interest expense 3
Termination of contracts
Payments
(2,454)
—
(350)
—
—
(96)
350
2,506
Balance at 31 December 2019
2,533
(2,577)
1
Included in the consolidated statement of financial position within “Property, plant
and equipment”.
2 Included in the consolidated statement of financial position within “Trade and other
payables” (Current: US$2,577,000, Non-current: US$nil).
3 Included in the consolidated income statement within “Finance costs”.
Hochschild Mining PLC / Annual Report & Accounts 2019
– IFRIC 23 Uncertainty over Income Tax Treatments, applicable
– Recoverable values of mining assets – notes 2(i), 16, 17 and 18.
for annual periods beginning on or after 1 January 2019.
IFRIC 23 clarifies the accounting for uncertainties in income taxes.
This interpretation is applied to the determination of taxable profit
(tax loss), tax bases, unused tax losses, unused tax credits and tax
rates, when there is uncertainty over income tax treatments under
IAS 12. The interpretation specifically addresses the following:
– Whether an entity considers uncertain tax treatments
separately;
– The assumptions an entity makes about the examination of
tax treatments by taxation authorities;
– How an entity determines taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates; and
– How an entity considers changes in facts and circumstances.
Upon adoption of the interpretation, the Group considered
whether it has any uncertain tax positions; the taxation
authorities may challenge those tax treatments. The Group
determined, based on its tax compliance, that it is probable that
its tax treatments (including those for its subsidiaries) will be
accepted by the taxation authorities. Therefore, the
interpretation did not have a material impact on the
consolidated financial statements of the Group.
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 2020 or later
periods but which the Group has not previously adopted. These
have not been listed as they are not expected to impact the Group.
(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:
– 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.
– 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 updated.
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. Significant
estimates used include future gold and silver prices, future
capital requirements, reserves and resources volumes,
production costs and the application of discount rates which
reflect the macro-economic risk in Peru and Argentina, as
applicable. Changes in these assumptions will affect the
recoverable amount of the property, plant and equipment,
evaluation and exploration assets, and intangibles.
– Mine closure costs – notes 2(m) and 26(1).
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.
Critical judgements:
– Income tax – notes 2(r), 2(s),14, 28 and 34(a).
Judgement is required in determining whether deferred tax
assets are recognised on the statement of financial position.
Deferred tax assets, including those arising from un-utilised tax
losses, require management to assess the likelihood that the
Group will generate taxable earnings in future periods, in order
to utilise recognised deferred tax assets. Estimates of future
taxable income are based on forecast cash flows from
operations and the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable
income differ significantly from estimates, the ability of the
Group to realise the net deferred tax assets recorded at the
balance sheet date could be impacted.
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 probable that
a liability will arise (refer to note 34(a)). The final resolution of
these transactions may give rise to material adjustments to the
income statement and/or cash flow in future periods. The Group
reviews each significant tax liability or benefit each period to
assess the appropriate accounting treatment.
– 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.
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2 Significant accounting policies continued
– 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.
– Significant judgement 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 meets the definition of ‘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,
the sale of the San Felipe property is considered to be “highly
probable” (as defined by IFRS 5) and therefore the property has
been classified as an asset held for sale as at 31 December 2019.
– Acquiring a subsidiary or a group of assets – note 3(a).
In identifying a business combination (note 2(c)) or acquisition of
assets the Group considers the underlying inputs, processes and
outputs acquired as a part of the transaction. For an acquired set
of activities and assets to be considered a business there must be
at least some inputs and processes that have the capability to
achieve the purposes of the Group. Where significant inputs and
processes have not been acquired, a transaction is considered to
be the purchase of assets. For the assets and assumed liabilities
acquired the Group allocates the total consideration paid
(including directly attributable transaction costs) based on the
relative fair values of the underlying items. On 2 October 2019 the
Group acquired the control of REE UNO (note 3). The transaction
was accounted as a purchase of assets as no systems, processes
or outputs were acquired, with the main asset acquired being the
BioLantanidos project which is in a pre-development stage.
(c) Basis of consolidation
The consolidated financial statements set out the Group’s financial
position, performance and cash flows as at 31 December 2019
and 31 December 2018 and for the years then ended, respectively.
Subsidiaries are those entities controlled by the Group regardless
of the amount of shares owned by the Group. Control is achieved
when the Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those
returns through its power over the investee. Non-controlling
interests’ rights to safeguard their interest are fully considered in
assessing whether the Group controls a subsidiary. Specifically,
the Group controls an investee if, and only if, the Group has:
– power over the investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee);
– exposure, or rights, to variable returns from its involvement with
the investee; and
– the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights
result in control. To support this presumption and when the Group
has less than a majority of the voting or similar rights of an
investee, the Group considers all relevant facts and circumstances
in assessing whether it has power over an investee, including:
– the contractual arrangement with the other vote holders of the
investee;
– rights arising from other contractual arrangements; and
– the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one
or more of the three elements of control.
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.
110
Hochschild Mining PLC / Annual Report & Accounts 2019 (d) Currency translation
The functional currency for each entity in the Group is determined
by the currency of the primary economic environment in which it
operates. For the holding companies and operating entities this
currency is US dollars and for the other entities it is the local
currency of the country in which it operates. The Group’s financial
information is presented in US dollars, which is the Company’s
functional currency.
Transactions denominated in currencies other than the functional
currency of the entity are initially recorded in the functional
currency using the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in
foreign currencies are remeasured at the rate of exchange ruling
at the statement of financial position date. Exchange gains and
losses on settlement of foreign currency transactions which are
translated at the rate prevailing at the date of the transactions, or
on the translation of monetary assets and liabilities which are
translated at period-end exchange rates, are taken to the income
statement. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at historical cost are translated
to the functional currency at the foreign exchange rate prevailing
at the date of the transaction. Exchange differences arising from
monetary items that are part of a net investment in a foreign
operation are recognised in equity and transferred to income on
disposal of such net investment.
Subsidiary financial statements expressed in their corresponding
functional currencies are translated into US dollars by applying
the exchange rate at period-end for assets and liabilities and the
transaction date exchange rate for income statement items.
The resulting difference on consolidation is included as a
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 from 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.
Exploration and evaluation costs related to projects in the
development phase 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.
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.
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2 Significant accounting policies continued
(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 annually 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 of transmission line
Transmission line costs represent the investment made by the
Group during the period of its use. This is an asset with a finite
useful life equal to that of the mine to which it relates and that is
amortised applying the units of production method for that mine.
Water permits
Water permits represent the cost that allows 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 CGUs are determined using a
FVLCD methodology. FVLCD was determined using a combination
of level 2 and level 3 inputs. The FVLCD of the producing and
developing stage mine assets is determined using a discounted
cash flow model (note 16) and for the exploration projects is based
on the value-in-situ methodology (note 18(2)), 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.
(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 using the
expected credit loss impairment model according to IFRS 9.
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.
112
Hochschild Mining PLC / Annual Report & Accounts 2019 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 of the mines.
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.
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair
value at the date when the grant is made using an appropriate
valuation model and 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) Revenue recognition
The Group is involved in the production and sale of gold and silver
from dore and concentrate containing both gold and silver. Dore
bars are either sold directly to customers or are sent to a third
party for further refining into gold and silver before they are sold.
Concentrate is sold directly to customers.
Revenue from contracts with customers is recognised when
control of the goods or services are transferred to the customers
at an amount that reflects the consideration to which the Group
expects to be entitled in exchange for those goods or services.
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 120 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 adjustment 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 revenue.
A proportion of the Group’s sales are sold under CIF Incoterms,
whereby the Group is responsible for providing freight/shipping
services (as principal) after the date that the Group transfers
control of the metal in concentrate to its customers. The Group,
therefore, has separate performance obligations for freight/
shipping services which are provided solely to facilitate sale of
the commodities it produces.
Other Incoterms commonly used by the Group are FOB, where the
Group has no responsibility for freight or insurance once control of
the products has passed at the loading port, and Delivered at
Place (DAP) where control of the goods passes when the product is
delivered to the agreed destination. For arrangements which have
these Incoterms, the only performance obligations are the
provision of the product at the point where control passes.
For CIF arrangements, the transaction price (as determined above)
is allocated to the metal in concentrate and freight/shipping
services using the relative stand-alone selling price method. Under
these arrangements, a portion of consideration may be received
from the customer in cash at, or around, the date of shipment
under a provisional invoice. Therefore, some of the upfront
consideration that relates to the freight/shipping services yet to be
provided is deferred. It is then recognised as revenue over time
using an output method (being days of shipping/transportation
elapsed) to measure progress towards complete satisfaction of the
service as this best represents the Group’s performance. This is on
the basis that the customer simultaneously receives and consumes
the benefits provided by the Group as the services are being
provided. The costs associated with these freight/shipping services
are also recognised over the same period of time as incurred.
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.
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2 Significant accounting policies continued
(p) 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.
(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, and gains and
losses from the change in fair value of derivative instruments.
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.
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 liability
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
liabilities for interest and penalties are also recorded if appropriate.
Movements in interest and penalty amounts in respect of tax
liability are not included in the tax charge, but are disclosed in the
income statement. Tax liabilities 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 liabilities, adjustments are made which
can have a material impact on the Group’s profits for the year.
Refer to note 34(a) for specific tax contingencies.
(t) Leases
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e. the date the underlying asset is available for
use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. The
right-of-use asset is depreciated over the shorter of the asset’s
useful life and the lease term on a straight-line basis. Right-of-use
assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, and amounts expected to be paid under
residual value guarantees. The lease payments also include the
exercise price of a purchase option reasonably certain to be
exercised by the Group and payments of penalties for terminating
a lease, if the lease term reflects the Group exercising the option to
terminate. The variable lease payments are recognised as
expense in the period on which the event or condition that triggers
the payment occurs.
In calculating the present value of lease payments, the Group uses
the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the
lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the
lease term, a change in the in-substance fixed lease payments or
a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e. those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option).
It also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered of low value (i.e.
below US$5,000). Lease payments on short-term leases and
leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
114
Hochschild Mining PLC / Annual Report & Accounts 2019 The Group elected to classify irrevocably its listed and non-listed
equity investments under this category.
– Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for trading, financial assets designated
upon initial recognition at fair value through profit or loss, or
financial assets mandatorily required to be measured at fair
value. Financial assets are classified as held for trading if they
are acquired for the purpose of selling or repurchasing in the
near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they are
designated as effective hedging instruments. Financial assets
with cash flows that are not solely payments of principal and
interest are classified and measured at fair value through profit
or loss, irrespective of the business model. Notwithstanding the
criteria for debt instruments to be classified at amortised cost or
at fair value through OCI, as described above, debt instruments
may be designated at fair value through profit or loss on initial
recognition if doing so eliminates, or significantly reduces, an
accounting mismatch.
Financial assets at fair value through profit or loss are carried in
the statement of financial position at fair value with net changes
in fair value recognised in the statement of profit or loss.
This category includes derivative instruments. Dividends on
listed equity investments are also recognised as other income
in the statement of profit or loss when the right of payment has
been established.
Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e. removed from the Group’s consolidated
statement of financial position) 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.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through profit
or loss. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash
flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate.
For trade receivables, the Group applies a simplified approach
in calculating ECLs. Therefore, the Group does not track changes
in credit risk, but instead recognises a loss allowance based on
lifetime ECLs at each reporting date.
(u) Financial instruments
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends
on the financial asset’s contractual cash flow characteristics and
the Group’s business model for managing them.
The Group’s business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will
result from collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
trade date, i.e. the date that the Group commits to purchase or
sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets
are classified in four categories:
– Financial assets at amortised cost (debt instruments)
The Group measures financial assets at amortised cost if both
of the following conditions are met:
– The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows, and
– The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss
when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost includes
trade receivables.
– Financial assets at fair value through OCI (debt instruments)
The Group does not have debt instruments at fair value
through OCI.
– Financial assets designated at fair value through OCI (equity
instruments)
Upon initial recognition, the Group can elect to classify
irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the
definition of equity under IAS 32 Financial Instruments:
Presentation and are not held for trading. The classification
is determined on an instrument-by-instrument basis.
Financial assets designated at fair value through OCI are carried
in the statement of financial position at fair value with net
changes in fair value recognised in the OCI. Gains and losses on
these financial assets are never recycled to profit or loss.
Dividends are recognised as other income in the statement of
profit or loss when the right of payment has been established,
except when the Group benefits from such proceeds as a
recovery of part of the cost of the financial asset, in which case,
such gains are recorded in OCI. Equity instruments designated at
fair value through OCI are not subject to impairment assessment.
115
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Significant accounting policies continued
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial
liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in
an effective hedge, as appropriate.
(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.
All financial liabilities are recognised initially at fair value and, in
the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The Group’s financial liabilities include trade and other payables,
loans and borrowings including bank overdrafts, and derivative
financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
– Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through
profit or loss.
Financial liabilities are classified as held for trading if they are
incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered
into by the Group that are not designated as hedging
instruments in hedge relationships as defined by IFRS 9.
Separated embedded derivatives are also classified as held for
trading unless they are designated as effective hedging
instruments.
Gains or losses on liabilities held for trading are recognised in the
statement of profit or loss.
Financial liabilities designated upon initial recognition at fair
value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IFRS 9 are satisfied. The
Group has not designated any financial liability as at fair value
through profit or loss.
– Loans and borrowings
This is the category most relevant to the Group. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised as well as through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs
in the statement of profit or loss.
This category generally applies to interest-bearing loans
and borrowings.
Derecognition
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires. When 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 the derecognition of the original liability and the
recognition of a new liability. The difference in the respective
carrying amounts is recognised in the statement of profit or loss.
(w) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at cost. For the purposes of the statement of
financial position, cash and cash equivalents comprise cash on
hand and deposits held with banks that are readily convertible
into known amounts of cash and which are subject to insignificant
risk of changes in value. For the purposes of the cash flow
statement, cash and cash equivalents, as defined above, are
shown net of outstanding bank overdrafts.
Liquidity funds are classified as cash equivalents if the amount
of cash that will be received is known at the time of the initial
investment and the risk of changes in value is considered
insignificant.
(x) Exceptional items
Exceptional items are those significant items which, due to their
nature or the expected infrequency of the events giving rise to
them, need to be disclosed separately on the face of the income
statement to enable a better understanding of the financial
performance of the Group and facilitate comparison with prior
years. Exceptional items mainly include:
– impairments or write offs of assets, property, plant and
equipment and evaluation and exploration assets;
– gains or losses arising on the disposal of subsidiaries,
investments or property, plant and equipment;
– any gain or loss resulting from restructuring within the Group;
– the impact of infrequent labour action related to work
stoppages in mine units;
– the penalties generated by the early termination of agreements
with providers or lenders 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) Fair value measurement
The Group measures financial instruments, such as derivatives, at
each statement of financial position date.
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.
116
Hochschild Mining PLC / Annual Report & Accounts 2019 On 22 August 2019, Hochschild signed an agreement for the sale
and transfer of all the type A and B shares of REE UNO, from FIP
and all the other shareholders. The transfer of the remaining type
A shares and type B shares was completed on 2 October 2019
with the total consideration amounting to US$57,344,974, of which
US$983,142 remains pending payment as at 31 December 2019.
On the date of completion, the Group remeasured the fair value
of the investment previously held and recognised a gain of
US$998,000 in OCI. On reclassification of the investment to
subsidiary, US$944,000 was reclassified from the fair value reserves
of financial assets at fair value through OCI to retained earnings.
