Our business is
our people
Hochschild Mining PLC
Annual Report & Accounts 2020
The people behind
our business
The imagery in this report
Much of the imagery in this report has
been taken by our employees; whether
on a phone or a camera, at the mines or
in the local community. These snapshots
celebrate the real lives and work
of our dedicated employees.
Read more
hochschildmining.com
Success means more
than just running a
profitable business
It’s about the way we treat our
people and our communities,
especially in challenging times.
Our people have always been
key to achieving our goals.
Their skills and dedication
provide us with the tools to meet
our existing targets and be ready
for future opportunities.
Read more about our people
PAGE 04
Strategic Report
At a glance
A business built around people
Market review
Chairman’s statement
Chief Executive Officer’s review
Business model
Our strategy
Key Performance Indicators
Operating review
Financial review
Stakeholder engagement
Sustainability report
Risk management & viability
Governance
Board of Directors
Senior management
Directors’ Report
Corporate Governance Report
2
4
8
12
17
22
24
26
29
36
45
50
64
74
76
77
80
Supplementary information
Directors’ Remuneration Report
Statement of Directors’
responsibilities
Financial Statements
Independent Auditor’s Report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of
financial position
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
98
102
120
121
129
129
130
178
179
187
188
190
191
Consolidated statement of cash flows
131
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Parent company statement
of financial position
Parent company statement of
cash flows
132
133
176
177
1 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information
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.
5.74
ECO SCORE
2019: 4.82
1.38
LTIFR
2019: 1.05
$271m
ADJUSTED EBITDA
2019: $343m
2020 Highlights
$0.06
ADJUSTED BASIC EPS
2019: $0.09
2.33¢/share
FINAL DIVIDEND
2019: withdrawn
$22m
NET CASH/(DEBT)
2019: ($33m)
$12.8/oz Ag Eq
AISC
2019: $11.5/oz Ag Eq
175,241oz
ATTRIB. GOLD PRODUCTION
2019: 269,892oz
9.8m oz
ATTRIB. SILVER PRODUCTION
2019: 16.8moz
2 | Hochschild Mining PLC Annual Report & Accounts 2020
Where we operate
11
12
13
14
2
6 7
1
4
5
8
9
10
3
Operational sites
Exploration projects
Exploration sites
Inmaculada
(Peru)
Pallancata
(Peru)
San Jose
(Argentina)
Arcata (Peru)
Snip (Canada)
Cooke Mountain
(US)
Illipah (US)
Sarape (Mexico)
Ares (Peru)
Azuca (Peru)
Crespo (Peru)
Condor (Peru)
Volcan (Chile)
Biolantanidos
(Chile)
READ MORE
Operating review
page 29
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
129,173 oz
4.0m oz
$922/oz Au Eq
12,925 oz
3.7m oz
$15.6oz Ag Eq
64,987 oz
4.1m oz
$14.6/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.
Operation
Ares
Peru
Arcata
Peru
Selene
Peru
Azuca
Peru
Condor
Peru
Crespo
Peru
Volcan
Chile
Biolantanidos
Chile
Category
Former operations
Early-stage
Others
Greenfield prospects
Hochschild has a portfolio of greenfield prospects
across the Americas.
Asset
Condor
Pampamali
Ballenero
Corvinon
Casma
Alto Ruri
Cueva Blanca
Josnitoro
Cooke Mountain
Illipah
Snip
Sarape
Country
Peru
US
Canada
Mexico
3 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information A business built
around people
Our success is driven by our people and our
first priority is to protect them and the
communities within which we operate.
Responsibility lies at the heart of our corporate
purpose and it drives how we treat the
environment and the communities around us.
4 | Hochschild Mining PLC Annual Report & Accounts 2020
Meet some of our people who exemplify
our approach to responsibility
01
02
Minimising our footprint
and reinforcing an
eco-friendly culture
Our responsibility to the environment
is key to our social licence to operate
Putting our
community first
We revised our community relations strategy
to ensure our social commitments were
achieved by supporting programmes on
health, education and economic development
Meet Nadia, Environmental Manager at
San Jose, who helps us to operate in a way that
respects our environment
Meet Rocio, Community Relations Manager, who has
helped to adapt our approach to supporting local
communities during these difficult times
READ MORE PAGE 13
READ MORE PAGE 16
03
04
Looking after the health and
wellbeing of our people
Our corporate values
helped us to adjust
Covid-19 presented numerous
challenges and I am glad to have
played my part in prioritising our
people’s health
The challenges posed by the pandemic
emphasised the need for clear
communication and a level of
unprecedented collaboration
Meet Edwar, a Doctor in our Health & Hygiene
team at Inmaculada, who helped to look
after colleagues and their families
Meet Hector, HR Manager, who helped to
co-ordinate actions from our Head Office
to support colleagues across the business
READ MORE PAGE 28
READ MORE PAGE 37
READ MORE
In our Sustainability report on page 50
Our dedicated 2020 Sustainability report will be published in Q2 2021 and will be
available to download from hochschildmining.com
5 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information THE COVID-19 PANDEMIC
A decisive response
Our immediate and decisive response balanced the needs of all our
stakeholders starting with the health and safety of our people which was
placed above business continuity as our first priority. From establishing
a Covid-19 Special Committee to multiple testing to developing a
dedicated app in record time, our response was rapid with our health
protocols extending beyond official requirements.
Communication
campaigns
An extensive communication
campaign was put in place
following the first Peruvian
virus cases in March 2020
to raise awareness on
prevention and provide
health information for our
people and communities.
Swift Company-wide
response
We moved quickly to establish
a Special Committee with the
responsibility of implementing
our health protocols to promote
the use of PPE, social distancing,
disinfection of work areas,
enhanced cleanliness and the
reduction of capacity in
communal areas.
Double testing of workers
We implemented a
comprehensive virus testing
programme supported by
regular updates on safe work
practices and an expanded
medical team.
Community
relations strategy
We continued to deliver
community initiatives focusing
on providing remote support
and education & health
programmes as well as
implementing innovative tools
to engage with stakeholders
such as virtual events,
training modules and
distance learning.
6 | Hochschild Mining PLC Annual Report & Accounts 2020
Hochschild Health and
Communication app
We developed a real time mobile
phone tracing and communication
app, ‘Hochschild Takes Care of
You’ to monitor the health and
wellbeing of our employees in
and out of work and to facilitate
the logistics of shift changes
in a Covid-secure manner.
The app gathers data from
personnel with a positive
diagnosis and includes an alert
system to monitor treatment
throughout the process until
the employee returns to work.
Monitoring of
treatment with
daily alerts
Workforce
availability
forecast
Covid patient
registration
Patient medical
records
Reports
7 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information 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 and silver prices in 2020
Daily settlement of nearby active Comex
futures, indexed to 2 January 2020
180
Gold
Silver
Gold market overview
160
140
120
100
80
60
Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20
Country production
Latin American production rankings
Peru
Argentina
Mexico
Chile
2020
Silver
2
11
1
5
2019
Gold
Silver
6
13
9
19
2
11
1
5
Gold
10
16
8
21
Demand
Demand
%
Jewellery
52.4%
Electronics
9.1%
Official Sector
Purchases
4.8%
Private Investment
Demand
30.8%
Dental and Other
2.9%
Jewellery 52.4%
Electronics 9.1%
Official sector purchases 4.8%
Private investment demand 30.8%
Dental and other 2.9%
Supply
Supply
Mine Production
69.7%
Secondary Supply
25.2%
Net Exports from
Transitional
Economies
5.1%
%
Mine production 69.7%
Secondary supply 25.2%
Net exports from
transitional economies 5.1%
Source: CPM Group LLC
8 | Hochschild Mining PLC Annual Report & Accounts 2020
After rising at a relatively steady
pace between 2016 and 2019,
gold prices rose sharply during
2020 and reached record high
levels both on an intraday as well
as annual average basis.
Gold touched an intraday high of $2,078
on 7 August 2020 and averaged $1,775.33
on an annual average settlement basis.
At the end of 2020, on a settlement price
basis, gold prices were up 24% from the
end of 2019. Consequently, gold increases
outpaced even those of the S&P 500
during 2020, which also had reached
fresh record high levels during the year
and were up 16.3% overall.
The Covid-19 pandemic was the primary
cause for the sharp run-up. The outbreak
resulted in governments around the world
shuttering their economies while monetary
and fiscal authorities flooded markets with
liquidity to offset lost economic output.
With this backdrop, it was unsurprising
that net gold investment demand rose
strongly during 2020.
Net investment demand stood at 38.4
million ounces in 2020, up 184.8% from
2019 and the highest level since 2011.
In addition to coronavirus, there were also
several political risks that hung over the
market, most notably the US elections
and Brexit.
In addition to net purchases by investors,
central banks were also net buyers of gold
during 2020, which provided additional
support to prices during the year.
However, central bank net purchases at
5.7 million ounces during the first 11
months of 2020 were down from the
elevated levels seen in 2018 and 2019.
This relative demand softness can be
attributed to the high gold price and the
understandable focus of these monetary
authorities on the current broader
economic and currency issues. Some of
the largest buyers in recent years like
China and Russia stopped buying gold
and stimulated some selling by some
past buyers, notably Kazakhstan.
The largest net purchases were made
by the Turkish central bank which was
adding gold primarily to stabilise its
currency and was also buying gold from
citizens and companies in exchange for
issuing gold bonds in order to increase
liquidity in the financial system. Much of
the gold it bought in 2020, if not all, was
from such domestic sources. During the
first 11 months of 2020, Turkey purchased
4.09 million ounces of gold, accounting
for 72% of net official sector purchases.
Total gold supply declined during 2020
to 124.4 million ounces, driven entirely
by mine supply, which slipped to 93 million
ounces. This was a decline of 5.3% from
2019 and the lowest level since 2013
and was driven by various Covid-related
shutdowns in major gold producing
countries. This was partially offset by
an uptick in scrap supply, which rose to
31.4 million ounces, up around 5% from
2019 levels, although given the sharp
price increase these gains were
somewhat muted, possibly due to the
closure of various scrap businesses.
A combination of sharp price gains and
recession in most parts of the world drove
gold use in fabricated products lower
during 2020 with demand declining
15% to 80 million ounces, the lowest level
since 2009.
What it means for Hochschild
As a significant player in the global
precious metals industry and deriving
60% of revenue from gold, we are
impacted by the dynamics of the gold
markets. Despite the falls in production
experienced by the Company due to the
Covid-related stoppages in 2020, the
28% rise in our average gold price received
helped to compensate, allowing us to
maintain a strong balance sheet and pay
for Covid initiatives for our people and
communities.
What could drive
gold in 2021
The global economy is expected
to be on a path to recovery during
2021 but it may be slow and some
of the macroeconomic factors
such as loose monetary and fiscal
policy that drove investors toward
gold during 2020 are expected to
remain in place or be expanded
further, helping gold to remain at
elevated levels.
Tensions between the US and
China could rise again, creating
shifts in the markets, which should
also be supportive of gold both as
a safe haven as well as a portfolio
diversifier.
Investors are expected to add,
on a net basis, roughly 40 million
ounces of gold to their holdings
in 2021.
Central banks are forecast to
be net buyers of gold supported
by an ongoing need by some
to stabilise currency markets
and diversify their FX reserves.
Furthermore, they may be more
used to and therefore less
sensitive to the price.
Total supply is forecast to rise
4.2% in 2021 to 129.6 million
ounces, supported by both a
recovery in mine supply and a
further increase in scrap supply.
Only modest growth is forecast
for gold fabrication – around 1.8%
to 81.5 million ounces. Demand
would still be lower than it was
in 2019 mostly due to high gold
prices and relatively anaemic
global economic growth.
9 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information MARKET REVIEW CONTINUED
Silver market overview
Demand
Demand
Other Industrial
Uses
55.5%
Jewellery and
Silverware
28.0%
Coin Fabrication
10.1%
Investment
Demand (excl coins)
0.8%
Photography
5.6%
Mine Production
77.3%
Secondary Supply
22.7%
%
%
Supply
Supply
Between 2016 and 2019, the price of
silver mostly moved between $14 and
$20. In 2020, silver prices broke out of
this range both on the upside as well
as on the downside.
During the broad market sell-off that
occurred in March 2020 due to Covid,
the price of silver sank to $11.64 on 18
March, the lowest silver price since 2009.
Silver then rose strongly from this low
and broke forcefully above $20 in late
July 2020, rising to $29.91 by early
August. This was the highest level since
early 2013. Silver prices settled at $26.41
at the end of 2020, up 47% from the end
of 2019. On an annual average basis,
silver prices stood at $20.67, up 27.5%
from 2019.
Despite the healthy gains in prices
during 2020, prices remained relatively
undervalued compared to gold and
compared to the intraday highs seen
in silver prices during 2011. The gold:silver
ratio reached a record high monthly
average of 116 in March 2020. In the
broad market sell-off in March 2020,
the fall in silver far outpaced that of
gold with its less liquid and consequently
more volatile nature coupled with its
greater reliance on industrial applications,
devastating for the silver price when
economies began to shut down. By the
end of 2020, a price recovery helped
push the ratio down to 71.3 on a monthly
average basis, the lowest level since
March 2017. But it was still high compared
to most periods in history, suggesting that
silver remained undervalued relative to
gold. It is quite typical for silver to initially
lag and later outperform gold in cyclical
precious metal price rises.
Silver investment demand is critical to
price and this rose sharply in 2020 to
103.6 million ounces, the highest level
since 2016.
10 | Hochschild Mining PLC Annual Report & Accounts 2020
Source: CPM Group LLC
What could drive silver in 2021
– Silver prices are forecast to benefit during 2021 due to improvements
in fabrication demand, healthy investment demand and the metal’s relative
undervalued status compared to gold and its own historic price levels.
– Ongoing loose monetary policy, further fiscal stimulus, a gradual recovery
in economic growth and a focus on clean energy uses of silver are all factors
that are expected to keep investors interested in silver.
– Net silver investment demand is forecast to reach 102.6 million ounces in 2021,
which may help keep silver at elevated levels.
– Silver fabrication demand is forecast to rise in 2021 in almost every sector,
except photography which has been in long-term decline. Much of the gains
may be during the second half of the year when more people around the world
are scheduled to have been vaccinated, allowing for an increased level of
economic activity. Fabrication demand is forecast to reach 880 million ounces
in 2021, up around 3% from 2020 levels.
– Total silver supply is forecast to reach 979.2 million ounces in 2021, the
highest level of total supply since 2017. Gains should be driven by both a
recovery in mine supply and more importantly by healthy gains in scrap
supply driven by relatively high silver prices. Total scrap supply during 2021
is expected to reach 232 million ounces, the highest level since 2012. Mine
supply also is expected to rise, reaching 747.2 million ounces in 2021, up 1.8%
from 2020 but still below levels seen in 2019.
As in the case of gold, the massive
monetary and fiscal stimulus injected
into the global financial system to
support Covid-ravaged economies also
benefited silver investment demand.
The sharp increase helped offset the loss
in silver fabrication demand and pushed
prices higher.
Total silver supply slipped to 949.0 million
ounces in 2020, the lowest level since
2008, when it stood at 915.5 million
ounces. The weakness was driven entirely
by a decline in mine production, with
scrap supply rising during the year. Silver
mine supply during 2020 declined 3.5%
to 734.9 million ounces, the lowest level
of mine supply since the 2012 level of
718.8 million ounces. However, silver mine
supply has been softening since 2017
due to a lack of new projects in the
pipeline coupled with the closure of
some large mines.
Silver fabrication demand declined
during 2020 to its lowest level since 2013.
Demand slipped to 845.4 million ounces,
down 8.75% from 2019. A combination
of various industrial facilities shutting
for several weeks during the early days of
the pandemic coupled with recessionary
conditions in many parts of the world
weighed on fabrication demand.
What it means for Hochschild
As a significant player in the global
precious metals industry and deriving
40% of revenue from silver, we are
impacted by the dynamics of the silver
markets. Despite the falls in production
experienced by the Company due to
the Covid-related stoppages in 2020,
the 35% rise in our average silver price
received helped to compensate, allowing
us to maintain a strong balance sheet
and pay for Covid initiatives for our
people and communities.
11 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CHAIRMAN’S STATEMENT
“Throughout our organisation we took all
the necessary actions to work through the
uncertainties facing the Company and, first
and foremost, to protect our employees.”
Eduardo Hochschild
Chairman
It would be an understatement to say that 2020
was an unprecedented year for our Company.
The rapid spread of Covid-19 across the world
has affected everyone in ways which could not be
imagined a year ago. However, the response from our
employees, workers and contractors is to be highly
commended. The pandemic has made the task of
leadership significantly more challenging and I would
like to thank our Chief Executive and his senior team
for their dedication and commitment to the task of
navigating our employees through the extraordinary
circumstances that we faced. Indeed throughout
Hochschild Mining, our people have displayed
commitment, professionalism and perseverance
despite a succession of challenges and we have
succeeded in achieving solid results while focusing our
efforts on the health of our entire team. This has made
the adoption of our stringent protocols and changing
work conditions an easier task. The strong culture of
the Company, which has been embedded throughout
our operations and offices over many years, provided
a firm foundation for the adoption of our stringent
health protocols and changing work conditions.
Our people are our business and during 2020 we
have continued to implement the second iteration of
our successful programme to promote a safety-first
culture: Safety 2.0. The delivery of this initiative has
naturally been adapted in light of the challenges
posed by the Covid pandemic through ongoing
training and communication campaigns and the
recognition of safe working.
As reported in our interim results, we regrettably
suffered an operational fatality at our Pallancata mine
in the early part of the year and we must therefore
continue with our efforts to ensure that safety is never
compromised and remains a top priority.
2020 saw the launch of an Environmental Culture
Transformation Plan, which we believe will help us
ensure that our excellent environmental performance
is sustained and strengthened though time.
I am delighted to report that we achieved our highest
year-end ECO Score which, as you may remember,
is our award-winning internally designed measure
to gauge the Group’s overall environmental
performance. Furthermore, the Group was
recognised by the Peruvian Water Authority for the
successful execution of our commitment to conserve
our water usage footprint, working collaboratively
with our partner communities. This year we are
working with a global consultancy to strengthen our
greenhouse gas reporting and identify opportunities
to reduce our energy use and design a long-term
action plan to minimise our carbon emissions.
Despite the difficulties posed by the pandemic
and the resulting government-mandated restrictions,
our Community Relations (‘CR’) team have continued
with their valuable work to support local communities.
Our focus on education, health and nutrition and
economic development resulted in support for many
community-run businesses and schools. We have
previously established ‘Digital Centres’ as a way of
bringing internet access to our remote communities
to achieve our social goals and this has proved
fortuitous during the Covid crisis. Building on this
12 | Hochschild Mining PLC Annual Report & Accounts 2020
OUR PEOPLE
“I am proud to be a part of the collective
efforts in promoting and strengthening
an environmental culture.”
Name: Nadia
Role: Environmental
Manager, San Jose
(Argentina)
2020 was a year like no other.
Covid-19 introduced us to
a scenario that no one was
prepared for and we were
forced to adapt on a personal
and professional level, putting
our resilience to the test in
all aspects.
At San Jose, we had the
operational challenges of
maintaining production
with reduced staffing levels
but this prompted the
environmental team to
reorganise, lead and motivate.
Despite these difficulties, the
team pulled together and we
were able to maintain the same
high levels of environmental
standards and even make
progress in our water
management projects, which
are of crucial importance.
We continued to work together
with external consultants,
while of course complying with
our health protocols, giving
us the possibility of sharing
information on ways to
improve our environmental
management.
I am proud to be a part of the
collective efforts in promoting
and strengthening an
environmental culture across
the entire organisation.
The Environmental teams
participate in numerous
initiatives that forge ties
with our colleagues with
the common objective of
respecting our natural
resources and reducing our
environmental footprint.
Times of crisis can also be
times of opportunity and I am
convinced that we will emerge
from this period stronger and
with increased determination
to see through our
environmental commitments.
13 | Hochschild Mining PLC Annual Report & Accounts 2020
Link to UN SDGs
READ MORE
Protecting the
environment
Page 60
READ MORE
For Hochschild’s
approach to the
UN’s Sustainable
Development Goals
please refer to
our standalone
Sustainability
report
Strategic ReportFinancial StatementsGovernanceFurther Information CHAIRMAN’S STATEMENT CONTINUED
“In the past 18 months,
we have consistently
stated the exciting
potential of our
investment in the
Biolantanidos rare
earths deposit in Chile
where we believe we
can create substantial
shareholder value...”
14 | Hochschild Mining PLC Annual Report & Accounts 2020
experience, in 2020 we completed our ‘Keeping
Connected’ project which supported over 6,000
residents across 14 communities close to our mines
to participate in online learning, help local businesses
and keep families connected during these
challenging times. To meet our communities’
immediate health needs, our CR and health teams
worked together throughout the year to donate
food supplies as well as medical equipment to local
hospitals and health centres. Further details on
these and all our programmes will be available
in the Sustainability section of the Annual Report
and in the standalone ESG Report, which will be
published during the second quarter of 2021.
Turning to our operations, the year was
understandably impacted by events beyond our
control and we were forced to shut all three of our
operations in mid-March as both our host countries
took steps to contain the spread of the virus.
Despite a relatively quick restart in May, both
Inmaculada and San Jose experienced additional
Covid-related stoppages, although Pallancata in
Peru operated without interruption for the remainder
of the year. Nevertheless, we were able to reconfigure
our mine plans and I was pleased to see us meeting
our revised annual production and costs targets. We
entered the crisis with a strong balance sheet which
enabled us to finance the additional Covid-related
expenses required by the business. In addition,
with precious metal prices rising significantly, our
business was able to generate strong free cash
flow despite the ongoing disruption.
Our brownfield programme was impacted by the
stoppages but we were able to obtain all necessary
permits and start the drilling schedule mostly in
the second half of the year and, as the year turned,
began to get some exciting results. At Inmaculada,
drilling achieved a significant increase in reserves
whilst San Jose ended the year with some
encouraging results in the Saavedra area close to
the current mine. At Pallancata, we are still drilling
nearby targets with a view to extending the life of
the mine in the short term and this work will continue
in 2021. In addition, results from the Corina deposit,
to the north of Pallancata, could go some way to
securing the long-term future of this mining area.
Also promising were early results from our new drilling
programme to the west of our former Arcata mine
with work continuing into 2021 to try to establish
a new resource area for this historic deposit.
In the past 18 months, we have consistently stated
the exciting potential of our investment in the
Biolantanidos rare earths deposit in Chile where
we believe we can create substantial shareholder
value in an industry with very strong future
demand characteristics and, crucially, in an
environmentally-friendly manner.
I am delighted to report that excellent progress was
made in 2020 at this unique project by our dedicated
management team and we can look forward to a key
year in 2021 with the feasibility study due, as well as
important permitting approvals.
The rare earths industry has been very much in the
media and financial market spotlight recently and we
are confident that our deposit will play an important
role in the supply of these vital commodities in the
near future.
With regards to our Board composition, I am
delighted that following a search process overseen
by the Nomination Committee, Jill Gardiner joined as
an Independent Non-Executive Director on 1 August.
Naturally, her induction was adapted in light of travel
restrictions but Jill’s long-standing experience of the
sector and corporate finance in Canada has already
proven of great benefit to the Board.
2020 was another very strong year for precious
metals driven by the enormous global monetary
and fiscal response to the economic impact of the
pandemic. The gold price had risen by 24% by the
end of the year and silver increased by 47% enabling
us to generate robust free cash flow despite the crisis
and further strengthen our already healthy balance
sheet. In April 2020, owing to the uncertainty caused
by the crisis, the Board took the prudent decision to
withdraw the proposal to pay the 2019 final dividend.
However, following the encouraging second half
recovery, a $21 million interim dividend was paid at
the end of December. We fully recognise the need
to continue to monitor the impact of the current
Covid situation and therefore we have given much
consideration to the subject of further capital
returns. As a result, given the current net cash
position and ongoing healthy price environment,
the Board is pleased to propose a final dividend
of 2.335 cents per share ($12.0 million).
The strength of our culture shone through this year
and I am proud to be Chairman of such a Group
and remain committed to overseeing the ongoing
progress of our long-term strategy. We responded
very quickly and appropriately to local and
countrywide challenges in 2020 and these responses
are a testament to the dedication, skills and
ingenuity of our people. The Board and I will never
be able to thank all of them enough for their
extraordinary efforts during this time.
Eduardo Hochschild
Chairman
17 February 2021
15 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information OUR PEOPLE
“The Covid-19 pandemic meant that we had to look
for new ways to meet our social commitments and
to be able to continue to interact with people from
the communities around us.”
Name: Rocio
Role: Community
Relations Manager,
Inmaculada (Peru)
I am proud that Hochschild
was able to respond by
innovating and forming
alternative means of
communication to sustain
the relationships within its
areas of influence.
Building social
responsibility
The National State of
Emergency in the early part
of the year was the cause of
uncertainty and worry but we
were able to negotiate support
with local authorities for the
benefit of communities under
their charge, and help people
directly with supplies to
maintain good hygiene.
Working together, we were
able to take care of each
other and move forward.
Sustainable planning to
operate in harmony
Faced with the crisis, the
Community Relations team
reacted immediately,
developing a Strategic
Emergency Plan, based on
analysis of probable scenarios
and the stages at which we
should act. We carried out this
work with colleagues from
the other mining units and it
allowed us to attend promptly
to the needs of the rural
communities, anticipating
their needs at each stage
and maintaining a positive
relationship.
Digital communication
for development
One of our long-established
key social objectives is to
facilitate education for children
who live in the remote areas
surrounding our operations.
The Group’s technological
support ensured the continuity
of education through the
installation of internet services.
Online communications have
provided the rural population
not only a way of accessing
education but also to engage
with each other and the local
authorities, which has been
crucial during the pandemic.
16 | Hochschild Mining PLC Annual Report & Accounts 2020
Link to UN SDGs
READ MORE
Serving our
communities
Page 63
READ MORE
For Hochschild’s
approach to the
UN’s Sustainable
Development Goals
please refer to
our standalone
Sustainability
report
CHIEF EXECUTIVE OFFICER’S REVIEW
289k
GOLD EQUIVALENT OUNCES
PRODUCED IN 2020
25m
SILVER EQUIVALENT OUNCES OF RESERVES
ADDED AT INMACULADA IN 2020
“We believe that our long-term strategy based on
exploration, project delivery, value accretive acquisitions
and solid ESG foundations remains key to driving our
business and delivering returns for stakeholders.”
Ignacio Bustamante
Chief Executive Officer
I am proud of how our team has responded to the
many challenges presented by Covid-19 during
2020. Everyone in the Company demonstrated
care, good judgement and very hard work in
ensuring the health and wellbeing of our people
whilst remaining focused on achieving our business
objectives. Understandably, the performance of
our Company during the year was significantly
impacted by the pandemic but despite the resulting
adjustments to our operational targets, we were
able to still deliver solid production and good cost
control. When combined with significant precious
metal price rises, we generated strong cash flows
allowing us to invest in a comprehensive crisis
response programme and leave the Company in
a net cash position at the end of the year. Our
exploration programme was also reconfigured to the
new reality but we made encouraging steps in our
aim to add reserves and deliver growth opportunities.
We remain committed to furthering our wide range
of ESG initiatives in order to make a lasting positive
contribution to society, whatever the circumstances.
This year our focus has been on supporting our
communities and various other stakeholders to
overcome the health and economic crisis caused
by the pandemic.
We have adopted several policy initiatives, including
revised and new sustainability, human rights, gender
and diversity, compliance and community relations
policies that will further strengthen commitment to
operate responsibly. Our ECO Score continues to be
one of our key environmental management tools and
we are working hard to encourage our key suppliers
to also adopt it so that we can further align our
environmental strategies.
Finally, we have implemented our safety-first
culture: Safety 2.0. programme, and launched our
Environmental Culture Transformation Plan to build
on the progress achieved to date in this area.
We believe that our long-term strategy based on
exploration, project delivery, value accretive
acquisitions and solid ESG foundations remains key
to driving our business and delivering returns for
stakeholders.
Operations
Hochschild’s output in 2020 was impacted by
Covid-related stoppages at all our mines with the
first major disruption lasting from the middle of
March until the end of May. The crisis also resulted in
substantial delays in permitting for exploration and
operations for this year and beyond and we continue
to work hard to overcome those delays.
17 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
Exploration driving near-term value
Brownfield
exploration
programme
We ran a successful 2020
drilling campaign with
additional low-cost ounces
discovered in and around
our existing mines
Drilled in 2020
225,000 metres
17%
$34 million
increase in reserves at Inmaculada in 2020 versus 2019
Group budget for 2021
Our 2020 brownfield exploration
schedule was initially impacted
by the mine closures resulting
from the global crisis. However,
we were able to reconfigure
our plans into an ambitious
programme for the second
half of the year. We significantly
increased reserves at
Inmaculada whilst at our Corina
project we expect to deliver a
maiden resource in the near
future. We saw encouraging drill
results towards the end of the
year at San Jose and also at
our former mine, Arcata.
18 | Hochschild Mining PLC Annual Report & Accounts 2020
At Inmaculada, we experienced a further halt to
production in early July with another at San Jose
in Argentina towards the end of the year. Overall
production was 289,293 gold equivalent ounces
(24.9 million silver equivalent ounces) which was
understandably substantially lower than the 2019
figure of 465,336 gold equivalent ounces (40.0 million
silver equivalent ounces). This was produced at an
all-in sustaining cost of $1,098 per gold equivalent
ounce ($12.8 per silver equivalent ounce) which
reflected the reduced production rates. Inmaculada
remained the cornerstone of the Company,
producing 176,086 gold equivalent ounces (2019:
256,001 ounces) at $922 per gold equivalent ounce
(2019: $811 per ounce), a pleasing result despite
losing approximately a quarter’s worth of output.
At Pallancata, despite the impact of the shutdown,
the operation still had a steady period of production
from the middle of the year onwards, delivering
4.8 million silver equivalent ounces (2019: 9.5 million
ounces) at a cost of $15.6 per silver equivalent
ounce (2019: $13.4 per ounce). In Argentina, San
Jose initially experienced a shorter stoppage
with production restarting in late April. However,
restrictions on people’s movement in the country
resulted in a slow and difficult remobilisation whilst
rising regional Covid infections in the Santa Cruz
province led to a further 20-day stoppage in late
November. Production was 9.7 million silver
equivalent ounces (2019: 15.9 million ounces)
with costs at $14.6 per silver equivalent ounce
(2019: $13.3 per ounce).
Exploration
Our 2020 brownfield plans were also affected by
the Covid-related delays and almost three months
of the schedule was deferred. However, despite
delays, we were able to obtain the permits required
for 2020, reconfigure the programme and implement
an aggressive series of campaigns for the remainder
of the year in the surrounding areas of all three of our
current mines. Our objectives remained the same in
terms of upgrading our current resource base and
discovering new potential resources. In this regard,
we were broadly successful with approximately 75%
of the programme completed and drilling achieving
an increase in reserves of 25.3 million silver
equivalent ounces at Inmaculada.
This figure does not incorporate a portion of drilling
from January 2021 and therefore is not reflected
in the 2020 audited ore reserves statement starting
on page 188.
At San Jose, we were encouraged to see some
positive drill results towards the end of the year
in the Saavedra area close to where we are currently
mining, whilst, in the region surrounding Pallancata,
exciting results from the second campaign at the
Corina deposit to the north lead us to expect a
maiden resource will be achieved in the next few
months. Whilst there is still work to do to extend the
current Pallancata mine life, we are hopeful that
results at Corina may eventually secure the long-
term future of production in the area. In addition, we
also made a start on a new drilling campaign at our
former mine, Arcata, and were highly encouraged by
the first results from the area to the west of the mine
with work expected to continue this year.
19 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
One of the few heavy rare earth projects in the Western world
Rare earths driving
long-term opportunity
With a feasibility study
close to completion,
the Biolantanidos ionic
clay rare earth deposit
in Chile, one of the
first heavy rare earth
projects in the Western
world, is expected to
deliver a unique
modular growth story
and generate strong
value for Hochschild
shareholders.
Global magnet rare earth
oxide consumption
$3.0bn
Value 2020
$15.7bn
Expected value 2030
Source: Adamas Intelligence
What are are earth elements?
– Group of 17 chemical elements
in the periodic table.
– Referred to as ‘rare’ because
they are not commonly found
in commercially viable
concentrations
2 main subgroups:
– Light rare earths (LREE) and
– Heavy rare earths (HREE)
Rare earth elements such as neodymium, praseodymium, dysprosium and terbium are used for applications such as:
Magnets
Permanent magnets for applications
such as electric vehicles, mobile
phones, drones and wind turbines.
Strong metal alloys
Forms an alloy with magnesium for
use in aircraft engines.
Data storage
Applications such as compact discs
and hard discs. Also film industry
lamps and laser materials.
Computer chips and devices
Important for devices such as TV and
computer screens, mobiles and low-
energy lightbulbs.
20 | Hochschild Mining PLC Annual Report & Accounts 2020
In Chile, work on our exciting Biolantanidos rare
earths project has progressed well, notwithstanding
a few minor delays resulting from the impact of
the pandemic in the country. Key management
personnel are in place and are advancing the various
work streams including: brownfield drilling; updating
the resource model; progressing the project’s
permitting; carrying out metallurgical tests and
equipment piloting; and starting execution of the
plan. The project is on track to complete a feasibility
study towards end of the first half of the year.
Our greenfield programme was also impacted but
we saw encouraging progress from Snip in British
Columbia where our partner Skeena Resources
announced a maiden resource for the deposit
in July, and we look forward to results from the
project’s second drilling campaign which has now
completed. Third-party exploration work also
began at the Horsethief project in Nevada.
Financial position
Despite the significant impact of the Covid crisis, our
resilient production performance combined with a
higher price environment has resulted in our balance
sheet now sitting in an enviably strong position with
cash and cash equivalents of $231 million at the end
of December (31 December 2019: $166.4 million). This
has meant for the first time in eight years, Hochschild
ended the year with a net cash position, $21.6 million
(31 December 2019: $33.2 million net debt).
Financial results
As discussed above, total Group production was
significantly lower versus 2019 and consequently,
despite a 28% rise in the average realised gold price
achieved and a 35% rise in the silver price, net
revenue was reduced to $621.8 million (2019: $755.7
million). All-in sustaining costs do not include
approximately $47 million of fixed costs at the
operations incurred during the stoppages and
ramp-up (presented within cost of sales). However,
we were able to finish slightly below our revised cost
guidance at $12.8 per silver equivalent ounce (2019:
$11.9 per ounce). Adjusted EBITDA of $270.9 million
(2019: $343.3 million) mostly reflects the reduced
production levels as well as a rise in mine closure
provisions of $16.1 million. Pre-exceptional earnings
per share of $0.06 (2019: $0.09 per share) includes
the impact of an increase in finance costs in
Argentina and of income tax arising from the impact
of local currency devaluation in Peru and Argentina.