The transaction is considered as an asset acquisition, and REE
UNO consolidates its financial information with the Group from
2 October 2019, being the date when the Group obtained control.
The fair value of assets acquired and liabilities assumed as at
2 October 2019 comprise the following:
Cash and cash equivalents
Other receivables
Evaluation and exploration assets
Property, plant and equipment
Total assets
Accounts payable and other liabilities
Total liabilities
Net assets acquired
US$000
1,120
1,541
59,358
218
62,237
(1,448)
(1,448)
60,789
Fair value of type A shares held in REE UNO (note 19)
3,444
Consideration for the acquisition of remaining type A
shares and B shares in REE UNO
Total consideration
Cash paid
Less cash acquired with the subsidiary
Net cash flow on acquisition
57,345
60,789
56,362
(1,120)
55,242
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 notes 25 and 36(e).
For assets and liabilities that are recognised in the financial
statements on a recurring basis at fair value, the Group
determines whether transfers have occurred between levels
in the hierarchy by re-assessing categorisation (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 financial assets,
and for non-recurring measurement.
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 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 Acquisition of assets
REE UNO SpA (“REE UNO”)
On 9 November 2018 Minera Hochschild Chile SCM (“Hochschild”)
signed an agreement for an investment in the BioLantanidos
Project with Fondo de Inversión Privado Lantanidos (“FIP”). REE
UNO has the rights over the concessions called the BioLantánidos,
a rare-earth metals extraction and production project, located in
Penco, Biobío Region, Chile.
On that date, Hochschild subscribed for 591,326,947 type A shares
of REE UNO, that represented 5% of the total type A shares, and
4.84% of the total share capital of REE UNO. The total
consideration was 1,351,880,000 Chilean pesos equivalent to
US$2,000,000. FIP was the owner of the remaining 11,235,211,986
type A shares of “REE UNO” (representing 95% of total type A
shares of REE UNO) whilst multiple shareholders held 100% of the
interest in the type B shares.
In April 2019, Hochschild signed a new agreement to increase its
interest in REE UNO and subscribed for additional 147,831,737
type A shares, that represented 1.23% of the total type A shares.
The total consideration was 333,065,000 Chilean pesos’
equivalent to US$500,000.
117
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4 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 unit – San Jose, which generates revenue from the sale of gold and silver (dore and concentrate).
– Operating units – Arcata and Pallancata, which generate revenue from the sale of gold and silver (concentrate). The Arcata mine unit
was put into care and maintenance on 13 February 2019.
– Operating unit – Inmaculada, which generates revenue from the sale of gold and silver (dore).
– 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 Aymaraes S.A.C.
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 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.
(a) Reportable segment information
Arcata
US$000
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Other 1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended 31 December 2019
Revenue from external customers
5,261
140,784
242,972
351,936
Inter segment revenue
Total revenue from customers
Provisional pricing adjustment
Total revenue
–
5,261
(180)
–
–
–
140,784
242,972
351,936
6,814
7,743
207
5,081
147,598
250,715
352,143
–
–
–
–
–
139
6,101
6,240
–
–
741,092
(6,101)
–
(6,101)
741,092
–
14,584
6,240
(6,101)
755,676
(2,027)
15,187
61,472
144,199
(38,062)
9,169
(6,009)
183,929
Segment profit/(loss)
Others 2
Profit from continuing operations before
income tax
Other segment information
Depreciation 3
Amortisation
(107,087)
76,842
(4,327)
– (187,257)
Impairment and write-off of assets, net
(30)
(14,892)
(488)
(430)
(50,432)
(51,754)
(79,917)
–
–
(1,396)
(144)
(135)
(397)
(462)
315
(67)
(1)
Assets
Capital expenditure
Current assets
Other non-current assets
Total segment assets
Not reportable assets 4
Total assets
42
25,357
43,623
66,435
62,881
6,778
2,133
5,977
8,110
–
20,500
48,286
26,601
38,301
50,438
163,656
506,779
220,934
70,938
211,942
533,380
259,235
2,873
51,414
54,287
–
–
–
–
215,356
8,110
70,938
211,942
533,380
259,235
269,643
–
–
–
–
–
(2,069)
(15,231)
205,116
138,694
999,198
– 1,137,892
–
215,356
– 1,353,248
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.
1
2 Comprised of administrative expenses of US$45,920,000, other income of US$9,014,000, other expenses of US$46,093,000, write-off of assets (net) of US$853,000, impairment of
assets (net) of US$14,378,000, finance income of US$2,938,000, finance expense of US$10,038,000, and foreign exchange loss of US$1,757,000.
3 Includes depreciation capitalised in the Crespo project (US$809,000), and San Jose unit (US$2,217,000).
4 Not reportable assets are comprised of financial assets at fair value through OCI of US$6,159,000, other receivables of US$41,007,000, income tax receivable of US$206,000, deferred
income tax asset of US$1,627,000, and cash and cash equivalents of US$166,357,000.
118
Hochschild Mining PLC / Annual Report & Accounts 2019 Arcata
US$000
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Other 1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended 31 December 2018
Revenue from external customers
57,836
138,221
207,431
306,108
Inter segment revenue
–
–
–
–
Total revenue from customers
57,836
138,221
207,431
306,108
Provisional pricing adjustment
(1,199)
(2,378)
(2,064)
(5)
Total revenue
56,637
135,843
205,367
306,103
–
–
–
–
–
340
6,328
6,668
–
–
709,936
(6,328)
–
(6,328)
709,936
–
(5,646)
6,668
(6,328)
704,290
Segment profit/(loss)
Others 2
Profit from continuing operations before
income tax
Other segment information
Depreciation 3
Amortisation
Impairment and write-off of assets, net
Assets
Capital expenditure
Current assets
Other non-current assets
Total segment assets
Not reportable assets 4
Total assets
(7,314)
31,226
20,289
116,361
(34,800)
11,178
(8,887)
128,053
(89,687)
38,366
(4,771)
– (168,587)
(178)
(36,377)
(52,006)
(74,878)
–
(38)
–
(31)
(1,324)
(233)
(221)
(56)
(377)
(462)
–
(84)
(26)
526
27,079
44,632
57,678
1,856
2,634
5,155
6,395
27,076
40,220
27,479
7
84,449
172,726
517,321
195,975
11,550
111,525
212,946
544,800
195,982
3,299
51,910
55,209
–
–
–
–
–
146,270
11,550
111,525
212,946
544,800
195,982
201,479
–
–
–
–
(2,091)
(384)
134,405
103,236
– 1,028,776
– 1,132,012
–
146,270
– 1,278,282
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.
1
2 Comprised of administrative expenses of US$45,783,000, other income of US$8,062,000, other expenses of US$17,144,000, write-off of assets (net) of US$384,000, finance income of
US$2,048,000, finance expense of US$27,540,000, and foreign exchange loss of US$8,946,000.
3 Includes depreciation capitalised in the Crespo project (US$810,000), and San Jose unit (US$1,783,000).
4 Not reportable assets are comprised of financial assets at fair value through OCI of US$5,296,000, other receivables of US$38,986,000, other financial assets of US$47,000, income
tax receivable of US$20,733,000, deferred income tax asset of US$1,504,000 and cash and cash equivalents of US$79,704,000.
(b) Geographical information
The revenue for the period based on the country in which the customer is located is as follows:
External customer
Canada
Switzerland
Korea
Germany
Peru
Japan
Bulgaria
USA
Total
Inter-segment
Peru
Total
Year ended 31 December
2018
US$000
2019
US$000
381,149
109,927
91,304
75,003
50,579
24,404
17,864
28,661
89,285
97,943
32,277
70,842
26,084
2,102
5,446
357,096
755,676
704,290
6,101
6,328
761,777
710,618
119
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4 Segment reporting continued
In the periods set out below, certain customers accounted for greater than 10% of the Group’s total revenues as detailed in the following
table:
Year ended 31 December 2019
Year ended 31 December 2018
Asahi Refining Canada
Argor Heraus
LS Nikko
Republic Metals Corporation
Bank of Nova Scotia
Asahi Refining USA
352,949
105,436
91,304
66
–
(806)
0%
0%
0%
US$000 % Revenue
Segment
US$000 % Revenue
47%
14%
Inmaculada
San Jose
12% Pallancata and San Jose
San Jose
12
74,210
97,943
86,974
0%
11%
14% Pallancata and San Jose
12% Inmaculada and San Jose
Segment
Inmaculada
San Jose
Inmaculada
162,843
Inmaculada
85,136
23%
12%
Inmaculada
Inmaculada
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
Financial assets at fair value through OCI
Trade and other receivables
Other financial assets
Deferred income tax assets
Total non-current assets
5 Revenue
Gold (from dore bars)
Silver (from dore bars)
Gold (from concentrate)
Silver (from concentrate)
Other minerals (from concentrate)
Services
Total
As at 31 December
2019
US$000
2018
US$000
709,022
753,016
163,656
172,726
838
125,682
38,835
64,199
999,198 1,028,776
6,159
5,188
–
1,627
5,296
5,451
47
1,504
1,012,172 1,041,074
As at 31 December
2019
US$000
2018
US$000
322,062
277,357
135,583
131,818
119,522
101,492
178,370
193,238
–
139
45
340
755,676
704,290
Included within revenue is an effect relating to provisional pricing adjustments arising on sales resulting in total revenue from customers
in the amount of US$741,092,000 (2018: US$709,936,000).
The provisional pricing adjustments are as follows:
As at 31 December
2019
US$000
2018
US$000
238
60
5,748
8,538
14,584
(8)
(43)
(1,080)
(4,515)
(5,646)
Gold (from dore bars)
Silver (from dore bars)
Gold (from concentrate)
Silver (from concentrate)
Total
120
Hochschild Mining PLC / Annual Report & Accounts 2019 Included within revenue is a transaction price related to the shipping services provided by the Group to the customers arising on sale of:
Gold (from dore bars)
Silver (from dore bars)
Gold (from concentrate)
Silver (from concentrate)
Total
6 Cost of sales
Included in cost of sales are:
Depreciation and amortisation in cost of sales 1
Personnel expenses (note 10) 2
Mining royalty (note 35)
Change in products in process and finished goods
Other items 3
As at 31 December
2019
US$000
2018
US$000
1,011
766
2,456
2,920
7,153
856
664
1,806
2,159
5,485
As at 31 December
2019
US$000
2018
US$000
182,676
164,819
102,977
116,065
6,412
(3,782)
567
5,857
2,481
1,141
1 The depreciation and amortisation in production cost is US$184,388,000 (2018: US$164,244,000).
2 Includes workers’ profit sharing of US$3,878,000 (2018: US$nil).
3 Other items include costs related to stoppage of US$567,000 at the San Jose mine unit (2018: Other items include costs related to stoppage of US$202,000 and termination benefits
of US$939,000 at the San Jose mine unit).
7 Administrative expenses
Personnel expenses (note 10)
Professional fees
Donations
Lease rentals
Travel expenses
Third party services
Communications
Indirect taxes
Depreciation and amortisation
Technology and systems
Security
Other 1
Total
As at 31 December
2019
US$000
26,580
2018
US$000
28,165
5,481
331
1,343
1,058
347
502
1,461
2,274
1,400
912
4,231
3,614
785
1,372
1,061
3,434
430
1,041
1,486
537
784
3,074
45,920
45,783
1
Predominantly related to advertising costs of US$388,000 (2018: US$163,000), insurance fees of US$384,000 (2018: US$243,000), repair and maintenance of US$320,000 (2018:
US$480,000), supplies costs of US$202,000 (2018: US$145,000) and personnel transportation of US$330,000 (2018: US$303,000).
121
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
8 Exploration expenses
Mine site exploration 1
Arcata
Ares
Inmaculada
Pallancata
San Jose
Prospects 2
Peru
USA
Chile
Generative 3
Peru
USA
Personnel (note 10)
Others
Depreciation right-of-use assets
Total
As at 31 December
2019
US$000
2018
US$000
1,065
884
3,976
7,116
9,753
9,024
699
1,732
2,162
4,224
22,794
17,841
265
3,600
1,300
5,165
3,322
–
3,322
5,748
568
368
815
2,928
2,213
5,956
4,640
28
4,668
5,398
518
–
37,965
34,381
1 Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending the mine’s life.
2 Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable for exploration.
Exploration expenses are generally incurred in the following areas: mapping, sampling, geophysics, identification of local targets and reconnaissance drilling.
3 Generative expenditure is early-stage exploration expenditure related to the basic evaluation of the region to identify prospects areas that have the geological conditions
necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public information and identification of
exploration targets.
The increase in exploration expenses is mainly explained by the work performed at the mine units trying to identify new possible ore targets.
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$7,503,000 in 2019 (2018: US$10,498,000).
9 Selling expenses
Personnel expenses (note 10)
Warehouse services
Taxes1
Other
Total
1 Corresponds to the export duties in Argentina, applicable from September 2018.
10 Personnel expenses before exceptional items
Salaries and wages
Workers’ profit sharing
Other legal contributions
Statutory holiday payments
Long-Term Incentive Plan
Restricted share plan
Termination benefits
Other
Total
122
As at 31 December
2019
US$000
2018
US$000
288
1,627
16,259
2,897
302
2,032
5,148
2,586
21,071
10,068
As at 31 December
2019
US$000
2018
US$000
100,441
110,290
5,965
–
21,453
23,268
6,380
1,294
843
2,265
1,600
7,282
4,487
1,374
4,101
2,764
140,241
153,566
Hochschild Mining PLC / Annual Report & Accounts 2019 Personnel expenses are distributed as follows:
Cost of sales
Administrative expenses
Exploration expenses
Selling expenses
Other expenses
Capitalised as property, plant and equipment
Total
Average numbers of employees for 2019 and 2018 were as follows:
Peru
Argentina
Chile
United Kingdom
Total
11 Exceptional items
As at 31 December
2019
US$000
2018
US$000
102,977
116,065
26,580
28,165
5,748
288
4,263
385
5,398
302
3,225
411
140,241
153,566
As at 31 December
2019
2,072
1,394
3
10
2018
2,878
1,220
3
10
3,479
4,111
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.
Other expenses
Restructuring of Arcata mine unit 1
Total
(Impairment)/impairment reversal of non-financial assets, net
Impairment of assets 2
Reversal of impairment of assets 2
Total
Finance costs
Expenses related to the repayment of the bond 4
Total
Income tax benefit 3 and 5
Total
Year ended
31 December
2019
US$000
Year ended
31 December
2018
US$000
(12,199)
(12,199)
(14,693)
315
(14,378)
–
–
–
–
–
–
–
7,933
7,933
(16,346)
(16,346)
4,822
4,822
The exceptional items for the year ended 31 December 2019 are as follows:
1 The termination benefits of 859 employees resulting from the restructuring process generated as the Arcata mine unit was placed on care and maintenance. The Arcata mine unit
was impaired in December 2017.
2 Impairment of the Pallancata mine unit of US$14,693,000 and reversals of impairment related to the San Felipe mine project of US$315,000.
3 The current tax credit generated by the termination benefits arising from the restructuring process of the Arcata mine unit of US$3,599,000 and the deferred tax credit generated
by the impairment of Pallancata mine unit of US$4,334,000.
The exceptional items for the year ended 31 December 2018 are as follows:
4 Premium and other finance expenses related to the repayment of Compañia Minera Ares S.A.C. (“Minera Ares”) bond of US$350,000,000 fully repaid on 23 January 2018. The Group
repaid the capital of US$294,775,000, plus interest of US$11,423,000, premium of US$11,423,000 and their corresponding withholding tax of US$946,000. The charge in profit and loss
during 2018 was US$17,833,000, of which US$1,487,000 corresponded to the interests (US$1,392,000) and its corresponding withholding tax (US$95,000) generated in 2018, and the
balance of US$16,346,000, recognised as an exceptional item, includes the premium of US$11,423,000, its corresponding withholding tax of US$473,000 and the recognition of the
capitalised expenses related to obtaining the bond of US$4,450,000.