Post-exceptional earnings per share was lower at
$0.03 (2019: $0.06 earnings per share) mainly due
to the exceptional after tax cost of $22.0 million of
Covid-19 response initiatives which are deemed
to be exceptional as they are incremental to the
Group’s regular business, are material impacts and
are not expected to recur. This was partially offset
by the exceptional after-tax gain of $6.2 million from
the reversal of impairment at San Jose.
Outlook
We expect attributable production in 2021 of
between 360,000 and 372,000 gold equivalent
ounces (31.0 to 32.0 million silver equivalent ounces)
assuming the silver to gold ratio of 86:1 (the average
ratio for 2020). This will be driven by: 223,000-228,000
gold equivalent ounces from Inmaculada; an
attributable contribution of 6.4 to 6.8 million silver
equivalent ounces from San Jose; and 5.4-5.6 million
silver equivalent ounces from Pallancata.
The Company has also taken steps to protect cash
flow generation in Peru, from the existing marginal
resource base, mainly at Pallancata, by hedging the
sale of 4 million ounces of silver at $27.10 per ounce
for 2021 and a further 4 million ounces of silver at
$26.86 per ounce for 2022.
All-in sustaining costs for operations are expected
at between $1,210 to $1,250 per gold equivalent
ounce ($14.1 to $14.5 per silver equivalent ounce).
This forecast includes a rise in mine development
costs at San Jose in order to increase reserves and
an increase in development at Inmaculada. Grades
at Inmaculada are expected to be lower due to the
delay in mine development and permitting resulting
from the Covid-related stoppages.
The budget for brownfield exploration is set at
approximately $34 million with the greenfield and
advanced project budget set at approximately
$11 million. In addition, a budget of approximately
$14 million has been allocated towards advancing
the Biolantanidos project and includes approximately
$5 million of further exploration costs. Finally, we have
recently approved a $7 million budget to construct an
ore sorting pilot plant at Inmaculada during 2021. We
believe this project may eventually deliver significant
improvements in recoveries at the mine and
potentially help to optimise other key projects in
Hochschild’s portfolio.
2021 has started with the pandemic still heavily
impacting both the countries we operate in. Precious
metal price strength has continued but we will
remain vigilant and we have the people and the cash
resources to meet the challenges ahead. We also
intend to continue investing for the future. We have
scheduled another busy brownfield exploration
programme involving drill targets across our portfolio
with the aim of adding further high quality ounces
to our resource base and optimising our early-stage
projects. We will also continue to assess value-
accretive acquisition opportunities and can look
forward to the feasibility study at our Biolantanidos
rare earths project towards the middle of the year.
Ignacio Bustamante
Chief Executive Officer
17 February 2021
21 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information BUSINESS MODEL
Benefiting all our stakeholders
Our well-established and resilient business model aims to reflect our
long-term commitment to our employees, communities and society as
a whole as well as providing an attractive investment proposition.
Inputs
Our core activities
Technical expertise is the key attribute
underpinning our business model.
How we
create value
Discover
Extract
Develop
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 generate social value
within our 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 have a key strength in our
balance sheet and deploy capital
in a disciplined manner underpinned
by our long-standing financial
relationships and a focus on value
accretive opportunities.
Governance
We maintain high standards 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.
22 | Hochschild Mining PLC Annual Report & Accounts 2020
Discover
Develop
Extract
We have strong expertise in discovering
and developing long-term geological
districts. Our highly experienced
exploration team believes that there is
strong potential across all our properties
to continue to generate strong returns
from the Company’s existing resource
base. Furthermore, our greenfield and
project development strategy involves a
significant number of drilling campaigns
at premium precious metal prospects in
Peru and across the Americas. These can
be executed in-house or in partnership
with a variety of reputable exploration
companies with attached earn-in or joint
venture options if successful.
We are able to progress our projects
efficiently in a short space of time and
the ability to operate in remote locations
and high altitudes remains a core
competitive advantage. We have
unrivalled knowledge of the key mining
jurisdictions in the Americas and believe
our experience in managing all project
requirements including permitting, local
community and government support
places us in a strong position with
regards to the execution of precious
metal opportunities as well as options in
future-facing commodities.
We have developed an extensive in-house
knowledge base of the challenges
inherent in a range of different ore bodies,
varying metals as well as in a variety of
environments throughout our regions.
This has resulted in us consistently
meeting annual operational targets,
implementing significant cost efficiency
programmes and replacing and adding
to our resource base. In addition, our
growing commitment to innovation
is allowing us to incorporate key
technological advances and apply
them to our business.
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 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. Many of these initiatives continued
during the 2020 pandemic.
31%
WORKFORCE FROM LOCAL COMMUNITIES
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 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 their capabilities through volunteer
work as well as direct initiatives.
98%
WORKFORCE TRAINED IN 2020
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 all our stakeholders.
Since the middle of 2016 we have paid out $82 million in
equity dividends and we have announced a further 2020
final dividend of $12 million despite the significant
disruption to our operations from the global pandemic.
$12m
RECOMMENDED 2020 FINAL DIVIDEND
23 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information OUR STR ATEGY
Strategic development and growth
Our strategy focuses on four key paths to
secure low-cost growth.
Brownfield
Life-of-mine increases
Improve quality of resources
Spare capacity available
2020 activities
– Full programme delivered despite delays caused
by Covid-19
– Reserves increased at Inmaculada
– Maiden resource expected at Corina in the next
few months
– Second drilling campaign begun at Palca and first
campaign commenced at Cochaloma
– Early encouraging results at new Arcata
drilling campaign
Greenfield
– Second drilling campaign completed by Skeena
Staking properties
Resources at Snip, Canada
Streamlining portfolio
Progressing
drill-ready projects
– Drilling in progress at Condor (Peru)
– Drilling carried out at Horsethief (Nevada) and
Los Cuarenta (Mexico)
Early-stage projects
Optimising early-stage projects
Further drilling
Advancing Biolantanidos
deposit
– Optimising ounces at early-stage projects
– Progressed Biolantanidos rare earths project:
developing innovative metallurgical process;
increasing land concessions; resource drilling;
permitting; community relations
– Drilling programmes carried out at Ares, Arcata
and Crespo
– Permitting on a number of drill targets including
former operations, early-stage projects and
regional exploration targets
Strategic alliances
Early-stage
Control (Acquisition/JVs)
Geological upside
ROIC: 12-15%
– Focusing on stable jurisdictions in Americas
– Precious and non-precious metal deposits
being considered
– Ongoing alliance with Skeena Resources
at Snip project in Canada
24 | Hochschild Mining PLC Annual Report & Accounts 2020
2021 priorities
Risks
– 2021 budget of $34 million
– Key targets at Inmaculada: Angela vein extension and Eduardo vein
– Exploration set to begin in surrounding area at Minascucho and
Huarmapata
– Aiming to add resources at Pallancata from potential Pallancata and
Pablo vein extensions and from Luisa/Paola, Oscar/Ignacio structures
– Key targets at San Jose are close to the existing mining area as well as
the regional targets of Telken and Aguas Vivas
– Further drilling at Arcata, Crespo, Ares
– 2021 greenfield exploration budget expected to be $11 million
– Decision to be made on next steps at Snip (Canada) including
potential exercise of option
– Drilling set to begin at Illipah (Nevada) and Adamera (Washington)
– Mapping and permitting activities continuing at Peruvian projects
including Pampamali, Ana Lucia, Ballanero, Corvinon and also at
Sarape in Mexico
– Political, legal and
regulatory
– Community relations
– Personnel: recruitment
and retention
– Political, legal and
regulatory
– Community relations
– Personnel: recruitment
and retention
– Drilling at projects in Peru including Crespo, Azuca, Condor, Arcata,
Ares and Selene
– Advancing Biolantanidos to feasibility stage and environmental
permit approval
– Ongoing ore sorting tests
– Political, legal and
regulatory
– Community relations
– Personnel: recruitment
and retention
– Progressing current options e.g. Snip, Condor to decision stage
– Further options/JVs being considered in Americas
– Larger acquisitions also being assessed both with cash or shares
– Political, legal and
regulatory
– Commodity prices
READ MORE
Key Performance Indicators
on page 26
25 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information KEY PERFORMANCE INDICATORS
Measuring our progress
Financial measures
Attributable
production
24.9m oz
M oz Ag equivalent
Revenue
Adjusted EBITDA
$622m
$271m
Basic earnings
per share
$0.06
Pre-exceptional
Dividend per share
¢4.00
40.0 40.8
38.0
35.5
622
756
704
723
688
343
329
301
271
268
24.9
0.11
4.0
3.92
0.09
0.08
3.35
2.76
0.06
0.05
2.0
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Yes
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Yes
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No
Links to remuneration
No
Definition
Silver equivalent production
equals total attributable gold
production multiplied by a
gold/silver ratio for 2019-2020
of 86x, 2018 of 81x, 2015-2017
of 74x and added to the total
attributable silver production.
Definition
Revenue presented in the
financial statements is
disclosed as net revenue
and is calculated as gross
revenue less commercial
discounts.
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.
Definition
The per-share (using the
weighted average number of
shares outstanding for the
period) profit available to
equity shareholders of the
Company from continuing
operations before
exceptional items.
Definition
The per-share (using the
weighted average number
of shares outstanding for
the period) dividend paid to
equity shareholders of the
Company as recommended
by the Board.
Performance
Total silver equivalent
production decreased by
37.8% versus 2019 due to
production stoppages
caused by the Covid-19
pandemic.
Performance
Total revenue decreased by
18% versus 2019 due to the
fall in production caused by
the Covid-related stoppages.
Performance
Adjusted EBITDA decreased
by 21% versus 2019 due to
the fall in revenue resulting
from the operational
stoppages necessitated
by the Covid crisis.
Performance
Basic earnings per share
decreased by 33% due to the
fall in Adjusted EBITDA in
addition to a rise in finance
costs and the income tax
expense.
Performance
Dividend per share
increased by 100%.
Outlook
Total silver equivalent
production is forecast to be
between 31.0 and 32.0 million
silver equivalent ounces in
2021 assuming a gold/silver
conversion ratio of 86x.
Outlook
Total silver equivalent
production is forecast to be
between 31.0 and 32.0 million
silver equivalent ounces in
2021 assuming a gold/silver
conversion ratio of 86x.
Outlook
Adjusted EBITDA result for
2021 will depend on precious
metal prices and cost and
expenses performance
along with the ability of the
operations to operate
normally.
Risk
Operational performance.
Risk
Operational performance
and precious metal prices.
Risk
Operational performance
and precious metal prices.
Outlook
Pre-exceptional earnings per
share will depend on Adjusted
EBITDA performance and
the effective tax rate which
may be impacted if local
currencies including the
Peruvian sol and Argentinian
peso continue to depreciate.
Risk
Operational performance,
precious metal prices, costs,
levels of financial costs and
income and tax charge.
Outlook
Dividend per share for 2021
will depend on the level of
profitability of the Company
and the available uses of
cash and is at the discretion
of the Board.
Risk
Company profitability.
26 | Hochschild Mining PLC Annual Report & Accounts 2020
Brownfield
Greenfield
Early-stage
projects
Strategic
alliances
Financial measures
Non-financial measures
All-in sustaining
costs
Total silver cash
costs
LTIFR
Accident Severity
Index
Attributable
resource base
$12.8oz
$/oz Ag equivalent
$9.3oz
$/oz Ag equivalent
1.38
474
1,425
M oz Ag equivalent
12.8
12.0
12.3
11.5
11.2
9.3
8.3
7.9
8.8
8.2
2.69
2.20
1,264
1,425 1,446 1,453
1,340 1,370
1.74
1.38
1.05
930
474
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Yes
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Yes
Links to remuneration
Yes
Links to remuneration
Yes
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 86:1.
Performance
All-in sustaining costs from
operations rose versus 2019
mainly due to the effect of
less production resulting
from the Covid-related
stoppages impacting
administrative expenses and
capex in all units.
Outlook
The all-in sustaining cost
from operations in 2021 is
expected to be between $14.1
and $14.5 per silver
equivalent ounce.
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 increased by 18%
versus 2019 due to increases
in unit costs in Peru and
decreases in grade across
the Group.
Outlook
Cash costs performance in
2021 is expected to be
dependent on operational
performance, levels of local
cost inflation and levels of
local currency devaluation in
Argentina and Peru.
Risk
Operational performance,
local cost inflation, and
increases in brownfield
exploration investment.
Risk
Operational performance
including dilution, grade and
tonnage control and local
inflation.
Definition
Calculated as total number
of accidents per million
labour hours.
Definition
Calculated as total number
of days lost per million
labour hours.
Definition
Total attributable silver
equivalent metal resources
as at 31 December 2020.
Performance
LTIFR increased by 31% but
remains low relative to the
industry.
Performance
The Accident Severity index
increased to 474 in 2020 due
to the fatality at Pallancata.
Outlook
The Company will continue
to implement the ‘Safety
2.0 Hochschild Safety
Transformation’ plan, has
rolled out a safety software
tool ‘Safety HOC’ and has
received Level 6 safety
certification from DNV
(7th edition).
Outlook
The Company will continue
to implement the ‘Safety
2.0 Hochschild Safety
Transformation’ plan, has
rolled out a safety software
tool ‘Safety HOC’ and has
received Level 6 safety
certification from DNV
(7th edition).
Risk
Health and safety risks.
Risk
Health and safety risks.
Performance
Total attributable silver
equivalent metal resources
1,425 by (1.45%) in 2020 due
new inferred resources
discovered at Inmaculada
and San Jose.
Outlook
Resource increases in 2021
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.
Risk
Implementing and
maintaining the annual
exploration drilling
programme.
27 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information OUR PEOPLE
“As an occupational doctor I am glad
to have been able to play my part.”
Name: Edwar
Role: Doctor in the
Health & Hygiene team,
Inmaculada (Peru)
Hochschild implemented
an action plan which has
allowed the continuation of
operations but by focusing
not only on the health of its
workers but also of their
families and communities.
As an occupational doctor
I am glad to have been able
to play my part.
Looking after the health and
wellbeing of our people
First, we identified colleagues
who were vulnerable and they
were removed from the
operations.
We collaborated with the
National Mining Association
and the Mining Ministry,
designing the Covid health
protocols that were later
mandated by law.
We quickly started molecular
testing as well as educating
employees on wearing masks
and the need to practise social
distancing. The Health team
at Hochschild also worked
together with managers,
occupational psychologists
and the human resources team
providing our employees’
families educational webinars
about Covid-19.
Our testing regime was
improved later in the year
through the introduction
of antigen tests.
Through our collaborative
efforts, we designed software
to support the management
of working shifts in a Covid
secure way as well as
monitoring our workers’
health condition. We were
able to see how many
employees were available
to travel to the mine as well
as those either onsite or in
the process of travelling.
This software also enabled
us to access information
on workers suffering from
medical conditions. I am
proud to report that this
software has won an
award from the Peruvian
Mining Society.
28 | Hochschild Mining PLC Annual Report & Accounts 2020
Link to UN SDGs
READ MORE
Health & hygiene
Page 56
READ MORE
For Hochschild’s
approach to the
UN’s Sustainable
Development Goals
please refer to
our standalone
Sustainability
report
OPER ATING REVIEW
Delivering strong
operational performance
Note: All equivalent figures calculated
using the Company’s 2020 average
gold/silver ratio of 86:1. 2019 figures have
been restated (previously calculated
using a gold/silver ratio of 81:1).
Production
In 2020, Hochschild delivered
attributable production of 289,293 gold
equivalent ounces or 24.9 million silver
equivalent ounces, at the high end of
the Company’s revised forecasts
published in early September but with
the reduction versus 2019 reflecting
the impact from Covid-related
disruptions throughout the year.
The overall attributable production
target for 2021 is 360,000-372,000 gold
equivalent ounces or 31.0-32.0 million
silver equivalent ounces.
Costs
All-in sustaining cost from operations
in 2020 was $1,098 per gold equivalent
ounce or $12.8 per silver equivalent
ounce (2019: $990 per gold equivalent
ounce or $11.6 per silver equivalent
ounce), higher than 2019 mainly due
to the effect of less production resulting
from the Covid stoppages impacting
administrative expenses, exploration
expenses and capex per ounce in all
units. The increase was also due to lower
grades at all mines mostly resulting from
the revised mine plans also due to the
stoppages. These effects were partially
offset by savings from cash optimisation
plans and local currency devaluation in
both Peru and Argentina. These figures
do not include fixed costs incurred at the
operations during the stoppages as well
as abnormal costs during the phases of
reduced production capacity as well as
$27.6 million of exceptional Covid-19
response initiatives.
The all-in sustaining cost from
operations in 2021 is expected to be
between $1,210 and $1,250 per gold
equivalent ounce (or $14.1 and $14.5
per silver equivalent ounce). These levels
mainly reflect higher expected mine
production costs aligned with mine
plans and a rise in mine development
capex to increase reserves primarily
in San Jose and Inmaculada.
Main operating sites
SAN JOSE
INMACULADA
PALLANCATA
Total 2020 Group production1
Attributable 2020 Group production
Silver production
(koz)
Gold production
(koz)
Total silver
equivalent (koz)
Total gold
equivalent (koz)
Silver sold (koz)
Gold sold (koz)
Year ended
31 Dec 2020
Year ended
31 Dec 2019
11,821
20,163
207.08
321.58
29,631
47,818
344.54
11,846
207.77
556.03
20,062
317.52
Total production includes 100% of all production,
including production attributable to Hochschild’s
minority shareholder at San Jose.
Silver production
(koz)
Gold production
(koz)
Silver equivalent
(koz)
Gold equivalent
(koz)
Year ended
31 Dec 2020
Year ended
31 Dec 2019
9,808
16,808
175.24
269.89
24,879
40,019
289.29
465.34
Attributable production includes 100% of all production
from Arcata, Inmaculada, Pallancata and 51% from
San Jose.
2021 Production forecast split
Inmaculada
Pallancata
San Jose (100%)
Total
2021 AISC forecast split
Inmaculada
Pallancata
San Jose
Total from operations
Gold production
(oz approx)
223,000-228,000
63,000-65,000
74,000-79,000
360,000-372,000
Silver production
(m oz approx)
19.2-19.6
5.4-5.6
6.4-6.8
31.0-32.0
Gold production
($/oz Au Eq)
Silver production
($/oz Ag Eq)
1,040-1,080
1,440-1,480
1,370-1,400
1,210-1,250
12.1-12.5
16.8-17.2
15.9-16.3
14.1-14.5
1
Group production figures for 2019 include 394,000 silver equivalent ounces from the Arcata operation which was
placed on care and maintenance in February 2019.
29 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information OPER ATING REVIEW CONTINUED
01
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
The Inmaculada mine
delivered gold equivalent
production of 176,086 ounces
in 2020 (2019: 256,001 ounces),
with the reduction versus
expectations due to the
impact of two Covid-19 related
stoppages during the year.
These affected the operation
firstly from mid-March until
the end of May and secondly
during most of July. Grades
have proved to be slightly
lower than originally budgeted
due to delays in mine
sequencing resulting from the
stoppages.
Costs
All-in sustaining costs were
$922 per gold equivalent ounce
(2019: $811 per ounce) with the
increase versus 2019 due to
the impact of Covid stoppages
on production and therefore on
opex and capex per ounce and
to lower gold grades, partially
offset by savings from cash
optimisation plans and local
currency devaluation. Fixed
costs of $11.7 million incurred
during the stoppages and
ramp-ups are not included in
the figure in addition to $13.5
million of exceptional Covid-19
response initiatives.
Year ended
31 Dec 2020
Year ended
31 Dec 2019 % change
Ore production (tonnes)
948,937
1,338,569
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Gold equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Au co-product)
All-in sustaining cost ($/oz Au Eq)
154
4.33
4,034
129.17
15,143
176.09
4,020
129.70
95.1
576
922
163
4.71
5,747
189.18
22,016
256.00
5,732
188.59
93.3
504
811
(29)
(6)
(8)
(30)
(32)
(31)
(31)
(30)
(31)
2
14
14
30 | Hochschild Mining PLC Annual Report & Accounts 2020
02
01
SILVER PRODUCED
4,034koz
129.17koz
GOLD PRODUCED
02
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 produced
4.8 million silver equivalent
ounces in 2020 (2019:
9.5 million ounces) with the
reduction versus the original
forecast (7.2 million ounces)
due to the effects of the
single Covid-19 related
stoppage from mid-March
to early June. In addition
grades dropped moderately
in line with the mine plan.
Costs
All-in sustaining costs were
at $15.6 per silver equivalent
ounce (2019: $13.4 per ounce).
The mining of lower grade
areas and reduced
production resulting from the
stoppages led to increases
versus 2019 but were partially
offset by savings from cash
optimisation plans, lower
expected capex and local
currency devaluation. Fixed
costs of $4.9 million incurred
during the stoppage and
ramp-up are not included
in the figure in addition to
$8.2 million of exceptional
Covid-19 response initiatives.
Year ended
31 Dec 2020
Year ended
31 Dec 2019 % change
Ore production (tonnes)
519,611
915,877
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
Gold equivalent produced (koz)
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag co-product)
All-in sustaining cost ($/oz Ag Eq)
247
0.87
3,679
12.93
4,790
55.70
3,654
12.80
101.2
13.1
15.6
278
1.01
7,259
25.95
9,491
110.36
7,161
25.45
83.8
9.6
13.4
(43)
(11)
(14)
(49)
(50)
(50)
(50)
(49)
(50)
21
36
16
31 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information OPER ATING REVIEW CONTINUED
SAN JOSE
03
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
Production at San Jose in 2020 totalled 9.7 million silver
equivalent ounces (2019: 15.9 million ounces). Whilst the
mine restarted operations in late April 2020, following the
first Covid-19 stoppage, continuing restrictions on the
movement of people in Argentina throughout the remainder
of the year resulted in a revised mine plan and lower grades.
A further stoppage due to an increase in Covid-19 infections
in the region occurred for 20 days from 15 November to
5 December 2020. A reduced level of staff remained on-site
thereafter to oversee the final production of the unit’s
revised 2020 output target following permission from the
Santa Cruz provincial authorities to restart operations.
Costs
All-in sustaining costs were at $14.6 per silver equivalent ounce
(2019: $13.3 per ounce) with the operation impacted by the
effect of lower ounces produced versus 2019 resulting in higher
opex and capex per ounce. In addition, the mining of lower
grade areas and higher inflation in the country also contributed
to the increase. These were partially offset by savings from
cash optimisation plans and by local currency devaluation.
Fixed costs of $28.0 million incurred during the stoppage and
phased ramp-up are not included in the figure in addition
to $5.9 million of exceptional Covid-19 response initiatives.
Year ended
31 Dec 2020
Year ended
31 Dec 2019 % change
Ore production (tonnes)
401,202
544,165
Average silver grade (g/t)
Average gold grade (g/t)
Silver produced (koz)
Gold produced (koz)
Silver equivalent produced (koz)
357
5.63
4,108
64.99
9,697
Gold equivalent produced (koz)
112.76
Silver sold (koz)
Gold sold (koz)
Unit cost ($/t)
Total cash cost ($/oz Ag
co-product)
All-in sustaining cost ($/oz Ag Eq)
4,172
65.28
199.4
11.1
14.6
443
6.81
6,846
105.48
15,917
185.08
6,846
102.82
219.2
9.6
13.3
(26)
(19)
(17)
(40)
(38)
(39)
(39)
(39)
(37)
(9)
16
10
32 | Hochschild Mining PLC Annual Report & Accounts 2020
EXPLOR ATION
Pallancata
Pallancata’s 2020 drilling programme was also affected by
the Covid-related stoppage which halted work for the entire
second quarter. In the first few months of the year, long hole
drilling was executed from underground towards the Anomalia
NE, Royropata, Veta 1, Mercedes, Luisa and Erika veins and
1,880m of drilling tracing the continuity of the Pallancata vein.
The potential drilling campaign which took place mostly in the
second half of the year involved almost 23,000m of drilling
and was targeted towards the Elva, Oscar-Ignacio, Erika and
Luciano veins and again the continuation of the Pallancata vein.
A summary of drill results from 2020 are presented below:
Vein
Paola
Karina
Results (potential/resource drilling)
DLLU-A206: 0.9m @ 1.3g/t Au & 479g/t Ag
DLLU-A206: 1.1m @ 6.8g/t Au & 539g/t Ag
Pallancata C
DLPL-A932: 4.6m @ 3.0g/t Au & 790g/t Ag
Puka
DLHU-A49: 1.9m @ 1.1g/t Au & 351g/t Ag
Oscar-Ignacio
DLER-A27: 2.0m @ 4.4g/t Au & 478g/t Ag
Although no inferred resources were added during the year, the
brownfield exploration team believes there remains potential
to identify additional resources to extend the short-term life
of the Pallancata mine. In the first half of 2021, the plan is to
execute 3,000m of potential drilling to continue to test the
continuity of the Pallancata vein as well as the Oscar-Ignacio
and Luisa-Paola structures and also the potential extension to
the Pablo vein. 1,500m of drilling is also planned for Cochaloma.
Corina
At Corina, to the north of Selene, 2,318m of resource drilling was
executed towards the end of 2020 in the Corina structure with
the key results below:
Vein
Results (potential drilling)
DHCOR-20015: 25.7m @ 2.5g/t Au & 23g/t Ag
including 2.5m @ 10.1g/t Au & 62g/t Ag
DHCOR-20018: 1.3m @ 1.2g/t Au & 14g/t Ag
DHCOR-20019: 4.8m @ 1.4g/t Au & 23g/t Ag
Corina
DHCOR-20020: 23.3m @ 4.9g/t Au & 43g/t Ag
DHCOR-20021: 9.3m @ 3.9g/t Au & 47g/t Ag
including 2.3m @ 8.4g/t Au & 88g/t Ag
DHCOR-20022: 1.2m @ 1.4g/t Au & 3g/t Ag
DHCOR-20025: 4.8m @ 3.6g/t Au & 19g/t Ag
Drilling continues with resource and potential drilling in the
Corina vein and associated structures to the north east of
the system. A maiden resource is expected to be established
in the next few months.
Inmaculada
In 2020, the brownfield programme commenced in the first
quarter before the programme was halted in mid-March due
to the Covid crisis. The programme resumed in the third quarter
with a total of almost 28,000m of resource and potential drilling
carried out by the end of the year on the Shakira, Juliana, Thalia
and Millet East veins, amongst others, to add resources to the
resource base and discover new ounces. A summary of
significant drill results from 2020 are presented below:
Vein
Bety
Lady
Lady Sur
South vein
Noel
Results (potential/resource drilling)
IMS-20-001: 1.0m @ 1.3g/t Au & 94g/t Ag
LAD-19-001: 1.3m @ 1.5g/t Au & 120g/t Ag
LAD-19-002: 0.9m @ 5.7g/t Au & 17g/t Ag
LAD-19-003: 1.4m @ 27.0g/t Au & 113g/t Ag
IMM-20-002: 0.8m @ 15.0g/t Au & 1,753g/t Ag
HUA-20-008A: 1.1m @ 5.0g/t Au & 179g/t Ag
HUA-19-008: 3.1m @ 5.1g/t Au & 252g/t Ag
HUA-20-008A: 1.3m @ 2.5g/t Au & 259g/t Ag
IMS-20-019: 1.3m @ 1.3g/t Au & 70g/t Ag
IMS-20-020: 2.9m @ 2.2g/t Au & 159g/t Ag
IMM-20-022: 1.2m @ 22.1g/t Au & 21g/t Ag
Shakira
IMM-20-023: 5.6m @ 9.0g/t Au & 397g/t Ag
IMS-20-025: 3.0m @ 5.2g/t Au & 241g/t Ag
IMS-20-032: 7.6m @ 2.5g/t Au & 287g/t Ag
IMS-20-036: 2.5m @ 4.7g/t Au & 337g/t Ag
IMS-20-048: 1.8m @ 2.0g/t Au & 119g/t Ag
IMS-20-049: 4.6m @ 14.0g/t Au & 303g/t Ag
IMS-20-041: 1.2m @ 2.7g/t Au & 150g/t Ag
IMS-20-042: 7.2m @ 2.2g/t Au & 153g/t Ag
IMS-19-006: 1.2m @ 8.1g/t Au & 60g/t Ag
IMS-20-035: 3.5m @ 3.1g/t Au & 76g/t Ag
TLO-20-014: 1.1m @ 7.7g/t Au & 236g/t Ag
TLO-20-016: 1.8m @ 1.5g/t Au & 82g/t Ag
TLO-20-018: 1.2m @ 2.5g/t Au & 95g/t Ag
TLO-20-020: 1.8m @ 6.4g/t Au & 158g/t Ag
DIV-20-069: 1.1m @ 2.3g/t Au & 72g/t Ag
DIV-20-072: 1.0m @ 2.7g/t Au & 93g/t Ag
SBE-20-060: 0.8m @ 4.1g/t Au & 60g/t Ag
SBE-20-061: 1.1m @ 3.2g/t Au & 166g/t Ag
SBE-20-039: 1.0m @ 2.0g/t Au & 131g/t Ag
SBE-20-042: 0.9m @ 3.7g/t Au & 81g/t Ag
SBE-20-046: 0.8m @ 3.2g/t Au & 90g/t Ag
SBE-20-065: 6.1m @ 8.8g/t Au & 1,086g/t Ag
DIV-20-050: 1.3m @ 3.7g/t Au & 50g/t Ag
Millet
Angela extension
Tula
Diana
Perla
Lucrecia
Noelia
Peta
Just over 100,000m of infill drilling was also carried out up until
the middle of January 2021 with the result that the reserve base
was increased by 25.3 million silver equivalent ounces. However,
the 2020 audited Full Year Reserves and Resources statement
(on pages 188 to 190) does not include the results of January
2021 drill work which will be included in the 2021 statement.
During the first quarter of 2021, the goal is to carry out 2,500m
of potential drilling in the extension of the Angela vein as well as
the Eduardo vein structure. Drilling is also expected to start later
in the year in areas further away from the current mine to
identify new potential resources.
33 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information EXPLOR ATION CONTINUED
San Jose
At San Jose, 2,889m of potential drilling was executed before the
stoppage in the first quarter in the Micaela Oeste, Emily, Karina
and Carlos structures. When exploration restarted in the second
quarter, further potential drilling was carried out throughout the
remainder of the year towards the Ayelen, Erika, Mara, Sigmoide
Julia, Sigmoide Luli, Emilia, Salvador, Micaela Oeste, Cindy and
Saavedra targets. Resource drilling was also executed in the
Betania and Isabel structures. A total of close to 45,000m of
drilling was carried out in 2020 whilst, in the second quarter
of the year, a Titan geophysics survey was completed.
Crespo
At the Crespo open pit project close to Arcata, 1,973m of
potential drilling was carried out in the fourth quarter of the
year to confirm the lateral continuity of the orebody as well
as a potential deepening of the breccia and testing of the
surrounding colluvial deposits.
Target
Results (potential/resource drilling)
Lateral extension
DDH-CRE-2001: 26.2m @ 1.2g/t Au & 82g/t Ag
Extension at depth
DDH-CRE-2002: 16.5m @ 0.3g/t Au & 14g/t Ag
DDH-CRE-2002: 12.8m @ 0.3g/t Au & 1g/t Ag
ROT-CRE-2009: 30.0m@ 0.2g/t Au & 8g/t Ag
ROT-CRE-2010: 12.0m@ 0.2g/t Au & 5g/t Ag
Vein
Results (potential drilling)
Colluvial
Micaela Oeste
SJD-2070: 0.9m @ 9.6g/t Au & 207g/t Ag
Carlos
SJD-2084: 1.9m @ 3.5g/t Au & 1,024g/t Ag
Odin
Julia
Erika
SJD-2103: 2.8m @ 17.1g/t Au & 591g/t Ag
SJD-2109: 0.9m @ 6.9g/t Au & 126g/t Ag
SJM-505: 2.6m @ 11.0g/t Au & 968g/t Ag
SJD-2108: 1.0m @ 7.0g/t Au & 812g/t Ag
SJD-2110: 1.2m @ 5.8g/t Au & 197g/t Ag
SJD-2114: 0.8m @ 1.5g/t Au & 332g/t Ag
New vein 1
SJD-2110: 0.9m @ 8.0g/t Au & 398g/t Ag
Isabel
SJD-2145: 0.8m @ 1.7g/t Au & 449g/t Ag
SJD-2210: 1.6m @ 5.6g/t Au & 648g/t Ag
SJD-2211: 1.6m @ 3.7g/t Au & 376g/t Ag
Horiz. Savedra
SJD-2154: 2.4m @ 4.9g/t Au & 19g/t Ag
Emilia
Cindy
HVS
Kospi
Sig. Luli
Alina
Ramal HVNX
SJM-511: 0.9m @ 1.8g/t Au & 248g/t Ag
SJM-518: 1.2m @ 3.8g/t Au & 407g/t Ag
SJD-2140: 3.4m @ 10.0g/t Au & 523g/t Ag
SJD-2129: 1.4m @ 6.2g/t Au & 1,309g/t Ag
SJM-507: 1.1m @ 14.9g/t Au & 295g/t Ag
SJM-508: 1.5m @ 2.4g/t Au & 248g/t Ag
SJD-2176: 1.2m @ 1.1g/t Au & 319g/t Ag
SJD-2184: 1.2m @ 4.0g/t Au & 557g/t Ag
SJD-2188: 1.3m @ 13.8g/t Au & 3,149g/t Ag
Betania (Saavedra)
SJD-2207: 4.0m @ 1.4g/t Au & 760g/t Ag
Luisa
SJD-2210: 0.9m @ 2.2/t Au & 722g/t Ag
During the first quarter of 2021, 2,000m of resource drilling
is planned at the Betania and Isabel veins with campaigns
also continuing at the Saavedra area, the Telken zone close to
Cerro Negro and at Aguas Vivas to the north west of San Jose.
Arcata
Following the early receipt of the exploration permit at Arcata
in the fourth quarter, 5,022m was drilled in the Fatima,
Tres Reyes and the West veins with selected results below:
Vein
Fatima
Tres Reyes
Jenny
Results (potential drilling)
DDH-609-S20: 3.0m @ 1.4g/t Au & 760g/t Ag
DDH-611-S20: 1.3m @ 1.5g/t Au & 313g/t Ag
DDH-611-S20: 0.9m @ 0.7g/t Au & 204g/t Ag
A further 3,000m of drilling is planned for the first quarter
of 2021 at the Baja, Fatima and Tres Reyes veins.
When the team returns in the second quarter after the rainy
season, the programme will continue with 2,000m of drilling
aimed at the extension and deepening of hydrothermal breccias
and the colluvial deposits.
Biolantanidos
At the 100% owned Biolantanidos rare earths deposit in Chile,
despite minor delays due to Covid-19, progress on the feasibility
study was maintained with key advances made in geology,
processing and equipment testing. The project’s environmental
permitting process continued to move forward and in addition,
further brownfield targets were identified which are expected to
increase the project’s resources. Finally, the rare earths dedicated
team grew as several key employees were added to the
Biolantanidos organisation, including a new General Manager.
The project remains on track to deliver a feasibility study towards
the end of the first half of 2021.
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.
In 2020, there was considerable disruption to the programme
from the Covid-19 crisis but exploration work was possible
later in the year at: the Cooke Mountain gold project owned by
Adamera Minerals Corp in Washington State, US the Horsethief
project owned by Allianza Minerals Ltd in Nevada, US; Los
Cuarentas owned by Riverside Minerals in Sonora, Mexico along
with Sarape owned by Orogen Royalties also in Sonora; and the
Illipah project owned by EMX Royalty Corp also in Nevada.
In 2021, the greenfield and advanced project budget is set
at $11 million and the Company expects to drill five to six
prospects in Peru, the US and Mexico.
Snip
At Snip in the Golden Triangle of British Columbia, Hochschild’s
partner, Skeena Resources Limited, announced a maiden
resource in July 2020 at their 100%-owned Snip Gold Project
in northwest British Columbia, Canada.
The underground constrained Indicated resources include
244,000 ounces of gold hosted within 539,000 tonnes at an
average gold grade of 14.0 g/t Au. Resources within the Inferred
category include 402,000 ounces of gold hosted within 942,000
tonnes at an average gold grade of 13.3 g/t Au (Table 1). In the
determination of reasonable prospects for economic extraction,
long hole stoping is contemplated.
34 | Hochschild Mining PLC Annual Report & Accounts 2020
Table 1: Snip Indicated and Inferred underground resources reported undiluted at a 2.5 g/t Au cut-off grade within stope
optimised mining shapes.
Indicated Mineral Resources
Total Indicated
Inferred Mineral Resources
Total Inferred
Domain
Tonnes (000)
Contained
(g/t) Grade Au
Contained
Metal
Au (000 oz)
Main – V
Main – S
Twin West
Main – V
Main – S
Twin West
165
337
37
539
287
599
56
942
12.8
15.0
10.4
14.0
13.1
13.4
12.4
13.3
68
163
12
244
121
258
23
402
Skeena has recently completed a second drilling campaign
to follow up on the first campaign from 2019 with the aim
of expanding the resource. Results from the programme
are pending.
In September 2018, Skeena granted Hochschild an option
to earn a 60% undivided interest in Snip by spending twice
the amount Skeena had spent since it originally optioned Snip
from Barrick. Under the Heads of Agreement agreed between
Skeena and Hochschild, Hochschild had three years from the
closing (by 16 October 2021) to provide notice to Skeena
that it wishes to exercise its option.
Once exercised, Hochschild will have three years to:
– incur expenditures on Snip that are no less than twice the
amount of such expenditures incurred by Skeena from
23 March 2016 up until the time of exercise of the Option
by Hochschild. As of 30 June 2020, Skeena had incurred
C$18.9 million of expenditures at Snip;
– incur no less than C$7.5 million in exploration or development
expenditures on Snip in each 12-month period of the Option
Period; and
– provide 60% of the financial assurance required by
governmental authorities for the Snip mining properties.
35 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information FINANCIAL REVIEW
$622m
2020 REVENUE
$271m
ADJUSTED EBITDA
$232m
STRONG CASH BALANCE
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.
Revenue
Gross revenue2
Gross revenue from continuing operations decreased
by 18% to $641.4 million in 2019 (2019: $780.3 million)
due to the effects of the production stoppages
during the year resulting from the Covid-19 crisis.
This was partially offset by a strong rise in average
realised precious metal prices.
Gold
Gross revenue from gold in 2020 decreased to
$376.9 million (2019: $449.0 million) due to the
35% fall in gold sales arising from the production
stoppages. This was partially offset by a 28%
increase in the average realised gold price.
Silver
Gross revenue from silver fell in 2020 to $264.5 million
(2019: $331.2 million) due to a 41% fall in silver sales
arising from the production stoppages. This was
partially offset by a 35% increase in the average
realised silver price.
2 Includes revenue from services.
Gross average realised sales prices
The following table provides figures for average
realised prices (before the deduction of commercial
discounts) and ounces sold for 2020 and 2019:
Average realised prices
Silver ounces sold (koz)
Avg. realised silver price
($/oz)
Gold ounces sold (koz)
Avg. realised gold price
($/oz)
Year ended
31 Dec 2020
Year ended
31 Dec 2019
11,846
22.3
207.77
1,814
20,062
16.5
317.52
1,414
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 2020, the Group recorded commercial discounts
of $19.7 million (2019: $24.7 million) with the decrease
explained by the significant reduction in production.
The ratio of commercial discounts to gross revenue
in 2020 was 3% (2019: 3%).
Net revenue
Net revenue was $621.8 million (2019: $755.7 million),
comprising net gold revenue of $370.1 million (2019:
$441.6 million) and net silver revenue of $251.6 million
(2019: $314.0 million). In 2020, gold accounted for
60% and silver 40% of the Company’s consolidated
net revenue (2019: gold 58% and silver 42%).
36 | Hochschild Mining PLC Annual Report & Accounts 2020
OUR PEOPLE
“2020 was a disruptive year of unforeseen
challenges, but as well of great opportunities.”
Name: Hector
Role: A member of the
HR team at our Head
Office in Lima
At Hochschild we had
already begun a process
of Cultural Transformation
resulting in a new corporate
purpose: Responsible and
Innovative Mining committed
to a Better World.
Underlying this purpose are
values of acknowledging the
talent of our people,
promoting efficiency and
innovation, and responsibility.
Our corporate culture and
these values have enabled us to
navigate with great conviction
and clarity the challenges that
we are faced with.
The first challenge was to adapt
to the ‘new reality’, where the
health and safety of people
was paramount. Action plans
were designed and swiftly
implemented with regards to
mine-site accommodation, the
transportation of colleagues to
the mine, and deployment of
HR, Logistics and Health teams.
reduce transportation,
while always maintaining
our primary focus on health
and safety;
– in establishing a Covid
Committee comprising
different levels of mine-site
management and union
representatives, meeting
on a weekly basis; and
– in our direct and constant
communication with
employees and their families
to provide the necessary
support.
Communication based
on empathy
Taking the opportunity to
expand learning
By maintaining an open
dialogue with all stakeholders,
we have been able to connect
and achieve an understanding
– key factors in developing
trust and, ultimately, making
better decisions.
This informed our approach:
– in our discussions with
unions to implement longer
shift patterns so as to
The pandemic has highlighted
opportunities to embrace our
use of technology and so,
learning from the experience
of other mining companies,
we have designed different
series of leadership
programmes with the aim
of inspiring to achieve true
commitment, enthusiasm,
and a desire to collaborate.
37 | Hochschild Mining PLC Annual Report & Accounts 2020
Link to UN SDGs
READ MORE
Our people
Page 58
READ MORE
For Hochschild’s
approach to the
UN’s Sustainable
Development Goals
please refer to
our standalone
Sustainability
report
Strategic ReportFinancial StatementsGovernanceFurther Information FINANCIAL REVIEW CONTINUED
Reconciliation of gross revenue by mine to Group net revenue
$000
Silver revenue
Arcata
Inmaculada
Pallancata
San Jose
Commercial discounts
Net silver revenue
Gold revenue
Arcata
Inmaculada
Pallancata
San Jose
Commercial discounts
Net gold revenue
Other revenue
Net revenue
Year ended
31 Dec 2020
Year ended
31 Dec 2019
% change
–
84,651
83,405
96,472
(12,932)
251,596
–
230,255
24,154
122,483
(6,810)
370,082
149
621,827
4,984
90,110
121,494
114,623
(17,258)
313,953
873
262,033
37,237
148,901
(7,460)
441,584
139
755,676
–
(6)
(31)
(16)
(25)
(20)
–
(12)
(35)
(18)
(9)
(16)
7
(18)
Cost of sales
Total cost of sales before exceptional items was $397.8 million in 2020 (2019: $512.7 million). The direct production cost excluding
depreciation was lower at $218.2 million (2019: $327.7 million) mainly due to the Covid-related stoppages. Unallocated fixed costs
at the operations incurred during the stoppages as well as abnormal costs during the phases of reduced production capacity were
$46.5 million and are shown separately below.
Depreciation in production cost fell to $113.1 million (2019: $184.4 million) due to lower extracted volumes across all operations.
This figure does not include $1.8 million of depreciation incurred during the stoppages (also shown below within fixed costs during
operational stoppages and reduced capacity line). The change in inventories was $17.3 million in 2020 (2019: $(3.8) million) due to
a reduction in products in process (stockpiles and precipitates).
$000
Direct production cost excluding depreciation
Depreciation in production cost
Other items and workers’ profit sharing
Fixed costs during operational stoppages and reduced capacity
Change in inventories
Cost of sales
Fixed costs at the operations during stoppages and reduced capacity
$000
Personnel costs
Third-party services
Supplies
Depreciation and amortisation
Others
Total
Year ended
31 Dec 2020
Year ended
31 Dec 2019
% change
218,212
113,146
2,632
46,480
17,323
397,793
327,660
184,388
4,445
–
(3,782)
512,711
(33)
(39)
(41)
–
(558)
(22)
32,117
8,948
1,698
1,818
1,899
46,480
38 | Hochschild Mining PLC Annual Report & Accounts 2020
Unit cost per tonne
The Company reported unit cost per tonne at its operations of $119.9 per tonne in 2020, a 4% increase versus 2019 ($115.8 per
tonne) mainly due to the expected lower tonnage rate at Pallancata. This was partially offset by lower temporary costs at San Jose
as a result of using a higher proportion of mechanised mining due to Covid-related restrictions on staffing levels.
Unit cost per tonne by operation (including royalties)3
Operating unit ($/tonne)
Peru
Inmaculada
Pallancata
Arcata
Argentina
San Jose
Total
Year ended
31 Dec 2020
Year ended
31 Dec 2019
% change
97.5
95.1
101.2
–
199.4
119.9
89.4
93.3
83.8
182.2
219.2
115.8
9
2
21
–
(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 reconciliation4
Year ended 31 Dec 2020
$000 unless otherwise indicated
Group cash cost
(+) Cost of sales5
(-) Depreciation and amortisation in cost of sales
(+) Selling expenses
(+) Commercial deductions6
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co product Au
Co product Ag
By product Au
By product Ag
Inmaculada
Pallancata
San Jose
102,135
154,950
(55,338)
417
2,106
117
1,989
314,906
230,255
84,651
–
129.7
4,020
576
6.8
119
(31.9)
62,181
83,272
(28,608)
632
6,885
1,102
5,783
100,674
23,052
77,622
–
12.8
3,654
1,112
13.1
(1,658)
10.4
107,119
113,091
(30,716)
11,705
13,039
5,715
7,324
206,098
116,775
89,323
–
65.3
4,172
930
11.1
160
(3.7)
Total
271,435
351,313
(114,662)
12,754
22,030
6,934
15,096
621,678
370,082
251,596
–
207.8
11,846
778
9.3
23
(8.9)
3 Unit cost per tonne is calculated by dividing mine and treatment production costs (excluding depreciation) by extracted and treated tonnage respectively.
4 Cash costs are calculated to include cost of sales, commercial discounts and selling expenses items less depreciation included in cost of sales.
5 Does not include fixed costs during operational stoppages and reduced capacity of $46.5 million.
6 Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore.
39 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information FINANCIAL REVIEW CONTINUED
Inmaculada
Pallancata
San Jose
127,690
206,199
(81,570)
481
2,580
194
2,386
352,143
262,033
90,110
–
188.6
5,732
504
5.7
187
(23.5)
90,705
129,771
(51,195)
996
11,133
1,772
9,361
147,598
35,465
112,133
–
25.4
7,161
857
9.6
(1,210)
7.5
152,873
169,955
(49,862)
19,444
13,336
5,582
7,754
250,715
143,339
107,376
–
Total
378,931
512,711
(182,676)
21,071
27,825
7,674
20,151
755,676
441,584
313,953
139
102.8
6,846
317.5
20,062
850
9.6
367
0.6
698
7.8
141
(3.5)
Year ended 31 Dec 2019
$000 unless otherwise indicated
Group cash cost
(+) Cost of sales7
(-) Depreciation and amortisation in cost of sales
(+) Selling expenses
(+) Commercial deductions8
Gold
Silver
Revenue
Gold
Silver
Others
Ounces sold
Gold
Silver
Group cash cost ($/oz)
Co product Au
Co product Ag
By product Au
By product Ag
Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided
by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial
discounts of the by-product divided by the ounces sold of the primary metal.
All-in sustaining cost reconciliation9
All-in sustaining cash costs per silver equivalent ounce
Year ended 31 Dec 2020
$000 unless otherwise indicated
Inmaculada
Pallancata
San Jose
Main
operations
Corporate &
others
(+) Direct production cost excluding depreciation
(+) Other items and workers’ profit sharing in cost of sales
(+) Operating and exploration capex for units10
(+) Brownfield exploration expenses
(+) Administrative expenses (excl depreciation)11
(+) Royalties and special mining tax12
Sub-total
Au ounces produced
Ag ounces produced (000s)
Ounces produced (Ag Eq 000s oz)
Sub-total ($/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)
86,874
1,383
62,128
2,526
3,768
3,098
159,777
129,173
4,034
15,143
10.6
2,106
417
2,523
129,697
4,020
15,174
0.2
10.7
922
51,534
79,804
218,212
1,249
7,506
4,652
1,205
990
67,136
12,925
3,679
4,790
14.0
6,885
632
7,517
12,798
3,654
4,754
1.6
15.6
1,341
–
21,681
9,720
5,590
–
116,795
64,987
4,108
9,697
12.0
13,039
11,705
24,744
65,280
4,172
9,786
2.5
14.6
1,253
2,632
91,315
16,898
10,563
4,088
343,707
207,085
11,821
29,631
11.6
22,030
12,754
34,784
207,776
11,846
29,715
1.2
12.8
1,098
–
–
447
3,745
30,533
3,119
37,592
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
218,212
2,632
91,762
20,643
41,096
7,206
381,299
207,085
11,821
29,631
12.9
22,030
12,754
34,784
207,776
11,846
29,715
1.2
14.0
1,208
7 Does not include fixed costs during operational stoppages and reduced capacity of $46.5 million.
8 Includes commercial discounts from the sale of concentrate and commercial discounts from the sale of dore.
9 Calculated using a gold/silver ratio of 86:1. 2019 figures have been restated (previously calculated using a gold/silver ratio of 81:1).
10 Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments.
11 Administrative expenses does not include expenses from the Biolantanidos project ($179,000).
12 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line.
40 | Hochschild Mining PLC Annual Report & Accounts 2020
All-in sustaining cash costs do not include $44.7 million of fixed costs without depreciation incurred at the operations during
the stoppages and abnormal costs during the phases of reduced production capacity. Also, not included in the figure are the
exceptional Covid-19 response initiatives of $27.6 million corresponding to the operating mine units. These effects would have
an impact on the AISC from main operations of $1.5/oz Ag Eq and $0.9/oz Ag Eq respectively.
Year ended 31 Dec 2019
$000 unless otherwise indicated
Inmaculada
Pallancata
(+) Production cost excluding depreciation
124,814
75,590
San Jose
120,529
Main
operations
320,933
Arcata
6,727
(+) Other items and workers’ profit sharing in
cost of sales
(+) Operating and exploration capex for units13
(+) Brownfield exploration expenses
(+) Administrative expenses
(excl depreciation)14
(+) Royalties and special mining tax15
Sub-total
Au ounces produced
Ag ounces produced (000s)
Ounces produced (Ag Eq 000s oz)
Sub-total ($/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)
1,902
66,435
3,976
3,917
3,510
204,554
189,180
5,747
22,016
9.3
2,580
481
3,061
188,585
5,732
21,951
0.1
9.4
811
1,976
26,605
7,116
1,642
1,471
114,400
25,952
7,259
9,491
12.1
11,133
996
12,129
25,446
7,161
9,349
1.3
13.4
1,148
567
4,445
41,406
9,753
134,446
20,845
6,215
11,774
–
178,470
105,478
6,846
15,917
11.2
13,336
19,444
32,780
4,981
497,424
320,611
19,851
47,424
10.5
27,049
20,921
47,970
102,824
316,855
6,846
15,688
2.1
13.3
1,144
19,738
46,988
1.0
11.5
990
–
42
1,065
44
47
7,925
966
311
394
20.1
776
150
926
662
323
380
2.4
22.5
1,938
Corporate &
others
–
–
2,470
3,954
31,669
3,429
41,522
–
–
–
–
–
–
–
–
–
–
–
Total
327,660
4,445
136,958
25,864
43,487
8,457
546,871
321,577
20,163
47,818
11.4
27,825
21,071
48,896
317,515
20,062
47,368
1.0
12.5
1,072
Administrative expenses
Administrative expenses were reduced by 6% to $43.3 million (2019: $45.9 million) due to cash optimisation measures implemented
during the year as a result of the Covid-19 crisis.
Exploration expenses
In 2020, exploration expenses decreased to $32.8 million (2019: $38.0 million) mainly due to slower execution of the budgeted
greenfield and brownfield programmes as a result of the Covid-19 lockdown.
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 2020, the Company capitalised $1.7 million relating to brownfield
exploration compared to $6.0 million in 2019, bringing the total investment in exploration for 2020 to $34.5 million (2019:
$44.0 million).
13 Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments.
14 Administrative expenses does not include expenses from the Biolantanidos project ($160,000).
15 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line.
41 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information FINANCIAL REVIEW CONTINUED
Selling expenses
Selling expenses were reduced to $12.8 million (2019: $21.1 million) principally due to the fact that in Argentina, which levies export
taxes, the San Jose operation was stopped for a significant period of time.
Other income/expenses
Other income was lower at $3.6 million (2019: $9.0 million) mainly due to a reduction in income from logistics services at the
Matarani warehouse of $4.1 million.
Other expenses before exceptional items were lower at $28.9 million (2019: $33.9 million) mainly due to lower care and maintenance
expenses at Arcata and Ares of $5.6 million (2019: $9.5 million), partially offset by higher increase in the provision for mine closure
of $16.1 million (2019: $13.6 million), mainly as a result of the incremental budget to close the Ares tailings dam. Other expenses also
include lower corporate social responsibility tax in Argentina at $2.7 million (2019: $3.8 million) and lower adjustment to receivables
in Peru of $1.0 million (2019: $3.7 million).
Adjusted EBITDA
Adjusted EBITDA decreased by 21% to $270.9 million (2019: $343.3 million) primarily due to the fall in revenue resulting from the
operational stoppages due to the Covid crisis and in spite of significantly increased precious metal prices.
Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange
losses and income tax plus non-cash items (depreciation and amortisation and changes in mine closure provisions) and exploration
expenses other than personnel and other exploration related fixed expenses.
$000 unless otherwise indicated
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
Exploration expenses
Personnel and other exploration related fixed expenses
Other non-cash income, net16
Adjusted EBITDA
Adjusted EBITDA margin
Year ended
31 Dec 2020
Year ended
31 Dec 2019
% change
107,837
116,480
2,158
32,795
(6,486)
18,134
270,918
44%
112,276
182,676
2,480
37,965
(6,316)
14,251
343,332
45%
(4)
(37)
60
(14)
3
27
(21)
Finance income
Finance income before exceptional items of $4.2 million increased from 2019 ($2.9 million) mainly due to an increase in the fair value
of the Group’s holding in Americas Gold & Silver Corporation shares of $1.1 million (resulting from the sale of the San Felipe deposit).
Finance costs
Finance costs before exceptional items increased from $10.0 million in 2019 to $23.6 million in 2020, principally due to foreign
exchange transaction costs to acquire $14.4 million dollars in Argentina, which resulted in a loss of $12.8 million (2019: $3.0 million).
Also, costs increased as a result of interest expenses from the incremental debt raised in Peru in December 2019 ($200 million
medium-term loan which was a $50 million debt increase in the country) and the short-term debt raised in Argentina to improve
the cash position to pay for Covid expenses ($10 million as of December 2020).
Foreign exchange (losses)/gains
The Group recognised a foreign exchange loss of $2.6 million (2019: $1.8 million loss) as a result of exposures in currencies other
than the functional currency – the Peruvian sol and the Argentinean peso which both depreciated in 2020.
Income tax
The Company’s pre-exceptional income tax charge was $49.6 million (2019: $43.3 million). The increase in the charge is explained
by the non-cash impact of local currency devaluation in Peru and Argentina which reduced the tax bases and impacted the
deferred income tax by $11.7 million (2019: $1.5 million). There was also a negative impact from non-deductible expenses related
to buying US dollars in Argentina of $4.1 million. The currency devaluation impact on income tax was partially offset by lower profit
in line with lower production volumes.
The effective tax rate (pre-exceptional) for the period was 57.8% (2019: 41.9%), compared to the weighted average statutory income
tax rate of 30.8% (2019: 30.9%). The high effective tax rate in 2020 versus the average statutory rate is mainly explained by the
impact of local currency devaluation increasing the rate by 13.6%, the impact from Royalties and the Special Mining Tax which
increased the effective rate by 8.4%, the impact of non-deductible expenses related to buying US dollars in Argentina (4.8%) and
the impact from lower profit in the period which amplifies the effect of minor non-deductible expenses.
16 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.
42 | Hochschild Mining PLC Annual Report & Accounts 2020
Exceptional items
Exceptional items in 2020 totalled a $15.8 million loss after tax (2019: $18.6 million loss after tax). Exceptional items mainly included
Covid-19 response initiatives of $31.2 million distributed between cost of sales and other expenses, as well as the reversal of
impairment of the San Jose mine unit of $8.3 million, partially offset by the associated tax effect.
The Covid initiatives include: incremental personnel expenses which are mainly one-off bonuses paid to those workers required to
oversee critical processes during period of suspension; donations; accommodation whilst testing all workers for active Covid-19
cases prior to travelling to mine units; and additional transportation costs to facilitate social distancing. These items are presented
as exceptional as they are incremental to the Group’s regular business, resulting from initiatives to respond to the impact from
Covid-19. They are material impacts and are not expected to be recurring. In 2019, there was 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 Pallancata ($14.7 million), partially offset by their corresponding tax effect.
Covid-19 response initiatives17
$000
Personnel
Donations
Third-party services
Others
Total
Peru
4,594
1,364
16,928
2,470
25,356
Argentina
–
123
5,667
80
5,870
Total
4,594
1,488
22,595
2,550
31,226
The tax effect of these exceptional items was a $7.2 million tax gain (2019: $7.9 million tax gain). The total effective tax rate was
68.0% (2019: 44.8%).
Cash flow and balance sheet review
Cash flow
$000
Net cash generated from operating activities
Net cash used in investing activities
Cash flows generated (used in)/generated from financing activities
Foreign exchange adjustment
Net increase in cash and cash equivalents during the year
Year ended
31 Dec 2020
Year ended
31 Dec 2019
195,374
(112,229)
(12,411)
(5,208)
65,526
283,259
(203,613)
9,211
(2,204)
86,653
change
(87,885)
91,384
(21,622)
(3,004)
(21,127)
Net cash generated from operating activities decreased from $283.3 million in 2019 to $195.4 million in 2020 mainly due to lower
Adjusted EBITDA of $270.9 million (2019: $343.3 million).
Net cash used in investing activities decreased to $112.2 million in 2020 from $203.6 million in 2019 mainly due to the impact of
the acquisition of the Biolantanidos project in 2019 and lower mine developments due to the Covid-related stoppages at the
operations.
Cash from financing activities decreased to an outflow of $12.4 million from an inflow of $9.2 million in 2019, primarily due to lower
net debt raised in 2020 of $10.8 million (2019: $44.0 million) and the payment of $20.9 million of dividends in 2020 (2019:
$31.3 million).
Working capital
$000
Trade and other receivables
Inventories
Derivative financial liabilities
Income tax payable, net
Trade and other payables
Provisions
Working capital
As at
31 December
2020
As at
31 December
2019
78,196
42,362
(1,500)
(20,709)
(114,415)
(25,504)
(41,570)
73,618
62,600
–
(11,005)
(120,537)
(16,249)
(11,573)
The Group’s working capital position improved in 2020 from $(11.6) million to $(41.6) million. The key drivers were: lower inventories
of $20.2 million; higher income tax payable of $(9.7) million; and higher provisions of $(9.3) million. These effects were partially offset
by lower trade and other receivables of $4.6 million and lower trade and other payables of $6.1 million.
17 Covid-19 response initiatives are distributed between cost of sales and other expenses. Cost of sales mainly includes the expenses related to the operating mine units
(Inmaculada, Pallancata, San Jose) of $27.6 million. Other expenses includes corporate expenses and expenses from non-operating units of $3.6 million.
43 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information FINANCIAL REVIEW CONTINUED
Net debt
$000 unless otherwise indicated
Cash and cash equivalents
Non-current borrowings
Current borrowings
Net cash/(debt)18
As at
31 December
2020
As at
31 December
2019
231,883
(199,554)
(10,778)
21,551
166,357
(199,308)
(234)
(33,185)
The Group’s reported net cash position was $21.6 million as at 31 December 2020 (31 December 2019: net debt of $33.2 million).
The Group benefited from strong cash flow generation resulting from the high precious metal prices and this was only moderately
offset by an increase in current borrowings in Argentina.
Capital expenditure19
$000
Arcata
Pallancata
San Jose
Inmaculada
Operations
Biolantanidos20
Other
Total
Year ended
31 Dec 2020
Year ended
31 Dec 2019
105
7,506
23,030
62,128
92,769
8,650
6,505
42
26,605
43,623
66,435
136,663
60,726
7,727
107,924
205,116
2020 capital expenditure of $107.9 million (2019: $205.1 million) mainly comprised operational capex of $92.8 million (2019: $136.7
million) with the decrease versus 2019 resulting from deferred capex at all operations due to the impact of the Covid-19 pandemic.
18 Includes pre-shipment loans and short-term interest payables.
19 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.
20 Capital expenditure from Biolantanidos in 2019 includes the fair value of the asset at acquisition plus additions since the acquisition.
44 | Hochschild Mining PLC Annual Report & Accounts 2020
STAKEHOLDER ENGAGEMENT
We are focused on driving long-term sustainable
performance for the benefit of our customers,
shareholders and wider stakeholders.
Our six key stakeholder groups
Section 172
On these pages, we describe our key
stakeholders and summarise the engagement
that has been undertaken across the business.
How the Board develops an understanding
of the interests of stakeholders, and how it
considers stakeholders’ interests in its principal
decisions and the section 172(1) statement
can be found in the Corporate Governance
Report on page 80.
Shareholders
Employees
Social
Customers
Government /
Regulators
Suppliers
45 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information STAKEHOLDER ENGAGEMENT CONTINUED
Shareholders
Why are they important to us?
Our shareholders are investors and owners of the business.
We seek to establish and maintain constructive relations
with all shareholders through open dialogue and an
ongoing programme of engagement.
READ MORE
Corporate Governance
Report
– page 80
Directors’ Remuneration
Report
– page 102
Employees
READ MORE
Sustainability Report
(Our people) – page 58
Risk Management
(Personnel risks)
– pages 68 and 69
Social
READ MORE
Sustainability Report
(Environment Management
& Communities)
– page 60
Risk Management
(Community relations and
Environmental risks)
– pages 70 and 71
Our people are key to the success of our business.
We seek to attract, retain and develop our people through
competitive remuneration, a positive and safe working
environment and developmental opportunities.
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.
46 | Hochschild Mining PLC Annual Report & Accounts 2020
Engagement activities
Issues raised in 2020
– The impact of the Covid-19
pandemic on the business
– Progress with exploration
programme and growth projects
– Matters relating to ESG
(environmental, social and
governance) including climate
change, diversity, Tailings Storage
Facilities
For aspects relating to the proposed
Remuneration Policy, please refer to
the Directors’ Remuneration Report.
– Covid-19 health protocols
– Impact of changes in working shift
patterns during the pandemic
– Discussions on remuneration for
workers who remained onsite
during operational stoppages
– Physical and mental health
support during lockdown
– Access to online services during
periods of Covid-19 related
restrictions
– Environmental issues
– Local hiring and purchasing
– Community permits and / or
access to private property
We engage through various methods throughout
the year with the participation of the CEO, CFO,
members of the Board and the Head of Investor
Relations.
The Chair of the Remuneration Committee engaged
with our major shareholders on the proposed
changes to the Remuneration Policy which is being
submitted for approval at the forthcoming AGM.
In general, employee engagement takes many forms
and includes the use of surveys, presentations and Q&A
sessions with management. Our 2020 programme,
primarily facilitated online, included:
– presentations from the Chairman and senior
management on various topics such as the H1 2020
financial results, coping strategies during the
pandemic and adjusting to new ways of working;
– sessions led by the Country General Managers with
managers of the mining units; and
– regular meetings with labour unions to negotiate
collective agreements and discuss matters of interest.
We adopt a varied approach to engaging with local
communities including:
– direct interaction with local mayors and residents;
– our Permanent Information Office and at town hall
meetings;
– community surveys;
– collaborative activities, for example environmental
monitoring; and
– the implementation of local purchasing and hiring
protocols.
During 2020, our approach was adapted so that we
could continue to provide support in our areas of
focus: health & nutrition, education and economic
development.
47 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information STAKEHOLDER ENGAGEMENT CONTINUED
Why are they important to us?
Government /
Regulators
It is our aim to maintain a constructive relationship and
open dialogue with the various governmental authorities
we interact with in each of the countries where we operate.
READ MORE
Risk Management
(Political, Legal & Regulatory
risks) – page 69
Suppliers
READ MORE
Risk Management
(Business Interruption
risks) – page 67
Customers
READ MORE
Risk Management
(Commercial Counterparty
risk) – page 66
As a key influence on how we operate our business, we
seek a relationship of mutual benefit while requiring high
standards of conduct.
Due to the nature of what we produce, Hochschild has
relatively few customers. As a result, successful relations
with our customers are of critical importance to our
business.
48 | Hochschild Mining PLC Annual Report & Accounts 2020
Engagement activities
Issues raised in 2020
The Vice President of Corporate Affairs oversees
regular interaction with relevant authorities and
regulators in Peru, both at a Company level but also
through the National Mining Association. Various
teams also regularly interact with public officials and
regulators as part of their operational functions.
The equivalent role in our Argentinian joint-venture
is undertaken by the General Manager and General
Counsel. We also play an active role through the
National Mining Association.
– Covid-19 health protocols
– Health & Safety and Environmental
performance and compliance
– Compliance with various mining
authorisations required to operate
and explore
– Contribution to regional
development such as through local
job creation and investment in social
programmes/infrastructure
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.
– Covid-19 health protocols for
onsite suppliers (such as catering
contractors)
– Managing the deliveries of
mine supplies due to mandated
restrictions
Our sales and logistics teams oversee a relationship
of co-operation and constant dialogue.
In addition to usual relationship management,
customer engagement during 2020 took place virtually
including during London Metals Exchange week.
– The revision of shipping schedules
due to the impact of Covid-19
– The extension of sales contracts in
light of the operational stoppages
during the year
49 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information SUSTAINABILITY REPORT
Responsible and
innovative mining committed
to a better world
Since the Company’s inception, we have endeavoured
to maintain and reinforce our corporate values of respecting
the wellbeing of our employees, the environment and
the communities in which we operate.
34hrs
73%
OF TRAINING (AVERAGE
PER EMPLOYEE)
ECO SCORE IMPROVEMENT
(SINCE 2015)
$5.5m
INVESTED IN
LOCAL COMMUNITIES
50 | Hochschild Mining PLC Annual Report & Accounts 2020
“2020 was a year of
unprecedented challenge.”
Graham Birch
Chairman, Sustainability Committee
To this end, we launched a new internship programme
in 2020 – ‘Women of Gold’, making Hochschild the first
mining company in Peru with an internship programme
specifically designed for nurturing female talent.
Our environment
From an environmental perspective, I would like to
highlight two aspects in particular. Firstly, the Group’s
performance was reflected by another strong year
for our ECO Score, as discussed later in the report.
This initiative continues to be recognised externally,
achieving first place in the National Oil and Energy
Mining Society’s 2020 Sustainable Development Award.
Secondly, we made important first steps towards
implementing an Environment Culture Transformation
Plan, working with external consultants to embed an
environmentally conscious culture throughout the
Company, with the objective to replicate the success
of our Safety Culture Transformation Plan.
Our communities
Our Community Relations team has had a
particularly active year. In addition to meeting
the basic needs of communities throughout the
pandemic, the team identified a requirement for
improved communications to keep communities
connected during the pandemic. In total, we were
able to provide 14 communities with the necessary
infrastructure to allow over 6,500 residents to access
free and unlimited internet from their homes.
Looking ahead to 2021 and beyond, we have
a comprehensive work plan to drive continuous
improvement including: rolling out internal training
on our recently published Human Rights Policy;
strengthening our environmental culture; and
carefully managing our climate-related risks and
their impacts.
I look forward to reporting on our progress in these
critical areas. In the meantime, if you should have
any questions or comments, please do not hesitate
to contact me at sustainability@hocplc.com
Graham Birch
Chairman, Sustainability Committee
17 February 2021
Dear shareholder
I am pleased to report on the Company’s sustainability
activities and achievements for 2020, which
demonstrate our collective sense of responsibility –
a key foundation of Hochschild’s corporate purpose.
For the first time, this report also sits alongside a
standalone Sustainability Report to be published in the
second quarter of the year which I hope you will find to
be an informative account of our ongoing commitment.
Safety and health
2020 was a year of unprecedented challenge due to
the global Covid-19 pandemic. In these challenging
times, our people’s safety and wellbeing was – and
continues to be – our first priority. However, despite
the continued implementation of the second
iteration of our safety culture plan, we tragically
suffered a fatality at our Pallancata mine during the
first quarter of 2020. The Board and management
are united in our commitment to devote all necessary
resources to embed a safety-first culture.