5 Deferred tax credit generated by the premium and other finance expenses related to the repayment of the Minera Ares bond.
123
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE 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(1))
Export credits 1
Logistic services
Income related to the San Felipe agreement (note 23)
Other 2
Total
Other expenses
Increase in provision for mine closure (note 26(1))
Provision of obsolescence of supplies (note 21)
Care and maintenance expenses of Ares mine unit
Contingencies
Donations
Write off of value added tax
Corporate social responsibility contribution in Argentina 3
Termination benefits of Arcata mine unit 4
Care and maintenance expenses of Arcata mine unit
Provision for impairment of receivables 5
Other 6
Total
Year ended
31 December
2019
Before
exceptional
items
US$000
Year ended
31 December
2018
Before
exceptional
items
US$000
223
6
4,489
600
3,696
9,014
(13,621)
(1,449)
(4,593)
71
(10)
(144)
(3,636)
–
(4,888)
(3,706)
(1,918)
–
1,287
4,128
–
2,647
8,062
(52)
(384)
(5,688)
(140)
(9)
(66)
(2,382)
(1,324)
–
(5,656)
(1,443)
(33,894)
(17,144)
1 Corresponds to the benefit of silver refund in Argentina which was effective until August 2018.
2 Mainly corresponds to the recognition of a receivable from a supplier following a claim ruled in favour of the Group of US$1,061,000 (2018: US$nil), the gain on recovery of expenses
of US$623,000 (2018: US$930,000), gain on sale of supplies of US$325,000 (2018: US$410,000) and the gain recognised for the Mosquito project of US$400,000 (2018: US$400,000).
3 Relates to a contribution in Argentina to the Santa Cruz province, effective since January 2016 and calculated as a proportion of sales.
4 Due to the redundancy of 107 employees in the Arcata mine unit, aligned with the mine plan for 2018.
5 Mainly due to write-off of a claim receivable of US$2,934,000 (2018: mainly due to the write-off of a trade receivable of US$4,946,000 from a customer declared bankrupt under
the United States bankruptcy code chapter 11).
6 Mainly corresponds to the expenses due to concessions of US$667,000 (2018: US$320,000), depreciation expense for right-of-use assets of US$206,000 (2018:US$nil) and rentals
of US$33,000 (2018: US$191,000).
13 Finance income and finance costs before exceptional items
Finance income
Interest on deposits and liquidity funds
Interest income
Other
Total
Finance costs
Interest on secured bank loans (note 25)
Other interest
Interest on the US$350m bond (note 11)
Interest expense
Unwind of discount on mine rehabilitation (note 26)
Loss on discount of other receivables 1
Loss from changes in the fair value of financial instruments 2
Other 3
Total
Year ended
31 December
2019
Before
exceptional
items
US$000
Year ended
31 December
2018
Before
exceptional
items
US$000
2,557
2,557
381
2,938
(4,122)
(335)
–
(4,457)
(506)
(902)
(3,007)
(1,166)
2,001
2,001
47
2,048
(4,923)
(726)
(1,392)
(7,041)
(368)
(1,625)
(1,256)
(904)
(10,038)
(11,194)
1 Mainly related to the effect of the discount of tax credits in Argentina and Peru.
2 Mainly due to the effect of the sale of the bonds in Argentina (2018: related to the fair value adjustments of the warrants of Red Eagle Mining Corporation acquired in 2017).
3 Includes the effect of the discount of the lease liabilities related to IFRS 16 (refer to note 2(a)).
124
Hochschild Mining PLC / Annual Report & Accounts 2019 14 Income tax expense
Current corporate income tax from continuing operations
Corporate income tax charge
Withholding tax
Deferred taxation
Origination and reversal of temporary differences
from continuing operations (note 28)
Effect of change in income tax rates 1
Corporate income tax
Current mining royalties
Mining royalty charge (note 35)
Special mining tax charge (note 35)
Total current mining royalties
Year ended 31 December 2019
Year ended 31 December 2018
Before
exceptional
items
US$000
Exceptional
items
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
35,543
(3,599)
31,944
8,338
3,253
–
3,253
38,796
(3,599)
35,197
8,338
–
–
Total
US$000
8,338
8,338
(2,687)
(1,230)
(3,917)
34,879
5,028
3,429
8,457
(4,334)
(7,021)
20,909
(4,822)
16,087
–
(1,230)
(4,334)
(8,251)
(7,933)
26,946
–
20,909
29,247
–
(4,822)
(4,822)
–
16,087
24,425
–
–
–
5,028
3,429
8,457
4,494
2,746
7,240
–
–
–
4,494
2,746
7,240
Total taxation charge/(credit) in the income statement
43,336
(7,933)
35,403
36,487
(4,822)
31,665
1
On 29 December 2017, the Argentinian government enacted a tax reform. The main change was the reduction in the statutory income tax rate, from 35% to 30% with effect from 1
January 2018 and to 25% with effect from 1 January 2020. On December 2019 there was a further tax reform in Argentina, stating that the income tax rate of 25% will be applied from
1 January 2021.
The weighted average statutory income tax rate was 30.9% for 2019 and 32.2% for 2018. This is calculated as the average of the
statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group
companies in their respective countries as included in the consolidated financial statements.
The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax
in the various jurisdictions in which the Group operates.
There was no tax related to items charged or credited to equity during the year ended 31 December 2019 (2018: US$nil).
The total taxation charge on the Group’s profit before tax differs from the theoretical amount that would arise using
the weighted average tax rate applicable to the consolidated profits of the Group companies as follows:
Profit from continuing operations before income tax
At average statutory income tax rate of 30.9% (2018: 32.2%)
Expenses not deductible for tax purposes
Adjustment related to Restricted Share Plan (RSP)
Change in statutory income tax rate
Deferred tax recognised on special investment regime 1
Movement in unrecognised deferred tax 2
Special mining tax and mining royalty deductible for corporate income tax
Other
Corporate income tax at average effective income tax rate of 28.9% (2018: 27.0%) before foreign exchange effect
and withholding tax
Special mining tax and mining royalty 3
Corporate income tax and mining royalties at average effective income tax rate of 39.9% (2018: 45.9%)
Foreign exchange rate effect 4
Corporate income tax and mining royalties at average effective income tax rate of 41.8% (2018: 82.5%) before
withholding tax
Withholding tax
As at 31 December
2019
US$000
76,842
23,740
360
(940)
1,230
2018
US$000
38,366
12,352
593
–
–
(2,590)
(1,399)
5,223
(2,495)
(2,288)
2,915
(2,136)
(1,971)
22,240
10,354
8,457
30,697
1,453
7,240
17,594
14,071
32,150
31,665
3,253
–
Total taxation charge in the income statement at average effective tax rate 46.1% (2018: 82.5%) from continuing operations
35,403
31,665
1
Argentina benefits from a special investment regime that allows for a super (double) deduction in calculating its taxable profits for all costs relating to prospecting, exploration and
metallurgical analysis, pilot plants and other expenses incurred in the preparation of feasibility studies for mining projects.
2 Includes the income tax charge on mine closure provision of US$836,000 (2018: income tax credit of US$412,000), the tax charge related to the Inmaculada mine unit depreciation of
US$1,636,000 (2018: US$1,631,000), and the effect of not recognised tax losses of US$2,751,000 (2018: US$1,696,000).
3 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 35).
4 The foreign exchange effect is composed of US$3,280,000 loss (2018: US$9,311,000 loss) from Argentina and a gain of US$1,827,000 (2018: US$4,760,000 loss) from Peru. This mainly
corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the corresponding functional currency. The main contributor of the
foreign exchange effect on the tax charge in 2018 is the devaluation of the Argentinian peso.
125
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15 Basic and diluted earnings per share
Earnings per share (‘EPS’) is calculated by dividing profit for the year attributable to equity shareholders of the parent by the weighted
average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2019 and 2018, EPS has been calculated as follows:
Basic earnings/(loss) per share from continuing operations
Before exceptional items (US$)
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
2019
2018
0.09
(0.03)
0.06
0.09
(0.03)
0.06
0.05
(0.02)
0.03
0.05
(0.02)
0.03
Profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:
Profit attributable to equity holders of the parent – continuing operations (US$000)
Exceptional items after tax – attributable to equity holders of the parent (US$000)
Profit from continuing operations before exceptional items attributable to equity holders of the parent (US$000)
Profit 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 earnings 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)
As at 31 December
2019
28,954
18,644
47,598
2018
12,836
11,524
24,360
47,598
24,360
As at 31 December
2019
2018
510,562
508,878
538
4,018
Weighted average number of ordinary shares in issue for the purpose of diluted earnings per share (thousands)
511,100
512,896
126
Hochschild Mining PLC / Annual Report & Accounts 2019 16 Property, plant and equipment
Year ended 31 December 2019
Cost
Mining
properties and
development
costs 1
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
At 31 December 2018
1,345,516
519,450
590,447
Recognised on transition of IFRS 16
–
–
–
6,680
5,337
96,397
14,966
2,573,456
–
–
5,337
At 1 January 2019, after IFRS 16 adjustment
1,345,516
519,450
590,447
12,017
96,397
14,966
2,578,793
Additions
Asset acquisition
Change in discount rate
Change in mine closure estimate
Disposals
Write-offs
99,658
716
21,084
842
–
–
–
–
–
–
–
–
–
–
218
–
–
(1,893)
(3,426)
4,525
–
–
–
(1,969)
–
858
–
–
3,249
50
–
–
–
14,7733
137,073
–
–
–
–
(241)
(14,302)
218
3,249
50
(3,862)
(3,667)
4,196
Transfers and other movements 2
4,200
8,915
At 31 December 2019
1,449,374
529,081
610,955
11,748
99,696
15,196
2,716,050
Accumulated depreciation and impairment
At 1 January 2019
Depreciation for the year
Disposals
Write-offs
Impairment/(reversal of impairment), net
10,856
1,864
Transfers and other movements 2
–
–
999,695
298,024
349,908
108,911
34,177
–
–
–
–
37,076
(1,744)
(2,814)
1,798
(69)
4,707
3,262
(777)
–
49
69
71,003
3,831
–
–
–
–
947
1,724,284
–
–
–
–
–
187,257
(2,521)
(2,814)
14,567
–
At 31 December 2019
1,119,462
334,065
384,155
Net book amount at 31 December 2019
329,912
195,016
226,800
7,310
4,438
74,834
24,862
947
1,920,773
14,249
795,277
1
Within mining properties and development costs there is a balance at 31 December 2019 related to Crespo project (US$27,693,000) that is not currently being depreciated as the
unit is not operating.
2 Transfers and other movements include US$4,200,000 that was transferred from evaluation and exploration assets (note 17).
3 There were no borrowing costs capitalised in property, plant and equipment.
Mining
properties and
development
costs 1
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
1,259,902
496,924
557,482
6,611
98,537
33,409
2,452,865
Year ended 31 December 2018
Cost
At 1 January 2018
Additions
Change in discount rate
Change in mine closure estimate
Disposals
Write-offs
83,106
754
18,888
–
–
–
–
–
–
–
(176)
–
–
(156)
(1,094)
15,327
Transfers and other movements 2
2,508
21,948
At 31 December 2018
1,345,516
519,450
590,447
Accumulated depreciation and impairment
At 1 January 2018
Depreciation for the year
Disposals
Write-offs
Impairment/(reversal of impairment), net
Transfers and other movements 2
899,381
266,069
318,817
100,185
32,095
31,983
–
–
–
129
–
(141)
–
1
(141)
(808)
–
57
At 31 December 2018
999,695
298,024
349,908
Net book amount at 31 December 2018
345,821
221,426
240,539
82
–
–
(212)
(392)
591
6,680
4,745
476
(191)
(350)
–
27
4,707
1,973
–
19,4473
122,277
(1,126)
(1,014)
–
–
–
–
–
–
(21)
(37,869)
(1,126)
(1,014)
(368)
(1,683)
2,505
96,397
14,966
2,573,456
67,155
3,848
–
–
–
–
71,003
25,394
1,032
1,557,199
–
–
–
–
(85)
947
168,587
(332)
(1,299)
–
129
1,724,284
14,019
849,172
1 Within mining properties and development costs there is a balance at 31 December 2018 related to Crespo project (US$26,855,000) that is not currently being depreciated.
2 Transfers and other movements include US$2,379,000 that was transferred from evaluation and exploration assets (note 17).
3 Includes borrowing costs capitalised in property, plant and equipment amounting to US$239,000. The capitalisation rate used was 2.88%.
127
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 Property, plant and equipment continued
In 2019, management determined that there was a trigger of impairment in the San Jose mine unit due to the increase of the discount
rate from 9.5% to 13.5%, mainly explained by the rise in country risk premium in Argentina. The impairment test result did not show a
difference versus the carrying value given that the negative effects of the increased discount rate were offset by an increase in the
silver and gold analyst consensus prices. Therefore, no impairment nor impairment reversal was recognised.
As a result of the delays in obtaining exploration permits in the Pallancata mine unit, management revised its mine plan. The revised
plan considers only the reserves and resources economically exploitable based on the latest model whilst spreading the remaining
reserves and resources over a longer period of time to allow more time for the permitting and exploration campaigns to be completed.
Management determined that this was a trigger of impairment and an impairment test was carried out. The effect of the changes in the
mine plan was partly offset by an increase in analyst consensus prices, and the resulting impairment charge recognised as at 31
December 2019 amounted to US$14,693,000 (US$14,567,000 in property, plant and equipment and US$126,000 in evaluation and
exploration assets).
In 2018, management determined there were triggers of impairment in the San Jose mine unit due to the devaluation of the US$, inflation
and the new export tax approved in Argentina since September 2018. The impairment test result did not show a difference versus the
carrying value given that the level of devaluation offset inflation and the new export tax. Therefore, no impairment was recognised.
No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.
The recoverable values of the San Jose and Pallancata 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, which result in fair value measurements
categorised in its entirety as level 3 in the fair value hierarchy, 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 gold and silver prices, future capital requirements, production costs, reserves and resources volumes (reflected in the production
volume), and the discount rate.
2019
US$ per oz.
Gold
Silver
Discount rate (post tax)
2020
1,506
18.3
2021
1,492
17.5
2022
1,469
17.7
2023
1,377
17.7
2024 Long-term
1,340
18.5
1,369
17.7
San Jose Pallancata
13.5%
6.5%
Periods of six and two years were used to prepare the cash flow projections of the San Jose mine unit and the Pallancata mine unit
respectively, which is in line with their life-of-mine.
31 December 2019 (US$000)
Current carrying value of CGU, net of deferred tax
San Jose Pallancata
132,278
59,147
2018
US$ per oz.
Gold
Silver
Discount rate (post tax)
2019
1,251
15.70
2020
1,258
16.9
2021
1,237
17.1
2022
1,218
16.6
2023 Long-term
1,300
18.0
1,300
18.0
San Jose
9.5%
San Jose
138,877
A period of six years was used to make the cash flow projections of the San Jose mine unit which reflects its life-of-mine.
31 December 2018 (US$000)
Current carrying value of CGU, net of deferred tax
The estimated recoverable values of the Group’s CGUs are equal to, or not materially different to, their carrying values.
128
Hochschild Mining PLC / Annual Report & Accounts 2019 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.