Our people
Diversity, particularly with regards to gender,
continued to be an area of focus for the Group and,
like many of our peers in this space, we are trialling
a number of approaches to improve gender
diversity across our business.
Our areas of focus
Safety
PAGE 53
Health &
hygiene
PAGE 56
Our
people
PAGE 58
Protecting the
environment
PAGE 60
Serving our
communities
PAGE 63
51 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information SUSTAINABILITY REPORT CONTINUED
Our approach to sustainability
– Monitored best practice to identify
areas of opportunity to enhance
the Group’s approach such as the
management of tailings facilities in light
of the publication of the ICMM’s Global
Industry Standard.
Sustainability reporting
To provide stakeholders with a transparent
account of the sustainability topics of most
importance to our business and the steps
we are continually taking to better
measure our impact and improve our
sustainability performance, we will publish
a standalone Sustainability Report in 2021.
Further information can be found on
the Company’s website:
www.hochschildmining.com/en/
sustainability.
Hochschild’s approach to sustainability
Our long-term business model has been
developed to not only offer an attractive
investment proposition for our shareholders,
but also as part of our commitment to
making a better world for our workforce,
communities and society as a whole.
To ensure these values are adhered to,
we have adopted a number of policies
over the years, which demonstrate our
commitment to areas in which we can
make the most difference, underpinned
by our consideration of the United Nations
Sustainability Development Goals.
Governance
Strong sustainability governance is critical
for Hochschild to maintain its social licence
to operate, requiring leadership from the
very top of the organisation. Our Board of
Directors has ultimate responsibility for
establishing Group policies relating to
sustainability and employee matters, and
ensuring that international and national
standards are met. The Sustainability
Committee, a formal committee of the
Board, has been delegated responsibility
for various sustainability issues, focusing on
compliance and ensuring that appropriate
systems and practices are in place
Group-wide to ensure the effective
management of sustainability-related risks.
As Chairman of the 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 Committee conducted the following
business during 2020:
– Approved the 2019 Sustainability
Report for inclusion in the 2019
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 detailed updates on the
actions being taken to protect the
welfare of our employees as a result
of the Covid-19 pandemic;
– Undertook periodic reviews of the
Group’s exposure to sustainability risks
and the controls and action plan to
mitigate them;
– Reviewed standalone policies on
Community Relations, Human Rights,
Diversity & Inclusion and Sustainability
drawing from the values set out in the
Group’s Code of Conduct; and
52 | Hochschild Mining PLC Annual Report & Accounts 2020
01
Safety
2020 Highlights
Successful continued
implementation of our
updated action plan known
as ‘Safety 2.0’
Health & Safety Management
Systems operating at all
mining units achieved Level
6 re-certification by Det
Norske Veritas GL (‘DNV GL’),
with the intention to
achieve Level 7
Alignment to UN SDGs
72%
REDUCTION IN THE
NUMBER OF HIGH
POTENTIAL EVENTS
VS. 2019
The Hochschild approach to safety
Given the inherently high-risk profile of
mining and recognising that our people
are our most valuable asset, ensuring
employee safety is a key measure for
our corporate success.
Investigating and learning
from incidents
Despite the progress we have achieved
in recent years, tragically, one of our
employees lost his life during the first
quarter of 2020 at our Pallancata mine.
The victim was clearing loose rocks from
a wall in the mine with the assistance of
two colleagues. He turned away from the
wall being cleared and tripped on rocks
that had settled on the ground around
him. A large rock fell away from the wall
resulting in fatal injuries being sustained.
The root causes of this incident were
formally investigated and procedures
have been revised both in relation to
scaling as well as the mandatory
presence of both specialists and field
workers before proceeding with a
work-plan. Details of the accident and
follow-up action were communicated
across the organisation, to drive
continual improvement.
This tragic event has made us even more
determined to continually reinforce our
controls, promote the right behaviours and
establish a safety culture that is deeply
embedded throughout the organisation.
High Potential Events
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.
HP Index
‘17
‘18
‘19
‘20
0.28
1.23
0.74
2.28
HP Index is the number of High Potential Events
per million labour hours
53 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information SUSTAINABILITY REPORT CONTINUED
The next phase of our action plan ‘Hochschild Safety 2.0’
We recognise that a more engaged workforce
is one where people actively look out for their
own and others’ safety, helping us to manage
our safety and health risks. To further embed
a Company-wide safety-first culture, in 2020
we reviewed the success of our Safety Culture
Transformation Plan, an initiative first launched
in 2017 and championed across the Company.
To ensure continuous improvement, we
rolled out an updated action plan known as
‘Safety 2.0’, made up of seven key attributes
covering training, effective communication,
recognition and linking compensation with
safety indicators.
General
Induction
Specific
Induction
Communications
Compensation
Two main
pillars:
Technical
& People
SAFETY 2.0
For more information about
our action plan see
hochschildmining.com
Recognition
Training
Talent
54 | Hochschild Mining PLC Annual Report & Accounts 2020
Safety performance in 2020
Fatal accidents
4
3
1
Nil
‘19
‘20
‘18
‘17
Nil
‘16
Nil
‘15
*Number of fatalities in the reporting period
Lost Time Injury Frequency Rate (LTIFR)
Accident Severity Index
2.69
1,264
2.20
1.85
1.74
1.38
1.05
930
474
‘20
‘19
‘18
‘17
‘16
‘15
54
‘19
‘20
‘18
‘17
‘16
‘15
138
112
*Calculated as total number of accidents per
million labour hours
*Calculated as total number of days lost per
million labour hours
Our success relies on our
people and the safety of
our people is our number
one priority.”
55 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information 02
Health & hygiene
2020 Highlights
Hochschild’s Head of Health &
Hygiene headed the Covid-19
Committee, established with
the responsibility for
formulating, executing and
evaluating the development
of, and compliance with,
our protocols
Application of more stringent
health measures than those
set by law
Established mental health
support activities and
programmes to support
employees and their families
during the pandemic
Alignment to UN SDGs
We moved quickly
to protect the
health of our staff,
establishing a Covid-19
Committee.”
We commit to providing an integrated approach to
employee welfare, supporting our people’s health
and wellbeing and, ultimately, improving employee
motivation and productivity.
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 treatment
services and infrastructure, the Hygiene
team looks to reinforce the importance
of the quality of life at work through the
prevention of occupational illness and
ensuring the mental wellbeing of
its employees.
In 2020, Covid-19 placed an additional
strain on the health and mental
wellbeing of our workforce and their
families. During such an extraordinary
period, our Health & Hygiene department
established mental health support
activities and programmes for employees
and their families, including those self-
isolating and returning to work.
Mitigating health and operational
risks of Covid-19
Hochschild has been proactive in its
approach to controlling and mitigating the
risks and consequences of the Covid-19
pandemic within our operations and
offices in Peru and Argentina, in order
to safeguard the health of our employees
and the communities we work in. Refer to
page 67 of the Risk Management report
for further details.
500,000
RAPID COVID-19 TESTS DONATED TO
PERUVIAN GOVERNMENT
2,387
INDIVIDUALS RECEIVED PHONE
CONSULTATIONS
56 | Hochschild Mining PLC Annual Report & Accounts 2020
23
SESSIONS HELD IN
PROGRAMME SUPPORTING
FAMILIES ON THE PANDEMIC
AND ITS IMPACT
Our achievements in 2020
– Established a dedicated helpline and a
WhatsApp support group for workers,
their families and contractors. In total,
2,387 individuals received phone
consultations from July to October
in 2020.
– Promoted a programme to help
facilitate conversation within and
between families, discussing the
pandemic and its impact. In total,
23 sessions were run between June
and December.
– Employees received regular updates
on safe work practices and access to
both a comprehensive virus-testing
programme and an expanded
medical team.
– Contributed to a fund established by
the Mining Industry Association to
donate 500,000 rapid Covid-19 tests
to the Peruvian Government.
Protecting our colleagues from Covid-19
We moved quickly to protect the health
of our staff, establishing a Covid-19
Committee with the responsibility of
formulating, executing and evaluating
the development of, and compliance with,
our Covid-19 Crisis Plan. These Company-
wide protocols extended beyond official
requirements, promoting the use of PPE,
social distancing, disinfection of work
areas, enhanced cleanliness, regular
testing, reduction of capacity in
communal areas and the use of a Company
developed app to monitor the health
and wellbeing of our employees in and
out of work. This software recently won an
award from the Peruvian Mining Society.
Refer to page 70 for more information
on how we achieved Covid-19 secure
operations.
57 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information 03
Our people
2020 Highlights
Workforce trained: 98%
(2019: 98%)
Workforce from local
communities: 31%
(2019: 33%)
Launch of a new internship
programme, ‘Women of Gold’
(see opposite for more details)
New app launched to
enhance employee
engagement and contribute
to overall development
Alignment to UN SDGs
Hochschild Mining’s success relies on its people.
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. As a foundation of everything
that we do, we recognise and uphold
freedom of association, collective
representation, just compensation, job
security and development opportunities.
In 2020, approximately 54% of our total
workforce was represented by a trade
union or similar body.
In 2020, the Group adopted a standalone
Human Rights Policy, distilling the
principles and values with which we act.
Recruitment, retention and engagement
The quality of our people is key to the
success of the business. We are therefore
committed to attracting and retaining high
quality personnel through monitoring the
market for talent, providing competitive
remuneration, fostering a positive working
environment, and enabling our people to
develop and grow with us. In 2020 we
ranked 27th in the Merco Talento, which
ranks the top 100 companies according to
their practices of attracting and retaining
talent in Peru (increasing by 43 places
from 2019).
Diversity and inclusion
At Hochschild we are committed to
providing equal employment opportunities
for all, regardless of race, gender or
religion. We believe diversity brings new
and innovative ideas that contribute to
our overall business success. Diversity,
particularly gender, continues to be an
area of focus, with our commitment to
promoting the participation, education,
and development of women outlined in
our Diversity and Inclusion Policy.
58 | Hochschild Mining PLC Annual Report & Accounts 2020
54%
OF WORKFORCE REPRESENTED
BY A TRADE UNION OR SIMILAR BODY
34
AVERAGE HOURS OF TRAINING
PER EMPLOYEE
At Hochschild we are
committed to providing
equal employment
opportunities for all,
regardless of race,
gender or religion.”
People indicators
Gender diversity
Number of employees
Male
Female
Number of senior managers
Male
Female
Number of Board members
Male
Female
2020
2019
2018
2017
2016
3,155
275
3,024
218
3,894
245
3,849
235
3,859
222
41
1
7
2
37
1
7
1
37
1
7
1
36
1
7
1
35
1
8
1
Activities in 2020
The people-focused initiatives
during the year included:
Listening to our people
We analysed the results of our latest, biennial, Group-wide employee satisfaction
survey, which was completed by 2,260 employees from across our sites in Peru and
Argentina. Overall, employee satisfaction with the work environment increased to 63%.
57%
62%
63%
2015
2016
2017
2018
2019
2020
Leadership
In addition to our multi-year leadership
programme focused on promoting
our safety culture, the Group launched
a new training initiative aligned with
the Company’s cultural attributes.
Management at all levels from the mine
sites and administrative offices will
participate with completion expected
by mid-2021.
Promoting a diverse pipeline of talent
As reported last year, the Group is
committed to taking active steps to
improve the diversity of its workforce
and, in particular, to redress the gender
imbalance that exists. 2020 saw
continued progress with our action plan,
focusing on training, reviewing our
internal policies and raising awareness.
Internship programme
A new internship program known as
‘Mujeres de Oro’ (Women of Gold)
was launched and received over 2,900
applications for 15 positions. We also
promoted our Future Scholarships
programme to offer women the
opportunity for higher education in
technical careers, and ran internal training
courses to help colleagues become agents
of change, promoting an inclusive and
diverse working environment.
Training & policies
In addition, the Group has promoted
a female leadership development
programme and enhanced our maternity
and paternity leave policies.
Sexual harassment campaign
To raise awareness and educate
employees on sexual harassment,
the Group ran a #FreeOfHarassment
campaign. In total, 505 employees
completed online training and
obtained a certificate of completion.
59 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information 04
Protecting the environment
2020 Highlights
Demonstrated a high level
of environmental efficiency,
scoring 5.74 out of 6 in our
overall ECO Score
Commenced implementation
of an Environment Culture
Transformation Plan, working
to embed an environmentally
conscious culture across the
Company and assure long-
term environmental
performance
Alignment to UN SDGs
44%
DECREASE IN POTABLE WATER
CONSUMPTION SINCE 2015
0
ENVIRONMENTAL
INCIDENTS
73%
ECO SCORE IMPROVEMENT
SINCE 2015
All of us at Hochschild are committed to being a leading
global mining company in environmental performance,
operating and producing metals with the least possible
environmental footprint.
The Hochschild approach to protecting
the environment
Hochschild is committed to protecting
the environment through applying best
in class environmental management
practices. While our work consists of
extracting metals, we commit to
contributing to a sustainable future,
always acting with responsibility and
environmental excellence.
All of our activities are guided by the
principles set out in our Environmental
Policy and we continually seek ways to
improve our consumption of resources,
whether through reducing water usage,
improving energy efficiency, or increasing
the amount of waste that is recycled.
Environment Culture
Transformation Plan
To further prioritise and strengthen our
environmental activities and leadership, in
2020 we enlisted DuPont Sustainable
Solutions (DSS) to assess our internal
environmental culture to understand the
level of commitment and engagement of our
Company leaders on environmental issues.
To replicate the success of our Safety
Culture Transformation Plan, we
launched an ‘Environment Culture
Transformation Plan’.
Three work streams have been
identified to drive continuous
improvement: Technical, with a focus
on the continuous improvement of
Hochschild’s Environmental Management
System; the use of Technology and
Innovation to reduce our environmental
footprint; and People, communicating
the importance of respecting and
conserving the environment to our
workforce and stakeholders.
ECO Score: A Hochschild innovation
To achieve a best in class environmental
footprint, Hochschild created an innovative
programme that allows us to quantify and
distil our environmental performance in
a single number, expressing intangible
environmental management in a way
that is universally understood.
The ECO Score has received external
recognition since its launch. In 2020,
we were proud to win first place in the
National Oil and Energy Mining Society’s
60 | Hochschild Mining PLC Annual Report & Accounts 2020
Sustainable Development Award, which
recognises best environmental practices
across the energy and mining sector.
For details on how the ECO Score is
calculated, visit http://www.hochschildmining.
com/en/responsibility/environment
2020 ECO Score performance
In 2020, our overall ECO Score was 5.74
out of 6 – a 73% improvement vs 2015
Energy use and climate change
Due to our low-carbon grid-based
electricity supply which is almost 50%
sourced from hydro power and the nature
of the underground mining that we carry
out, our operations in both Peru and
Argentina have a favourable greenhouse
gas (GHG) intensity compared to other
gold and silver mines globally.
However, acknowledging the global
significance of climate change, we are
committed to taking the necessary
measures to continually reduce our GHG
footprint by evaluating additional low-
carbon energy options and improving
our operational energy efficiency, which
also helps to deliver valuable cost savings
to the business.
5.74
4.82
5.36
5.46
4.59
>4.75
3.32
Greenhouse gas emissions data1 (tonnes of CO2e)
Emissions from combustion of fuel and operation of facilities
(tCO2e)5
Emissions from purchased electricity (tCO2e)5
Total Scope 1 & Scope 2 emissions (tCO2e)
20202
20192
38,537
39,341
60,437
98,974
82,8333
122,174
Energy consumption used to calculate above emissions (kWh)
373,637,193
446,288,131
From combustion of fuel (kWh)6
From purchased electricity (kWh)
140,204,611
143,763,206
233,432,582
302,524,925
Emissions intensity, per thousand ounces of total silver equivalent
produced (CO2e/k oz)4,6
3.34
2.64
1
Method used based on ISO 14064-1 Standard and GHG Protocol Corporate Accounting and Reporting Standard,
using IPCC and Peruvian emission factors.
2 Includes data for the whole year for Peru (former and current operating assets, Azuca, Crespo, warehouses and
office locations) and San Jose.
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.
5 Emissions (and intensity) reflect combustion of fuel and operation of facilities (Scope 1) and purchased electricity
(Scope 2).
6 Collected information has been converted to kWh from gallons of fuel using net calorific values obtained from the
Peruvian Ministry of Environment.
Note: The Group’s UK operations consist of a single office with an occupancy of three. Its total Scope 1 and Scope 2
emissions and energy consumption represent less than 0.01% of the Group’s reported totals
‘20
‘19
‘18
‘17
‘16
‘15
Key: Golden line represents the Stretching
target for 2020 of 4.75
Water management
In 2020 (and 2019), 86% of all water used in
processing was reused water, predominantly
from water recovery plants from tailing
storage facilities.
The Covid-19 pandemic resulted in
increased water consumption due to
the need to maintain high levels of hand
hygiene. Accordingly, potable water
(measured on a per person basis)
increased by 12% in 2020, compared to
2019 levels. Despite this, we have still met
our most stretching objective, which is to
keep water consumption below 250 litres/
person/day and, since implementation of
the ECO Score, consumption of potable
water has been reduced by 44%.
Water consumption (litres/person/day)
2020
2019
2018
2017
2016
2015
231.67 206.01 224.78 214.08 293.71 408.35
Waste management
In 2020, domestic waste generated across
all our sites increased by 14% from 2019
levels, but we still met our most stretching
objective to generate less than 1.5 kg/
person/day. This increase can be
attributed to the Covid-19 pandemic,
which resulted in an increased demand for
PPE. Nevertheless, since implementation of
the ECO Score, domestic waste generation
has decreased by 39%.
Domestic waste generation
(Kg/person/day)
2020
1.18
2019
1.04
2018
1.13
2017
1.13
2016
1.33
2015
1.94
61 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information SUSTAINABILITY REPORT CONTINUED
Greenhouse gas emissions data1 (tonnes of CO2e)
20202
20192
20182
2017 2
2016 3
20152
20143
Emissions from combustion of fuel and operation of facilities (tCO2e) 5
38,537
39,341
38,939
47,265
46,033
46,8923
73,244
Emissions from purchased electricity (tCO2e) 5
60,437
82,8333
85,0843
94,249
91,893
78,163
69,933
Total Scope 1 & Scope 2 emissions (tCO2e) 5
Emissions intensity, per thousand ounces of total silver equivalent
produced (CO2e/k oz)4,5
98,974
122,174
124,023
141,514
137,926
125,055
143,178
3.34
2.64
2.60
3.16
3.27
3.70
5.08
1 Method used based on ISO 14064-1 Standard and GHG Protocol Corporate Accounting and Reporting Standard, using IPCC and Peruvian emission factors.
2 Includes data for the whole year for Peru (former and current operating assets, Azuca, Crespo, warehouses and office locations) and San Jose.
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.
5 Emissions (and intensity) reflect combustion of fuel and operation of facilities (Scope 1) and purchased electricity (Scope 2).
Responsible Tailings
Storage management
Hochschild has 11 Tailings Storage
Facilities (‘TSFs’) in total, the vast majority
of which are downstream with rock
buttresses and which are classified as low
risk. We currently have four operational
TSFs – two in Peru and two in Argentina.
Responsible closure
Recognising that environmental and
social responsibility extends beyond the
life of our operations, mine closure plans
are in place to restore areas where mining
activity has ceased and we operate a
policy of progressively closing historic
mine components.
In 2020, the Company incurred additional
cost by making a higher provision for the
liabilities associated with the closure of two
of the Group’s mines, Ares and San Jose.
This was prompted by an annual review
of these operations’ mine closure plans by
a third-party consultant. The additional
provision reflects improvements to the
closure plan of the Ares TSF and increased
transportation costs at San Jose.
We have strong systems in place to
manage TSFs, which we assess regularly,
with a policy of commissioning external
inspections of operational facilities every
two years. We are currently closing out
the recommendations from the last audit,
which took place in 2019 and concluded
that all dams are stable, with any
observations being minor and related
to care and maintenance. The next audit
is due to take place later this year.
Hochschild fully supports the need for
greater transparency in the mining sector
and discloses full details on each of
its TSFs and how they are managed.
Further details can be obtained from:
www.hochschildmining.com/en/
responsibility
Biodiversity
Peru sits within the top 10 of the most
biodiverse countries and several of our
sites are located inside or adjacent to
a legally recognised national protected
area. To maintain the biodiversity of our
surroundings, monitoring is conducted by
a specialised consulting company across
each mine unit twice a year (both in the
rainy and dry season). The results of these
surveys in 2020 confirmed that the
abundance of species across all sites has
remained constant, with the sighting of
key indicator species (most notably birds
of prey) reflecting the overall health of the
ecosystem.
62 | Hochschild Mining PLC Annual Report & Accounts 2020
05
Serving our communities
2020 Highlights
Implemented a new connectivity
programme, providing internet
facilities across 13 priority
communities throughout the
pandemic and to facilitate
remote learning for students
Adapted the delivery of our
flagship programmes focusing
on education, health and
nutrition, and economic
development
Donated food to local
communities and medical
equipment, Covid-19 tests
and other medical supplies
to local hospitals and
medical centres
Alignment to UN SDGs
$5.5m
SPENT OR DONATED TO BENEFIT
LOCAL COMMUNITIES (2019: $9.3M)
$9.42m
WORTH OF PROCURED GOODS AND SERVICES
FROM COMMUNITY-RUN BUSINESSES
613
HIRED COMMUNITY MEMBERS ACROSS OUR
SIX MINES IN PERU, ARGENTINA AND CHILE
Hochschild recognises its responsibilities to host
communities and invests significant resources to
understand the needs and expectations of local
communities and governments.
The Hochschild approach to serving
our communities
The Hochschild way is to promote close
collaboration with our local communities,
with full respect for local customs and
social dynamics. Our actions are guided
by our Community Relations Policy and
our active communications strategy sets
out our intention to: build trust; provide
clear communication and actively listen
to, and understand, community concerns;
and build a mutually beneficial
relationship with the 49 communities,
with a collective population of over 3,000
families in our direct areas of influence.
Our achievements in 2020
To keep communities connected during
the Covid-19 pandemic, we prioritised our
resources to implement a new connectivity
programme, establishing internet
connection across 13 priority communities.
While a number of our community projects
were paused, this allowed us to continue to
deliver a range of social programmes that
were more important than ever.
The Group’s efforts were recognised,
receiving first place in the ProActiva
Awards 2020, an award recognising the
innovative efforts of mining companies
to contribute to the wellbeing of Peruvians
throughout the pandemic.
Education: Allowing schoolchildren to
continue their studies during the Covid-19
pandemic was considered a priority, and
a direct way in which we could support
our communities. In 2020, we were able
to facilitate academic support for over
1,400 students and 150 teachers across
28 schools in remote areas within our
sphere of influence.
In 2020, as a part of a series of gender
equality initiatives, we launched the
scholarship programme ‘Becas Futuro
Mujer’ which offers the opportunity for
higher studies in technical careers with
high chances of securing employment.
The programme gave the opportunity
to 13 women from the local communities
to receive qualifications as Plant and
Infrastructure Assistants; skills that are
highly sought after in the mining industry.
In total, almost 100 students have been
granted scholarships to attend prestigious
institutions across Peru and Argentina.
Health and nutrition: We continued to
meet the health needs of individuals and
families through providing medicine and
nutritional advice in collaboration with
local health networks and sponsors.
We embraced technology to ensure we
could continue to transfer knowledge
and advice whilst respecting social
distancing requirements, delivering
over 1,500 consultations.
Economic development: We were able
to ensure the continuity of economic
activities pursued by local communities
through support which was facilitated
virtually (as necessary) and the provision
of training and supplies/materials.
63 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information RISK MANAGEMENT
Successful risk management requires a full
understanding of the environment in which we
operate and the commitment of resources in
implementing internal controls that mitigate key
risks to within levels acceptable to the Board.
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 Management Risk Committee
(‘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 is updated at each Risk
Committee meeting, and the most
significant current and emerging risks,
as well as actions to mitigate them, are
reported to the Group’s Audit Committee,
and if considered appropriate, also to
the Board. In light of their strategic
importance, sustainability risks and their
mitigation plans are monitored by the
Sustainability Committee.
The Covid-19 pandemic
Like every business across the world,
Hochschild Mining has seen numerous
aspects of its operations impacted by the
Covid pandemic. Peru was initially one of
the hardest hit countries in the world and,
as a result, a government-imposed
lockdown was mandated resulting in the
suspension of Inmaculada and Pallancata
for 11 weeks. Similar action in Argentina
resulted in San Jose being suspended for
six weeks. In the second half of the year, a
localised outbreak at Inmaculada meant
Identify
Measure
Manage
Monitor
Report
1
2
3
4
5
Outlook
At the time of approval of this Annual
Report, Peru is experiencing an increasing
number of daily cases of Covid-19 but the
Government has nevertheless confirmed
that mining operations will continue given
the importance of the industry to the
economy. In Argentina, like many parts
of the world, the infection rate is volatile
and currently appears to be on a reducing
trend. Central government and the local
authorities in the Santa Cruz province
(where the San Jose mine is located)
acknowledge the significant role of the
mining sector in supporting the national
and regional economies.
The sign of another wave of infections has
prompted the Peruvian Government to
announce restrictions in certain regions
including the Lima metropolitan area
which may therefore result in disruption
to the transportation of personnel,
supplies and finished goods.
that the mine had to be stopped for a
further three weeks and activity at San
Jose was stopped for a similar period
due to restrictions imposed on mining
operations across the region by the
provincial authorities.
Tailored risk matrix
In response to the pandemic, the Risk
Committee compiled a tailored risk
matrix which was considered and
approved by the Board which identified
the aspects of the business that could be
potentially impacted by the outbreak.
This tailored risk matrix formed the basis
of management’s mitigation and control
plans – the Covid-19 Crisis Plan.
Impact of Covid-19 on principal risks
In light of the events during the year and
the resumption of the Group’s operations
in the second half of the year, the
Directors have concluded that the Covid
pandemic has heightened the Group’s
principal risks; in particular those related
to Health & Safety and Operational
Performance. The discussion over the
following pages highlights how these
risks have become more pronounced
in light of the pandemic and describes
the mitigating effects of the Group’s
Covid-19 Crisis Plan.
64 | Hochschild Mining PLC Annual Report & Accounts 2020
The table below summarises the framework
of the Covid-19 risk matrix:
Category of key Covid-19 risk
Brief description
1. Employee Health and Wellbeing
Implementing protocols to safeguard employee wellbeing and to monitor the condition of personnel
affected by Covid-19
2. Talent and Workforce
Addressing employees’ concerns and impact on morale resulting from operational disruption
3. Government and Social Responsibility
Impact of governmental regulations and repercussions on community relations. Support our
communities to prevent and treat Covid-19 cases
4. Legal
Risk of litigation from suppliers and contractors and delays in securing permits
for operations/exploration activities
5. Financial Management and Reporting
Impact on the Group's finances and financial reporting systems resulting in the taking of
cash-saving measures (the Cash Optimisation Plan)
6. Technology and Information Security
Increased reliance on IT support to facilitate remote working, monitor Covid-19 cases and
preventative steps to mitigate the increased exposure to cyber-attacks/loss of confidential data
7. Supply Chain and Global Trade
Suspension of port operations and other forms of disruption to critical supplies. Restrictions in
ground transportation of personnel and goods
8. Sales and Customers
Inability to fulfil sales due to disruption to port operations or logistics. Temporary closure of
refining facilities
9. Risk Management
Remote working could result in weakened internal controls and possible fraud
To assist the reader in assessing the
relative significance of each risk
discussed in this section, the heat map
(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.
The key to the map indicates how the
profile of a risk has changed (whether
in terms of impact or probability)
relative to the prior year.
Risk heat map
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
h
g
H
i
t
c
a
p
m
I
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
w
o
L
Low
10
4
3
1
11
9
6
12
2
7
8
5
Probability
High
65 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information RISK MANAGEMENT CONTINUED
Change in risk profile vs 2019
Unchanged
Higher
Lower
Financial risks
Risk
1
Commodity
price
See the Market
Review on pages
8 to 11 for further
details on how
commodity prices
performed in 2020
2
Commercial
counterparty
Impact of
Covid-19
Impact
Mitigation
Commentary
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.
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.
– Active 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.
The Group’s principal strategy to mitigate against commodity price
volatility is focused on conserving capital and optimising cash flow
through:
– Controlling operating and administrative costs;
– Optimising sustaining capital expenditure; and
– Maintaining low working capital.
However, as reported in the Financial Review, the Covid-19 pandemic
necessitated higher borrowings in Argentina to finance working capital
during stoppages at the mine. The Group incurred exceptional costs as
a direct result of the pandemic but these were offset by higher
commodity prices, reduced administrative expenses, deferred capital
expenditure and lower exploration costs due to regional lockdowns.
The Group has ended the year with a net cash position and is therefore
in a robust financial position.
In early February 2021 the Group hedged 4 million ounces of silver for
both 2021 and 2022 at an average price of c.$27 per ounce to protect
cashflows in Peru. This will ensure profitable production from existing
resources at Pallancata while brownfield exploration efforts continue
to add near-term resources.
During the year, the Group undertook the following:
– Annual counterparty analysis: The annual review of existing customers
incorporated analysis of corporate governance, balance sheet
strength and other aspects of credit quality. As a result of the review, a
number of customer relationships were terminated and risk mitigation
was achieved through the requirement to make advance payments,
delaying the passing of title of sold goods until full payment and
obtaining parent guarantees;
– 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 ensuring diversification.
During the year, the Group closely monitored the impact of the Covid-19
pandemic on the creditworthiness of its financial counterparties.
66 | Hochschild Mining PLC Annual Report & Accounts 2020
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.
Impact of
Covid-19
– 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).
– Covid-19 Crisis Plan which,
among other things, established
the Covid-19 Crisis Committee
led by the Group’s most senior
physician.
The Group met its targeted production range which was revised
downwards as a result of the Covid-19 pandemic.
In setting budgets for the year, the Group continued to focus on
maintaining controlled levels of costs, capital expenditure and expenses.
As reported in the Financial Review from page 36, the all-in sustaining
cost from operations was below the revised guidance for the year, at
$12.8 per silver equivalent ounce.
The Group has 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.
The Covid-19 Crisis Committee oversaw the implementation of a
number of actions in Q1 2020 across operations in Peru and Argentina
including:
– The establishment of strict health protocols which, in Peru, were more
stringent than those mandated by law. These covered employee
re-allocation and testing and, in relation to the operations, oversaw:
– the adaptation of physical sites and changes to operational
procedures to facilitate social distancing and to treat suspected
cases; and
– a reinforced presence of Health teams.
– Installation of increased IT infrastructure with enhanced security.
Following a localised outbreak at Inmaculada in July 2020, the Group
suspended the mine and instigated actions including the following:
– Engagement of a specialist contractor to undertake a deep-clean
of the mine site.
– Working shift patterns were changed to reduce risks associated with
the transportation of workers.
– Developed technology-based systems to (a) report, in real time,
suspected cases and to provide daily updates on treatment and (b)
ensure that working shift changes are undertaken in a Covid-secure
manner through planning hotel room allocations, lab test results and
transportation planning.
– Established a programme of testing.
Similar actions were taken following the detection of a number of Covid
cases at San Jose in November 2020.
Given the significant costs associated with the above, the Group put in
place a Cash Optimisation Plan which resulted in the cancellation/
postponement of certain operational, administrative and exploration
expenditure and the deferral of the proposed 2019 final dividend.
4
Business
interruption
Assets used in the Group’s
operations may cease to
function or the provision of
supplies or of electricity may
be disrupted (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.
In addition to maintaining insurance policies covering machinery
breakdown, mitigating actions during the year include the following:
– Management reporting systems
to support appropriate levels of
inventory.
– A thorough review of critical supplies and inventory was performed
with data uploaded onto the Maintenance Module of SAP HANA;
– Maintaining back-up equipment to ensure power supply in Peru and
Argentina; and
– A Crisis Response Plan (‘CRP’) was developed in 2019 with the support
of external consultants. Management received training on the CRP
in Q1 2020 on how to mount a co-ordinated response to unforeseen
disruption.
– Inspections every 18 months (to
co-incide with renewal) 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.
Impact of
Covid-19
Although government-mandated restrictions within Peru resulted in delays
in the transportation of mine supplies, these were overcome through raising
inventory levels and agreeing expedited deliveries with individual suppliers.
67 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information RISK MANAGEMENT CONTINUED
Operational risks continued
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.
– Primary information processing
supported by SAP Hana which
has best-in-class security
features
Security of the Group’s network infrastructure is assured through the
following means:
– Industrial networks have been incorporated into the Group’s IS
Management System (‘ISMS’) with associated security enhancements
implemented;
– ISMS received BSI certification; and
– the principal recommendations arising from an ethical hacking
assessment have been implemented.
Impact of
Covid-19
To counter the heightened risks as a result of the widespread use of
remote working, the Group adopted use of VPN software, enhanced
security monitoring efforts and upgraded anti-spam software for use
with corporate email services. In addition, internal communication
campaigns were launched to ensure best practices in remote working.
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.
– Implementing and maintaining
an annual exploration drilling
plan.
– Ongoing evaluation of
acquisition and joint venture
opportunities to acquire
additional ounces.
– Implementation of a
comprehensive permitting
strategy led by a Permitting
Committee.
For details on the results of the Group’s 2020 brownfield exploration
programme, refer to page 33.
The Group has an internal Permitting Committee led by two Vice
Presidents to co-ordinate efforts with a view to streamlining the
permitting process for exploration and operational requirements. Senior
executives actively participate in industry initiatives to simplify the
permitting process.
Greenfield exploration is primarily conducted through the negotiation
of earn-in/joint venture opportunities. 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 page 34.
Impact of
Covid-19
Reserves stated in this
Annual Report are
estimates.
7
Personnel:
recruitment
and retention
Inability to attract or
retain personnel through
a shortage of skilled
personnel.
– Engagement of independent
experts to undertake annual
audit of mineral reserve and
resource estimates.
– Adherence to the JORC Code
and guidelines therein.
– 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.
Impact of
Covid-19
The Group’s exploration programme was significantly disrupted during
the year due to government mandated lockdowns to contain the spread
of coronavirus and, in the initial stages, due to the closure of
governmental offices charged with permit administration.
Social and economic conditions in Peru have worsened leading to higher
social demands and social conflicts involving mining projects. This has led
to delays in securing permits from the communities to access new
explorations areas which could impact the exploration programme.
The Group has worked closely with relevant government departments
to expedite permit approvals of prioritised projects and targets.
The Group has engaged P&E Consultants to undertake the annual audit
of mineral reserve and resource estimates.
See page 188 for further details.
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 office-based staff) and tailored
personal development plans. In addition to the five-year Leadership
programme implemented at all operations, a new Leadership model
aligned with the Company’s culture is being deployed. The Group
actively works to enhance the Group’s employee value proposition.
This includes 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.
To assist retention of key personnel, the Company has a Long-Term
Incentive Plan.
The Group’s training programme for supervisors and hourly workers was
suspended in Q1 2020 due to the pandemic.
Due to a shortage of adequately qualified medical staff to support the
operations, one-off bonuses were offered to facilitate recruitment and
retention.
The need to isolate employees identified as vulnerable and those
presenting symptoms resulted in challenges in ensuring that the mines
were adequately staffed to oversee operations.
In-house developed software was used to track various aspects including
test-results, and each patient’s health condition in order to facilitate the
planning of logistics involved in managing shifts, transportation and
accommodation.
68 | Hochschild Mining PLC Annual Report & Accounts 2020
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.
Impact of
Covid-19
– 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.
– Covid-19 Crisis Plan.
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.
In Argentina the Company maintains constructive relations with the
labour unions through ongoing and regular dialogue.
As previously discussed, one of the actions taken to mitigate the impact
of Covid-19 was to temporarily increase the working shift cycles to
reduce the frequency of transportation of workers to and from the mine-
sites in Peru. This measure was negotiated with the labour unions and
will end in Q1 2021.
In Argentina, health protocols were implemented in Q4 2020 due to the
rising level of cases detected in the Santa Cruz province in co-
ordination with the union and local authorities.
Macro-economic risks
9
Political,
legal and
regulatory
Changes in the political,
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.
In the midst of dealing with the severe impact of the Covid-19 pandemic,
Peru had a politically turbulent year with the impeachment of President
Vizcarra and the resignation of his successor within a very short period.
An interim President has been appointed and will remain in office until
the new Presidential term starts in July 2021. This situation led to
increased political risk and reductions in public and private investment
in an already severe economic downturn caused by the effects of
Covid-19.
The Congress elected in January 2020 adopted a very populist agenda
which has further impacted the economy and led at least one
international rating agency to lower Peru’s credit rating.
Mining continues to be a very highly regulated industry where multiple
permits are required leading to increased delays and costs. While
President Vizcarra’s government implemented some deregulatory
policies, the mining sector continues to suffer the negative effects
of permitting delays. Moreover, the prior consultation process for
indigenous communities continues to cause substantial delays in
the permitting process for exploration and operational activities.
In terms of social conflicts, protests relating to the Las Bambas and
Antapaccay, among others, 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. In addition, with the economic downturn
caused by Covid-19, there has been a large inflow of people who have
migrated from the cities to their hometowns. This has resulted in higher
demands from mining companies and an increased risk of conflict.
Congress is expected to continue to push ahead with a populist
anti-private sector agenda, which could lead to further tensions
between the Executive and Legislative branches, increased political
and economic risk and overall social conflict. Presidential elections are
underway and several candidates have expressed their support for
a new constitution, which would create further uncertainty and delay
public and private investment. Several historically anti-mining
candidates have already announced their candidacy for the presidency
with election in April 2021.
In Argentina, President Fernandez’s administration has been very
cautious in supporting and promoting the mining industry. Covid-19
and certain populist measures have negatively impacted the overall
investment climate in Argentina including in the extractive industry sector.
69 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information RISK MANAGEMENT CONTINUED
Sustainability risks
Risk
Impact
Mitigation
Commentary
10
Health and
safety
Group employees working
in the mines may be
exposed to severe health
and 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.
– Covid-19 Crisis Plan.
Impact of
Covid-19
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.
– 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.
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
Impact of
Covid-19
The Group reported one fatality during 2020 which occurred at the
Pallancata mine. Further details are provided in the Sustainability Report
on page 53.
Management continued the implementation of ‘Safety 2.0’, an action plan
to reinforce a safety-first culture. The Plan comprises seven key attributes
covering training, effective communication, recognition and aligning
compensation with measurable safety performance.
In addition, during the year:
– A significant reduction in the number of High Potential Events (‘HPEs’)
was achieved with 4 HPEs in 2020 (2019: 14);
– Progress was made to certify 8 of the remaining 17 elements of the
Group’s safety risk information management system to DNV GL Level 7;
For further details on the above, please refer to the safety section of the
Sustainability Report on pages 53 to 55.
Operational safety
The Group adapted the delivery of Safety 2.0 due to the pandemic
by replacing face-to-face training with online sessions.
Focusing on employee welfare
The Group took decisive action to prioritise employee wellbeing at the
onset of the pandemic by:
– Transporting workers to hometowns for medical examination;
– Facilitating remote working in Peru, Argentina and London before the
imposition of formal lockdowns;
– Invoking strict health protocols which, among other things:
– identified high-risk employees for re-allocation of duties on a remote
working basis; and
– designed a testing programme for all workers for active Covid-19
infection prior to travelling to mine units. Those tested remained in
quarantine pending the results. Testing was also carried out on the
presentation of symptoms with immediate transportation to the
nearest medical facilities.
Following the localised outbreak at Inmaculada in H2 2020, the Health
team worked together with the operations and, among other things,
implemented:
– The use of rapid Covid tests in conjunction with molecular tests (designed
to detect active cases of Covid) for all workers prior to transportation to the
mine site; and
– Organised Health brigades to ensure compliance with the Group’s
Covid-19 protocols.
With regards to the countries where the Group operates, environmental
permitting and agency oversight in Peru in particular remained rigorous
during the year.
In 2020, the Group performed highly in its ECO Score (with a score of 5.74
out of 6 (2019:4.82)), which quantifies, in a single score, 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.
In addition, during the year, the Environmental team:
– launched the Environment Culture Transformation Plan with the support
of Dupont to further embed an environmentally conscious culture across
the Company;
– received recognition from the Peruvian Water Authority for the Group’s
water reduction plan and associated programmes with local communities;
and
– continued with the progressive closure of certain discontinued mining
components including the revegetation of a waste rock deposit at Arcata.
For further details on the above as well as the Group’s approach to climate
change, please refer to the environmental section of the Sustainability Report
on pages 60 to 62.
As previously stated, the pandemic has resulted in delays in the processing
of permits and licences by governmental authorities. Such permits include
the requisite amended Environmental Impact Assessments in order to extend
the operating areas of existing mines such as Inmaculada and Arcata.
70 | Hochschild Mining PLC Annual Report & Accounts 2020
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.
In Southern Peru, there has been considerable tension between mining
companies and local communities due to ongoing conflicts relating to
mines in Apurimac, Cusco and Arequipa.
– 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 recognition of its responsibilities to host communities, the Group
invested significant resources to understand the needs and expectations
of local communities and governments.
During the year:
– the Group spent or donated $5.5m to benefit local communities and
supported local community-run businesses;
– we continued to engage with communities although adjusting our
approach (see below for more details);
– the Community Relations team continued to support the business,
for example, by successfully securing surface rights and concluding
prior consultation processes to facilitate exploration activities.
Impact of
Covid-19
– Covid-19 Crisis Plan.
As a result of the Covid-19 pandemic, the Group’s Community Relations
strategy refocused on health and education. Initiatives included:
– Delivery of over 2,500 hygiene and food packs to employees and local
communities;
– Donations of medical equipment, oxygen and other medical supplies
to local hospitals and medical centres; and
– Donations of Covid-19 tests to local medical centres and contributed to
the donation of Covid-19 tests made by the Mining Industry Association
to the Government.
The Group launched the Keeping Connected project which provided
6,500 people across 13 communities with free access to the internet –
an invaluable resource during the pandemic.
Our Permanent Information Office near Inmaculada and Pallancata was
adapted during the period of Covid restrictions into a virtual office
providing information and responses to queries through various channels
including social media.
Further details can be found in the Sustainability Report from page 63.
71 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information VIABILITY STATEMENT
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 affecting the Inmaculada
mine 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).
In their assessment of the financial
impact of each of the above scenarios,
the Directors assumed:
– conservative prices of Au: $1,535/oz
and Ag: $20.5/oz (the ‘Assumed Prices’);
– forecast levels of operating expenditure
and capital expenditure in line with a
Life of Mine plan will be maintained;
– debt repayments in 2021, 2022 and
2023 will proceed as planned;
– that the Group will incur Covid-related
expenses to mitigate the risk of infection
at the mines throughout H1 2021 as well
as the costs of a vaccination campaign
for key stakeholders (communities,
employees, contractors and their
families); and
– the suspension of dividends from 2022
and the suspension of exploration
expenses from April 2022, in both cases
until the end of the three-year period.
Inmaculada, which is the Group’s biggest
asset, represents over 60% of the Group’s
cash flows. The application of the
scenarios at the Group’s other operations
would have a significantly reduced
impact on the Group.
The following scenarios were analysed:
Scenario 1: A significant increase in
the level of Covid-19 infections
Peru faces a significant increase in
Covid-19 infections and a severe
outbreak at Inmaculada results in a
two-month stoppage of operations.
This scenario assumes that a vaccine is
not generally available in Peru until the
end of 2021 and therefore incremental
Covid-related expenses are assumed
to be incurred until that time.
Scenario 2: 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 3: 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 4: 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 5: 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 6: 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 concluded that upon the
occurrence of one of the scenarios, the
Company would be viable. Taking into
account the causes of operational
stoppages in the past and the extent of
the disruption caused, the Directors are
of the opinion that a combination of two
or more of the above scenarios taking
place concurrently is remote.
Should prices fall further than the
Assumed Prices or the scenarios in reality
are more severe than those modelled or a
combination of scenarios does occur, the
Board would oversee the implementation
of mitigating actions which include:
– the use of lines of credit with relationship
banks;
– refinancing the $200m medium-term
loan;
– if relevant, the immediate suspension
of dividends and exploration expenses;
– reducing production costs and capital
expenditure;
– 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,
such combinations are considered to be
remote. The Directors have therefore
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.
72 | Hochschild Mining PLC Annual Report & Accounts 2020
Non-financial information regulation
Under sections 414CA and 414CB of
the Companies Act 2006, as amended
by The Companies, Partnerships and
Groups (Accounts and Non-Financial
Reporting) Regulations 2016, the
Strategic Report must contain a non-
financial information statement. This
can be found in the Supplementary
Information section on page 98.
The Strategic Report, as set out from
pages 2 to 73, has been reviewed and
approved by the Board of Directors and
signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
17 February 2021
73 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information BOARD OF DIRECTORS
02
03
04
05
01
Audit Committee
Nomination Committee
Remuneration
Committee
Sustainability Committee
Chair
01
02
03
04
05
Eduardo Hochschild
Chairman
Ignacio Bustamante
Chief Executive Officer
Dr Graham Birch
Independent
Non-Executive Director
Jorge Born Jr.
Independent
Non-Executive Director
Jill Gardiner
Independent
Non-Executive Director
Joined the Group in 1987 and
appointed Chairman in 2006.
Appointed to the Board
in 2010.
Key skills and competencies
– Over 30 years’ involvement
Key skills and competencies
– Significant operational
with the Group
experience
– Extensive board experience
– Extensive knowledge of
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
largest shareholder
with a c.38% interest.
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.
Prior to that, Ignacio worked
for Zemex Corporation
between 2003 and 2007, first
as Chief Financial Officer and
Vice President of Business
Development, and later as
President. Between 1998 and
2003 Ignacio served as Chief
Financial Officer of Cementos
Pacasmayo S.A.A.
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.
Appointed to the Board in
2006.
Appointed to the Board
in August 2020.
Key skills and competencies
– Extensive experience of
managing international
businesses
– Deep understanding of
Key skills and competencies
– Longstanding career in
investment banking in
Canada focusing on
strategy and M&A
sociopolitical issues in Latin
America
– Significant experience
on listed company boards
– 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.
– In-depth knowledge of
corporate governance/
finance
Current external
appointments
Commercial: Trevali Mining
Corporation (Chair), Capital
Power Corporation
Non-profit: ARC Foundation
(Chair).
Previous experience
Jill spent over 20 years in the
investment banking industry
having served in a number
of senior leadership roles at
RBC Capital Markets. She
advised companies with a
focus on the power, pipeline,
infrastructure, and certain
commodity related industries.
74 | Hochschild Mining PLC Annual Report & Accounts 2020
08
06
07
09
10
Balance of independence
on the Board
Nationality of
Board members
06
07
08
09
10
Eileen Kamerick
Independent
Non-Executive Director
Michael Rawlinson
Senior Independent
Director
Dionisio Romero
Paoletti
Non-Executive Director
Sanjay Sarma
Independent
Non-Executive Director
Raj Bhasin
Company Secretary
Appointed to the Board in
November 2016.
Appointed to the Board in
2016 and as Senior
Independent Director in
January 2018.
Appointed to the Board in
January 2018.
Appointed to the Board in
January 2017.
Joined the Group and
appointed Company
Secretary in 2007.
Key skills and competencies
– Strong background in audit
Key skills and competencies
– Significant knowledge of
and financial reporting
– Extensive experience on
listed company boards
– In-depth knowledge of
corporate governance/
finance
the mining sector
– Corporate finance, strategy
and M&A
– Listed company
governance
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: 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.
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.
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.
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.
75 | Hochschild Mining PLC Annual Report & Accounts 2020
Peru 3 Argentina 1 United Kingdom 2 United States 2 Canada 1 Independent Directors 6 Non-independent Directors 3Strategic ReportFinancial StatementsGovernanceFurther Information
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.
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
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.
Experience
José Augusto Palma has more than 12 years of
professional experience in the mining sector and
has served in various positions in Hochschild. José
has also been very active in the mining industry
association and recently concluded a two-year term
as President of the Mining Sector in the Mining,
Electricity and Petroleum Industry Association of
Peru. Before joining Hochschild, José had a successful
career in private practice in the United States, where
he was a partner at the law firm of Swidler Berlin,
and later worked at the World Bank. José also served
two years in the Government of Peru. He holds law
degrees from Georgetown University and the
Universidad Iberoamericana in Mexico.
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.
76 | Hochschild Mining PLC Annual Report & Accounts 2020
DIRECTORS’ REPORT
The Directors present their report for
the year ended 31 December 2020.
Information in Directors’ Report
The Directors’ Report comprises the
Corporate Governance Report from
pages 80 to 97, this Report on pages 77
to 79, and the Supplementary Information
on pages 98 to 101. 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, included in the
Sustainability Report from page 61; and
– Policy on Financial Risk Management in
note 37 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 $20.6 million (4.0 US
cents per ordinary share) in the year
ended 31 December 2020 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 $32.6
million (2019 total dividend: $10.2 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 74 and
75. Other than Jill Gardiner, who was
appointed on 1 August 2020, 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 2021 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 $5.5 million
to benefit local communities (2019:
$9.3 million).
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
86 and, with regard to the right to appoint
Directors to the Board, are set out on
page 100.
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.
77 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information DIRECTORS’ REPORT CONTINUED
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.
Despite the recent domestic lockdown
announced by the Government in Peru,
mining has been allowed to continue to
operate along with other industries as
they are critical to the recovery of the
national economy. In Argentina, the
central government has declared mining
an essential activity for the economy and
the local authorities in the Santa Cruz
province (where the San Jose mine is
located) are also providing support for
the continuity of the mining industry
which is of critical regional importance.
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.
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
2 to page 73. The financial position of the
Group, its cash flows, liquidity position
and borrowings are described in the
Financial Review on pages 36 to 44 and
discussion of the Group’s viability on the
occurrence of certain scenarios is
provided in the Viability Statement on
page 72. In addition, note 37 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.
The Directors therefore consider the
risk of another government-imposed
suspension across all operations to be
low. In addition, the Group’s mines are
located in isolated areas with typically
low Covid infection rates, thus allowing
the Company to control and closely
monitor access to its facilities.
As demonstrated throughout the Annual
Report, the Group has implemented a
wide-ranging action plan to mitigate the
risk of localised Covid outbreaks at the
Group’s operations. The plan includes
various health and safety protocols which
go well beyond those required by law and
include (a) the physical adaptation of the
mining units to ensure that they are Covid
secure, (b) the systematic use of antigen
testing prior to transporting personnel to
the mine units, (c) strict hygiene and
social distancing rules, and (d) the use
of technology-based systems to track
suspected cases.
Further information on the action taken
by the Company in 2020 can be found on
pages 64 to 71 (Risk Management report)
and pages 6 to 7.
Management will continue to monitor its
approach which will evolve over time as
knowledge of the virus (and any variants)
deepens and will seek to incorporate
industry best practice.
The Directors have reviewed liquidity and
covenant forecasts for the Group taking
into account the impact of Covid-19 and
they have also considered potential
downside scenarios and the availability
of mitigating action in assessing whether
the Group is able to continue in operation
during the period to 31 March 2022, which
is at least 12 months from the date of
these financial statements.
More specifically, the scenarios reviewed
by the Directors included a base case
(the ‘Base Scenario’), reflecting budgeted
production for 2021 and the Life of Mine
plan for Q1 2022, incremental Covid-
related costs until April 2021 and average
precious metal prices of $1,919/oz for gold
and $25.6/oz for silver, being the average
analysts’ consensus for the next 15
months (the ‘Assumed Prices’). Taking into
account the risks associated with Covid,
described in the Risk Management report,
the Directors also reviewed two other
scenarios considering further periods
of stoppage and extended incremental
Covid-related costs. Separately, and in
line with their usual practice, the Directors
considered the impact on the Group’s
cash balance and debt covenant
compliance under each scenario,
applying different precious metal price
assumptions.
Finally, the Directors reviewed a ‘Remote
Scenario’ which takes into account a
combination of (a) precious metal prices
which are 20% lower than the Assumed
Prices ($1,535/oz for gold and $20.5/oz for
silver which are significantly below current
spot and futures forecast prices), (b) an
eight-week suspension of all operations,
(c) forecast expenditure according to the
Base Scenario and (d) incremental
Covid-related costs until March 2022.
The Remote Scenario naturally resulted
in a reduced cash balance but which
nevertheless remains adequate for the
Group’s forecast expenditure with
sufficient headroom maintained to
comply with debt covenants. In each
scenario, it has been assumed that all
employees remain on full pay and that
no further mitigating actions would be
necessary to maintain an adequate level
of liquidity, although mitigating actions
do exist should they be required.
In conclusion, the Directors have a
reasonable expectation that the Group
and the Company have adequate
resources, which would see it continue in
operation for the foreseeable future. Thus,
they continue to adopt the going concern
basis of accounting in preparing the
annual financial statements.
78 | Hochschild Mining PLC Annual Report & Accounts 2020
AGM
The 15th AGM of the Company will be
held at 2.30pm on 27 May 2021. 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.
Statement of Directors’ responsibilities
The Directors confirm that to the best of
their knowledge:
– the consolidated financial statements,
prepared in accordance with IFRSs
in conformity with the Companies Act
2006 (and IFRSs adopted pursuant
to Regulation (EC) No 1606/2002 as
it applies in the European Union), give
a true and fair view of the assets,
liabilities, financial position and profit
of the Company and the undertakings
included in the consolidation taken as
a whole;
– the Annual Report, including the
Strategic 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; and
– that they consider the Annual Report,
taken as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Company’s position,
performance, business model and
strategy.
Disclaimer
Neither the Company nor the Directors
accept any liability to any person in
relation to this Annual Report except to
the extent that such liability could arise
under English law. Accordingly, any
liability to a person who has
demonstrated reliance on any untrue or
misleading statement or omission shall be
determined in accordance with Section
90A of the Financial Services and Markets
Act 2000.
On behalf of the Board
Raj Bhasin
Company Secretary
17 February 2021
79 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CORPOR ATE GOVERNANCE REPORT
‘The value of a robust governance
framework comes into its own in
these challenging times.’
Eduardo Hochschild
Chairman
Dear Shareholder
I am pleased to present the Corporate Governance
Report for 2020. In this section of the Annual Report,
we report 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.
Impact of Covid
Every business across the globe has been impacted
by the Covid-19 pandemic and such a crisis highlights
the value of a robust governance framework. This
report highlights how, against the backdrop of
operational challenges, your Board has sought to lead
effectively, and monitor progress against our strategic
objectives through the implementation of processes,
actions and controls.
The challenges arising from the pandemic have
required us all to adapt. After our only in-person Board
meeting in Lima in February 2020, all subsequent
meetings of the Board and its Committees have been
convened via video conference. This new way of
working and a constant dialogue with the management
team has allowed the Directors to bridge any gap in
communications which is critical during this period of
fast-changing developments.
Non-Executive appointment
I am delighted to report that in light of our Board
evaluation process and succession plan, an
opportunity was identified to add skills to the Board
that would be aligned with our strategy as well as
increasing the gender diversity of the Board.
Following a process overseen by the Nomination
Committee, the Board confirmed the appointment
of Jill Gardiner as an Independent Non-Executive
Director. She brings long-standing investment
banking experience from the Canadian capital
markets, a key hub for the mining sector.
2020 Board evaluation
I would also like to highlight the continued benefits
that have accrued from our internal Board
evaluation process which we report on in more detail
from page 88. Regrettably, due to the Covid-related
travel restrictions, we were unable to proceed with an
externally facilitated evaluation as we had intended.
If you should have any queries arising from this
report, please do not hesitate to contact me at
Chairman@hocplc.com.
Eduardo Hochschild
Chairman
80 | Hochschild Mining PLC Annual Report & Accounts 2020
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 2020.
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 98 to 100.
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
As a 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.
Open advertising and/or an external search
consultancy should generally be used for the
appointment of Non-Executive Directors
In light of the skills being sought, the Company enlisted the support of its financial advisers to draw up
a list of potential Board candidates which culminated in the appointment of Jill Gardiner as a
Non-Executive Director. Please refer to the Nomination Committee report for further details.
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)
While the Group has adopted a wide malus policy, neither clawback nor PESR has been adopted due
to difficulties, in the past, in legally enforcing such provisions in Peru. After a comprehensive review
of arrangements which can achieve the same underlying objective, the Company has incorporated
a PESR in the revised Remuneration Policy being put to shareholders at the forthcoming AGM.
The revised Policy also articulates in more detail the Company’s existing approach to malus.
An externally facilitated evaluation of the Board
has not been undertaken
Please refer to the Board evaluation section below for further details on the internally-led approach
to the Board’s performance evaluation.
Our governance structure
Board
Chair
Eduardo Hochschild
3 Non-Independent Directors 6 Independent Directors
Audit
Committee
Nomination
Committee
Exploration
Working Group
Chair
Eileen Kamerick
READ MORE
Page 89
Chair
Eduardo Hochschild
READ MORE
Page 94
A working group consisting of
management and Non-Executive
Directors which reviews detailed reports
on, and progress against, brownfield
and greenfield exploration programmes.
Remuneration Committee
Sustainability Committee
Chair
Michael Rawlinson
Chair
Dr Graham Birch
READ MORE
Page 97
READ MORE
Page 96
1
Terms of reference are available at www.hochschildmining.com (see pages 89 to 97 for further details on the Committees’ activities during 2020).
81 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information
CORPOR ATE GOVERNANCE REPORT CONTINUED
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.
2020 Board meetings
Eight Board meetings were held during
the year, of which four were scheduled
meetings. The ad-hoc meetings were
convened to consider updates relating to
the Company’s response to the Covid-19
pandemic and corporate development
matters.
Attendance at the scheduled Board
meetings convened during 2020 is
summarised in the table below;
Director
Mr E Hochschild
Mr G Birch
Mr J Born
Mr I Bustamante
Ms J Gardiner
Ms E Kamerick
Mr M Rawlinson
Mr D Romero
Mr S Sarma
4 (4)
4 (4)
4 (4)
4 (4)
2 (2)
3* (4)
4 (4)
3** (4)
4 (4)
*
Ms Kamerick was unable to attend the February 2020
Board meeting due to a family illness
** Mr Romero was unable to attend the February
2020 Board meeting due to a conflicting board
engagement
Business
performance
Attendance (Maximum)
Risk
In addition to the regular updates from across the business, the principal matters
considered by the Board during 2020 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.
Health & Safety
– Updates on the ongoing implementation of Safety 2.0, the successor
Financial
plan to the Company’s Safety Culture Transformation Plan (see pages
53 to 55 for further details);
– The investigation into the fatal accident at the Pallancata mine in the
first quarter of 2020 (see page 53); and
– Updates on the implementation of the Group’s Health Protocols to
combat Covid-19.
– The stress-tested scenarios and the underlying assumptions in support
of the going concern and viability statements in support of the 2019
annual financial statements and 2020 half-yearly financial statements;
– Considered recommendations of the Audit Committee to adopt the
2019 Annual Report and Accounts and the 2020 Half-Yearly Report;
– The Group’s ongoing financial position;
– The 2021 budget;
– The 2019 final dividend, which was subsequently withdrawn due to the
uncertain impact of the Covid-19 pandemic on the business; and
– The 2020 interim dividend.
Strategy
– Strategic options to facilitate the Group’s growth;
– Updates on progress in developing the Biolantanidos rare earths
project;
– Updates on the Group’s operational innovation projects; and
– The Group’s strategic plan.
– Detailed updates on the operational and financial impact of Covid-19
on the business, including revised guidance for the full-year’s
production, costs, capital expenditure and exploration budgets;
– Business development projects;
– Unbudgeted strategic initiatives; and
– Presentations on progress against the annual brownfield exploration
programme.
– Political developments in Peru, Argentina and Chile;
– The Group’s Risk Matrix detailing the significant and emerging risks
faced by the Group and the corresponding mitigation plans; and
– The renewal of the Group’s Directors’ and Officers’ Liability Insurance.
Governance
– The appointment of Jill Gardiner as an Independent Non-Executive
Director and as a member of the Audit, Nomination and Remuneration
Committees;
– Updates from the Company Secretary on governance developments
affecting the Company and the Directors’ responsibilities;
– An update on the implementation of the 2019 Board evaluation
recommendations, the outcome of the 2020 Board evaluation and the
form of the 2021 process;
– The annual reviews of Directors’ conflicts of interest and independence
of Non-Executive Directors; and
– Reviewing and revising the Committees’ terms of reference.
Sustainability
– Reviews of the social climate in Peru, Argentina and Chile and their
potential impact on the Group;
– Updates on reviews of the Group’s Tailing Storage Facilities;
– Performance of the Group against the internally-designed
environmental corporate scorecard (the ECO Score).
Investors’ views
– Regular reports on investors’ views as part of the Group’s
comprehensive engagement schedule (see section headed Shareholder
engagement in 2020 for further details);
– Feedback from investors and proxy agencies on the 2020 AGM
business, both before and after the meeting (see overleaf for further
discussion on specific matters raised); and
– Feedback from investors on the proposed revised Remuneration Policy
to be put to shareholders for approval at the 2021 AGM.
See Directors’ Remuneration Report from page 102 for more details.
82 | Hochschild Mining PLC Annual Report & Accounts 2020
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
Inspiring others and promoting talent:
Team and Individual development plans,
staff turnover/retention rates
Efficiency:
Operational KPIs e.g. AISC, Production,
Adjusted EBITDA and Brownfield
Exploration results
An organisational climate survey was
carried out in 2019 amongst 2,260
employees across our sites in Peru and
Argentina. The results were analysed
in Q1 2020 and overall, employee
satisfaction with the work environment
increased to 63% (from 62% in the
previous survey held in 2017, and up
from 57% in 2015).
Further details are provided in the
Strategic Report on pages 2 to 73.
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 previously reported, 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.
Our corporate values
Innovation
Inspiring others
Recognising talent
Demonstrating responsibility
Seeking efficiencies
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. See the
Strategy section on pages 24 and 25.
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 matters with periodic
updates on the Group’s performance and
the launch of the programme of events
forming part of the Environmental Culture
Transformation Plan, health and safety,
and the establishment of a centralised
Compliance function.
In addition, at the onset of the coronavirus
pandemic in Peru, the Chairman conveyed
to all staff the immediate steps being taken
by the Company to prioritise employee
welfare as well as highlighting how to
prevent the spread of infection.
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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.
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 includes the s172(1) statement
and, by cross-referencing other parts of
this report, summarises how engagement
was undertaken and how stakeholders
were considered in the key decisions
taken during the year.
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 2020
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
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
2020 Half-Yearly Results
presentation
September
UK Roadshow
Denver Gold Forum
November
Commenced shareholder
engagement on the
Company’s proposed revised
Remuneration Policy
December
Scotia Capital Conference
An extensive Investor Relations schedule
resulted in management holding over
100 investor meetings during the year.
In addition to the above, the Non-
Executive Directors are available to meet
shareholders on request. Such meetings
were held with Michael Rawlinson and,
following her appointment, with Jill
Gardiner.
2020 AGM
Due to the Covid-related restrictions in
place at the time, shareholders were not
permitted to physically attend the 2020
AGM. Arrangements were made, however,
for shareholders to submit questions on
any of the proposed items of business by
telephone or email and for responses to
be published on the Company’s website.
The Company did not receive any
such questions.
At the 2020 AGM, the resolution seeking
the re-election of Dionisio Romero
Paoletti was opposed by c.22% of the
votes cast. Investor feedback confirmed
that the result reflected concerns with
Mr Romero’s time commitment due to
the number of directorships that he held.
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 that he would
not accept any additional listed company
directorships, (b) the fact that he
relinquished his board position with
NYSE-listed Credicorp and (c) 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 continues to benefit from
Mr Romero’s experience of managing
sizeable businesses in Peru and the wider
region, but also of his knowledge of
corporate finance.
Other stakeholders
On pages 45 to 49 of the Strategic Report,
we have identified our key stakeholder
groups, how the Company has engaged
with them and the issues raised during
the year.
The Directors are aware of their duty
under English company law (the ‘section
172 duties’) to act in the way he or she
considers, in good faith, would most likely
promote the success of the Company
for the benefit of its shareholders and
other factors. These include the likely
consequences of any decisions in the
long term, the interests of the Company’s
employees, the need to foster the
Company’s business relationships with
all stakeholders, the impact of the
Company’s operations on the community
and environment, and the desire to
maintain a reputation for high standards
of business conduct.
By understanding stakeholders’ views
and expectations, the Board is able to
successfully steer the Company towards
achieving its strategic goals in a
sustainable manner and which
acknowledges its licence to operate.
84 | Hochschild Mining PLC Annual Report & Accounts 2020
Below, we have summarised how the Board receives feedback from its key stakeholder groups:
Employees
Social
Government / Regulators
Suppliers
Customers
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.
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.
Material matters are
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.
Impact on wider stakeholder group of key
decisions in 2020
In discharging their section 172 duties the
Directors have regard to the factors set
out above as well as other factors which
are considered relevant to the decision
being made. It is acknowledged that
every decision we make will not
necessarily result in a positive outcome
for all our stakeholders. By considering
the Company’s purpose together with its
strategic priorities, and having a process
in place for decision making, the aim is
to make sure that decisions reflect the
Group’s corporate values.
For details on how our Board operates
and the matters we discussed and
debated during the year, please see the
earlier part of this report. We set out
below how the Directors had regard to the
matters set out in section 172(1)(a)-(f)
when discharging their section 172 duty
in relation to the Annual Strategy Review.
The Annual Strategy Review
As it does each year, the Board carried
out a review of the Group’s strategy. The
discussion in 2020 focused on how the
Group could best position itself vis-à-vis
its stakeholders and capitalise on the key
sources of growth while remaining true
to the Company’s purpose. Alternative
operating and financial scenarios were
reviewed by the Board and, in light of
their critical importance, sub-strategies
to ensure the achievement of the
Company’s social commitments were
developed. By taking this approach, the
Board has mandated that every strategic
business decision should promote
sustainability for all stakeholders.
Division of responsibilities
Board composition
Up until 1 August 2020, 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. Following the
appointment of Jill Gardiner on 1 August
2020, the Board comprised seven
Non-Executive Directors, six of whom
are considered, by the Board, to
be independent.
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 77 of
the Directors’ Report).
Chairman and Chief Executive
The Board is led by the Chairman,
Eduardo Hochschild, who is also the
largest shareholder of the Company
with a c.38% 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.
Ignacio Bustamante, as the Chief
Executive Officer, is responsible for the
formulation of the vision and long-term
corporate strategy of the Group, the
approval of which is a matter for the
full Board.
The Chief Executive Officer is responsible
for leading 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.
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;
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– 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
– the Relevant Parties will not take any
action that would preclude or inhibit
any member of the Group from carrying
on its business independently of any
of them.
Certain confirmations are required to be
given by the Board under the 2014 Listing
Rules with regards to the Company’s
compliance with the independence
provisions which can be found in the
Directors’ Report on page 77.
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
In keeping with its usual practice, the
Board considered the independence of
the Non-Executive Directors during the
year. As part of its assessment, the Board
took into account the circumstances set
out in Provision 10 of the Code. In
particular, the Board noted:
– the fact that Jorge Born and Graham
Birch had both served on the Board for
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.
The Board assessed, among other things,
each of the above-named Director’s
individual approach and contribution to
Board discussions. It was concluded that
each Director demonstrated ongoing
objectivity which, at times, included
appropriate challenges of matters under
deliberation as well as of management.
Accordingly, the Board is of the opinion
that the above circumstances do not
interfere with the relevant Director’s ability
to act in the best interests of the Company
and are therefore considered to be
independent for the purposes of the Code.
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.
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 94 and 95.
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 pages 74 and 75 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 time 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.
86 | Hochschild Mining PLC Annual Report & Accounts 2020
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.
In light of the Covid-19 related
restrictions, the above induction
programme was facilitated virtually in
connection with the appointment of Jill
Gardiner. A site visit will be arranged once
international travel resumes.
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 the following page for a description
of the process and outcome of the 2019
Board evaluation.
Implementation of 2019 Board evaluation
A number of actions were taken during
the year following the 2019 Board
evaluation process. These included:
– Remuneration Committee members
receiving more frequent updates on
developments impacting the
governance of executive remuneration;
– 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); and
– Improvements to the reporting of
progress on brownfield and greenfield
exploration.
External Board evaluation
As a result of the worldwide travel
restrictions, the decision was taken to
postpone the intended externally-
facilitated Board evaluation. An internally-
led evaluation was therefore carried out
which has previously resulted in a number
of recommendations that have
significantly enhanced the way the Board
and the Committees function.