A change in any of the key assumptions would have the following impact:
Gold and silver prices (decrease by 10%)
Gold and silver prices (increase by 5%) 1
Production costs (increase by 10%)
Production costs (decrease by 10%) 1
Production volume (decrease by 10%)
Production volume (increase by 10%) 1
Post-tax discount rate (increase by 3%) 2
Post-tax discount rate (decrease by 3%) 2
Capital expenditure (increase by 10%)
Capital expenditure (decrease by 10%)
US$000
San Jose Pallancata
(62,700)
(19,900)
17,839
8,500
(38,000)
(11,300)
10,600
(6,000)
4,900
17,839
(28,700)
17,839
(11,200)
12,900
(11,700)
11,700
1
This represents the maximum impairment loss that could be reversed, as it represents the carrying amount that would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
2 Management believes that a 3% change is a reasonably possible change in the post-tax discount rate in Argentina. However, changes in the perception of Argentina arising from
political, social and financial disruption may give rise to significant movement in the discount rate used in the assessment of the San Jose CGU.
Lease contracts
The Group has lease contracts for vehicles used in its operations and administrative offices. Leases of motor vehicles generally
have lease terms of three years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets.
The Group also has certain leases of assets with lease terms of 12 months or less and leases of office equipment with low value.
The Group applies the short-term lease and lease of low-value assets recognition exemptions for these leases.
The following are the amounts recognised in profit or loss:
US$000
Depreciation expense for right-of-use assets
Interest expense in lease liabilities
Expense relating to short-term leases (included in cost of sales, administrative, exploration and other expenses)
Expense relating to leases of low-value assets (included in cost of sales, administrative, exploration and other expenses)
Variable lease payments (included in cost of sales)
Total amount recognised in profit or loss
(2,454)
(96)
(4,985)
(1,233)
(3,470)
(12,238)
The Group had total cash outflows for leases of US$12,194,000 in 2019 (US$14,133,000 in 2018). There were no non-cash additions to
right-of-use assets and lease liabilities during the year. The future cash outflows relating to leases that have not yet commenced are
US$5,527,000.
129
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
17 Evaluation and exploration assets
Cost
Balance at 1 January 2018
Additions
Transfers to property, plant and equipment
Balance at 31 December 2018
Asset acquisition (note 3)
Additions
Transfers to assets held for sale (note 23)
Transfers to property, plant and equipment
Balance at 31 December 2019
Accumulated impairment
Balance at 1 January 2018
Balance at 31 December 2018
(Impairment reversal)/impairment
Transfers to assets held for sale (note 23)
Transfers to property, plant and equipment
Balance at 31 December 2019
Net book value as at 31 December 2018
Net book value as at 31 December 2019
Azuca
US$000
Crespo
US$000
San Felipe
US$000
BioLantanidos
US$
Volcan
US$000
Others
US$000
Total
US$000
81,599
26,239
55,450
427
–
360
–
–
–
82,026
26,599
55,450
–
687
–
–
–
643
–
–
82,713
27,242
–
–
(55,450)
–
–
45,876
9,878
17,470
45,876
9,878
17,470
–
–
–
–
–
–
45,876
36,150
36,837
9,878
16,721
17,364
(315)
(17,155)
–
–
37,980
–
–
–
–
94,452
12,668
270,408
230
9,204
–
(2,508)
10,221
(2,508)
94,682
19,364
278,121
59,358
1,149
–
–
–
770
–
–
–
59,358
6,025
9,274
–
(55,450)
(4,236)
(4,236)
60,507
95,452
21,153
287,067
–
–
–
–
–
–
–
–
44,381
5,404
123,009
–
(129)
(129)
44,381
5,275
122,880
–
–
–
126
(189)
–
(17,155)
(31)
(31)
44,381
50,301
51,071
5,370
105,505
14,089
155,241
15,783
181,562
–
60,507
Transfers to property, plant and equipment
–
–
–
At 31 December 2019, the Group has recorded an impairment charge with respect to evaluation and exploration assets of the
Pallancata mine unit of US$126,000 (the calculation of the recoverable values is detailed in note 16).
There were no borrowing costs capitalised in evaluation and exploration assets.
As at 31 December 2019, the San Felipe project, which is part of the exploration segment, was reclassified to assets held for sale.
Consequently, management recognised a reversal of impairment of US$315,000 in the period to adjust the carrying value to the
amount pending collection from the option payment at 31 December 2019 (refer to note 23).
18 Intangible assets
Cost
Balance at 1 January 2018
Additions
Transfer
Balance at 31 December 2018
Additions
Transfer
Balance at 31 December 2019
Accumulated amortisation and impairment
Balance at 1 January 2018
Amortisation for the year4
Balance at 31 December 2018
Amortisation for the year4
Transfer
Balance at 31 December 2019
Net book value as at 31 December 2018
Net book value as at 31 December 2019
Transmission
line 1
US$000
Water
permits 2
US$000
Software
licences
US$000
Legal
rights 3
US$000
22,157
26,583
1,872
–
–
–
–
13
3
6,686
1,894
–
Total
US$000
57,298
1,907
3
22,157
26,583
1,888
8,580
59,208
–
–
–
–
2
9
–
–
2
9
22,157
26,583
1,899
8,580
59,219
14,163
12,686
1,113
–
15,276
12,686
1,210
–
16,486
6,881
5,671
–
–
12,686
13,897
13,897
1,529
212
1,741
186
(54)
1,873
147
26
4,376
766
32,754
2,091
5,142
34,845
673
–
5,815
3,438
2,765
2,069
(54)
36,860
24,363
22,359
1 The transmission line is amortised using the units of production method. At 31 December 2019 the remaining amortisation period is approximately six years (2018: seven years).
2 Corresponds to the acquisition of water permits of Andina Minerals Group (“Andina”). These permits have an indefinite life according to Chilean law. 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 Group used the value-in-situ methodology. This methodology applies
a realisable ‘enterprise value’ to unprocessed mineral resources which was US$6.60 per gold equivalent ounce of resources at 31 December 2019 (2018: US$6.70). The risk adjusted
enterprise value figure has been determined using a combination of level 2 and level 3 inputs, which result in a fair value measurement categorised in its entirety as level 3 in the fair
value hierarchy, to estimate the amount that would be paid by a willing third party in an arm’s length transaction, taking into account the water restrictions imposed by the Chilean
government.
3 Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production. At 31 December 2019
the remaining amortisation period is from 4 to 14 years (2018: 5 to 20 years).
4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess of its
recoverable amount. No impairments were recognised in 2019 and 2018. The estimated recoverable amount is not materially different
to its carrying value.
130
Hochschild Mining PLC / Annual Report & Accounts 2019 Key assumptions
Risk adjusted value per in-situ (gold equivalent ounce) US$
US$000
Current carrying value Volcan CGU
2019
6.60
2019
2018
6.70
2018
64,968
64,198
The estimated recoverable amount is not materially greater than its carrying value.
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 to exceed its recoverable amount.
A change in the value in situ assumption could cause an impairment loss or reversal of impairment to be recognised as follows:
Approximate (impairment)/reversal of impairment resulting from the following changes (US$000)
Value per in-situ ounce (10% decrease)
Value per in-situ ounce (10% increase)
Risk factor (increase by 5%)
Risk factor (decrease by 5%)
19 Financial assets at fair value through OCI
Beginning balance
Acquisitions 1
Fair value change recorded in OCI
Disposals 2
Transfer of shares (note 3)
Ending balance
2019
2018
(6,297)
(6,407)
6,297
(4,844)
4,844
6,407
(1,725)
1,725
As at 31 December
2019
US$000
2018
US$000
5,296
1,100
3,628
(421)
(3,444)
6,159
6,264
6,433
(6,447)
(954)
–
5,296
1 Corresponds to the purchase of 147,831,737 shares of REE UNO (US$500,000), and 452,200 shares of Americas Silver Corporation (ASC) (US$600,000) (note 23) (2018: Purchase of
591,326,947 shares of REE UNO (US$2,000,000), 7,519,331 shares of Skeena Resources Limited (Skeena) (US$4,313,000) and 15,600 shares of Cobalt Power Group (US$120,000)).
2 As the investments were not considered to be strategic, the Group sold 10,032,000 shares of Santa Cruz Silver Mining (SCSM) with a fair value at the date of sale of US$421,000
generating a loss on disposal of US$1,658,000 (2018: Sale of 14,545,454 shares of Red Eagle and 3,383,000 shares of SCSM with a fair value at the date of sale of US$799,000 and
US$155,000, generating a loss on disposal of US$2,514,000 and US$546,000 respectively).
The Group made the election at initial recognition to measure the equity investments at fair value through OCI as they are not held
for trading.
The fair value at 31 December 2019 and 31 December 2018 is as follows:
Listed equity investments:
Power Group Projects Corp (formerly Cobalt Power Group)
Santa Cruz Silver Mining
Revelo Resources Corp.
Skeena Resources Limited
Goldspot Discoveries Inc.
Americas Silver Corporation
Empire Petroleum Corp.
Total listed equity investments
Non-listed equity investments:
Pembrook Mining Corp.
ECI Exploration and Mining Inc.
Goldspot Discoveries Inc.
REE UNO SpA
Total non-listed equity investments
Total
US$000
2019
2018
28
–
4
3,937
755
1,417
18
6,159
–
–
–
–
–
6,159
53
435
4
1,599
–
–
19
2,110
–
–
1,240
1,946
3,186
5,296
Fair value of the listed shares is determined by reference to published price quotations in an active market and they are categorised as
level 1.
The fair value of non-listed equity investments is determined based on financial information available of the companies and they are
categorised as level 3.
131
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
20 Trade and other receivables
Trade receivables (note 36(c) and 36(e))
Advances to suppliers
Duties recoverable from exports of Minera Santa Cruz 1
Receivables from related parties (note 30(a))
Loans to employees
Interest receivable
Receivable from Kaupthing, Singer and Friedlander Bank
Other 2
Provision for impairment 3
Assets classified as receivables
Prepaid expenses
Value Added Tax (VAT) 4
Total
As at 31 December
2019
2018
Non-
current
US$000
–
–
664
–
726
–
–
1,671
–
3,061
800
1,327
5,188
Current
US$000
37,799
3,810
–
569
177
178
197
11,496
(6,766)
47,460
2,281
23,877
73,618
Non-
current
US$000
–
–
1,546
–
744
–
–
723
–
3,013
8
2,430
5,451
Current
US$000
45,201
2,950
1,788
76
206
66
195
12,591
(5,997)
57,076
2,028
19,632
78,736
The fair values of trade and other receivables approximate their book value.
1
Relates to export benefits through the Patagonian Port and silver refunds in Minera Santa Cruz, discounted over 18 and 24 months (2018: 24 months) at a rate of 22.24% (2018: 9.98%)
for dollar denominated amounts and 48.93% (2018: 57.00%) for Argentinian pesos. The loss on the unwinding of the discount is recognised within finance costs.
2 Mainly corresponds to account receivables from contractors for the sale of supplies of US$6,235,000 (2018: US$6,111,000), and other tax claims of US663,000 (2018: US$3,227,000).
3 Includes the provision for impairment of trade receivable from customers in Peru of US$1,533,000 (2018: US$1,554,000), the impairment of deposits in Kaupthing, Singer and
Friedlander of US$197,000 (2018: US$195,000), the impairment of the account receivable from a third party of US$4,626,000 (2018: US$3,233,000) and other receivables of US$410,000
(2018: US$1,015,000).
4 Primarily relates to US$12,832,000 (2018: US$11,462,000) 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. It also includes the VAT of Minera Ares of US$7,724,000 (2018: US$6,248,000) and Empresa de Transmisión
Aymaraes S.A.C. of US$2,435,000 (2018: US$3,569,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
At 1 January 2018
Provided for during the year (note 12)
Released during the year 1
At 31 December 2018
Provided for during the year (note 12)
Released during the year 1
At 31 December 2019
1 Corresponds to the release of the provision of US$5,000 (2018: increase of US$2,000) and write off of US$2,932,000 (2018: US$4,479,000).
As at 31 December 2019 and 2018, none of the financial assets classified as receivables (net of impairment) were past due.
Individually
impaired
US$000
4,594
5,884
(4,481)
5,997
3,706
(2,937)
6,766
132
Hochschild Mining PLC / Annual Report & Accounts 2019 21 Inventories
Finished goods valued at cost
Products in process valued at cost
Products in process accrual
Supplies and spare parts
Provision for obsolescence of supplies
Total
As at 31 December
2019
US$000
2018
US$000
1,950
1,543
19,460
16,085
6,445
41,582
69,437
(6,837)
62,600
8,030
37,765
63,423
(5,388)
58,035
Finished goods include ounces of gold and silver, dore and concentrate.
Products in process include stockpile and precipitates.
The Group either sells dore bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining into
gold and silver ounces which are then sold. In the latter scenario, the dore bars are classified as products in process. At 31 December
2019 and 2018 the Group had no dore on hand included in products in process.
Concentrate is sold to smelters, but in addition could be used as a product in process to produce dore.
As part of the Group’s short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts.
The Group has no such contracts as at 31 December 2019 (2018: $6,047,000) (refer to note 25).
The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and
raw materials is US$112,383,000 (2018: US$111,485,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$1,449,000 (2018: US$384,000)
and the reversal of US$nil relating to the sale of supplies and spare parts, that had been provided for (2018: US$nil).
22 Cash and cash equivalents
Cash at bank
Liquidity funds 1
Current demand deposit accounts 2
Time deposits 3
Cash and cash equivalents considered for the statement of cash flows
As at 31 December
2019
US$000
2018
US$000
331
16
37,900
128,110
166,357
366
–
43,095
36,243
79,704
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 nil days as at 31 December 2019
(2018: nil days).
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of seven days (2018: Average of 14 days).
133
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23 Assets held for sale
On 3 August 2011, the Group 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 US$33,646,000 as non-refundable payments at 31 December 2019 (2018: US$31,396,000). These payments will reduce the
total consideration that IMSC will be required to pay upon exercise of the option and constitute an advance of the final purchase price,
rather than an option premium and, as such, they were recorded as deferred income.
In March 2017, IMSC entered into an agreement with Americas Silver Corporation (‘ASC’) to assign 100% of its interest in the San Felipe
Project. On 15 December 2018, the option to sell the San Felipe property to ASC was extended to 15 December 2020 with the
outstanding option payment of US$6,000,000 payable in quarterly equal instalments over the two-year period. In consideration
for the extension, the Group received 452,200 ASC common shares on 18 January 2019 at an issue price equal to US$600,000,
that was recognised as other income. During 2019 the Group collected US$2,250,000 (2018: US$2,000,000).
ASC has demonstrated its intention to pay the outstanding balance of US$3,750,000 during the first semester of 2020, and in
consequence, as the sale is highly probable to be completed within 12 months of the year-end, the assets and liabilities were
transfered to assets and liabilities related to asset held for sale, respectively.
The major classes of assets and liabilities classified as assets held for sale as at 31 December 2019 are as follows:
Assets
Evaluation and exploration assets, net of impairment (note 17)
Total non-current assets
Liabilities
Provision for mine closure (note 26)
Deferred income
Total liabilities directly associated with assets held for sale
Net assets directly associated with assets held for sale
24 Trade and other payables
Trade payables 1
Salaries and wages payable 2
Dividends payable
Taxes and contributions
Guarantee deposits
Mining royalties (note 35)
Accounts payable to related parties (note 30(a))
Liabilities related to right-of-use assets
Other
Total
US$000
38,295
38,295
(899)
(33,646)
(34,545)
3,750
Current
US$000
69,568
36,272
2,247
6,314
7,922
506
7
–
As at 31 December
2019
2018
Non-
current
US$000
–
–
–
6
–
–
–
–
520
526
Current
US$000
75,252
26,956
37
5,220
5,440
607
192
2,577
4,256
120,537
Non-
current
US$000
–
–
–
14
–
–
–
–
773
787
2,639
125,475
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. At 31 December 2019, there was Board members’ remuneration payable of US$184,000 (2018: US$nil) and no long-term
incentive plan payable (2018: US$8,215,000).