Jill Gardiner induction process
Selection: The Nomination
Committee compiles a shortlist
of candidates from a long-list
compiled with external support
Interviews: Chairman and
designated members of the
Nomination Committee
Conflicts of Interest: Nomination
Committee considers and
approves any conflicts of interest
and recommends Jill Gardiner’s
appointment to the Board
Provision of Key Documentation:
on Governance, Corporate
Policies, Directors’ & Officers’
Liability Insurance Policy and
other information
The Operational Perspective:
Meetings with the CEO, CFO
and COO
Briefings: Vice Presidents, Head of
Internal Audit, Head of Investor
Relations and Company Secretary
Full Perspective: Attends, as a
guest, the meetings of the
Sustainability Committee and
Exploration Working Group
The Hochschild team
did not miss a beat in
pivoting to an online
induction programme.
The discussions with
Non-Executive Directors
and management,
were thorough and
informative – a first
class process.”
Jill Gardiner
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Aug 20: Board discussion on
evaluation design
Oct 20: Discussion sheet
distributed
Oct/Nov 20: One-on-one
interviews
Findings documented by
SID and Co Sec
Findings discussed
with Chairman
Nov 21: Board discusses
findings for implementation
Feb 21: Action plan for
implementation agreed
2020 Board evaluation
In keeping with past practice and the
unanimous preference of the Board, the
2020 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;
– Specific aspects of each Committee’s
role and scope of responsibilities; and
– The workings of the Exploration Working
Group including the impact of Covid on
Brownfield Exploration and Business
Development opportunity selection.
The Board
– The composition of the Board, taking
into account, among other things, the
issue of gender diversity;
2020 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 2020 Board evaluation process
are as follows:
– Improvements to the working of the
Nomination Committee;
– Reporting of the work of the Group’s
– The workings of the Board; and
exploration programme;
– Consideration of specific aspects of the
Board’s role including strategy and M&A
and Governance & Risk.
– Gauging the corporate culture at the
mine-sites when travel restrictions are
lifted; and
– Seeking exposure to different parts
of the business through presentations
to the Board.
Other areas
– Strategy & M&A;
– Governance & Risk; and
– Leadership & Culture.
In addition to the above, the evaluation
took in discussions on specific aspects of
performance during 2020, suggestions for
topics to be presented to the Board in 2021
and feedback on the performance of the
Chairman and fellow Board members.
88 | Hochschild Mining PLC Annual Report & Accounts 2020
AUDIT COMMITTEE REPORT
‘In light of the Covid-19 crisis, the Audit Committee’s
role in overseeing the Company’s risk management
processes became even more critical.’
Dear Shareholder
I am pleased to present the Audit
Committee report for the year ended
31 December 2020.
In this part of the Annual Report, we focus
on how the Committee has discharged
the responsibilities delegated to it by the
Board during the year and the primary
considerations that have been taken into
account.
In light of the Covid-19 crisis, the Audit
Committee’s role in overseeing the
Company’s risk management processes
became even more critical as it increased
the profile of a number of risks to which
Hochschild is already exposed,
particularly in relation to health and
safety, and operational performance.
The pandemic has also had an impact
on the recurring issues that the Audit
Committee considers in the preparation
of the annual accounts. Firstly, the
uncertainty caused by the effects of the
worldwide pandemic prompted an
increase in precious metal prices and put
almost every country’s economy under
strain. This, in turn, impacts the valuation
of the Company’s assets which reflect
such macro-economic factors. The
Committee has reviewed management’s
assessment which is discussed further
on page 92.
In light of the ongoing uncertainty
caused by Covid-19, the Committee
has also considered management’s
analysis which forms the basis of our
going concern statement. As set out
on page 92, the Committee has
scrutinised the assumptions in the
scenarios modelled to test the
robustness of the Company’s financial
position over at least the coming 12
months.
I would also like to highlight the
initiatives discussed later in this
report which demonstrate how the
Committee promotes good
governance In relation to matters
within its scope of responsibilities.
These include the revision to the policy
on the use of the external auditor
for non-audit services and the
establishment of a centralised
compliance function.
Finally, I would like to convey our
thanks to Graham Birch, who stepped
down from the Committee on 1 August
2020, for his valuable contribution and
I welcome Jill Gardiner, who joined as
a Committee member on that date.
Eileen Kamerick
Committee Chair
2020 Meeting attendance
Members
Eileen Kamerick, Non-Executive Director (Chair)
Michael Rawlinson, Non-Executive Director
Graham Birch, Non-Executive Director*
Jill Gardiner, Non-Executive Director**
Independent
Maximum
possible
attendance
Actual
attendance
Yes
Yes
Yes
Yes
4
4
2
2
4
4
2
2
* Graham Birch stepped down from the Committee on 1 August 2020.
** Jill Gardiner was appointed a member of the Committee on joining the Board on 1 August 2020.
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Graham Birch served as a member of
the Committee until 1 August 2020. He
is a non-executive Director of Sprott Inc
and was formerly a director of BlackRock
Commodities Investment Trust plc and
manager of BlackRock’s World Mining
Trust and Gold and General Unit Trust.
Jill Gardiner was appointed a member of
the Committee on 1 August 2020. She was
formerly an investment banker at RBC
Capital Markets with a focus on certain
commodity and energy related industries.
She has served on and chaired numerous
audit committees and currently serves as
Chair of Trevali Mining Corporation and as
a director of Capital Power Corporation.
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
pages 74 and 75. 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.
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.
Activity during the year
The Committee considered the following
principal matters during the year:
Financial reporting – The 2019 Annual
Report and Accounts and the 2020
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. In line with its
usual practice, the Audit Committee set
management the objective of enhancing
the full-year financial reporting process
and, by doing so, increasing the
responsibility and visibility of senior
members of the Group Finance team.
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 64
to 71 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. On three occasions
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.
90 | Hochschild Mining PLC Annual Report & Accounts 2020
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 Audit
Committee reviewed, on behalf of the
Board, the adequacy of the Group’s
Whistleblowing arrangements.
Whistleblowing reports are circulated to
a group comprising the Audit Committee
Chair (‘AC Chair’), the Head of Internal
Audit, the Vice-President of Human
Resources and the Company Secretary
(‘the Reporting Group’); the AC Chair has
a preliminary discussion with the Head of
Internal Audit on the approach to the
investigation; and 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.
Fraud and bribery – The Audit Committee
continued to review and challenge the
actions taken by management to promote
ethical and transparent working practices.
The Group’s Code of Conduct 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. The case study below shows
the results of our policy in action:
CENTRALISING THE
COMPLIANCE FUNCTION
After an internal review, the decision was
taken during the year to centralise the
Group’s compliance activities. The
Group Head of Internal Audit has been
appointed as the Group’s Chief
Compliance Officer who, with the
support of Country Officers, will oversee
the implementation of a comprehensive
programme to embed a culture of
compliance across the organisation.
recommendations from management
and its own experiences with the external
Auditor. Key criteria of the evaluation
included resource and expertise, quality
and timeliness of the audit process, quality
of communication and reporting to the
Audit Committee.
Auditor objectivity – The Audit Committee
has adopted a revised 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.
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 2020
and concluded that it was appropriate to
recommend the re-appointment of EY as
external Auditor at the 2020 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
CALLING OUT UNETHICAL
BEHAVIOUR
During the year, the Company ran a
campaign publicising an instance of
an employee who called out unethical
behaviour at work. A weighing scale
operator reported the offer of a bribe
from a transport contractor who sought
to under-report the weight of the
supplies being delivered. An online event
acknowledging the employee’s actions
was attended by the CEO and members
of senior management. The Company
will hold an in-person event celebrating
the employee’s actions when
circumstances permit.
91 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CORPOR ATE GOVERNANCE REPORT CONTINUED
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 2019 annual audit
and the 2020 Half-Yearly Report. There
were no matters of significance to report
from these meetings.
Significant audit issues
As recommended by the Code, the
following is a summary of the significant
issues considered by the Committee in
relation to the 2020 financial statements
and how these issues have been
addressed.
(a) Impairments
The Audit Committee considered
management’s analysis of potential
indicators of impairment and impairment
reversals as follows, prompting full
impairment assessments:
Pallancata: The increase in short-term
precious metal prices was considered a
trigger of impairment reversal. In addition, it
was noted that the higher prices and lower
capex at the mine were compensated by
lower grades and higher costs.
San Jose: The increase in short and
medium-term precious metal prices
(indicating an impairment reversal) was
compensated, albeit partially, by a higher
country risk premium in Argentina
indicating a trigger of impairment.
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
significant increases until 2024; and
– the underlying calculation of the
impairment tests.
With regards to the Volcan project, the
Committee considered management’s
approach to the value in-situ analysis
and its assumptions.
In conclusion, the Audit Committee
concurred with management that an
impairment reversal of $8.3 million be made
as at 31 December 2020 with respect to
San Jose and that no impairments or
impairment reversals be recognised with
regards to Pallancata and Volcan.
(b) Going concern assessment
The Directors must satisfy themselves
as to the Group’s ability to continue as a
going concern to 31 March 2022, being 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. Such
circumstances included the occurrence
of a second wave of coronavirus infections
necessitating the suspension of all
operations for eight weeks combined with
significantly lower precious metal prices.
In February 2021, 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 78 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 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.
(d) Exceptional Items
In reviewing the proposed classification
of certain incremental and non-recurring
costs in relation to Covid-19 as exceptional
items, the Audit Committee considered the
reasonableness of management’s
judgement by considering:
– the nature and frequency of the
relevant costs; and
– the consistency of the treatment of
such costs for example with reference
to management’s impairment analysis.
The Audit Committee concluded that the
proposed classification and presentation
of the above-mentioned costs were
reasonable and in line with the Group’s
accounting policy.
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 Revised Ethical
Standard 2019 by the Financial Reporting
Council (the ‘FRC’), the Audit Committee
adopted a revised policy on the use of the
Auditor for non-audit services (the ‘2020
NAS Policy’).
92 | Hochschild Mining PLC Annual Report & Accounts 2020
The 2020 NAS Policy reflects the Revised
Ethical Standard In permitting the
engagement of the Auditor only for
additional services that are directly linked
to the audit or are required by law and/or
regulation. The 2020 NAS Policy requires (i)
the Audit Committee and Chief Financial
Officer to approve all non-audit services
undertaken by the external Auditor and (ii)
that the cost of non-audit services
rendered by the external Auditor, in any
financial year, cannot exceed 70% of the
average of the audit fees paid to the
external Auditor in the last three
consecutive financial years. Please refer to
the next section entitled ‘2020 Audit and
non-audit fees’ for details of the value and
nature of non-audit services provided
during the year.
During the year the Company obtained
a waiver of the non-audit fee cap from the
FRC in connection with the engagement
of the auditor as Reporting Accountant for
a corporate transaction which, ultimately,
did not proceed.
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.
2020 Audit and non-audit fees
Details of fees paid to the external Auditor
are provided in note 32 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.
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.
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 2021 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.
93 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CORPOR ATE GOVERNANCE REPORT CONTINUED
NOMINATION COMMITTEE REPORT
‘The Nomination Committee had an active year with
progress made on several fronts: succession planning,
Board effectiveness and improving our diversity.’
Dear Shareholder
At times of such uncertainty, it is crucial
that we have the right balance of skills,
experience and perspectives to direct
the Company and the accomplishment
of its strategic goals. The Nomination
Committee’s responsibilities for
overseeing succession plans for both
the Board and the management team
are therefore critical. The Committee
reviewed the Board skills matrix to
ensure that skills aligned with our
strategy are well represented and,
with respect to senior management,
that progress is being made against
identified development goals.
Our annual Board evaluation process
which feeds into our succession
plan pointed to an opportunity to
also increase the gender diversity of
the Board.
I am therefore delighted that through
the process described in this report,
the Committee was able to
recommend the appointment of Jill
Gardiner as a Non-Executive Director.
The Committee’s other area of focus
during the year was the effectiveness
of the Board. This brings together
many aspects of our work including
ensuring that the Directors have
sufficient time to commit to their
duties and the implementation of the
findings of our internally-led Board
evaluation process.
Eduardo Hochschild
Committee Chair
2020 Meeting attendance
Members
Eduardo Hochschild, Committee Chair
Graham Birch, Non-Executive Director
Jorge Born, Non-Executive Director
Jill Gardiner, 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
Yes
No
Yes
3
3
3
1
3
3
3
3
3
3
3
1
2**
3
2***
3
* Jill Gardiner was appointed a member of the Committee on joining the Board on 1 August 2020.
** Eileen Kamerick was unable to attend the February 2020 Committee meeting due to a family illness.
*** Dionisio Romero Paoletti was unable to attend the February 2020 Committee meeting due to a conflicting board
engagement.
94 | Hochschild Mining PLC Annual Report & Accounts 2020
Key roles and responsibilities
– Identify and nominate candidates for
Succession planning
– Non-Executive succession plan.
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
opposite. Jill Gardiner was appointed a
member of the Committee following her
appointment to the Board on 1 August
2020.
The Company Secretary acts as Secretary
to the Committee.
Activity during the year
The principal matters considered by the
Committee are outlined below.
Reporting
– The report of the Committee’s activities
for inclusion in the 2019 Annual Report;
Board diversity
– The strategy to increase the gender
diversity of the Board to enable the
Company to comply with the target set
by the Hampton-Alexander Review by
the end of 2021;
Board composition & effectiveness
– The selection and recruitment process
for the appointment of an Independent
Non-Executive Director and the
subsequent review of conflicts of
interest prior to recommending the
appointment of Jill Gardiner (see
‘Appointments to the Board’ section
below for further details);
– Dionisio Romero’s time commitment
to the Company in light of the concerns
expressed by investors reflected by
the level of votes cast against his
re-election at the 2020 AGM (see
page 84 of the Corporate Governance
Report for further details);
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 was able to plan for
future Non-Executive appointments
both in terms of timing and the profile
of potential appointees;
– Executive Succession & Development
Plan.
Under the rolling schedule of keeping
updated on contingency planning
and Senior Executive development, the
Committee considered the successors
to ‘Critical Positions’ and the
developmental needs for those
currently in those roles;
Evaluation
– The action plan to implement the
findings of the 2019 Board evaluation
process relating to Board composition;
– The format of the 2020 Board
evaluation process;
As explained earlier in this report, it
was decided to postpone the planned
external Board evaluation until
circumstances permitted the physical
attendance of a facilitator;
– The findings of the 2020 Board
evaluation process relating to the
Committee’s scope of responsibilities
(see earlier section of the Corporate
Governance Report). The performance
of the Committee was evaluated as part
of this process and, while further
consideration will be given to the
optimal composition of the Committee,
it was concluded that the Committee
performed effectively.
Appointments to the Board
In seeking candidates for appointment
to the Board, regard is given to relevant
experience and the skills required to
complete the composition of a balanced
Board, taking into account the challenges
and opportunities facing the Company.
The Board’s annual evaluation in 2019
and succession plan identified
opportunities to acquire skills that would
support the Company’s strategic path
and, at the same time, improve the gender
diversity of the Board. Accordingly, with
the support of its financial advisers, the
Nomination Committee compiled a
long-list of potential female candidates
with experience of the Canadian capital
markets, a key hub for listed mining
companies. A short-list was drawn up
and selected members of the Nomination
Committee carried out interviews prior
to recommending Jill Gardiner’s
appointment to the Board.
Diversity
Policy on Board appointments
The Board is keen to commit to the
overriding principle that every member
and potential appointee must be able to
demonstrate the skills and knowledge to
be able to make a valued contribution to
the Board. The Board also acknowledges
that diversity brings new perspectives
which can drive superior business
performance and promote innovation. A
combined approach to Board recruitment
has therefore been adopted which
primarily considers a candidate’s merits,
but which also seeks opportunities to
ensure the ongoing diversity of the Board,
whether of gender, culture, professional
background, nationality or otherwise.
Increasing workforce diversity
The Company is committed to redressing
the gender imbalance in its workforce.
To support this, a standalone Diversity &
Inclusion Policy was adopted during the
year and a number of initiatives were
launched. Please refer to page 58 for
further details.
95 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information CORPOR ATE GOVERNANCE REPORT CONTINUED
SUSTAINABILITY COMMITTEE REPORT
‘The Company has a long tradition of prioritising the
safety and wellbeing of its people, and this was especially
true in 2020 given the challenges posed by the
Covid-19 pandemic.’
Dear Shareholder
The pandemic has affected every part
of the business and I am proud that the
collective sense of responsibility, a key
foundation of our corporate purpose,
has shone through.
The Sustainability Committee oversaw the
implementation of the comprehensive action
plan to ensure the welfare of our employees.
This has required a monumental effort in
implementing health protocols under the
supervision of a Covid-19 Committee and
adjusting the way we operate.
The pandemic also saw the Company adapt
its Community Relations work. The flagship
project of the year was the provision of free
and unlimited internet access to thousands
of residents spread across numerous rural
communities, providing a crucial means of
communication and access to services.
While the Committee monitored the
continued progress with the
implementation of the second iteration
of our safety culture transformation plan,
known as ‘Safety 2.0’, it is with deep regret
that we suffered a fatality at Pallancata
during the first quarter of the year. We
remain committed to devoting all
necessary resources to achieving our
ongoing objective of zero fatalities.
The Group performed strongly in relation
to environmental management, as
indicated by our highest ECO Score rating,
which continues to receive external
recognition for its innovative approach.
Further details on the above and our
standalone Sustainability Report to be
published later in the year can be found
from page 50.
Dr Graham Birch
Committee Chair
2020 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
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;
– 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
– 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;
– 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
above. 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 50 to 63.
96 | Hochschild Mining PLC Annual Report & Accounts 2020
REMUNER ATION COMMITTEE REPORT
‘In addition to the usual areas of focus during the year, the
Remuneration Committee has undertaken a comprehensive review
of the Company’s Remuneration Policy which will be put to
shareholders for approval at the forthcoming AGM.’
Dear Shareholder
The Remuneration Committee continued
to exercise its primary responsibility of
ensuring a framework of remuneration
that attracts and retains its people with
incentives that are aligned with our
business strategy and the creation of
shareholder value.
In formulating the revised Policy, the
Committee has incorporated the views
of investors since the current policy
was adopted in 2018 and, in addition,
the Committee undertook an extensive
engagement process to seek specific
feedback from our largest
shareholders on our proposals.
Further details can be found in the
Directors’ Remuneration Report on
page 102.
Michael Rawlinson
Committee Chair
The Committee kept informed of the
views of its investors in response to the
2019 Remuneration Report and of
market developments generally through
reports from our advisers including the
impact of the Covid pandemic on
executive incentives.
Our efforts in 2020, however, were
focused on the review of the Company’s
Remuneration policy in advance of its
submission to shareholders for approval
at the 2021 AGM.
2020 Meeting attendance
Members
Michael Rawlinson, Non-Executive Director (Chair)
Graham Birch, Non-Executive Director*
Jill Gardiner, Non-Executive Director**
Eileen Kamerick, Non-Executive Director
Independent
Maximum
possible
attendance
Actual
attendance
Yes
Yes
Yes
Yes
4
2
2
4
4
2
2
4
* Graham Birch stepped down from the Committee on 1 August 2020.
** Jill Gardiner was appointed a member of the Committee on joining the Board on 1 August 2020.
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 who
served during the year are listed above.
On 1 August 2020, Graham Birch retired
from the Committee and Jill Gardiner
was appointed a Committee member.
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 102.
97 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther 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 Company’s issued share capital
comprises 513,875,563 ordinary shares
of 25 pence each (‘shares’). No shares
were issued during the year ended
31 December 2020.
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.
Current share repurchase authority
The Company obtained shareholder
approval at the AGM held in May 2020 for
the repurchase of up to 51,387,556 shares
which represented, at that time, 10% of
the Company’s issued share capital (‘the
2020 Authority’). Whilst no purchases
have been made by the Company
pursuant to the 2020 Authority, it is
intended that shareholder consent will be
sought on similar terms at this year’s AGM
when the 2020 Authority expires.
Additional share capital information
This section provides additional
information as at 31 December 2020.
(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 28 to
the consolidated financial statements.
(b) Rights and obligations attaching
to shares
The rights attaching to the ordinary
shares are described in full in the Articles.
In summary, on a show of hands and
on a poll at a general meeting or class
meeting, every member present in person
or, subject to the below, by proxy has
one vote for every ordinary share held.
However, in the case of a vote on a show
of hands, where a proxy has been
appointed by more than one member,
the proxy has one vote for and one vote
against if the proxy has been instructed
by one or more members to vote for the
resolution and by one or more members
to vote against the resolution.
Members are entitled to appoint a proxy
to exercise all or any of their rights to
attend and to speak and vote on their
behalf at a general meeting or class
meeting. A member that is a corporation
is entitled to appoint more than one
individual to act on its behalf at a general
meeting or class meetings as a corporate
representative.
(c) Transfer of shares
The relevant provisions of the Articles
state that:
– registration of a transfer of an
uncertificated share may be refused in
the circumstances set out in the CREST
Regulations and where, in the case of a
transfer to joint holders, the number of
joint holders to whom the uncertificated
share is to be transferred exceeds four;
– the Directors may, in their absolute
discretion, decline to register any
transfer of any share which is not a
fully paid share. The Directors may also
decline to recognise any instrument of
transfer relating to a certificated share
unless the instrument of transfer:
– 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.
Substantial shareholdings
The Company has been notified of the interests detailed in the table below in the Company’s shares in accordance with Chapter 5
of the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.
As at 31 December 2020
Eduardo Hochschild
Majedie Asset Management Limited
Van Eck Associates Corporation2
Additional holdings notified as at 17 February 2021
BlackRock, Inc.
Number of
ordinary
shares/voting
rights
Percentage of
issued share
capital)
Nature of
holding)
196,900,3061
38.32%
Indirect
25,384,745
4.94%
Indirect
24,715,437
4.81%
Direct
28,662,724
5.57%
Indirect
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 Hochschild from Van Eck Associates Corporation in June 2018.
98 | Hochschild Mining PLC Annual Report & Accounts 2020
In addition, no member shall be entitled
to vote if he or she failed to provide the
Company with information concerning
interests in those shares required to be
provided under the Companies Act.
(e) Deadlines for voting rights
Votes are exercisable at the general
meeting of the Company in respect of
which the business being voted upon is
being heard.
Votes may be exercised in person, by
proxy or, in relation to corporate
members, by a corporate representative.
Under the Articles, the deadline for
delivering proxy forms cannot be earlier
than 48 hours (excluding non-working
days) before the meeting for which the
proxy is being appointed.
Shareholder agreements
The Relationship Agreement entered into
prior to the IPO between, amongst others,
the Major Shareholder (as defined in the
Relationship Agreement) and Eduardo
Hochschild (collectively ‘the Controlling
Shareholders’) and the Company:
– contains provisions restricting the
Controlling Shareholders’ rights to
exercise their voting rights to procure an
amendment to the Articles that would
be inconsistent with the Relationship
Agreement; and
– contains an undertaking by the
Controlling Shareholders that they will,
and will procure that their Associates
will, abstain from voting on any
resolution to approve a transaction with
a related party (as defined in the FCA
Listing Rules) involving the Controlling
Shareholders or their Associates.
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) $200 million 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.
Following the sale of shares by the Major
Shareholder in December 2020, the
Lenders concluded that a Change of
Control was not triggered under the terms
of the Credit Agreement.
(b) Long-Term Incentive Plans
Awards made under the Group’s 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.
99 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information SUPPLEMENTARY INFORMATION CONTINUED
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.
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.
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
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 an
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.
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 15 to the
consolidated financial
statements
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
None
None
None
None
None
None
None
None
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.
(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
100 | Hochschild Mining PLC Annual Report & Accounts 2020
Non-financial information statement
The information below is produced to comply with sections 414CA and 414CB of the Companies Act 2006. The information is
incorporated by cross-reference.
Reporting requirement
Relevant policies
Further information
KPIs
Business model
Principal risks
Environmental matters
– Code of Conduct*
– Corporate Sustainability
Policy*
– Corporate Environmental
Policy
Employees
– Code of Conduct*
– Corporate Sustainability
Policy*
– Protocol for the Prevention
of Covid-19
– Corporate Health &
Safety Policy
Social matters
– Corporate Sustainability
Policy*
– Corporate Community
Relations Policy*
Human rights
– Corporate Sustainability
Policy*
– Corporate Human Rights
Policy*
– Diversity & Inclusion Policy*
– Sexual Harassment
Prevention Policy
– Code of Conduct*
– Anti-corruption
and Bribery Policy*
– Whistleblowing Policy*
Anti-corruption and
Anti-bribery matters
* Copies available from http://www.hochschildmining.com/en/responsibility
Business model (page 22)
– Risk Management & Viability
(page 64)
– Audit Committee report
(page 89)
Environment section of the
Sustainability Report
(page 60)
The following sections of the
Sustainability Report:
Our People (page 58), Safety
(page 53, Health & Hygiene
(page 56)
Community Relations section
of the Sustainability Report
(page 63)
Our People section of
the Sustainability Report
(page 58)
Audit Committee report
(page 89)
– GHG emissions
– GHG intensity
– ECO Score
– Electricity consumption
– Water consumption
– Waste generation
– % workforce trained
– Training hours
– % workforce unionised
– % employee satisfaction
– Health consultations
– High Potential Events rate
– Fatalities
– Injury Frequency rate
– Accident Severity rate
– Community employment
– Community investment
– Services and Goods
provided by suppliers
from communities
– Workforce by gender
101 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information DIRECTORS’ REMUNER ATION REPORT
For this, we acknowledge management’s
efforts in ensuring our level of
preparedness in the face of such
severe disruption.
Remuneration Policy review
Our 2018 Directors’ Remuneration Policy
was approved by shareholders at the
2018 Annual General Meeting (‘AGM’),
and we will be seeking shareholder
approval for a new Policy at the 2021
AGM, to take effect from the AGM. The
revised Directors’ Remuneration Policy
is the culmination of a wide-ranging
review by the Remuneration Committee
that took in all elements of executive
remuneration at Hochschild Mining.
The focus has been on incorporating
features of good practice in light of specific
investor feedback and revisions to the UK
Corporate Governance Code, reflecting
investor priorities as well as to reflect
general trends in executive remuneration.
Such changes include reductions in the
bonus payouts at threshold and target
performance levels and the introduction
of post-employment shareholding
requirements.
Performance measures for Long-Term
Incentive Plan (‘LTIP’)
A key objective of the review was to revise
the LTIP performance measures, which
were based only on performance
measures relating to relative Total
Shareholder Return (‘TSR’) and, as a
result, either vested at high levels or
lapsed entirely. With effect from the
awards granted this year, LTIP vesting will
be based on a combination of Relative
TSR performance (weighted 50%), and
Internal KPIs, helping to ensure the plan
reinforces strategic priorities, aligns with
shareholders’ interests and is robust. For
2021 awards, the Internal KPIs will be
based 50% on a Measured & Indicated
resources per share target over three
years, and 50% on a ‘consistency’
measure based on the average bonus
scorecard outcome over the three
financial years of the LTIP award. The
introduction of the resources measure
reflects a key driver of value for
Hochschild, being the growth of our asset
base, and addresses our key priorities
and those of our shareholders. The
Committee has introduced a consistency
measure as it believes investors value
reduced earnings volatility. This measure
is sufficiently stretching as it is based on a
tougher vesting schedule than that which
delivers the annual bonus, and is also
subject to an underpin whereby none of
this LTIP component would vest if, in any
of the individual financial years, the bonus
scorecard achievement is less than 60%,
reinforcing the sustained-performance
nature of this LTIP component.
The updated policy, subject to shareholder
approval, incorporates mandatory bonus
deferral and post-vesting holding
requirements on the entire vested LTIP
award in line with good market practice.
Annual Bonus Plan
The revised Remuneration Policy provides
for reduced bonus payouts at threshold
and target levels to reflect shareholder
feedback on the previous structure. In
addition, the opportunity has been taken
to increase the level of incentivisation
offered by the plan by proposing an
increase to the bonus opportunity from
150% to 180% of salary for the CEO.
Historical analysis applying this new
structure indicates that the weighted
average payout over the past 10 years
would be unchanged but that it achieves
a stronger correlation between
performance and bonus payouts. It will
also help ensure that the variable pay
opportunity is competitive with those
offered at international mining peers
where bonus opportunities are typically
200% of salary.
From 2021, any bonus earned above
150% of salary will be subject to
mandatory deferral for a period of
two years. The Committee considered
investor guidance around bonus deferral,
and took into account practices at
international mining companies
comparable to Hochschild, for whom
bonus deferral is significantly less
prevalent than within the FTSE250. The
Committee also took into account the
change being proposed around the LTIP,
for which vested awards will be deferred
in full in shares (as opposed to only 50%
previously), and the extension post-
termination of the shareholding
requirements, all of which contribute
to greater, and longer, share ownership
by Executive Directors.
The Committee considers the proposed
revisions to the bonus plan to also be
appropriate in light of the decision not
to establish a successor plan to the
Restricted Share Plan which was a
significant element of the CEO’s total
remuneration until the end of 2019.
The Committee is satisfied on the overall
market positioning of the CEO’s pay;
our benchmarking of the overall
remuneration levels for the CEO indicates
his package is slightly below market
median, and the total value of the CEO’s
pay structure has declined by c.37% over
the last four years with the removal of the
Enhanced LTIP and Restricted Share Plan.
Dear Shareholder
On behalf of the Board, I am pleased
to present the Directors’ Remuneration
Report for the year ending 31 December
2020 which is split into three sections:
this Annual Statement, the Directors’
Remuneration Policy and the Annual
Report on Remuneration.
In a year dominated by the Covid-19
pandemic, the Group’s results are
testament to the efforts of the
management team and our colleagues
across the entire organisation and our
partners. Each and every one has risen
to the unprecedented challenges by
demonstrating a willingness to adapt
to fast-changing circumstances with
unquestionable commitment.
In light of the stoppages at our operations,
production and cost guidance for the year
were revised in the second half of the year,
which have been met. As stated in the
early part of this report, the Group has
performed resiliently and, for the first time
in many years, has ended 2020 in a net
cash position.
Covid
Throughout the Annual Report we have
described the wide-ranging impact of
the Covid-19 pandemic on the Group
and how this has been managed. From
the use of technology to safely manage
the logistics associated with shift changes
to the donations of food and medical
equipment to our local communities,
our people’s response has been equally
wide-ranging and comprehensive.
I and my fellow Board members are
immensely proud that even though
the landscape in which we operate has,
like for many others, changed beyond
recognition, the Group has not had to
take advantage of any government-
sponsored support schemes and
neither has it suffered any compulsory
job losses. In fact, throughout the year,
the Group has met, in full, its financial
obligations to every one of its employees
and has done so without any delay.
102 | Hochschild Mining PLC Annual Report & Accounts 2020
Implementation of proposed
Remuneration Policy in 2021
For 2021, the maximum annual bonus
opportunity will, subject to shareholder
approval of the Remuneration Policy, be
180% of salary, with any bonus earned
above 150% of salary deferred in shares
for two years. The bonus payment will be
subject to performance against broadly
the same measures as those used in
2020. An LTIP award of 200% of salary is
proposed for 2021, the vesting of which will
be based on a combination of Relative TSR
and the achievement of objectives based
around Internal KPIs over the three-year
period ending 31 December 2023.
I trust that shareholders will be supportive
of the proposed changes to the
Remuneration Policy, and if you should
have any queries or comments on the
Policy or any aspect of this year’s report,
I would encourage you to contact me
through the Company Secretary.
I hope you find this report to be informative.
Michael Rawlinson
Chair of the Remuneration Committee
Incorporating other elements of
good practice
The revised Policy also includes the
introduction of a post-termination
shareholding requirement, in line with
good corporate governance, and clarifies
the trigger events which may give rise to
the application of malus. The full details
of the changes are included on page 105.
The Committee conducted a thorough
consultation with our major shareholders
in advance of finalising the Policy and we
thank those shareholders who provided
feedback; we revised our proposals
following this exercise, taking into
account the very helpful feedback from
shareholders on numerous aspects of the
original proposals.
Remuneration decisions in 2020
For 2020, the CEO will receive an annual
bonus of 135% of salary (equivalent to
90% of maximum), based on a scorecard
capturing financial, operational, strategic
and CSR measures. The scorecard was
set at the start of the financial year prior
to the onset of the Covid-19 pandemic,
which had a significant impact on certain
operational outcomes during 2020 as
a result of the government-mandated
closure of our mines for several months.
The bonus scorecard includes three
measures (production, Adjusted EBITDA
and AISC) which are highly sensitive to
the availability of our mining assets, and
hence the closure of these assets for
such a period of time fundamentally
invalidated the targets set at a time when
it was assumed there would be full
operational capacity throughout the
entire year. The Committee therefore
reconsidered the targets for these three
measures as soon as practicable after
the resumption of operations in the
second half of the year, when the Group
was in a position to revise its full-year
forecasts with an adequate level of
certainty, and applied its discretion to
adjust, pro-rata, the bonus targets
relating to production, Adjusted EBITDA
and AISC to ensure they remained
relevant to the c.900 broad-staff
population participating in the plan.
At its meeting in February 2021, the
Committee considered the overall
outcome against the scorecard including
the Group’s safety performance.
The Committee further took note of
several other perspectives of the
Company’s performance, including: (i) the
employee experience (no redundancies,
no furlough, all received full pay), (ii) the
taxpayer experience (no use of
government support), (iii) the shareholder
experience (share price growth in 2020),
and (iv) the community experience
(funding contributions to medical testing
and hardship funds, donations of medical
equipment to hospitals, etc).
The Committee is satisfied the bonus
outcome reflects the Company’s strong
operational performance despite the
unprecedented challenges posed by
Covid-19 and, importantly, preserves the
credibility of the incentive plan, to ensure
its effective operation across its c.900
participants for future cycles. A summary
of performance against the bonus
scorecard is included on page 114.
During 2018, the CEO was granted an
LTIP award of 200% of salary, of which
vesting was based on Hochschild’s TSR
performance over the three financial
years to 31 December 2020 compared to
international mining peers and the
FTSE350 Miners. The purpose of the LTIP
is to incentivise sustained shareholder
value creation over the long term. Based
on Hochschild’s relative TSR performance
over this three-year period, the 2018 LTIP
award will lapse.
During 2020, the CEO was granted an
LTIP award of 200% of salary. Vesting is
based on Hochschild’s TSR performance
over the three financial years to
31 December 2022 compared to
international mining peers and the
FTSE350 Mining Index.
CEO pay ratio
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 that of the Directors and of full-time
salaried employees in Peru can be found
in the section headed ‘Annual percentage
change in Directors’ remuneration’.