134
Hochschild Mining PLC / Annual Report & Accounts 2019 25 Borrowings
Secured bank loans (a)
As at 31 December
2019
Non-
current
US$000
Effective
interest rate
Current
US$000
Effective
interest rate
2018
Non-
current
US$000
Current
US$000
Pre-shipment loans in Minera Santa Cruz (note 20)
–
–
4.0% to 5.0%
–
6,047
Bank loans
Total
3.05%
199,308
234 2.43% to 3.00%
50,000
101,020
199,308
234
50,000
107,067
(a) Secured bank loans:
Short-term bank loans:
As at 31 December 2018 the Group held two credit agreements signed by Minera Ares with BBVA Continental with an interest rate
of 2.70% and Scotiabank with an interest rate of 3.00%. Both loans were repaid during the year. The carrying value including accrued
interest payable at 31 December 2018 was US$50,581,000 and US$50,111,000 respectively.
Medium-term bank loans:
In December 2019, a five-year credit agreement was signed between Minera Ares and Scotiabank Peru S.A.A., The Bank of Nova Scotia
and BBVA Securities Inc, with Hochschild Mining plc as guarantor. The US$200,000,000 medium-term loan is payable on equal quarterly
instalments from the second anniversary of the loan with an interest rate of Libor three months plus 1.5% payable quarterly until
maturity on 13 December 2024. The carrying value including accrued interests payable net of capitalised expenses related to the
borrowing (US$692,000) at 31 December 2019 is US$199,542,000.
As at 31 December 2018, the Group held two credit agreements signed by Minera Ares with Nova Scotia Bank with an interest rate
of 2.43% and Citibank with an interest rate of 2.43%. The carrying value including accrued interest payable at 31 December 2018 is
US$25,164,000 and US$25,164,000 respectively and theywere fully repaid during 2019.
The maturity of non-current borrowings is as follows:
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
As at 31 December
2019
US$000
2018
US$000
–
50,000
199,308
–
–
–
199,308
50,000
The carrying amount of current borrowings differs their fair value only with respect to differences arising under the effective interest
rate calculations described above. The carrying amount and fair value of the non current borrowings are as follows:
Secured bank loans
Total
The movement in borrowings during the year is as follows:
Current
Bank loans
Non-current
Bank loans
Accrued interest
Before accrued interest
Carrying amount
as at 31 December
Fair value
as at 31 December
2019
US$000
199,308
199,308
2018
US$000
50,000
50,000
2019
US$000
186,653
186,653
2018
US$000
47,353
47,353
As at
1 January
2019
US$000
Additions
US$000
Repayments
US$000
Reclassifications
US$000
As at
31 December
2019
US$000
107,067
107,067
120,622
(227,455)
120,622
(227,455)
50,000
50,000
(1,067)
199,308
199,308
(4,122)
(50,000)
(50,000)
4,955
156,000
315,808
(272,500)
–
–
–
–
–
–
234
234
199,308
199,308
(234)
199,308
135
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26 Provisions
At 1 January 2018
Additions
Accretion (note 13)
Change in discount rate
Change in estimates
Foreign exchange effect
Transfer to trade and other payables
Payments
At 31 December 2018
Less: current portion
Non-current portion
At 1 January 2019
Additions/(reduction)
Accretion (note 13)
Change in discount rate
Change in estimates
Foreign exchange effect
Transfer to liabilities directly associated with assets held for sale (note 23)
Payments
At 31 December 2019
Less: current portion
Non-current portion
Provision
for mine
closure 1
US$000
Long-Term
Incentive
Plan 2
US$000
Workers’
profit
sharing
US$000
100,069
–
368
(1,609)
(479)
–
–
(4,494)
93,855
1,986
91,869
93,855
–
506
3,819
12,878
–
(899)
(3,488)
106,671
9,358
97,313
5,831
3,386
–
–
–
–
(8,215)
–
1,002
–
1,002
1,002
(184)
–
–
–
–
–
–
818
–
818
Other
US$000
Total
US$000
4,410
110,310
140
–
–
–
(1,614)
–
–
2,936
1,167
1,769
2,936
(71)
–
–
–
(846)
–
–
3,526
368
(1,609)
(479)
(1,614)
(8,215)
(4,494)
97,793
3,153
94,640
97,793
5,710
506
3,819
12,878
(748)
(899)
(3,488)
–
–
–
–
–
–
–
–
–
–
–
–
5,965
–
–
–
98
–
–
6,063
6,063
–
2,019
115,571
828
1,191
16,249
99,322
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 2019 and 2018 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 0.00% (2018:
0.30%). Expected cash flows will be over a period from one to eighteen years (2018: over a period from one to nineteen years).
Based on the internal and external reviews of mine rehabilitation estimates, the provision for mine closure increased by US$12,878,000 mainly due to increase in the Ares mine unit
(US$7,787,000) and Sipan mine unit (US$5,264,000) (2018: decreased by US$479,000, mainly due to the decrease in the Selene mine unit (US$1,131,000) and Inmaculada mine unit
(US$903,000), partially offset by the increase in the Arcata mine unit (US$1,745,000).
A net charge of US$13,398,000 related to changes in estimates (US$12,828,000) and discount rates (US$570,000) for mines already closed was recognised directly in the income
statement (2018: a net charge of US$52,000 related to changes in estimates (US$535,000) and credit for discount rates (US$483,000) for mines already closed).
A change in any of the following key assumptions used to determine the provision would have the following impact:
Closure costs (increase by 10%) increase of provision
Discount rate (increase by 0.5%) (decrease of provision)
US$000
10,087
(2,201)
2 Corresponds to the provision related to awards granted under the Long-Term Incentive Plan (‘LTIP’) to designated personnel of the Group. Includes the following benefits: (i) 2019
awards, granted in July 2019, payable in February 2022, as 50% in cash (refer to note 27(c)(iv)), (ii) 2018 awards, granted in May 2018, payable in May 2021, as 50% in cash (refer to
note 27(c)(iii)), (iii) 2017 awards, granted in March 2017, payable in March 2020 with a result of US$nil. Only employees who remain in the Group’s employment on the vesting date
will be entitled to vested awards, subject to exceptions approved by the Remuneration Committee of the Board. There are two parts to the performance conditions attached to
LTIP awards: 70% is subject to the Company’s TSR ranking relative to a tailored peer group of mining companies, and 30% is subject to the Company’s TSR ranking relative to
the constituents of the FTSE350 mining index. The liability for the LTIP paid in cash 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. The net decrease to the provision of US$184,000 (2018: US$3,386,000 increase) has been recorded as administrative expenses US$172,000 (2018:
US$3,203,000) and exploration expenses US$12,000 (2018: US$183,000).
The following table lists the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2019 and 2018, respectively:
For the period ended
Dividend yield (%)
Expected volatility (%)
Risk–free interest rate (%)
Expected life (years)
Weighted average share price (pence £)
LTIP 2017
LTIP 2018
LTIP 2019
31 December
2019
31 December
2018
31 December
2019
31 December
2018
31 December
2019
31 December
2018
–
–
–
–
–
1.80
2.41
0.71
1
1.73
2.70
0.61
1
1.80
3.51
0.71
2
1.73
2.70
0.53
2
240.88
235.08
235.08
161.37
–
–
–
–
–
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.
136
Hochschild Mining PLC / Annual Report & Accounts 2019
27 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2019 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2018 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
513,875,563
£128,468,891
Issued
Number
Amount
510,553,920
£127,638,480
At 31 December 2019 and 2018, all issued shares with a par value of 25 pence each were fully paid (2019: weighted average of
US$0.441 per share, 2018: weighted average of US$0.441 per share).
The changes in share capital are as follows:
Shares issued as at 1 January 2018
Shares issued according to the Restricted Share Plan benefit on 2 January 2018 at GBP 0.25
Shares issued according to the Restricted Share Plan benefit on 31 December 2018 at GBP 0.25
Shares issued as at 31 December 2018
Number of
shares
Share capital
US$000
Share
premium
US$000
507,232,310
224,315
438,041
1,660,805
1,660,805
564
530
–
–
510,553,920
225,409
438,041
Shares issued according to the Restricted Share Plan benefit on 31 December 2019 at GBP 0.25
3,321,643
1,097
–
Shares issued as at 31 December 2019
513,875,563
226,506
438,041
On 2 January 2018 the Company issued 1,660,805 ordinary shares and on 31 December 2018 the Company issued 1,660,805 ordinary
shares, under the Restricted Share Plan, to certain employees of the Group.
On 31 December 2019 the Company issued 3,321,643 ordinary shares, under the Restricted Share Plan, to certain employees of the Group.
Rights attached to ordinary shares
At general meetings of the Company, on a show of hands and on a poll, every member who is present in person or subject to the below,
by proxy, has one vote for every share of which they are the holder/proxy. However, in the case of a vote on a show of hands where a
proxy has been appointed by more than one member, the proxy has one vote for and one vote against if the proxy has been instructed
by one or more members to vote for the resolution and by one or more members to vote against the resolution.
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining plc shares purchased in the market and held by the trustee of the Hochschild
Mining Employee Share Trust to satisfy the award of conditional shares under the Group’s Enhanced Long-Term Incentive Plan granted
to the CEO (note 2(n)).
The movement in Treasury shares are as follows:
– On 5 April 2018, the Group purchased 205,400 shares for a total consideration of £414,000 (equivalent to US$579,000).
– On 20 March 2018, 40,383 Treasury shares with a value of US$84,000 (being the cost incurred to acquire the shares)
were transferred to the CEO of the Group with respect to the Deferred Bonus Plan benefit.
– On 5 April 2018, 232,172 Treasury shares with a value of US$635,000 (being the cost incurred to acquire the shares)
were transferred to the CEO of the Group with respect to the Enhanced Long-Term Incentive Plan.
– On 21 March 2019, the Group purchased 115,640 shares for a total consideration of £236,000 (equivalent to US$309,000).
– On 22 March 2019, 115,682 Treasury shares with a value of US$309,000 (being the cost incurred to acquire the shares)
were transferred to the CEO of the Group with respect to the Enhanced Long-Term Incentive Plan.
At 31 December 2019 the balance of Treasury shares is nil (31 December 2018: 42) ordinary shares with a value of US$nil
(31 December 2018: US$115).
137
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Equity continued
(c) Other reserves
Fair value reserve of financial assets at fair value through OCI
In accordance with IFRS 9, the Group made the decision to classify its investments in listed and unlisted companies as financial assets
at fair value through OCI. The increase/decrease in the fair value, net of the related deferred tax liability, is taken directly to this account
where it will remain until disposal, when the cumulative unrealised gains and losses are recycled through retained earnings.
Cumulative translation adjustment
The cumulative translation adjustment account is used to record exchange differences arising from the translation of the financial
statements of subsidiaries with a functional currency different to the reporting currency of the Group.
Merger reserve
The merger reserve represents the difference between the value of the net assets of the Cayman Holding Companies (Ardsley, Garrison,
Larchmont and Hochschild Mining (Peru)) acquired under the Share Exchange Agreement and the nominal value of the shares issued in
consideration of such acquisition.
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.
(i) Restricted Share Plan (‘RSP’)
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.
Under the RSP of the Group, 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. 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$1.25)
per share, respectively.
The vesting of the options is subject to the satisfaction of certain performance as well as service conditions classified as non-market
conditions. The options vest over a five-year period in tranches of 20% of the shares after each of two, three and four years and the
balance after five years.
If the service conditions are not met, the options lapse. As the performance conditions are non-market-based they are not reflected in
the fair value of the award at grant date, and therefore the Group will assess the likelihood of these conditions being met with a relevant
adjustment to the cumulative charge as required at each financial year end.
The fair value of the option was determined with respect to the market price of the shares on the grant date. The awards do not entitle
the recipients to dividends or payment in lieu of dividends during the vesting period.
The RSP does not have an exercise price.
The carrying amount of the share-based payment reserve relating to the RSP at 31 December 2019 is US$nil (2018: US$3,289,000)
with the amount recognised in the consolidated income statement of US$843,000 (2018: US$1,374,000).
The movement in other reserves is as follows:
US$000
Balance at 1 January 2018
Vesting at 30 December 2017, shares issued on 2 January 2018 at GBP 0.25 (refer to (a))
Vesting at 30 December 2018, shares issued on 31 December 2018 at GBP 0.25 (refer to (a))
Expense recognised in the period
Balance at 31 December 2018
Vesting at 30 December 2019, shares issued on 31 December 2019 at GBP 0.25 (refer to (a))
Expense recognised in the period
Balance at 31 December 2019
6,047
(2,066)
(2,066)
1,374
3,289
(4,132)
843
–
The balance of shares pending to vest at 31 December 2019 is nil (2018: 3,321,643) ordinary shares. The remaining contract life is nil
(2018: one year).
The movement of the shares according the date of vesting is as follows:
Balance of shares pending to vest at 1 January 2018
Shares vested on 30 December 2018
Balance of shares pending to vest at 31 December 2018
Shares vested on 30 December 2019
Balance of shares pending to vest at 31 December 2019
138
Number of
shares
4,982,448
(1,660,805)
3,321,643
(3,321,643)
–
Hochschild Mining PLC / Annual Report & Accounts 2019 (ii) Enhanced Long-Term Incentive Plan (‘ELTIP’)
In March 2014, the CEO was granted awards under the ELTIP (1,076,122 shares). 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 2019 is US$1,047,000 (2018: US$1,359,000) with the amount recognised in the consolidated
income statement of US$203,000 (2018: US$311,000).
As at 31 December 2017, 1,076,122 ordinary shares were pending to vest. The vesting percentage of the 25% of the award
(269,030 shares) resulted in 86.3% and on 5 April 2018 the CEO received 232,172 Treasury shares, and US$140,000 was transferred
from the share-based payment reserve to retained earnings.
As at 31 December 2018, 807,091 ordinary shares were pending to vest. The vesting percentage of the 25% of the award
(269,030 shares) resulted in 43% and on 22 March 2019 the CEO received 115,682 Treasury shares, and US$206,000 was
transferred from the share-based payment reserve to retained earnings.
As at 31 December 2019, 538,061 ordinary shares are pending to vest (31 December 2018: 807,091 ordinary shares).
The remaining contract life is 80 days (2018: 1.2 years).
The movement in other reserves is as follows:
US$000
Balance at 1 January 2018
Expense recognised in the period
Vesting at 20 March 2018, treasury shares received by the CEO on 5 April 2018 with a value of US$2.73 per share
totalling US$635,000 (refer to (b))
Balance at 31 December 2018
Expense recognised in the period
Vesting at 20 March 2019, treasury shares received by the CEO on 22 March 2019 with a value of US$2.67 per share
totalling US$309,000 (refer to (b))
Balance at 31 December 2019
The movement of the shares according the date of vesting is as follows:
Balance of shares pending to vest at 1 January 2018
Shares lapsed on 20 March 2018 (25% of the award)
Shares vested on 20 March 2018
Balance of shares pending to vest at 31 December 2018
Shares lapsed on 20 March 2019 (25% of the award)
Shares vested on 20 March 2019
Balance of shares pending to vest at 31 December 2019
1,543
311
(495)
1,359
203
(515)
1,047
Number of
shares
1,076,122
(36,859)
(232,172)
807,091
(153,348)
(115,682)
538,061
(iii) Long-Term Incentive Plan (‘LTIP’)
On 25 May 2018 the Group approved the 2018 LTIP and on 11 February 2019 the 2019 LTIP. The award gives a right to receive a
cash payment equivalent to 50% of the prize (cash-settled transaction) (refer to note 26(2)), and the other 50% will be used to acquire
shares of the Company (equity-settled transaction). Further details on the design of the LTIP award are included in the Directors’
Remuneration Report.
The fair value of the option was determined using the Monte Carlo model. The following tables list the inputs to the Monte Carlo model
used for the LTIPs 2018 and 2019:
Dividend yield (%)
Expected volatility (%)
Risk–free interest rate (%)
Expected life (years)
Weighted average share price (pence £)
The remaining contract life is 1.4 years (2018: 2.4 years) and 2.1 years for the 2018 LTIP and 2019 LTIP respectively.
The movement in other reserves is as follows:
Balance at 1 January 2018
Expense recognised in the period
Balance at 31 December 2018
Expense recognised in the period
Balance at 31 December 2019
No shares vested during the period (2018: nil).
LTIP 2019
LTIP 2018
1.46
2.90
0.42
2.4
1.18
5.2
0.55
2.6
161.37
235.08
LTIP 2018
US$000
LTIP 2019
US$000
–
212
212
354
566
–
–
–
551
551
139
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE 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 charge/(credit) (note 14)
End of the year
As at 31 December
2019
US$000
2018
US$000
(69,727)
(53,640)
8,251
(16,087)
(61,476)
(69,727)
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 2018
Income statement (credit)/charge
At 31 December 2018
Income statement (credit)/charge
At 31 December 2019
Deferred income tax assets
At 1 January 2018
Income statement credit/(charge)
At 31 December 2018
Income statement credit/(charge)
At 31 December 2019
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Provisional
pricing
adjustment
US$000
Others
US$000
Total
US$000
44,122
(3,908)
40,214
(3,444)
36,770
69,333
14,255
83,588
(1,820)
81,768
201
809
1,010
(657)
353
1,627
115,283
49
1,676
2,607
4,283
11,205
126,488
(3,314)
123,174
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
Tax
losses
US$000
Mine
development
US$000
Others1
US$000
Total
US$000
30,672
(4,374)
26,298
4,746
31,044
19,483
(1,080)
18,403
2,977
21,380
1,839
(1,635)
204
(204)
–
802
(109)
693
(109)
584
8,847
2,316
11,163
(2,473)
8,690
61,643
(4,882)
56,761
4,937
61,698
1
Credit/(charge) in the period mainly related to inventory of US$1,149,000 (2018: US$635,000), statutory holiday provision of US$866,000 (2018: US$1,113,000) and Long-Term incentive
Plan of US$574,000 (2018: US$2,655,000).
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
Unrecognised tax losses expire in the following years:
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 closure 1
As at 31 December
2019
US$000
2018
US$000
1,627
1,504
(63,103)
(71,231)
As at 31 December
2019
US$000
2018
US$000
–
4,843
2,990
465
–
4,511
2,861
128,109
121,583
135,942
129,420
As at 31 December
2019
US$000
2018
US$000
7,456
6,596
1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected to be available to offset the expenditure.
Unrecognised deferred tax liability on retained earnings
At 31 December 2019 and 2018, there was no recognised deferred tax liability for taxes that would be payable on the unremitted
earnings of certain of the Group’s subsidiaries as the intention is that these amounts are permanently reinvested.
140
Hochschild Mining PLC / Annual Report & Accounts 2019 29 Dividends
Dividends paid and proposed during the year
Equity dividends on ordinary shares:
Final dividend for 2018: 1.959 US cents per share (2017: 1.965 US cents per share)
Interim dividend for 2019: 2.000 US cents per share (2018: 1.965 US cents per share)
Total dividends paid on ordinary shares
Proposed dividends on ordinary shares:
Final dividend for 2019: 2.335 US cents per share (2018: 1.959 US cents per share)
Dividends declared to non-controlling interests: 0.05 US$ per share (2018: 0.08 US$ per share)
Total dividends declared to non-controlling interests
2019
US$000
2018
US$000
10,002
10,211
20,213
9,999
10,000
19,999
12,000
10,002
8,859
8,859
13,039
13,039
Dividends per share
The interim dividend paid in September 2019 was US$10,000,211 (2.000 US cents per share). A proposed dividend in respect of the
year ending 31 December 2019 of 2.335 US cents per share, amounting to a total dividend of US$12,000,000, is subject to approval
at the Annual General Meeting to be held on 21 May 2020 and is not recognised as a liability as at 31 December 2019.
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 2019 and 2018.
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
Tecsup 2
Universidad UTEC 2
Total
Accounts receivable
as at 31 December
Accounts payable
as at 31 December
2019
US$000
2018
US$000
2019
US$000
2018
US$000
569
–
–
569
76
–
–
76
56
41
95
192
7
–
–
7
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.
2 Peruvian not for profit educational institutions controlled by Eduardo Hochschild.
As at 31 December 2019 and 2018, 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:
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.
Expense recognised for the interests generated by the short-term loan from Banco de Credito del Peru
As at 31 December
2019
US$000
2018
US$000
(200)
(480)
(200)
–
The Group enters into transactions with Banco de Credito del Peru at arm’s length such as short-term loan and deposits which are
undertaken in the normal course of a banker-customer relationship. This bank is controlled by Dionisio Romero who is a Non-Executive
Director of the Group.
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
As at 31 December
2019
US$000
2018
US$000
7,911
1,184
9,095
6,619
2,899
9,518
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$4,238,000 (2018: US$4,601,000).
141
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 Auditor’s remuneration
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2019 and 2018 is as follows:
Audit fees pursuant to legislation 1
Audit-related assurance services
Taxation compliance services
Other non-audit services 2
Total
1 The total audit fee in respect of local statutory audits of subsidiaries is US$368,000 (2018: US$340,000).
2 Related to the advice on the depreciation accounting policies in use by the Group.
In 2019 and 2018, all fees are included in administrative expenses.
32 Notes to the statement of cash flows
Reconciliation of loss for the year to net cash generated from operating activities
Profit for the year
Adjustments to reconcile Group loss to net cash inflows from operating activities
Depreciation (note 4(a))
Amortisation of intangibles (note 18)
Write-off of assets
Provision of doubtful receivable
Impairment of assets (note 11)
Gain on sale of available-for-sale financial assets, net
Loss/(gain) on sale of property, plant and equipment
Provision for obsolescence of supplies
Increase/(decrease) of provision for mine closure
Finance income
Finance costs
Income tax expense
Other
Increase/(decrease) of cash flows from operations due to changes in assets and liabilities
Trade and other receivables
Income tax receivable
Other financial assets and liabilities
Inventories
Trade and other payables
Provisions
Cash generated from operations
Amounts paid
to Ernst & Young
in the year ended
31 December
2019
US$000
2018
US$000
730
65
–
4
597
53
9
–
799
659
As at 31 December
2019
US$000
2018
US$000
41,439
6,701
185,167
163,639
2,069
1,449
3,706
14,378
(4)
853
13,398
(2,938)
10,038
35,403
5,391
2,091
384
5,656
–
–
(61)
384
52
(2,048)
28,796
31,666
9,045
(9,748)
(16,242)
47
(6,950)
(8,344)
–
–
(1,741)
648
4,962
(6,303)
290,316
222,667
142
Hochschild Mining PLC / Annual Report & Accounts 2019
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. These agreements are not under non-cancellable/
irrevocable clauses.
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
As at 31 December
2019
US$000
2018
US$000
2,245
1,100
28,802
46,369
(b) Lease commitments
As at 31 December 2019 and 31 December 2018, 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
US$000
1,746
702
The Group has various lease contracts that have not yet commenced as at 31 December 2019. The future lease payments for these
non-cancellable lease contracts are US$4,895,000 within one year, and US$632,000 in one to two years mainly related to the rental
of vehicles and offices.
(c) Capital commitments
Peru
Chile
Argentina
34 Contingencies
For the year ended
31 December
2019
US$000
2018
US$000
35,370
33,625
983
4,487
–
2,564
40,840
36,189
As at 31 December 2019 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, five years in Argentina and Mexico and three years in
Chile, 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 2019, the
Group had exposures totalling US$29,334,000 (2018: US$26,345,000) 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 (1)).
143
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
35 Mining royalties
Peru
In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and
non metallic resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate
or equivalent sold, based on quoted market prices.
In October 2011 changes came into effect for mining companies, with the following features:
a) Introduction of a Special Mining Tax (‘SMT’), levied on mining companies at the stage of exploiting mineral resources.
The additional tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.
b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%,
of the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.
The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12 “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. The tax stability agreement expired on 31 December 2018, therefore as of 1 January 2019 the
mining royalty of Arcata is calculated as for the other mining units.
As at 31 December 2019, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining royalty
(for the Arcata, Pallancata and Inmaculada mining units), and the SMT amounted to US$nil (2018: US$39,000), US$1,263,000 (2018:
US$975,000), and US$1,196,000 (2018: US$279,000) respectively. The former mining royalty is recorded as ‘Trade and other payables’,
and the new mining royalty and SMT as ‘Income tax payable’ in the statement of financial position. The amount recorded in the income
statement was US$nil (2018: US$561,000) representing the former mining royalty, classified as cost of sales, US$5,028,000 (2018:
US$4,494,000) of new mining royalty and US$3,429,000 (2018: US$2,727,000) 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 applicable to dore and concentrate is 3% of the pit-head value. As at 31
December 2019, the amount payable as mining royalties amounted to US$607,000 (2018: US$467,000). The amount recorded in the
income statement as cost of sales was US$6,412,000 (2018: US$5,296,000).
144
Hochschild Mining PLC / Annual Report & Accounts 2019 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.
During 2019 and 2018 the Group had no hedging instruments.
At 31 December 2019 and 2018 the Group is not exposed to commodity price risk on commodity forward contracts.
The Group has price adjustments arising from the sale of concentrate and dore which were provisionally priced at the
time the sale was recorded (refer to note 5). 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
2019
2018
Increase/
decrease in
price of
ounces of:
Effect on
profit before tax
US$000
Gold +/-10%
Silver+/-10%
Gold +/-10%
Silver+/-10%
+/-599
+/-895
+/-111
+/-456
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in pounds
sterling, Peruvian nuevos soles, Canadian dollars, Argentinian pesos, Chilean pesos and Mexican pesos. Accordingly, the Group’s
financial results may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-term
relationship between commodity prices and currencies in the countries in which the Group operates provides a certain degree of
natural protection. The Group does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their respective
currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group’s profit
before tax and the Group’s equity.
Year
2019
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
2018
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
Increase/
decrease in
US$/other
currencies’
rate
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
Effect
on profit
before tax
US$000
+/-17
-/+886
+/-2,198
-/+2,584
-/+21
+/-145
+/-23
+/-40
+/-939
-/+334
+/-8
-/+92
Effect
on equity
US$000
–
–
–
–
+/-615
–
–
–
–
–
+/-343
+/-195
145
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
36 Financial risk management continued
(c) Credit risk
Credit risk arises from debtors’ inability to make payment of their obligations to the Group as they become due (without taking into
account the fair value of any guarantee or pledged assets). The Group is primarily exposed to credit risk as a result of commercial
activities and non compliance, by counterparties, in transactions in cash which are primarily limited to cash balances deposited in
banks and accounts receivable at the statement of financial position date.
Counterparty credit exposure based on commercial activities, including trade receivables, embedded derivatives and cash
balances in banks as at 31 December 2019 and 31 December 2018:
Summary commercial partners
Trade receivables
Cash and cash equivalents – Credit rating 1
A+
A
A-
AA+
AAA
BBB+
BBB
NA
Total
As at
31 December
2019
US$000
% collected
as at
17 February
2020
As at
31 December
2018
US$000
% collected
as at
19 February
2019
37,799
64%
45,201
63%
As at
31 December
2019
US$000
As at
31 December
2018
US$000
32,005
–
72,494
1,161
229
–
10,165
3,744
–
–
49,998
65,102
9,792
678
37
656
166,357
79,704
1 Represents the long-term credit rating as at 4 February 2020 (2018: 31 January 2019).
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).
– Maintaining as diversified a portfolio of clients as possible.
To manage credit risk associated with cash balances deposited in banks, the Group took the following steps:
– Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to
credit and to diversify credit risk.
– Limiting exposure to financial counterparties according to Board approved limits.
– Investing cash in short-term, highly liquid and low risk instruments (term deposits mainly).
Receivable balances are monitored on an ongoing basis and the result of the Group’s exposure to bad debts is recognised
in the consolidated income statement. The maximum exposure is the carrying amount as disclosed in notes 20, 22 and 36(e).
Prompted by a long-standing customer entering into bankruptcy protection in 2018, the Group strengthened its risk assessment
procedures by enhancing customer analysis and reviewing financial counterparties. For further details refer to the Commentary
section of the Commercial Counterparty risk in the Risk Management and Viability Report.
(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.
At 31 December 2019 the sensitivity to reasonable movements in the share price of financial assets at fair value through OCI of +/- 25%
with all other variables held constant is +/-US$1,540,000 (31 December 2018: +/-US$528,000) recognised in equity.
(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.
146
Hochschild Mining PLC / Annual Report & Accounts 2019 As at 31 December 2019 and 2018, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Equity shares (note 19)
Trade receivables (note 20)
Assets measured at fair value
Equity shares (note 19)
Warrants
Trade receivables (note 20)
31 December
2019
US$000
6,159
37,799
31 December
2018
US$000
Level 1
US$000
6,159
–
Level 2
US$000
Level 3
US$000
–
–
–
37,799
Level 1
US$000
Level 2
US$000
5,296
2,110
47
45,201
47
–
–
–
–
Level 3
US$000
3,186
–
45,201
During the period ending 31 December 2019 and 2018, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Balance at 1 January 2018
Acquisitions
Fair value adjustments recognised through OCI
Net change in trade receivables from goods sold
Changes in fair value of price adjustments
Realised price adjustments during the period
Balance at 31 December 2018
Acquisitions
Fair value adjustments recognised through OCI
Reclassification to investment in subsidiaries
Reclassification to listed equity shares
Net change in trade receivables from goods sold
Changes in fair value of price adjustments
Realised price adjustments during the period
Balance at 31 December 2019
Unlisted
equity shares
US$000
581
2,120
485
–
–
–
3,186
500
1,868
(3,444)
(2,110)
Trade
receivables/
price
adjustments
US$000
43,201
–
–
(2,297)
(5,646)
9,943
45,201
–
–
–
–
–
–
–
–
(4,887)
14,584
(17,099)
37,799
(f) Liquidity risk
Liquidity risk arises from the Group’s inability to obtain the funds it requires to comply with its commitments, including the inability
to sell a financial asset quickly enough and at a price close to its fair value. Management constantly monitors the Group’s level of
short- and medium-term liquidity, and its 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 2019
Trade and other payables
Borrowings
Total
At 31 December 2018
Trade and other payables
Borrowings
Total
Less than
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
109,953
6,150
116,103
111,898
107,855
219,753
344
6,083
6,427
338
51,272
51,610
230
209,898
210,128
564
–
564
–
–
–
–
–
–
110,527
222,131
332,658
112,800
159,127
271,927
147
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
36 Financial risk management continued
(g) Interest rate risk
The Group has financial assets and liabilities which are exposed to interest rate risk. Changes in interest rates primarily impact loans
and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). The Group does not
have a formal policy of determining how much of its exposure should be at fixed or at variable rates. However, at the time of taking new
loans or borrowings, management applies its judgement to decide whether it believes that a fixed or variable rate borrowing would be
more favourable to the Group over the expected period until maturity.
Fixed rate
Assets
Floating rate
Liabilities
Fixed rate
Assets
Liabilities
Floating rate
Liabilities
As at 31 December 2019
Within
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
128,110
–
–
–
128,110
(234)
–
(199,308)
– (199,542)
As at 31 December 2018
Within
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
36,243
(107,067)
–
–
–
(50,000)
–
–
–
–
–
–
36,243
(107,067)
(50,000)
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 -/+US$38,000 effect on profit before tax (2018: -/+US$479,000).