103 | Hochschild Mining PLC Annual Report & Accounts 2020
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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, the
Companies (Miscellaneous Reporting) Regulations 2018, the Companies (Directors’ Remuneration Policy and Directors’
Remuneration Report) Regulations 2019 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.
Directors’ Remuneration Policy (unaudited)
This section sets out our new Remuneration Policy (the 2021 Policy), which will be presented to shareholders for approval at,
and take effect from, the 2021 AGM. The principal objectives of the 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 longer-term critical measures of financial and non-financial
performance.
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. The Committee retains discretion to make non-significant changes to the Policy
without going back to shareholders.
The Committee is satisfied the principles of the UK Corporate Governance Code relating to the design of remuneration policies
and practices have been applied:
Clarity: we ensure pay for performance and our policy is designed to be logical and transparent
Simplicity: Executive Director remuneration comprises a minimum of components, based on a regular package including fixed pay,
and short- and long-term variable pay
Risk: a significant proportion of the Executive Director remuneration package is delivered in long-term or deferred pay which
ensures the longer-term impact of decisions is reflected in pay. Furthermore, the combination of in-post and post-employment
shareholding requirements, as well as capturing several categories of performance in the variable pay elements, helps to ensure
multiple mechanisms through which to expose senior executive pay to inadequate risk management
Predictability: variable pay is subject to the achievement of specific and transparent performance targets, and the Committee
has the ability to apply its discretion to ensure variable pay outcomes reflect underlying corporate health
Proportionality: the Executive Director pay mix is similar to that at comparable international mining peers, and the Committee
has the ability to apply its discretion to ensure overall pay outcomes are proportionate to the Company’s long-term performance
Alignment to culture: variable pay captures several categories of performance, including non-financial objectives such as those
relating to safety and environmental performance, helping to ensure pay reflects multiple perspectives on performance, and not
just financial outcomes
104 | Hochschild Mining PLC Annual Report & Accounts 2020
Summary of Policy changes
The table below sets out the key changes between the 2018 Policy and the 2021 Policy, to be approved by shareholders at the
2021 AGM:
Policy element
Description of change
Annual Bonus
Reduction in the payouts at threshold and target performance levels to 30% and 50% of maximum respectively (from 50% and
75% respectively)
Increase in the maximum opportunity from 150% to 180% of salary
Mandatory deferral of any bonus earned above 150% of salary into shares for two years
LTIP
LTIP vesting to be based on a combination of Relative TSR and Internal KPIs
Increase in the proportion of vested LTIP awards deferred in shares for two years from 50% to 100%
Clarification that the exceptional award opportunity of 267% of salary is to be used only in recruitment circumstances
Post-employment
shareholding
requirements
Introduction of post-employment shareholding requirements for a two-year period following termination of employment, set at
the lower of the actual shareholding at time of leaving and the in-post shareholding requirement (250% of salary) for the first
year, and then reduced by 50% for the second year; to apply to new LTIP awards granted to Executive Directors from the
introduction of the new Policy
Malus
In order to overcome the legal difficulties in enforcing clawback in Peru, the Policy wording relating to the events which may lead
to the application of malus has been clarified so as to include references to misconduct, reputational damage, error in
calculation and any material breach of an individual’s employment contract
Policy Table
The table below provides a summary of each element of the Remuneration Policy for Executive Directors.
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).
Performance
metrics
None
None
105 | Hochschild Mining PLC Annual Report & Accounts 2020
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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
180% 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 of up to 150% of salary are delivered in cash;
any bonus earned above 150% of salary is deferred in
Hochschild shares, under the Deferred Bonus Plan, for
two years.
Deferred bonus is subject to malus, i.e. forfeiture or reduction,
in circumstances such as material misstatement, reputational
damage, gross misconduct and material breach of an
individual’s employment contract.
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 30% and
50% 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 misconduct, material misstatement, material
failure of risk management, action or omission resulting in serious
reputational damage, or any material breach of an individual’s
employment contract.
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. Vested awards are 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
relating to the
recruitment of an
Executive Director).
Threshold
performance will
result in vesting of
25% of an award.
Vesting of LTIP awards is based on performance measures linked
to the Group’s strategic priorities and may vary cycle-to-cycle.
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 misconduct, material misstatement, material failure of
risk management, action or omission resulting in serious
reputational damage, or any material breach of an individual’s
employment contract.
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.
Shareholding requirements
Executive Directors are required to acquire and retain a beneficial shareholding in the Company equal to at least 250%
of base salary whilst in employment. Directors’ shareholdings are reviewed to ensure compliance with the requirements.
A post-employment shareholding requirement will apply to equity-based awards granted after the effective date of the 2021
Remuneration Policy, requiring Executive Directors on the termination of their employment to hold the lower of (i) their shareholding
at the date of termination and (ii) shares equivalent to their in-post shareholding requirement for a two-year period post-
employment, with the required shareholding level reduced to 50% of the in-post shareholding requirement after 12 months.
106 | Hochschild Mining PLC Annual Report & Accounts 2020
Notes to the Policy Table
Payments from existing awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the
Remuneration Policy detailed in this report (such as awards made under a previous Policy, or awards made prior to appointment
to the Board). Details of any such payments will be set out in the Annual Report on Remuneration as they arise.
Performance measurement selection and approach to target-setting
The measures used under the annual bonus are selected annually to reflect the Group’s main strategic objectives for the year and
reflect both financial and non-financial priorities.
Performance targets are set to be stretching and achievable, taking into account the Company’s strategic priorities and the
economic environment in which the Company operates. Targets are set taking into account a range of reference points including
the Group’s strategic and operating plan.
The Committee considers a combination of relative TSR and Internal KPIs to be the most appropriate measures of long-term
performance for the Company and together with the annual bonus measures, provide a balance between absolute and relative
performance, between short-term and long-term performance measures, and between external and internal measures of
performance. TSR, in particular, aligns with the Company’s focus on shareholder value creation and rewards management for
outperformance of sector peers, and is transparent, visible and motivational to executives.
The Committee has discretion to vary the performance condition for in-flight awards in certain circumstances to ensure they
continue to be fair, reasonable and no more or less difficult to satisfy than originally intended. For example, in the event of corporate
activity amongst the TSR comparator group during a performance period, the Committee may make adjustments to the
comparator group (for example, replacing that company with the acquiring company, including a substitute for that company, or
tracking the future performance of that company by reference to the median of the remaining comparators). Other examples of
special circumstances include but are not limited to rights issues, corporate restructuring, and special dividends. The Committee
will also review the appropriateness of the performance conditions prior to each LTIP grant and reserves the discretion to set
different targets for future awards without consulting with shareholders.
Remuneration Policy for other employees
The Committee takes into consideration the remuneration arrangements for the wider employee population in making its decisions on
remuneration for senior executives. The Company’s approach to annual salary reviews is consistent across the Group, with consideration
given to the scope of the role, level of experience, responsibility, individual performance and pay levels in comparable companies.
In general, the Remuneration Policy and principles which apply to other senior executives are broadly consistent with those set out
in this report for the CEO. Generally, remuneration is linked to Company and individual performance in a way that is ultimately
aimed at reinforcing the delivery of shareholder value.
Senior employees above a specific grade are eligible to participate in an annual bonus scheme with a similar design to that for
the CEO. Opportunities and specific performance conditions vary by organisational level with business area-specific metrics
incorporated where appropriate.
All Peruvian employees participate in the statutory profit share scheme whereby an amount equal to 8% of the relevant Peruvian
company’s taxable income for the year is distributable to its employees. The amount receivable by each employee is determined
with reference to their annual base salary and bonus, if any, and the number of days worked in the calendar year.
Selected senior employees participate in the LTIP and are required, subject to shareholder approval of the new plan, to invest 50%
of the vested cash award (on a tax net basis) in the Company’s shares and hold these shares for a further two years. These shares
will count towards their target shareholding (expressed as a percentage of salary, which will be set depending on seniority).
107 | Hochschild Mining PLC Annual Report & Accounts 2020
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Pay scenario charts
The charts below provide an estimate of the potential future reward opportunities for the CEO, and the potential split between the
different elements of remuneration under 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
2021 of $700,000, unchanged from 2020.
Performance scenario ($’000)
Maximum +50%
Maximum
On-target
Minimum
21%
21%
40%
100%
40%
40%
41%
19%
1,966
788
39%
39%
3,716
3,716
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 ‘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 statutory profit share, a target payout of 50% 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 denominated in shares until after the end of the performance period, this scenario is the same as the ‘maximum’ scenario.
Approach to remuneration on recruitment or promotion
The Committee’s policy is to set the remuneration package for a new Executive Director in accordance with the approved
Remuneration Policy at the time of the appointment. The overarching aim is to ensure that the Company pays no more than
is necessary to appoint individuals of an appropriate calibre.
In the cases of appointing a new Executive Director, the Committee may make use of any of the existing components of
remuneration as set out in the Policy Table. In determining the appropriate remuneration for a new Executive Director, the
Committee will take into consideration all relevant factors (including the nature of remuneration and where the candidate was
recruited from) to ensure that arrangements are in the best interests of Hochschild and its shareholders. Where an individual is
appointed on an initial base salary that is below market, any shortfall may be managed with phased increases over a period of time,
subject to the individual’s development in the role. This may result in above-average salary increases during this period.
In addition to the components of remuneration as set out in the Policy Table, the Committee may also make an award in respect
of a new appointment to ‘buy-out’ incentive arrangements forfeited on leaving a previous employer on a like-for-like basis, having
regard to the fair value of the instruments. In doing so, the Committee will consider relevant factors including any performance
conditions attached to these awards and the likelihood of those conditions being met. The Committee aims to use the current
remuneration structure in making recruitment awards, but in some cases it may be required to use the flexibility afforded by Listing
Rule 9.4.2R, if appropriate, in relation to such buy-out awards.
In cases of appointing a new Executive Director by way of internal promotion, the Committee will determine remuneration in line
with the Policy for external appointees as detailed above. Where an individual has contractual commitments made prior to his or
her promotion to the Board, the Company will continue to honour these arrangements. Incentive opportunities for below-Board
employees are typically no higher than for Executive Directors, but measures may vary to provide better line-of-sight.
Service contracts
Executive Director
Date of service contract
Ignacio Bustamante
1 April 2007
108 | Hochschild Mining PLC Annual Report & Accounts 2020
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.
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.
Jill Gardiner
Eileen Kamerick
Michael Rawlinson
Sanjay Sarma
Dionisio Romero Paoletti
Letter of appointment dated
Anticipated expiry of present term of
appointment (subject to annual re-election)
30 January 2015
20 June 2011
16 October 2006
17 July 2020
9 September 2016
18 December 2015
13 December 2016
18 December 2017
1 January 2022
1 July 2023
16 October 2021
1 August 2023
1 November 2022
1 January 2022
1 January 2023
1 January 2024
Note: Copies of the Directors’ letters of appointment and service agreements are available for inspection at the Company’s registered office.
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.
109 | Hochschild Mining PLC Annual Report & Accounts 2020
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Leaver and change-of-control provisions
The table below summarises how the awards under the annual bonus and LTIP are typically treated in specific circumstances, with
the final treatment remaining subject to the Committee’s discretion. When considering the appropriate treatment, the Committee
reviews all potential incentive outcomes to ensure they are fair to both shareholders and participants.
Reason for leaving
Treatment of awards
Timing of vesting
Annual bonus
Retirement, ill health, disability, death or any
other reasons the Committee may determine
in its absolute discretion
Cash bonuses will only be paid to the extent that Group and personal objectives
set at the beginning of the year have been achieved. Any resulting bonus would
typically be pro-rated for time served during the year.
The Committee has discretion to determine whether deferral would be applied.
Change-of-control and company/
business sale
The Committee would determine the most appropriate treatment in the
circumstances.
The Committee has discretion to determine whether deferral would be applied.
Any other reason
No bonus is paid.
LTIP
Retirement, ill health, disability, redundancy,
injury or any other reasons the Committee
may determine in its absolute discretion
Any outstanding awards will be pro-rated for time and performance, unless the
Committee determines otherwise.
Death
Any outstanding awards will be pro-rated for time and performance, unless the
Committee determines otherwise.
Change-of-control and company/
business sale
Any outstanding awards will be pro-rated for time and performance, unless the
Committee determines otherwise. On a change-of-control, Hochschild awards
may alternatively be exchanged for new equivalent awards in the acquirer,
where appropriate.
Normal payment
date, although the
Committee has
discretion
to accelerate
On date of event
Not applicable
Normal vesting
date, although the
Committee has
discretion to
accelerate
On date of event
On date of event
Any other reason
Awards lapse.
Not applicable
Deferred Bonus Plan (‘DBP’)
Death, ill health, disability, redundancy, injury,
retirement with agreement of the Director,
or any other reasons the Committee may
determine in its absolute discretion
Change-of-control and company/
business sale
Any outstanding awards would typically be pro-rated for time.
On date of event
Any outstanding awards would typically be pro-rated for time. On a
change-of-control, Hochschild awards may alternatively be exchanged for new
equivalent awards in the acquirer, where appropriate.
On date of event
Any other reason
Awards lapse.
Not applicable
The Remuneration Committee has discretion to determine the most appropriate treatment of vested LTIP awards that are subject
to a holding period, based on the individual circumstances at the time.
External appointments policy
The Board recognises that Executive Directors may be invited to serve as directors of other companies, which can bring benefits to
the Group. Executive Directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is
sought and granted. The Policy is that fees may be retained by the Director, reflecting the personal risk assumed in such appointments.
Details of external appointments and the associated fees received are included in the Annual Report on Remuneration.
Consideration of conditions elsewhere in the Company
The Committee does not currently consult with employees specifically on the effectiveness and appropriateness of the executive
Remuneration Policy and framework. However, the Company seeks to promote and maintain good relationships with employee
representative bodies as part of its employee engagement strategy and consults on matters affecting employees and business
performance as required in each case by law and regulation in the jurisdictions in which the Company operates. Although the
Committee does not consult directly with employees on the Directors’ Remuneration Policy, the Committee takes into consideration
the remuneration arrangements for the wider employee population in making its decisions on remuneration for senior executives.
Consideration of shareholder views
When determining remuneration, the Committee takes into account views of shareholders and best practice guidelines issued by
institutional shareholder bodies. The Committee will continue to monitor trends and developments in corporate governance and
market practice to ensure the structure of the executive remuneration remains appropriate.
The Committee is always open to feedback from shareholders on Remuneration Policy and arrangements, and commits to
undergoing shareholder consultation in advance of any significant changes to Remuneration Policy. Further details on the votes
received in respect of remuneration resolutions presented at last year’s AGM and any matters discussed with shareholders during
the year are provided in the Annual Report on Remuneration.
110 | Hochschild Mining PLC Annual Report & Accounts 2020
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 2020, and how the Remuneration Committee intends to implement the 2021 Remuneration
Policy in 2021. 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, and its other members were
Eileen Kamerick, Graham Birch (who stepped down on 1 August 2020) and Jill Gardiner (who was appointed from 1 August 2020).
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.
The Remuneration Committee met four times during the year (details of members’ attendance at meetings are provided in the
Corporate Governance Report on page 97) and undertook the items of business noted below.
Key activities of the Remuneration Committee in 2020:
2019 Remuneration and reporting
– Reviewed and approved incentive outcomes for 2019 (2019 annual bonus and vesting of 2017 LTIP awards and the third and final
tranche of awards granted under the 2014 Enhanced LTIP (‘ELTIP’));
– Considered and approved the 2019 Directors’ Remuneration Report (‘DRR’);
– Considered investor feedback on the 2019 DRR;
2020 Remuneration
– Reviewed the CEO’s total remuneration, including salary for 2020;
– Considered and approved the CEO’s 2020 objectives;
– Approved the opportunity/award level and performance targets for 2020 annual bonus and LTIP awards;
Keeping informed
– 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 in advance of engaging with major shareholders on the
proposed revised Remuneration Policy;
– Considered a presentation from its adviser on the impact of Covid-19 on executive pay; and
– Considered the engagement of Ellason LLP as Committee adviser (further details of which are provided below).
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 2020 (based on time and materials) totalled £35,491,
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.
Following the Mercer Kepler lead adviser moving to Ellason LLP, Ellason LLP was appointed as the independent remuneration
adviser to the Committee effective 1 January 2021.
111 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information DIRECTORS’ REMUNER ATION REPORT CONTINUED
Summary of shareholder voting
The table below shows the results of the advisory vote on the 2019 Annual Report on Remuneration at the 2020 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
2019 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
372,486,543
19,439,702
391,926,245
33,991
% of votes cast
95.04%
4.96%
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.
In the second half of 2020, the Committee commenced a comprehensive programme of engagement with the Company’s major
shareholders on the proposed Remuneration Policy being submitted for approval at the forthcoming AGM. Following feedback from
investors, the Committee revised numerous aspects of its proposals including the incorporation of:
– deferral of an element of the annual bonus;
– a performance measure, in the LTIP, relating to the addition of Measured & Indicated Resources on an Enterprise Value per share
basis in order to align the plan with the Company’s and investors’ key priorities;
– an increased use of shares to satisfy LTIP awards (from 50% to 100%) and making the entire vested award (as opposed to only
50%) subject to a two-year holding period; and
– post-employment shareholding requirements.
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 2020 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.
2020
(US$000)
2019
(US$000)
700
30
730
945
0
0
151
1,096
98
9
1,933
700
28
728
998
219
1,359
184
2,760
170
7
3,665
Notes for 2020 values:
1 Figures disclosed include certain statutory payments accounted for internally within base salary (‘Statutory Supplements’) as follows: 2020: $300; 2019: $300
2 Taxable benefits include: use of a car and driver (2020: $21k; 2019: $22k) and medical insurance.
3 Payment for performance during the year under the Annual Bonus Plan. See following sections for further details.
4 2020 value is nil as the 2018 LTIP did not vest based on performance to 31 December 2020. 2019 value represents a restatement, as required by reporting regulations, of the value
of the third (six-year) tranche of the 2014 Enhanced LTIP vesting at 34% (which is itself comprised of (a) $197k using the share price on the date of vesting of 92.6p, rather than
the three-month average share price to 31 December 2019 and (b) $22k, 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.
6 All-employee profit share mandated by Peruvian law (see policy table for further information).
7 For further details on CTS, see page 105. 2020 CTS comprises: CTS on base salary ($58k) and on bonus ($39k). 2019 CTS has been restated to reflect the amount of CTS paid in
respect of the third tranche of the 2014 Enhanced LTIP which vested at 34% on 20th March 2020.
8 Refunds payable in relation to social security following a change in regulations.
112 | Hochschild Mining PLC Annual Report & Accounts 2020
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 2020 and the prior year:
Eduardo Hochschild1
Dr Graham Birch
Jorge Born Jr
Jill Gardiner3
Eileen Kamerick
Michael Rawlinson
Dionisio Romero
Sanjay Sarma
Base fee
(US$000)
2020
400
89
89
38
89
89
89
89
2019
400
90
90
n/a
90
90
90
90
Additional fees
(US$000)
Taxable benefits
(US$000)
Total
(US$000)
2020
0
323
0
0
18
36
0
0
2019
0
0
0
n/a
18
36
0
0
2020
665
0
0
0
0
0
0
0
2019
651
0
0
n/a
0
0
0
0
2020
1,065
92
89
38
107
125
89
89
2019
1,051
90
90
n/a
107
125
90
90
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.
2 To align the position with that of the other Committees, the Board approved the payment of the additional fee to Mr Birch as Chair of the Sustainability Committee from 1 November 2020.
3 Jill Gardiner was appointed on 1 August 2020.
Salary and fees for the year ended 31 December 2020
Executive Director
The Committee reviewed the CEO’s salary in 2020 and determined that there would be no increase.
Executive Director
Ignacio Bustamante
Base salary from
1 March 2020 (US$000)
Base salary from
1 March 2019 (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 acting as Chair of the Remuneration Committee and Audit Committee, and Senior Independent Director.
It was agreed that the Chair of the Sustainability Committee would also be paid the additional fee. No change was made to these
fees in 2020.
A summary of current fee levels is provided below:
Base salary from
1 March 2020 (US$000)
Base salary from
1 March 2019 (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
Chair of the Sustainability Committee
US$400,000
£70,000
£14,000
£14,000
£14,000
£14,000
US$400,000
£70,000
£14,000
£14,000
£14,000
£14,000
–
–
–
–
–
113 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information DIRECTORS’ REMUNER ATION REPORT CONTINUED
Incentive outcomes for the year ended 31 December 2020 (audited)
Annual bonus in respect of 2019 performance
Objectives for the 2020 bonus were set by the Committee at the beginning of the year and assessment of performance during the
year was undertaken at the February 2021 Committee meeting.
Details of the bonus paid to the CEO for 2020, 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
Production (Oz Ag Eq)
Adjusted EBITDA2
AISC from operations with growth3
Biolantanidos Project
Brownfield exploration Inferred resources (subject to permits
Safety and
environmental
awareness
available) (Oz Ag Eq)
Accident frequency rate (LTIFR)
Accident Severity Index
ECO Score4
Bonus payable (as a percentage of maximum opportunity)
Targets
2020 Assessment
Target
weighting
Threshold
Target
Maximum
2020 result
Final bonus
score/
(Maximum)
20%
15%
15%
5%
10%
15%
10%
10%
24m
24.5m
25m
24.9m 20%1 (20%)
US$230m
US$245m
US$260m
US$270.9m
15% (15%)
US$15.7/oz
US$15.3/oz
US$14.9/oz
US$14/oz
15% (15%)
Remco Assessment
Satisfied
5% (5%)
40m
3.00
540
60m
2.50
450
80m
2.00
300
4.25 – 4.54
4.55 – 4.74
≥ 4.75
40m
1.38
474
5.78
5% (10%)
15% (15%)
5% (10%)
10% (10%)
90%
Notes:
1
The Remuneration Committee’s discretion was applied to increase the final assessment due to the localised Covid outbreak at San Jose. See explanation in ‘Impact of Covid-19
on 2020 bonus objectives’ below.
2 Adjusted EBITDA is used for the annual bonus and is determined based on EBITDA adjusted primarily to neutralise price effects and the impact of the two-week stoppage at
San Jose.
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 postponing certain expenditure
due to disruption caused by Covid-19.
4 Refer to the Sustainability Report on page 61 for further details on the methodology of calculating the Group’s ECO Score (the internally designed measurement of the
Company’s environmental performance).
General approach
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.
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 budgeted prices)
and the impact of Covid-19 such as the two-week plant stoppage at San Jose (discussed further below).
Assessing performance against 2020 bonus objectives
The scorecard was set at the start of the financial year prior to the onset of the Covid-19 pandemic, which had a significant impact
on certain operational outcomes during 2020 as a result of the government-mandated closure of our mines for several months.
The bonus scorecard includes three measures (production, Adjusted EBITDA and AISC) which are highly sensitive to the availability
of our mining assets, and hence the closure of these assets for such a period of time fundamentally invalidated the targets set at
a time when it was assumed there would be full operational capacity throughout the entire year. The Committee therefore
reconsidered the targets for these three measures as soon as practicable after the resumption of operations in the second half
of the year, when the Group was in a position to revise its full-year forecasts with an adequate level of certainty, and applied its
discretion to adjust, pro-rata, the bonus targets relating to production, Adjusted EBITDA and AISC to ensure they remained
relevant to the c.900 broad-staff population participating in the plan.
At its November 2020 meeting, the Committee considered targets set at the beginning of the year and:
(a) re-calibrated the bonus objectives relating to production, Adjusted EBITDA and costs (AISC) to reflect the curtailed period
of production. In revising these objectives, the Committee sought to maintain appropriately stretching targets whilst also
recognising the demands on management to adapt the business to the significant and unforeseeable challenges posed by
Covid; and
(b) maintained, without any amendment, the objectives relating to the Biolantanidos Project, the addition of mineral resources,
safety and environmental performance.
At its next meeting, in February 2021, the Committee assessed performance against the bonus objectives (as amended) and:
(a) in relation to the production objective, considered the impact of a two-week plant stoppage at San Jose from November 2020
following the provincial authority’s decision to close mining operations in the region to combat rising Covid infections. The
Committee concluded that the stoppage, which would otherwise have resulted in the Maximum level of production being
achieved, was beyond management’s control and therefore exercised its discretion to allow full vesting;
114 | Hochschild Mining PLC Annual Report & Accounts 2020
(b) in relation to the safety objectives, considered the impact of the fatal accident at Pallancata on the overall scorecard. In
particular, the Committee took note of the proportion of the bonus foregone for failure to meet the accident severity objective
which was the direct result of the accident and balanced this against other considerations. These included management’s
ongoing efforts in implementing the wide-ranging plan, Safety 2.0 and the need to acknowledge internally the strong safety
performance demonstrated by the LTIFR for the year. On balance, the Committee concluded that it was imperative to
incentivise and reward good progress on safety across the board and not undermine the goal of cultural change and hence,
no further reduction was applied; and
(c) in relation to the objective on the Biolantanidos Project, considered the significant progress made during the year including the
completion of an internal scoping study, progress with permitting and the plan to complete a Feasibility Study. The Committee
concluded that the objective had been satisfied.
The Committee also took into account how management had responded to the impact of the pandemic and, importantly, the
experience of the Group’s stakeholders during the year. In doing so, the Committee noted the following factors:
– Total Shareholder Return in 2020 was 15.4% which has outperformed the FTSE250 Index by 20%. Furthermore, the Group’s strong
cash-generating performance prompted the payment of an interim dividend at the end of the year totalling $20.6 million;
– There have been no compulsory job losses and every employee and contractor has received full pay throughout the year without
any material delays;
– The Group has not made use of any government-sponsored schemes or grants in any of the countries in which it operates; and
– The multi-faceted initiatives pursued by the Group to support communities and other local stakeholders (details of which are
provided in the Risk Management report from page 64 and the Sustainability Report from page 50).
In conclusion the Committee agreed that the CEO be awarded a bonus of 90% of the maximum opportunity, which equates to
135% of salary. The Committee is satisfied the bonus outcome reflects the Company’s strong operational performance despite the
unprecedented challenges posed by Covid-19 and, importantly, preserves the credibility of the incentive plan, to ensure its effective
operation across its c.900 participants for future cycles.
2018 LTIP vesting
On 25 May 2018, 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 in common currency.
2 The 2018 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 2018 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 2018 and
31 December 2020 ranked 15th percentile vs. the tailored peer group and underperformed the median of the constituents of
the FTSE350 Mining Index by 13.9% per annum. Accordingly, the award will lapse in full.
115 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information DIRECTORS’ REMUNER ATION REPORT CONTINUED
Scheme interests awarded in 2020 (audited)
On 19 February 2020, 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 2020 to 31 December 2022, 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
Ignacio Bustamante
19 February 2020
Performance period
1 January 2019 to
31 December 2021
Face value of
award at grant
Award value for
threshold performance
$1,400,000
$350,000
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
Relative TSR performance
vs. constituents of the
FTSE350 Mining Index3
30%
Median TSR +10% p.a.: full vesting
Median (50th percentile): 25% vesting Straight-line vesting between these points
Median TSR: 25% vesting
Straight-line vesting between these points
Notes:
1 TSR is calculated on the basis of common currency.
2 The 2020 LTIP peer group, at the date of grant, comprised: 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, Hecla Mining, IAMGOLD, Kinross Gold, Newmont Mining, Pan American Silver,
Petropavlovsk and Polymetal.
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.
Implementation of Remuneration Policy for 2021
A summary of how the 2021 Remuneration Policy, assuming its approval at the 2021 AGM, will be applied for the year ended
31 December 2021 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 2021 financial year will be 180% of salary. The bonus payment will
be subject to performance against broadly the same measures as those used in 2020. Further disclosure of measures and targets,
where not commercially sensitive, will be provided in next year’s Annual Report on Remuneration. In line with the Remuneration
Policy, payout for ‘threshold’ and ‘target’ performance will be 30% and 50% of the maximum opportunity, respectively.
As in 2020, 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.
Any bonus earned above 150% of salary will be paid in shares and deferred for two years.
116 | Hochschild Mining PLC Annual Report & Accounts 2020
LTIP
The Committee will make awards in 2021 within the maximum limits described in the Remuneration Policy. Vesting will be based:
– 50% on Hochschild’s three-year TSR compared to an international mining peer group, with 25% vesting at median, 75% vesting
at 67th percentile and full vesting at 80th percentile;
– 25% on Measured & Indicated resources on an Enterprise Value per share basis, on targets set over 3 three years; and
– 25% on the average bonus scorecard outcome over the three financial years 2021-2023, with threshold vesting of 25% requiring
an average achievement of 60% with straight-line vesting up to full vesting requiring 100%, subject also to an underpin whereby
if the annual scorecard achievement is less than 60% in any one year then the vesting of this LTIP component will be nil.
Vested LTIP awards will be 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 2021 in line with the Remuneration Policy.
Annual percentage change in Directors’ remuneration
The table below shows the percentage change in Board Directors’ remuneration from the prior year compared with the percentage
change in remuneration for all other employees.
Executive Directors
Non-Executive Directors
Average all employees4
Ignacio Bustamante
Eduardo Hochschild
Dr Graham Birch
Jorge Born Jr
Jill Gardiner
Eileen Kamerick
Michael Rawlinson
Dionisio Romero
Sanjay Sarma
Base salary1/ fees
Taxable benefits2
Single-year variable3
% change
0%
0%
0%
0%
n/a
0%
0%
0%
0%
5.84%
4.5%
-5.3%
2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.81%
Notes:
1 Base salary only (i.e. excluding Statutory Supplements – see footnote 1 to table on single figure of total remuneration for Executive Directors on page 112).
2 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 112).
3 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.
4 ‘All employees’ comprise full-time salaried employees in Peru.
Relative importance of spend on pay
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends) from
the financial year ended 31 December 2019 to the financial year ended 31 December 2020.
Distribution to shareholders (US$000)1
Employee remuneration (US$000)
2020
32,6002
2019
10,200
% change
220%3
2020
141,700
2019
152,440
% change
-7.05%
Notes:
1
2 2020 figure includes the interim dividend of US$20.6 million, a portion of which relates to the 2019 final dividend of US$12 million which was withdrawn due to the uncertainty caused
Comprises all dividends paid in respect of each year (including the proposed 2020 final dividend).
by the Covid-19 pandemic. Had the 2019 final dividend been paid as originally proposed, the year-on-year change in the distribution to shareholders would have been -7.3%.
3 See footnote 2 above.
The Directors are recommending the payment of a final dividend of US$12 million for the year ended 31 December 2020.
117 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information DIRECTORS’ REMUNER ATION REPORT CONTINUED
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 2010. 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.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the 10 years to 31 December 2020
300
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Hochschild
FTSE250
FTSE350 Mining Index
CEO
CEO single figure
of remuneration
($000)
Annual bonus
outcome
(% of maximum)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
1,120
1,852
999
924
1,328
3,474
4,519
4,174
3,665
1,933
Ignacio
Bustamante
100%
90%
81%
67%
67%
83%
83%
90%
95%
90%
LTI vesting outcome
(% of maximum)
0%
98%
(LTIP)
0%
0%
0%
0% (ELTIP)
90% (LTIP)
86% (ELTIP)
100% (LTIP)
43% (ELTIP)
100% (LTIP)
34% (ELTIP)
0% (LTIP)
0% (LTIP)
118 | Hochschild Mining PLC Annual Report & Accounts 2020
Directors’ interests (audited)
The interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2020 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. Under the 2018 Remuneration Policy, 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 for 2 years (on a net basis) regardless of his achievement of the shareholding
guideline (to be raised to 100% of any vested award under the 2021 Remuneration Policy).
Owned
outright or
vested at
31 Dec 2019
(or date of
appointment
if later)
Shares held
Owned
outright or
vested at
31 Dec 2020
(or date of
retirement if
earlier)
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?
1,933,629
1,791,570
0
0
0
250%
729%1
Yes
258,565,373
196,900,306
33,750
33,750
0
0
0
0
0
0
0
0
0
0
15,000
15,000
Ignacio Bustamante
Eduardo Hochschild
Dr Graham Birch
Jorge Born Jr
Jill Gardiner
Eileen Kamerick
Michael Rawlinson
Dionisio Romero
Sanjay Sarma
Notes:
1 Using the Company’s closing share price and GBP/USD exchange rate as at 31 December 2020 (being the last trading day of the year) of 207.8p and £1:$1.37 respectively.
There have been no changes to Directors’ shareholdings since 31 December 2020.
Directors’ interests in share options, shares and cash awards in Hochschild long-term incentive plans
Details of Directors’ interests in shares and cash awards under Hochschild’s long-term incentive plans are set out in the table below.
Ignacio
Bustamante
2014 ELTIP
2018 LTIP
2019 LTIP
2020 LTIP
Date
of grant
Share price
at grant
Exercise price
at grant
Number of
shares
awarded
Face value
at grant 1
Performance
period
20.03.14
25.05.18
20.02.19
19.02.20
155p2
n/a
n/a
n/a
Nil
n/a
n/a
n/a
538,0622
£833,9962
01.01.14 – 31.12.19
n/a
n/a
n/a
$1.4m
$1.4m
$1.4m
01.01.18 – 31.12.20
01.01.19 – 31.12.21
01.01.20 – 31.12.22
Vesting
date
20.03.20
25.05.21
20.02.22
19.02.23
Notes:
1
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).
2 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.
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
2020, 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
17 February 2021
Fee received
US$42,000
US$60,000
119 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in
accordance with applicable United Kingdom 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 elected to prepare the Group
and Parent Company financial statements in accordance
with International Financial Reporting Standards (‘IFRS’) in
conformity with the Companies Act 2006. 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.
Under the Financial Conduct Authority’s Disclosure Guidance
and Transparency Rules, group financial statements are
required to be prepared in accordance with IFRSs adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
In preparing those financial statements, the Directors are
required to:
– select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
– make judgements and accounting estimates that are
reasonable and prudent;
– present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
– provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the Group’s financial position and financial
performance;
– in respect of the Group financial statements, state whether
IFRS in conformity with the Companies Act 2006 (and IFRSs
adopted pursuant to Regulation(EC) No 1606/2002 as it
applies in the European Union) have been followed, subject
to any material departures disclosed and explained in the
financial statements;
– in respect of the Parent Company financial statements, state
whether IFRSs in conformity with the Companies Act 2006,
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 appropriate to presume that the Parent Company
and/ or the Group will not continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company’s and Group’s transactions and disclose with
reasonable accuracy at any time the financial position of the
Parent Company and the Group and enable them to ensure
that the Parent Company and the Group financial statements
comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Parent Company and the
Group and hence for taking reasonable steps for the prevention
and detection of 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.