The Group is exposed to fluctuations in market interest rates.
This assumes that the amount remains unchanged from that in place at 31 December 2019 and 2018 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 2019 the Group collected US$315,808,000 net of transaction costs of US$692,000 (2018: US$266,500,000) due to proceeds of
borrowings while US$272,500,000 (2018: US$463,393,000) 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) Interest rate swap
On 14 February 2020 the Group signed an interest swap agreement with JP Morgan to fix the floating Libor interest rate of the
medium-term loan of Minera Ares to 2.534%, effective from 17 March 2020.
(b) Sale of financial assets at fair value through OCI
In January 2020, the Group sold 7,339,331 shares of Skeena for a total consideration of CAD 7,030,000 (equivalent to US$5,337,00),
generating a gain of US$1,093,000, recognised in OCI. Also, in January 2020, the Group sold 452,200 shares of ASC for a total
consideration of CAD 1,651,000 (equivalent to US$1,257,000), generating a gain of US$657,000, recognised in OCI.
148
Hochschild Mining PLC / Annual Report & Accounts 2019 PARENT COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019
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
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
As at 31 December
2019
US$000
2018
US$000
Notes
5 1,815,913 1,648,457
1,815,913 1,648,457
6
7
8
8
6,282
554
6,836
8,392
792
9,184
1,822,749 1,657,641
226,506
225,409
458,267
458,267
2,164
4,860
863,622
719,736
1,550,559 1,408,272
9
10
1,166
60
1,226
–
71
71
9
270,964
249,298
270,964
249,298
272,190
249,369
1,822,749 1,657,641
The profit of the Company after tax amounted to US$160,858,000 (2018: loss of US$686,831,000).
The financial statements were approved by the Board of Directors on 18 February 2020 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
18 February 2020
149
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE PARENT COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
Reconciliation of loss for the year to net cash used in operating activities
Profit for the year
Adjustments to reconcile Company profit to net cash outflows from operating activities
As at 31 December
2019
US$000
2018
US$000
Notes
160,858 (686,831)
Impairment/(reversal) of impairment on investment in subsidiary
5 (165,984)
687,553
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/(used) in operating activities
Interest received
Net cash generated/(used) in operating activities
Cash flows from investing activities
Repayment of loans
Dividends collected
Net cash generated from investing activities
Cash flows from financing activities
Dividends paid
Purchase of treasury shares
Repayment of borrowings
Loans from subsidiaries
Cash flows used in financing activities
Net decrease in cash and cash equivalents during the year
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
1,951
(36)
14
–
(1,925)
10,655
691
(1,543)
(5,207)
11
–
(38)
385
293
6,224
(5,377)
25
12
6,249
(5,365)
4,014
21
4,035
5,553
–
5,553
(20,213)
(19,999)
(309)
(579)
–
(1,500)
10,000
(10,522)
(238)
792
554
7
20,500
(1,578)
(1,390)
2,182
792
150
Hochschild Mining PLC / Annual Report & Accounts 2019 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019
Balance at 1 January 2018
Other comprehensive income
Loss for the year
Total comprehensive profit for the year
Issuance of shares
Exercise of share options
Dividends
Purchase of treasury shares
Share-based payments
Balance at 31 December 2018
Other comprehensive income
Profit for the year
Total comprehensive profit for the year
Exercise of share options
Dividends
Issuance of shares
Purchase of treasury shares
Share-based payments
Balance at 31 December 2019
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
US$000
Notes
Other reserves
Share-
based
payment
reserve
US$000
Total other
reserves
US$000
Retained
earnings
US$000
Total equity
US$000
224,315
458,267
(140)
7,634
7,634 1,423,704 2,113,780
–
–
–
1,094
–
–
–
–
8(a)
8(a)
8(b)
–
–
–
–
–
–
–
–
225,409
458,267
–
–
–
–
–
8(a)
8(b)
1,097
–
–
–
–
–
–
–
–
–
–
226,506
458,267
–
–
–
–
719
–
(579)
–
–
–
–
–
–
–
–
–
–
–
–
– (686,831)
(686,831)
– (686,831)
(686,831)
–
–
1,094
(4,675)
(4,675)
2,862
(1,094)
–
–
1,901
4,860
–
–
–
–
–
1,901
(19,999)
(19,999)
–
–
(579)
1,901
4,860
719,736 1,408,272
–
–
–
–
–
160,858
160,858
160,858
160,858
309
(4,647)
(4,647)
3,241
(1,097)
–
–
(309)
–
–
–
–
–
1,951
2,164
–
–
–
1,951
(20,213)
(20,213)
–
–
–
1,097
(309)
1,951
2,164
863,622 1,550,559
151
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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, as applied in
accordance with the Companies Act 2006. The Company applies
the same Group policies, unless there is an exception in its
financial statements.
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.
(b) Going concern
The ability for the Company to continue as a going concern is
dependent on Hochschild Mining Holdings Limited providing
additional funding to the extent that the operating inflows of
the Company are insufficient to meet future cash requirements.
As Hochschild Mining Holdings Limited has committed to provide
this support, is itself a going concern and can provide financial
support if necessary, the Directors have prepared the financial
statements for the Company on the going concern basis.
(c) Exemptions
The Company’s financial statements are included in the
Hochschild Mining Group consolidated financial statements for
the years ended 31 December 2019 and 31 December 2018. As
permitted by section 408 of the Companies Act 2006, the
Company has not presented its own profit and loss account.
(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 statement for the year
ended 31 December 2019. Amendments to standards and
interpretations which came into force during the year did not have
a significant impact on the financial statements.
(e) 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.
(f) Dividends receivable
Dividends are recognised when the Company’s right to receive
payments is established. Dividends received are recorded in the
income statement.
(g) 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. The Company tested its investment in
subsidiary determining the recoverable value using a fair value
less cost of disposal, that was determined with reference to the
market capitalisation of the Company.
(h) Other receivables
Other 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 using the expected
credit loss impairment model according to IFRS 9. 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.
(i) 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.
152
Hochschild Mining PLC / Annual Report & Accounts 2019 (j) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at cost. For the purposes of the statement of
financial position, cash and cash equivalents comprise cash in
hand and deposits held with banks that are readily convertible
into known amounts of cash within three months or less and which
are subject to insignificant risk of changes in value. For the
purposes of the cash flow statement, cash and cash equivalents
as defined above are shown net of outstanding bank overdrafts.
(k) Share capital
Ordinary shares are classified as equity. Any excess above the
par value of shares received upon issuance of those shares is
classified as share premium. In the case the excess above par
value is available for distribution, it is classified as merger reserve
and then transferred to retained earnings.
(l) 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.
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair
value at the date when the grant is made using an appropriate
valuation model and 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 Company’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.
(m) Finance income and costs
Finance income and costs mainly comprise interest income on
funds invested, interest expense on borrowings and foreign
exchange gains and losses. 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:
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.
(o) Financial instruments
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through
other comprehensive income (OCI), and fair value through profit
or loss.
The classification of financial assets at initial recognition depends
on the financial asset’s contractual cash flow characteristics and
the Company’s business model for managing them.
The Company’s business model for managing financial assets
refers to how it manages its financial assets in order to generate
cash flows. The business model determines whether cash flows
will result from collecting contractual cash flows, selling the
financial assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
trade date, i.e. the date that the Company commits to purchase
or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are
classified in categories:
– Financial assets at amortised cost (debt instruments)
The Company measures financial assets at amortised cost if
both of the following conditions are met:
– The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows, and
– The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss
when the asset is derecognised, modified or impaired.
The Company’s financial assets at amortised cost includes
trade receivables.
– Financial assets at fair value through OCI (debt instruments)
The Company does not have debt instruments at fair value
through OCI.
– Financial assets designated at fair value through OCI
– where the temporary difference arises from the initial
(equity instruments)
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.
The Company does not have equity instruments at fair value
through OCI.
153
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
– Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for trading, financial assets designated
upon initial recognition at fair value through profit or loss, or
financial assets mandatorily required to be measured at fair
value. Financial assets are classified as held for trading if they
are acquired for the purpose of selling or repurchasing in the
near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they are
designated as effective hedging instruments. Financial assets
with cash flows that are not solely payments of principal and
interest are classified and measured at fair value through profit
or loss, irrespective of the business model. Notwithstanding the
criteria for debt instruments to be classified at amortised cost or
at fair value through OCI, as described above, debt instruments
may be designated at fair value through profit or loss on initial
recognition if doing so eliminates, or significantly reduces, an
accounting mismatch.
Financial assets at fair value through profit or loss are carried in
the statement of financial position at fair value with net changes
in fair value recognised in the statement of profit or loss.
This category includes derivative instruments. Dividends on
listed equity investments are also recognised as other income
in the statement of profit or loss when the right of payment has
been established.
Derecognition
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar financial assets) is primarily
derecognised (i.e. removed from the Company’s consolidated
statement of financial position) when:
– The rights to receive cash flows from the asset have expired, or
– The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the Company has
transferred substantially all the risks and rewards of the asset,
or (b) the Company has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset.
Impairment of financial assets
The Company recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through profit
or loss. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash
flows that the Company expects to receive, discounted at an
approximation of the original effective interest rate.
For trade receivables, the Company applies a simplified approach
in calculating ECLs. Therefore, the Company does not track
changes in credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial
liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in
an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in
the case of loans and borrowings and payables, net of directly
attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
– Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through
profit or loss.
Financial liabilities are classified as held for trading if they are
incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered
into by the Company that are not designated as hedging
instruments in hedge relationships as defined by IFRS 9.
Separated embedded derivatives are also classified as held
for trading unless they are designated as effective hedging
instruments.
Gains or losses on liabilities held for trading are recognised
in the statement of profit or loss.
Financial liabilities designated upon initial recognition at fair
value through profit or loss are designated at the initial date
of recognition, and only if the criteria in IFRS 9 are satisfied.
The Company has not designated any financial liability as
at fair value through profit or loss.
– Loans and borrowings
This is the category most relevant to the Company. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised as well as through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs
in the statement of profit or loss.
This category generally applies to interest-bearing loans and
borrowings.
Derecognition
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires. When 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 the derecognition of the original liability and the
recognition of a new liability. The difference in the respective
carrying amounts is recognised in the statement of profit or loss.
A detailed description of the Company’s policies in respect of
financial instruments is included in the Group’s financial
statements (note 2(u)).
(p) Dividend 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$160,858,000 (2018: loss of US$686,831,000).
4 Property, plant and equipment
The Company’s financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts,
and derivative financial instruments.
At 31 December 2019 and 2018 the Company has property, plant
and equipment with cost of equipment of US$265,000 which is
fully depreciated.
There were no additions during 2018 and 2019.
154
Hochschild Mining PLC / Annual Report & Accounts 2019 5
Investments in subsidiaries
Year ended 31 December 2018
Cost
At 1 January 2018
At 31 December 2018
Accumulated impairment
At 1 January 2018
Impairment
At 31 December 2018
Net book value at 31 December 2018
Year ended 31 December 2019
Cost
At 1 January 2019
Additions
At 31 December 2019
Accumulated impairment
At 1 January 2019
Reversal of impairment
At 31 December 2019
Net book value at 31 December 2019
Total
US$000
2,336,010
2,336,010
–
687,553
687,553
1,648,457
2,336,010
1,472
2,337,482
687,553
(165,984)
521,569
1,815,913
In 2019, the Company tested its investment in subsidiary for impairment reversal in light of increases in the prices of gold and silver, as
well as increases in the Company’s publicly 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$165,984,000.
In 2018, the Company tested its investment in subsidiary for impairment in light of decreases in the Company’s publicly listed share
price, which were determined to be indicators of impairment. As a result of this test, the Company recognised an impairment of the
investment in Hochschild Mining Holdings Ltd. of US$687,553,000.
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 Company at 31 December 2019
translated from pounds sterling into US 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.
A positive/adverse change of 10% of the market capitalisation would result in an additional increase/reduction to the reversal
of impairment recognised of US$155,274,000. A change in the control premium would have the following impact over the reversal
of impairment recognised as follows:
Control premium (increase by 5%)
Control premium (decrease by 5%)
The breakdown of the investments in subsidiaries is as follows:
Total
US$000
223,524
86,953
Name
As at 31 December 2019
As at 31 December 2018
Country of
incorporation
Equity
interest
%
Carrying
value
US$000
Country of
incorporation
Equity
interest
%
Carrying
value
US$000
Hochschild Mining Holdings Limited
England and Wales
100%
1,815,913 England and Wales
100%
1,648,457
Total
1,815,913
1,648,457
The list of indirectly held subsidiaries of the Company is presented in note 1 (Corporate information) of the notes to the consolidated
financial statements.
During 2019 the Company recorded a capital contribution of $1,472,000 related to the financial guarantee granted over
some borrowings entered into by Compañía Minera Ares S.A.C (‘Minera Ares’), one of its indirectly held subsidiaries (note 9).
155
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
6 Other receivables
Amounts receivable from subsidiaries (note 11)
Prepayments
Receivable from Kaupthing, Singer and Friedlander
Other receivable
Provision for impairment 1
Total
Less current balance
Year ended 31 December
2018
US$000
2019
US$000
6,188
8,318
93
197
1
6,479
(197)
6,282
72
195
2
8,587
(195)
8,392
(6,282)
(8,392)
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$197,000 accrued in 2008 (2018: US$195,000).
Movements in the provision for impairment of receivables:
At 1 January 2018
Provided for during the year
At 31 December 2018
Released during the year
At 31 December 2019
As at 31 December 2019 and 2018, none of the financial assets classified as receivables (net of impairment) were past due.
7 Cash and cash equivalents
Total
US$000
208
(13)
195
2
197
Bank current account 1
Time deposits 2
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 two days (2018: nil days).
8 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2019 is as follows:
Class of shares
Ordinary shares
The issued share capital of the Company as at 31 December 2018 is as follows:
Class of shares
Ordinary shares
Year ended 31 December
2018
US$000
2019
US$000
420
134
554
519
273
792
Issued
Number
Amount
513,875,563 £128,468,891
Issued
Number
Amount
510,553,920 £127,638,480
At 31 December 2019 and 2018, all issued shares with a par value of 25 pence each were fully paid (2019: weighted average of US$0.441
per share, 2018: weighted average of US$0.441 per share).
The changes in share capital are as follows:
Shares issued as at 1 January 2018
Shares issued according to the Restricted Share Plan benefit on 2 January 2018
Shares issued according to the Restricted Share Plan benefit on 31 January 2018
Shares issued as at 31 December 2018
Number of
shares
Share capital
US$000
Share premium
US$000
507,232,310
224,315
458,267
1,660,805
1,660,805
564
530
–
–
510,553,920
225,409
458,267
Shares issued according to the Restricted Share Plan benefit on 31 December 2019
3,321,643
1,097
–
Shares issued as at 31 December 2019
513,875,563
226,506
458,267
On 2 January 2018 the Company issued 1,660,805 ordinary shares and on 31 December 2018 the Company issued 1,660,805 ordinary
shares, under the Restricted Share Plan, to certain employees of the Group.
On 31 December 2019 the Company issued 3,321,643 ordinary, under the Restricted Share Plan, to certain employees of the Group.
156
Hochschild Mining PLC / Annual Report & Accounts 2019 Rights attached to ordinary shares
At general meetings of the Company, on a show of hands and on a poll, every member who is present in person or subject to the
below by proxy, has one vote for every share of which they are the holder/proxy. However, in the case of a vote on a show of hands
where a proxy has been appointed by more than one member, the proxy has one vote for and one vote against if the proxy has
been instructed by one or more members to vote for the resolution and by one or more members to vote against the resolution.
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining plc shares purchased in the market and held by the trustee of the
Hochschild Mining Employee Share Trust to satisfy the award of conditional shares under the Company’s Enhanced
Long-Term Incentive Plan granted to the CEO (note 1(l)).
The movements in the Treasury shares are as follows:
– On 5 April 2018, the Group purchased 205,400 shares for a total consideration of £414,000 (equivalent to US$579,000).
– On 20 March 2018, 40,383 Treasury shares with a value of US$84,000 (being the cost incurred to acquire the shares)
were transferred to the CEO of the Group with respect to the Deferred Bonus Plan benefit.
– On 5 April 2018, 232,172 Treasury shares with a value of US$635,000 (being the cost incurred to acquire the shares)
were transferred to the CEO of the Group with respect to the Enhanced Long-Term Incentive Plan.
– On 21 March 2019, the Group purchased 115,640 shares for a total consideration of £236,000 (equivalent to US$309,000).
– On 22 March 2019, 115,682 Treasury shares with a value of US$309,000 (being the cost incurred to acquire the shares) were
transferred to the CEO of the Group with respect to the Enhanced Long-Term Incentive Plan.
At 31 December 2019 the balance of Treasury shares is nil (31 December 2018: 42) ordinary shares with a value of US$nil
(31 December 2018: US$115).
(c) Other reserves
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 2019
and 2018.
9 Trade and other payables
Trade payables
Payables to subsidiaries (note 11)
Remuneration payable
Taxes and contributions
Financial guarantees 1
Total
As at 31 December
2019
Non-
current
US$000
–
–
–
–
1,166
1,166
Current
US$000
422
269,917
236
94
295
270,964
2018
Non-
current
US$000
–
–
–
–
–
–
Current
US$000
447
247,776
904
171
–
249,298
1
The Company provided financial guarantee to the bank loan entered into by its subsidiary Minera Ares. The financial guarantee was recognised at its fair value at initial recognition
of US$1472,000. This fair value was determined through the use of certain Level 3 estimates, the most significant of which being the estimated rate of interest Minera Ares 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
(Decrease)/increase in provision, net
At 31 December
Less: current portion
Non-current portion
As at 31 December
2019
US$000
2018
US$000
71
(11)
60
–
60
480
(409)
71
–
71
1 Corresponds to the provision related to cash-settled share-based payment awards granted under the Long-Term Incentive Plan (‘LTIP)’ to designated personnel of the Company.
Includes the following benefits: (i) Long-Term Incentive Plan awards, granted in July 2019, payable in February 2022 (ii) Long-Term Incentive Plan awards, granted in May 2018,
payable in May 2021, and (iii) 2017 awards, granted in March 2017, payable in March 2020 with a result of US$nil.. 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 2019 and 2018.
157
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
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 2019 and
31 December 2018.
Subsidiaries
Compañía Minera Ares S.A.C.1
Hochschild Mining Holdings Ltd.2
Other subsidiaries
Total
As at 31 December 2019
As at 31 December 2018
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
Accounts
payable
US$000
5,349
–
839
3,037
266,860
20
7,590
–
728
1,894
245,860
22
6,188
269,917
8,318
247,776
1
The account receivable mainly relates to the Deferred Bonus Plan, LTIP 2019 and LTIP 2018 (50% paid in shares), enhanced LTIP and Restricted Share Plan provision that are going to
be paid by Hochschild Mining plc in shares on behalf of Minera Ares. The account payable mainly relates to the services performed by Minera Ares to Hochschild Mining plc, which
during 2019 amounts to US$1,145,000 (2018: US$1,903,000). The Company provided certain financial guarantees on behalf of Minera Ares (note 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.
(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$990,000
(2018: US$1,017,000).
12 Dividends paid and proposed
Dividends per share
The interim dividend paid in September 2019 was US$10,000,211 (2.000 US cents per share). A proposed dividend in respect of the year
ending 31 December 2019 of 2.335 US cents per share, amounting to a total dividend of US$12,000,000, is subject to approval at the
Annual General Meeting to be held on 21 May 2020 and is not recognised as a liability as at 31 December 2019 (refer to note 29 to the
consolidated financial statements).
13 Financial risk management
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas to
facilitate risk assessment.
The Company is not exposed to significant sources of commodity price, equity or interest rate risk.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling and
Canadian dollars. Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company does
not use derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity of financial assets
and liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible change in the US dollar
exchange rate, with all other variables held constant, of the Company’s profit before tax and the Company’s equity.
Year
2019
Pound sterling
2018
Pound sterling
Increase/
decrease in
US$/other
currencies’
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/-10%
+/-14
+/-10%
+/-20
–
–
(b) Credit risk
The Company is primarily exposed to credit risk in transactions in cash which are primarily limited to cash balances deposited in
banks and accounts receivable at the statement of financial position date. The Company has evaluated and introduced efforts to
try to mitigate credit risk exposure.
To manage credit risk associated with cash balances deposited in banks, the Company is:
– increasing banking relationships with large, established and well-capitalised institutions
in order to secure access to credit and to diversify credit risk;
– investing cash in short-term, highly liquid and low risk instruments (term deposits); and
– maintaining excess cash abroad in hard currency.
Credit risk concentrations exist when changes in economic, industrial or geographic factors take place, affecting in the same manner
the Company’s counterparties whose added risk exposure is significant to the Company’s total credit exposure. Receivable balances
are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant. The maximum exposure
is the carrying amount as disclosed in note 6.
158
Hochschild Mining PLC / Annual Report & Accounts 2019 (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 its 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 2019 of US$554,000
(2018: US$792,000) and US$6,760,000 (2018: US$3,556,000) 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 2019
Trade and other payables
At 31 December 2018
Trade and other payables
Less than
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
270,575
249,174
–
–
–
–
–
–
270,575
249,174
The table below analyses the maximum amounts payable under financial guarantees provided to Compañía Minera Ares S.A.C. (note 9),
considering that if the guarantees were to be called, the guaranteed amounts would be due immediately:
At 31 December 2019
Financial guarantees159 1
At 31 December 2018
Financial guarantees 1
Less than
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
1,461
–
–
–
–
–
–
–
1,461
–
1 Not including any accumulated interest that may be payable at the call date.
(d) Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of
capital. Management considers as part of its capital the financial sources of funding from shareholders and third parties (notes 8 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.
159
Hochschild Mining PLC / Annual Report & Accounts 2019FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE PROFIT BY OPERATION 1 (SEGMENT REPORT RECONCILIATION) AS AT 31 DECEMBER 2019
Group (US$000)
Revenue
Cost of sales (pre-consolidation)
Consolidation adjustment
Cost of sales (post-consolidation)
Production cost excluding depreciation
Depreciation in production cost
Workers’ profit sharing
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
Foreign exchange loss
Profit/(loss) from continuing operations before
income tax
income tax
Arcata
Pallancata
Inmaculada
San Jose
5,081
147,598
352,143
250,715
(6,958)
(131,415)
(207,463)
(169,799)
(172)
(6,786)
(6,727)
(1,644)
(1,264)
156
(129,771)
(206,199)
(169,955)
(75,590)
(124,814)
(120,529)
(49)
(50,767)
(82,524)
(51,048)
(1,976)
(1,902)
–
3,041
–
(567)
2,189
Consolidation
adjustment
and others
139
2,924
2,924
–
–
–
–
–
–
Total/HOC
755,676
(512,711)
–
(512,711)
(327,660)
(184,388)
(3,878)
(567)
3,782
144,680
80,916
3,063
242,965
–
–
–
–
(45,920)
(45,920)
(37,965)
(37,965)
(481)
(19,444)
–
(21,071)
–
–
(37,079)
(2,027)
15,187
144,199
61,472
(117,901)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(37,079)
100,930
(15,231)
2,938
(15,231)
2,938
(10,038)
(10,038)
(1,757)
(1,757)
–
–
(10)
(1,877)
–
–
(150)
–
–
(1,438)
16,183
–
–
(996)
–
(2,027)
15,187
144,199
61,472
(141,989)
76,842
–
–
–
–
(35,403)
(35,403)
Profit/(loss) for the year from continuing operations
(2,027)
15,187
144,199
61,472
(177,392)
41,439
1 On a post-exceptional basis.
160
Hochschild Mining PLC / Annual Report & Accounts 2019 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 2012 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 161 to 163 were prepared by or under the supervision of Competent Persons (as defined in the JORC Code).
Competent Persons are required to have sufficient relevant experience and understanding of the style of mineralisation, types of
deposits and mining methods in the area of activity for which they are qualified as a Competent Person under the JORC Code.
The Competent Person must sign off their respective estimates of the original mineral resource and ore reserve statements for the
various operations and consent to the inclusion of that information in this report, as well as the form and context in which it appears.
Hochschild Mining plc employs its own Competent Person who has audited all the estimates set out in this report. Hochschild Mining
Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore reserve and
mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants. The frequency
and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and mineral resource, the
overall value thereof and the time that has lapsed since the previous independent third-party audit.
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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 2019, 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$1,300 per ounce and Ag price: US$16.0 per ounce.
Attributable metal reserves as at 31 December 2019
Reserve category
OPERATIONS 1
Inmaculada
Proved
Probable
Total
Pallancata
Proved
Probable
Total
San Jose
Proved
Probable
Total
GRAND TOTAL
Proved
Probable
TOTAL
Proved and
probable
(t)
2,326,765
3,286,326
5,613,091
773,843
121,375
895,218
399,500
125,729
525,228
3,500,108
3,533,429
7,033,537
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
170
111
136
322
255
313
489
363
459
240
125
182
4.3
2.6
3.3
1.2
1.1
1.2
7.8
5.8
7.3
4.0
2.7
3.3
12.7
11.8
24.5
8.0
1.0
9.0
6.3
1.5
7.7
27.0
14.2
41.2
324.0
276.8
600.7
29.6
4.3
33.9
99.5
23.4
122.9
453.1
304.4
757.5
40.6
35.6
76.1
10.6
1.4
11.9
14.8
3.5
18.3
66.0
40.4
106.4
Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company’s ownership only. Includes discounts for ore loss and dilution.
1 Operations were audited by P&E Consulting.
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Hochschild Mining PLC / Annual Report & Accounts 2019STRATEGIC REPORT
RESERVES AND RESOURCES CONTINUED
Attributable metal resources as at 31 December 2019 1
Resource category
Operations
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
Arcata
Measured
Indicated
Total
Inferred
GRAND TOTAL
Measured
Indicated
Total
Inferred
Tonnes
(t)
Ag
(g/t)
Au
(g/t)
Ag Eq
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
2,230,000
3,353,000
5,583,000
10,368,000
1,635,000
571,000
2,206,000
1,982,000
797,640
503,370
1,301,010
905,760
5,211,000
17,298,000
22,509,000
775,000
191,000
6,859,000
7,050,000
6,946,000
105,918,000
283,763,000
389,681,000
41,553,000
834,000
1,304,000
2,138,000
3,533,000
116,816,640
313,651,370
430,468,010
66,062,760
214
145
172
131
364
275
341
297
537
364
470
356
47
38
40
46
244
187
188
170
–
–
–
–
438
411
421
371
18
11
13
73
5.54
3.63
4.39
3.19
1.51
1.24
1.44
1.22
8.59
6.04
7.61
5.62
0.47
0.40
0.42
0.57
0.77
0.77
0.77
0.89
0.74
0.70
0.71
0.50
1.35
1.36
1.35
1.26
0.89
0.73
0.77
1.10
691
456
550
405
493
382
464
402
1,276
883
1,124
839
85
70
74
92
307
249
250
242
60
57
57
41
554
527
538
479
95
73
79
397.5
390.9
788.3
49.5
49.2
98.7
1,063.1
135.1
15.4
15.6
30.9
43.6
19.1
5.0
24.2
18.9
13.8
5.9
19.7
10.4
7.9
20.9
28.8
1.1
1.5
41.2
42.7
37.9
79.1
22.8
101.9
77.9
220.4
97.7
318.1
163.6
78.7
222.5
301.0
14.2
4.7
168.8
173.5
199.5
–
–
–
–
2,513.1
6,368.0
8,881.1
670.7
11.7
17.2
29.0
42.1
36.1
56.9
93.0
142.6
25.9
7.0
32.9
25.6
32.7
14.3
47.0
24.4
14.3
39.0
53.2
2.3
1.9
54.9
56.7
54.1
203.6
515.8
719.4
54.3
14.8
22.1
37.0
54.4
69.4
3,329.5
105.9
7,327.5
355.7
736.1
175.3
10,657.0
1,091.8
167
154.1
2,331.5
354.6
1 Prices used for resources calculation: Au: $1,300/oz and Ag: $16.0/oz and Ag/Au ratio of 86x.
162
Hochschild Mining PLC / Annual Report & Accounts 2019
Change in attributable reserves and resources
Ag equivalent content (million ounces)
Inmaculada
Pallancata
San Jose
Crespo
Azuca
Volcan
Arcata
Total
Category
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Percentage
attributable
December
2019
December
2018
Att.1
December
2019
Att.2 Net difference
100%
221.9
233.8
100%
51%
100%
100%
100%
100%
68.4
69.7
20.6
78.5
20.7
57.1
–
112.7
–
821.5
–
91.3
–
76.1
58.6
11.9
71.4
18.3
57.1
–
112.7
–
821.5
–
91.3
–
12.0
7.7
(11.1)
(8.7)
(7.1)
(2.4)
–
–
–
–
–
–
–
–
% change
5.4%
11.3%
(16.0%)
(42.0%)
(9.0%)
(11.6%)
–
–
–
–
–
–
–
–
1,452.6
1,446.3
109.7
106.4
(6.3)
(3.3)
0.4%
(3.0%)
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
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Hochschild Mining PLC / Annual Report & Accounts 2019STRATEGIC REPORTGOVERNANCE
SHAREHOLDER INFORMATION
FORWARD LOOKING STATEMENTS
This Annual Report contains certain forward looking statements,
including such statements within the meaning of Section 27A of
the US Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In particular, such
forward looking statements may relate to matters such as the
business, strategy, investments, production, major projects and
their contribution to expected production and other plans
of Hochschild Mining PLC and its current goals, assumptions and
expectations relating to its future financial condition, performance
and results.
Forward looking statements include, without limitation, statements
typically containing words such as “intends”, “expects”,
“anticipates”, “targets”, “plans”, “estimates” and words of similar
import. By their nature, forward looking statements involve risks
and uncertainties because they relate to events and depend on
circumstances that will or may occur in the future. Actual results,
performance or achievements of Hochschild Mining PLC may be
materially different from any future results, performance or
achievements expressed or implied by such forward looking
statements. Factors that could cause or contribute to differences
between the actual results, performance or achievements of
Hochschild Mining PLC and current expectations include, but are
not limited to, legislative, fiscal and regulatory developments,
competitive conditions, technological developments, exchange
rate fluctuations and general economic conditions. 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 Annual Report. Nothing
in this Annual Report should be construed as a profit forecast.
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
Link Asset Services, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU.
By telephone
If calling from the UK: 0371 664 0300 (Calls are charged at the
standard geographic rate and will vary by provider. Lines are
open 9.00am-5.30pm Monday to Friday excluding public holidays
in England and Wales).
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 15 May 2020 in respect of the 2019 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 2019 final dividend,
a dividend mandate form, also available from the Company’s
registrars, should be completed and returned to the registrars
by 15 May 2020. 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
2020
7 May
11 May
15 May
2 June
164
Hochschild Mining PLC / Annual Report & Accounts 2019 Designed and produced
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Hochschild Mining PLC
17 Cavendish Square
London W1G 0PH
United Kingdom
+44 (0) 203 709 3260
info@hocplc.com
www.hochschildmining.com
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