120 | Hochschild Mining PLC Annual Report & Accounts 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC
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 2020 and of the Group’s
profit for the year then ended;
– the Group financial statements have been properly prepared
in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union;
– the Parent Company financial statements have been properly
prepared in accordance with International Accounting
Standards in conformity with the requirements of the
Companies Act 2006 as applied in accordance with section 408
of the Companies Act 2006; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Hochschild Mining
PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2020 which comprise:
Group
Parent Company
Consolidated statement of
financial position as at 31
December 2020
Statement of financial position
as at 31 December 2020
Consolidated income statement
for the year then ended
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
comprehensive income for the
year then ended
Consolidated statement of
changes in equity for the year
then ended
Consolidated statement of cash
flows for the year then ended
Related notes 1 to 38 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 Accounting
Standards in conformity with the requirements of the
Companies Act 2006 and, as regards to the Group financial
statements, International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies
in the European Union and as regards the Parent Company
financial statements, as applied in accordance with section 408
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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors’ assessment of the Group and Parent
Company’s ability to continue to adopt the going concern basis
of accounting included the following:
– Obtaining the Group’s going concern assessment which
includes the cash flow forecast and its liquidity position covering
the period to 31 March 2022, being a period of at least 12
months from the approval of the financial statements.
– Reviewing and challenging the assumptions applied in the
forecast, with our main focus, given the significant uncertainty
that exists, on the remote scenario constructed by management
as well as its reverse stress testing, as follows:
– Assessing the flexibility of the business model to respond to
reduced prices, and the extent of enhanced restrictions
impacting operations, such as additional restrictions on the
movement of people across all operations or government-
imposed suspension of the operations.
– Modelling reverse stress tests based on management’s most
severe scenario. This was performed to identify i) a
combination of prices that would result in a closing cash
position at the end of March 2022 that would be the minimum
liquidity sufficient to maintain the business; and ii) the point at
which the Group would breach its financial covenants during
the going concern period. We assessed whether the resulting
combination of prices and period of stoppage was remote
based on historic price changes and stoppages experienced
to date.
– Assessing the reasonableness of all key assumptions in
management’s forecasts, including the length of time
Covid-19 restrictions remain in place, and the subsequent
recovery period; the forecast gold and silver price used; the
incremental costs to be incurred to manage the various health
and safety Covid-19 protocols and the level of costs estimated
during the stoppages and ramp-up period; and the mitigating
factors that exist that can be utilised to ensure the liquidity of
the Group.
121 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information INDEPENDENT AUDITOR’S REPORT CONTINUED
– Obtaining bank confirmations of 99.9% of the Group’s cash
and cash equivalents as at 31 December 2020.
– Verifying the terms, maturity, interest rates, and any restrictions
or covenants of all borrowings held by the Group at the date of
approving of the financial statements.
– Confirming that the method used in management’s model
is appropriate and checking the clerical accuracy of
management’s modelling, and recalculating management’s
forecasts of its compliance with borrowing covenants
throughout the assessment period under management’s
scenarios.
– With regards to the Parent Company financial statements,
we assessed the ability of Compania Minera Ares to provide
financial support to the Company during the going concern
period.
– Reviewing the appropriateness of management’s going concern
disclosures in describing the risks associated with its ability to
continue as a going concern during the assessment period,
ensuring this period is of at least 12 months from the date of
approval of the Group and Parent Company financial
statements.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group
and Parent Company’s ability to continue as a going concern for
the going concern period to 31 March 2022 which is at least 12
months from when the financial statements are authorised for
issue.
In relation to the Group and Parent Company’s reporting on how
they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
Directors’ statement in the financial statements about whether
the Directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections
of this report. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the
Group’s ability to continue as a going concern.
Overview of our audit approach
Audit scope
– We performed an audit of the complete financial
information of three components, and 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 98% of Total Assets.
– Recoverability of the carrying value of the Group’s
mining assets
– Revenue recognition
– Mine rehabilitation provisions
Key audit
matters
Materiality
– Overall Group materiality of US$5.4m which represents
2% of Adjusted EBITDA.
An overview of the scope of the Parent Company
and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope
for each company 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 component.
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% (2019: 99%) of the Group’s Adjusted EBITDA
(on an absolute basis), 100% (2019: 100%) of the Group’s Revenue
and 98% (2019: 96%) of the Group’s Total Assets. For the current
year, the three full scope components contributed 99% (2019:
99%) of the Group’s Adjusted EBITDA (on an absolute basis), 100%
(2019: 100%) of the Group’s Revenue and 87% (2019: 84%) of the
Group’s Total Assets. The three specific scope components
contributed 11% (2019: 12%) 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
2% of the Group’s Adjusted EBITDA (on an absolute basis) (2019:
1%), none are individually greater than 1% of the Group’s Adjusted
EBITDA. For these components, we performed other procedures,
including analytical reviews, testing of cash balances, 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.
122 | Hochschild Mining PLC Annual Report & Accounts 2020
Adjusted EBITDA %
Revenue %
Total assets %
The Group audit team adapted their approach to virtually interact
with and monitor local EY teams in response to the Covid-19
pandemic. In lieu of these planned visits, we maintained
continuous dialogue with our local teams. This included: additional
meetings with our component teams and the Group’s local
management via video conference and performing remote review
of the key workpapers associated with the component teams’
audit procedures.
Full scope
components 99%
Other procedures 1%
Full scope
components 100%
Full scope
components 87%
Specific scope
components 11%
Other procedures 2%
We held phone or video conference meetings with our component
teams and local management to discuss any issues arising from
the audit work and conclude the audit procedures at each
location, to ensure that we were fully aware of the progress and
results of their audit procedures.
Changes from the prior year
Our audit scope is consistent with that adopted in the prior year.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at
each of the components by us, as the primary audit engagement
team, or by component auditors from other EY global network
firms operating under our instruction. Of the three full scope
components, audit procedures were performed on two of these
by component audit teams, meanwhile audit procedures were
performed directly by the Group audit team on the remaining one.
For the three specific scope components, the work was performed
by the Group audit team. We determined the appropriate level of
involvement to enable us to determine that sufficient audit
evidence had been obtained as a basis for our opinion on the
Group as a whole.
The Group audit team had a programme of planned visits that has
been designed to ensure that the Senior Statutory Auditor visits
each of the primary operating locations where the Group audit
scope was focused. The Group audit team and Senior Statutory
Auditor would normally visit the Peru operating location twice every
year, and the Argentina operating location at least once every two
years. However, due to travel restrictions imposed by governments
in response to the Covid-19 pandemic, we did not complete our
planned visits to Peru during the current year’s audit cycle.
The performance of the year end audit was also required to be
conducted remotely due to the Covid-19 restrictions and social
distancing requirements at both component and Group locations.
This was supported through remote access to the Group’s financial
systems and the use of EY software collaboration platforms for the
secure and timely delivery of the requested evidence.
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.
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.
123 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information 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 where
applicable, fell within the
range of acceptable
outcomes that we had
calculated.
Based on the procedures
performed, we consider the
reversal of impairment of
$8.3m recognised in respect
of the San Jose CGU to be
appropriate and that the
carrying values of the
Pallancata and Volcan
CGUs are not impaired nor
require a reversal of
impairment as at 31
December 2020.
We concluded that the
related disclosures in the
Group financial statements
are appropriate.
INDEPENDENT AUDITOR’S REPORT CONTINUED
Risk
Our response to the risk
Recoverability of the carrying value of the
Group’s mining assets
Refer to the Audit Committee Report (page 89);
Accounting policies (page 134); and Notes 15,
16 and 17 of the Consolidated Financial
Statements (pages 153 to 157)
At 31 December 2020 the carrying values of
the Group’s mining assets were:
– Property, plant and equipment: US$784.8m
(2019: US$795.3m);
– Evaluation and exploration assets:
US$194.9m (2019: US$181.6m); and
– Intangible assets: US$21.6m (2019:
US$22.4m).
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, where impairment has been
previously recognised 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 the
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:
– Operating mines: Pallancata, Inmaculada
and San Jose; and
– Advanced exploration projects: Volcan,
Azuca 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 15 to the consolidated
financial statements, indicators of impairment
were identified in 2020 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 Pallancata CGU
and recognised a reversal of impairment of
US$8.3m in respect of the San Jose CGU.
There is a risk that the carrying values of the
Group’s mining assets may not be recoverable
or could require a 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.
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
process in order to assess the design effectiveness of the controls in
supporting the prevention, detection and correction of material errors
in the financial statements.
– We obtained management’s assessment of whether any indicators of
impairment or reversal of impairment were present at 31 December
2020 following the requirements of IFRS.
– We challenged the validity and completeness of the indicators identified
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 2019 and 2020 and
assessed whether the movements were indicators of impairment
or impairment reversal.
– We 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 the
San Jose and Pallancata CGUs as these required a full impairment
assessment and assessed the appropriateness of the methodology
applied in preparing the model and the arithmetical accuracy of
management’s model. In addition, we performed the following
procedures:
– We challenged the appropriateness of key assumptions such as price,
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 an assessment of management’s track record of
accuracy in forecasting to determine the reliability of current
forecasts, whilst considering the impact of the Covid-19 pandemic on
the cash flow projections. 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 challenging and
assessing the appropriateness of the discount rates and other key
assumptions used in the calculation.
– With respect to the recoverable value model for the Volcan CGU, 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.
– We considered the appropriateness, sufficiency, and clarity of the
impairment-related disclosures provided in the consolidated financial
statements, including sensitivity disclosures.
The above audit procedures over this risk area, covering 100% of the
amount at risk, were performed by the Group audit team.
124 | Hochschild Mining PLC Annual Report & Accounts 2020
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
Revenue recognition
Our response to the risk
Our approach focused on the following procedures:
Refer to the Audit Committee Report (page 89);
Accounting policies (page 134); and Note 4 to
the Consolidated Financial Statements
(page 147)
– We obtained an understanding of the key controls around the revenue
recognition process. We walked through the controls, in order to assess
the design effectiveness in supporting the prevention, detection and
correction of misstatements in the reported revenue figures.
For the year ended 31 December 2020 the
Group recognised revenue from operations
of US$621.8m (2019: US$755.7m).
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 read the terms and conditions of the sales contracts and ensured
that they have been recorded appropriately under IFRS 15 following the
terms and conditions in the contract.
– 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, bills of lading, market prices, agreements and bank statements),
recalculating the amounts invoiced and recorded as revenue.
– We performed cut-off procedures testing by reference to Incoterm
shipping services and shipment dates to ensure that 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 and 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.
The above audit procedures were performed in two components under full
scope audit, covering 100% of this risk amount, under the supervision and
direction of the Group audit team.
Mine rehabilitation provisions
Our approach consisted of the following procedures:
Refer to the Audit Committee Report (page 89);
Accounting policies (page 134); and Note 27 to
the Consolidated Financial Statements
(page 163)
At 31 December 2020 management has
recorded a mine rehabilitation provision of
US$126.4m (2019: US$106.7m).
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.
The risk relating to mine rehabilitation
provisions has increased in comparison to the
prior year as certain mines are approaching
the end of their life, and additional provision
has been recognised to reflect management’s
latest estimate, supported by internal and
external specialists.
– 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 objectivity, competence and capability 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.
– We evaluated the rationale for material changes in the mine
rehabilitation provision to be satisfied that these reflected new
information.
– We proactively sought out potentially 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.
– We performed an overall recalculation of the mine rehabilitation
provision, including assessing the appropriateness of the discount rate
applied by agreeing the term of the nominal risk-free rate to the life of
each mine unit and the rate to independent sources.
– We assessed the appropriateness of the accounting for the changes to
these provisions and confirmed that these changes, as well as the rest
of the mine restoration provision, were appropriately reflected and
disclosed in the Group financial statements.
The above audit procedures over this risk area, covering 100% of the
amount at risk, were performed by the Group audit team with support
of the component teams.
Based on the procedures
performed, we consider
the judgements and
assumptions made by
management, supported
by internal and external
specialists to be reasonable.
Our evaluation of the
rationale for material
changes in the mine
rehabilitation provision
was satisfactory as these
reflected new information
as at 31 December 2020.
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.
125 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information INDEPENDENT AUDITOR’S REPORT CONTINUED
The key audit matters in the current year audit report have not
changed since the prior year.
As part of our audit, we also address the risk of management
override of internal controls, including evaluating whether there
is evidence of bias by the Directors that may represent a risk of
material misstatement due to fraud. The above is not a complete
list of all risks identified by our audit.
Our 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$5.4m (2019:
US$6.9m), which is 2% (2019: 2%) of the Group’s Adjusted EBITDA.
We believe that Adjusted EBITDA is 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$18.1m (2019: US$15.5m), which is 1% (2019: 1%) of Equity. The
Parent Company materiality is higher than the Group materiality
as it is based on Equity, which we consider 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
Adjustments
Materiality
– Profit from continuing operations
before exceptional items, net of
foreign exchange loss and income tax
(US$107.8m)
– Add: Depreciation and amortisation
in cost of sales and in administrative
expenses (US$118.6m)
– Add: Exploration expenses other than
personnel and other exploration
related fixed expenses (US$26.3m)
– Add: Other non-cash expenses
(US$18.1m)
– US$270.9m Adjusted EBITDA
– Materiality of US$5.4m
(2% of materiality basis)
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% (2019: 75%)
of our planning materiality, namely US$4.1m (2019: US$5.2m). 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$1.8m to US$4.1m
(2019: US$2.0m to US$5.2m).
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$270k (2019:
$US345k), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the
Annual Report set out on pages 1 to 120, including the Strategic
Report and Governance sections (including the 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 contained within the Annual Report.
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.
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
course of 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
themselves. 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.
126 | Hochschild Mining PLC Annual Report & Accounts 2020
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.
Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in
relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Group and
Company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
– Directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any
material uncertainties identified set out on page 78;
– Directors’ explanation as to its assessment of the Company’s
prospects, the period this assessment covers and why the period
is appropriate set out on page 72;
– Directors’ statement on fair, balanced and understandable set
out on page 79;
– Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 93;
– The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems
set out on page 93; and;
– The section describing the work of the Audit Committee set out
from page 89.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement
set out on page 120, 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.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined below, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance
of the Company and management.
– 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
reporting frameworks (IFRS adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in the European Union, the
Companies Act 2006, the UK Corporate Governance Code, the
Listing Rules of the UK Listing Authority) and the relevant tax
compliance regulations in the jurisdictions in which the Group
operates (principally UK, Peru and Argentina). In addition, we
concluded that there are certain significant laws and
regulations that may have an effect on the determination of
the amounts and disclosures in the financial statements, mainly
relating to health and safety, employee matters, bribery and
corruption practices, environmental and certain aspects of
company legislation recognising the regulated nature of the
Group’s mining activities and its legal form.
127 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information INDEPENDENT AUDITOR’S REPORT CONTINUED
– We understood how Hochschild Mining PLC is complying with
those frameworks by making 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, papers provided to the
Audit Committee and correspondence received from regulatory
bodies, and noted there was no contradictory evidence.
– 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 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.
– Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations that
could have a material impact on the financial statements. Our
procedures involve: incorporated data analytics across our
audit approach, journal entry testing with a focus on manual
consolidation journals and journals meeting our defined risk
criteria based on our understanding of the business; enquiries
of the legal counsel, Group management, internal audit and all
full and specific scope management; review of Board and Audit
Committee reporting; and focused testing as referred to in the
key audit matters section above.
– We ensured our global team has appropriate industry
experience through working for many years on relevant audits,
including experience of mining. Our audit planning included
considering external market factors, for example geopolitical
risk, the potential impact of climate change, commodity price
risk and major trends in the industry.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Other matters we are required to address
– Following the recommendation from the Audit Committee, 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 15 years, covering
the years ending 31 December 2006 to 31 December 2020.
– 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
18 February 2021
128 | Hochschild Mining PLC Annual Report & Accounts 2020
Consolidated income statement
For the year ended 31 December 2020
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
Profit/(loss) from continuing
operations before income tax
Income tax (expense)/benefit
FINANCIAL STATEMENTS
Year ended 31 December 2020
Exceptional
Before
items
exceptional
(note 10)
items
US$000
US$000
Total
US$000
Notes
Year ended 31 December 2019
Exceptional
items
(note 10)
US$000
Before
exceptional
items
US$000
Total
US$000
4
5
6
7
8
11
11
12
12
621,827
–
621,827
755,676
(397,793)
(27,613)
(425,406)
(512,711)
224,034
(27,613)
196,421
242,965
(43,282)
(32,795)
(12,754)
3,617
–
–
–
–
(43,282)
(32,795)
(12,754)
3,617
(45,920)
(37,965)
(21,071)
9,014
–
–
–
–
–
–
–
755,676
(512,711)
242,965
(45,920)
(37,965)
(21,071)
9,014
(28,905)
(3,613)
(32,518)
(33,894)
(12,199)
(46,093)
(2,078)
8,303
6,225
(853)
(14,378)
(15,231)
107,837
(22,923)
84,914
112,276
(26,577)
85,699
4,197
(23,560)
(2,631)
–
–
–
4,197
2,938
(23,560)
(10,038)
(2,631)
(1,757)
–
–
–
2,938
(10,038)
(1,757)
85,843
(22,923)
62,920
103,419
(26,577)
76,842
13
(49,651)
7,157
(42,494)
(43,336)
7,933
(35,403)
Profit/(loss) for the year from continuing operations
36,192
(15,766)
20,426
60,083
(18,644)
41,439
Attributable to:
Equity shareholders of the Parent
Non-controlling interests
31,962
(16,800)
15,162
47,598
(18,644)
4,230
1,034
5,264
36,192
(15,766)
20,426
12,485
60,083
–
(18,644)
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)
14
14
0.06
0.06
(0.03)
0.03
0.09
(0.03)
(0.03)
0.03
0.09
(0.03)
28,954
12,485
41,439
0.06
0.06
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Profit for the year
Other comprehensive income that might be reclassified to profit or loss in subsequent periods, net of tax:
Net loss on cash flow hedges
Deferred tax benefit on cash flow hedges
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 on equity instruments at fair value through other comprehensive income (‘OCI’)
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity shareholders of the Company
Non-controlling interests
Year ended 31 December
2019
US$000
2020
US$000
Notes
20,426
41,439
37(g)
(5,913)
29
18
1,744
159
(4,010)
1,765
1,765
(2,245)
–
–
(327)
(327)
3,628
3,628
3,301
18,181
44,740
12,917
5,264
18,181
32,255
12,485
44,740
129 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information Consolidated statement of financial position
As at 31 December 2020
ASSETS
Non-current assets
Property, plant and equipment
Evaluation and exploration assets
Intangible assets
Financial assets at fair value through OCI
Financial assets at fair value through profit and loss
Trade and other receivables
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
Derivative financial liabilities
Borrowings
Provisions
Deferred income
Deferred income tax liabilities
Current liabilities
Trade and other payables
Derivative financial liabilities
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
2020
US$000
As at
31 December
2019
US$000
Notes
15
16
17
18
19
20
29
21
20
22
23
787,663
192,121
21,564
402
5,407
5,395
1,009
795,277
181,562
22,359
6,159
–
5,188
1,627
1,013,561
1,012,172
42,362
78,196
59
231,883
–
352,500
62,600
73,618
206
166,357
38,295
341,076
1,366,061
1,353,248
28
28
226,506
438,041
226,506
438,041
(225,664)
(221,800)
287,652
726,535
79,550
806,085
205
4,503
199,554
109,033
–
73,316
386,611
290,263
733,010
74,631
807,641
526
–
199,308
99,322
172
63,103
362,431
114,415
120,537
1,500
10,778
25,504
400
20,768
–
173,365
559,976
–
234
16,249
400
11,211
34,545
183,176
545,607
1,366,061
1,353,248
24
37(g)
26
27
29
24
37(g)
26
27
23
These financial statements were approved by the Board of Directors on 17 February 2021 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
17 February 2021
130 | Hochschild Mining PLC Annual Report & Accounts 2020
Consolidated statement of cash flows
For the year ended 31 December 2020
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 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 (used in)/generated from financing activities
Net increase in cash and cash equivalents during the year
Exchange difference
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
1 Taxes paid have been offset with value added tax (VAT) credits of US$3,390,000 (2019: US$3,717,000).
Year ended 31 December
2020
US$000
2019
US$000
Notes
33
208,999
290,316
26
27
16
17
18
12
12
18
26
26
25
28(b)
30
22
2,292
(6,312)
(3,987)
(5,618)
2,622
(4,955)
(3,488)
(1,236)
195,374
283,259
(94,046)
(13,287)
–
–
(27,256)
14,486
7,522
–
352
(133,724)
(68,632)
(2)
(1,100)
(14,795)
11,835
421
2,250
134
(112,229)
(203,613)
48,520
316,500
–
(37,717)
(2,021)
(292)
(345)
(20,556)
(12,411)
70,734
(5,208)
166,357
231,883
(692)
(272,500)
(2,506)
(309)
(11,069)
(20,213)
9,211
88,857
(2,204)
79,704
166,357
131 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information
Consolidated statement of changes in equity
For the year ended 31 December 2020
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
Unrealised
gain/
(loss) on
hedges
US$000
Share-
based
payment
reserve
US$000
Merger
reserve
US$000
Total
other
reserves
US$000
Retained
earnings
US$000
Capital and
reserves
attributable to
shareholders
of the Parent
US$000
Non-
controlling
interests
US$000
Total
equity
US$000
Other reserves
225,409 438,041
(4,324)
62
(13,708)
– (210,046)
4,860 (223,156) 278,995
719,289
71,003 790,292
Issuance of shares 28(a)
1,097
Balance at
1 January 2019
Other
comprehensive
income/(expense)
Profit for the year
Total
comprehensive
income/
(expense) for
the year
Sale of financial
assets at fair value
through OCI
18
Transfer of
financial assets at
fair value through
OCI to subsidiary
Exercise of share
options
28(b)
Expiration of
dividends
Dividends
Dividends to non-
controlling
interests
Purchase of
treasury shares
Share-based
payments
Balance at
31 December 2019
Other
comprehensive
income/(expense)
Profit for the year
Total
comprehensive
income/
(expense) for
the year
Sale of financial
assets at fair value
through OCI
Exercise of share
options
Dividends
Dividends to non-
controlling
interests
Purchase of
treasury shares
Share-based
payments
Balance at
31 December 2020
30
30
28(b)
28(c)
18
28(b)
30
30
28(b)
28(c)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
226,506 438,041
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
226,506 438,041
–
–
–
–
–
–
–
309
–
–
–
(309)
–
–
–
–
–
–
292
–
–
(292)
–
–
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
–
–
–
-
-
1,097
(4,647)
(4,647)
3,241
(1,097)
– (1,097)
37
–
37
– (20,213)
(20,213)
2
39
– (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
1,765
–
1,765
(1,988)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
159
(4,169)
–
–
159
(4,169)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,245)
–
–
15,162
(2,245)
15,162
– (2,245)
5,264 20,426
(2,245)
15,162
12,917
5,264 18,181
(1,988)
1,988
(1,087)
(1,087)
795
–
–
–
–
–
–
– (20,556)
(20,556)
– (20,556)
–
–
–
–
(345)
(345)
(292)
1,456
–
–
(292)
1,456
1,456
1,456
(205)
99
(13,876)
(4,169)
(210,046)
2,533 (225,664) 287,652
726,535
79,550 806,085
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
132 | Hochschild Mining PLC Annual Report & Accounts 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
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, the United States and Chile at various stages of development.
These consolidated financial statements were approved for issue by the Board of Directors on 17 February 2021.
The Group´s subsidiaries are as follows:
Company
Principal activity
Country of incorporation
Hochschild Mining (Argentina) Corporation S.A.1
Holding company
MH Argentina S.A.2
Exploration office
Argentina
Argentina
Minera Santa Cruz S.A.1 and 9
Production of gold and silver
Argentina
Minera Hochschild Chile S.C.M.3
Andina Minerals Chile Ltd.3
REE UNO SpA4
Southwest Minerals (Yunnan) Inc.5
Exploration
Exploration
Exploration
Exploration
Chile
Chile
Chile
China
Hochschild Mining Holdings Limited6
Holding company
England and Wales
Hochschild Mining Ares (UK) Limited6
Administrative office
England and Wales
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
Exploration
Exploration
Exploration
Holding company
Production of gold and silver
Production of gold and silver
Empresa de Transmisión Aymaraes S.A.C.5
Power transmission
Minera Antay S.A.C.5
Hochschild Mining (US) Inc.8
Exploration
Holding company
Mauritius
Mauritius
Mexico
Peru
Peru
Peru
Peru
Peru
USA
Equity interest at 31 December
2019
%
2020
%
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
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 Registered address: Cerro el Plomo 5630, floor 9, Las Condes, Santiago de Chile, Chile.
5 Registered address: La Colonia 180, Santiago de Surco, Lima, Peru.
6 Registered address: 17 Cavendish Square, London, W1G 0PH, United Kingdom.
7 Registered address: Calle Aguila Real No 122, Colonia Carolco, Monterrey, Nuevo Leon, CP 64996, 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 2020 and 2019 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
Net cash generated in/(used) financing activities
As at 31 December
2020
US$000
166,663
94,924
(61,711)
(40,389)
2019
US$000
164,190
81,564
(56,926)
(39,382)
(159,487)
(149,446)
206,098
10,743
28,272
(17,734)
9,926
250,715
25,480
74,996
(43,583)
(24,293)
Profit attributable to non-controlling interests in the consolidated income statement, non-controlling interest in the consolidated
statement of financial position, and dividends declared to non-controlling interests in the consolidated statement of changes in
equity are solely related to Minera Santa Cruz.
133 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Significant accounting policies
(a) Basis of preparation
The consolidated financial statements have been prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards (IFRS) adopted
pursuant to Regulation (EC) No 1606/2002 as it applied in the
European Union (EU).
The basis of preparation and accounting policies used in
preparing the consolidated financial statements for the years
ended 31 December 2020 and 2019 are set out below. The
consolidated financial statements have been prepared on a
historical cost basis except for the revaluation of certain
financial instruments that are measured at fair value at the end
of each reporting period, as explained below. These accounting
policies have been consistently applied, except for the effects
of the adoption of new and amended accounting standards.
The financial statements are presented in US dollars (US$) and
all monetary amounts are rounded to the nearest thousand
($000) except when otherwise indicated.
Changes in accounting policy and disclosures
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are
consistent with those followed in the preparation of the Group’s
annual consolidated financial statements for the year ended 31
December 2019, except for the adoption of new standards and
interpretations effective for the Group from 1 January 2020.
Other amendments and interpretations apply for the first time in
2020, but do not have an impact on the consolidated financial
statements of the Group. The Group has not early adopted any
other standard, interpretation or amendment that has been
issued but is not yet effective.
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
2021 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(f).
Estimates are required to be made by management as to the
useful lives of assets. For depreciation calculated under the
unit-of-production method, estimated recoverable reserves
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(h).
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.
– Recoverable values of mining assets – notes 2(j), 15, 16 and 17.
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.
To determine the fair value less costs of disposal of exploration
assets the Group uses the value-in-situ methodology. This
methodology applies a realisable ‘enterprise value’ to
unprocessed mineral resources per ounce of resources.
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. Judgement is also required in determining risk
factors that will be applied by market participants to take
into account the water restrictions imposed by the Chilean
government over the Volcan cash-generating unit. 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(n) and 27(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.
134 | Hochschild Mining PLC Annual Report & Accounts 2020
Critical judgements:
– Income tax – notes 2(s), 2(t), 13, 29 and 35(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. The Group analyses
the possibility of generation of profit in all the companies and
determined the recognition of deferred tax. No deferred tax
asset is being recognised in the holdings and exploration entities
as they do not expect to generate any profit to settle the
temporary difference (refer to note 29).
Judgement is also required when determining the recognition of
tax liabilities as the tax treatment of some transactions cannot
be finally determined until a formal resolution has been reached
with the tax authorities. Tax liabilities are also recorded 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 liabilities
are recognise if it is probable that a liability will arise (refer to
note 35(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.
To determine whether the incremental Covid-related costs
should be recognised as exceptional expenses, consideration has
been given as to whether they meet the criteria as set out in the
Groups’ accounting policy (note 2y), in particular regarding the
expected infrequency of the events that have given rise to them.
(c) Basis of consolidation
The consolidated financial statements set out the Group’s
financial position, performance and cash flows as at 31
December 2020 and 31 December 2019 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
– Determination of functional currencies – note 2(e).
the investee;
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. In the case
of Argentina, the control exchange restrictions limit the
companies to hold US dollars but not the fact of carrying out
transactions based on the US dollar.
– Recognition of evaluation and exploration assets and transfer
to development costs – notes 2(g), 15 and 16.
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.
– Pandemic expenses
The Group analyses the effect of pandemics on its operations
and accounting treatment, because they generate stoppages,
low capacity production and incremental cost. In the case of
Covid-19, the fixed ‘normal’ production costs during the
stoppage are recognised as expenses and are not considered
cost of the inventories produced. In the income statement these
fixed costs are classified as pre-exceptional.
– 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.
135 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Further information on the action taken by the Company in
2020 can be found on pages 64 to 71 (Risk Management report)
and pages 6 to 7.
Management will continue to monitor its approach which will
evolve over time as knowledge of the virus (and any variants)
deepens and will seek to incorporate industry best practice.
The Directors have reviewed liquidity and covenant forecasts for
the Group taking into account the impact of Covid-19 and they
have also considered potential downside scenarios and the
availability of mitigating action in assessing whether the Group
is able to continue in operation during the period to 31 March
2022, which is at least 12 months from the date of these
financial statements.
More specifically, the scenarios reviewed by the Directors
included a base case (the ‘Base Scenario’), reflecting budgeted
production for 2021 and the Life of Mine plan for Q1 2022,
incremental Covid-related costs and average precious metal
prices of US$1,919/oz for gold and US$25.6/oz for silver, being
the average analysts’ consensus for the next 15 months (the
‘Assumed Prices’). Taking into account the risks associated with
Covid, described in the Risk Management report, the Directors
also reviewed two other scenarios considering further periods
of stoppage and extended incremental Covid-related costs.
Separately, and in line with their usual practice, the Directors
considered the impact on the Group’s cash balance and debt
covenant compliance under each scenario, applying different
precious metal price assumptions.
Finally, the Directors reviewed a ‘Remote Scenario’ which takes
into account a combination of (a) precious metal prices which
are 20% lower than the Assumed Prices (US$1,535/oz for gold
and US$20.5/oz for silver which are significantly below current
spot and futures forecast prices), (b) an eight-week suspension
of all operations, (c) forecast expenditure according to the Base
Scenario and (d) incremental Covid related costs until March
2022.
The Remote Scenario naturally resulted in a reduced cash
balance but which nevertheless remains adequate for the
Group’s forecast expenditure with sufficient headroom
maintained to comply with debt covenants. In each scenario,
it has been assumed that all employees remain on full pay
and that no further mitigating actions would be necessary to
maintain an adequate level of liquidity.
In conclusion, the Directors have a reasonable expectation that
the Group and the Company have adequate resources, which
would see it continue in operation for the foreseeable future.
Thus they continue to adopt the going concern basis of
accounting in preparing the annual financial statements.
2 Significant accounting policies continued
Business combinations
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at
acquisition date fair value and the amount of any NCI in the
acquiree. The choice of measurement of NCI, either at fair value
or at the proportionate share of the acquiree’s identifiable net
assets, is determined on a transaction by transaction basis.
Acquisition costs incurred are expensed and included in
administrative expenses.
Goodwill is initially measured at cost, being the excess of the
aggregate of the consideration transferred and the amount
recognised for the NCI, and any previously interest held, over
the net identifiable assets acquired and the liabilities assumed.
Assets acquired and liabilities assumed in transactions separate
to the business combinations, such as the settlement of
pre-existing relationships or post-acquisition remuneration
arrangements, are accounted for separately from the business
combination in accordance with their nature and applicable
IFRSs. Identifiable intangible assets meeting either the
contractual-legal or the separability criterion are recognised
separately from goodwill. Contingent liabilities representing a
present obligation are recognised if the acquisition date fair
value can be measured reliably.
(d) 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 pages 2 to 73. The financial position
of the Group, its cash flows, liquidity position and borrowings
are described in the Financial Review on pages 36 to 44 and
discussion of the Group’s viability on the occurrence of certain
scenarios is provided in the Viability Statement on page 72. In
addition, note 37 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.
Despite the recent domestic lockdown announced by the
Government in Peru, mining has been allowed to continue to
operate along with other industries as they are critical to the
recovery of the national economy. In Argentina, the central
government has declared mining an essential activity for the
economy and the local authorities in the Santa Cruz province
(where the San Jose mine is located) are also providing support
for the continuity of the mining industry which is of critical
regional importance.
The Directors therefore consider the risk of another government-
imposed suspension across all operations to be low. In addition,
the Group’s mines are located in isolated areas with typically low
Covid infection rates, thus allowing the Company to control and
closely monitor access to its facilities.
As demonstrated throughout the Annual Report, the Group has
implemented a wide-ranging action plan to mitigate the risk of
localised Covid outbreaks at the Group’s operations. The plan
includes various health and safety protocols which go well
beyond those required by law and include (a) the physical
adaptation of the mining units to ensure that they are Covid
secure, (b) the systematic use of antigen testing prior to
transporting personnel to the mine units, (c) strict hygiene and
social distancing rules, and (d) the use of technology-based
systems to track suspected cases.
136 | Hochschild Mining PLC Annual Report & Accounts 2020
(e) Currency translation
The functional currency for each entity in the Group is
determined by the currency of the primary economic
environment in which it operates. For the holding companies and
operating entities this currency is US dollars and for the other
entities it is the local currency of the country in which it operates.
The Group’s financial information is presented in US dollars,
which is the Company’s functional currency. Transactions
denominated in currencies other than the functional currency of
the entity are initially recorded in the functional currency using
the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
remeasured at the rate of exchange ruling at the statement of
financial position date. Exchange gains and losses on settlement
of foreign currency transactions which are translated at the rate
prevailing at the date of the transactions, or on the translation
of monetary assets and liabilities which are translated at
period-end exchange rates, are taken to the income statement.
Non-monetary assets and liabilities denominated in foreign
currencies that are stated at historical cost are translated to
the functional currency at the foreign exchange rate prevailing
at the date of the transaction. Exchange differences arising from
monetary items that are part of a net investment in a foreign
operation are recognised in equity and transferred to income
on disposal of such net investment.
Subsidiary financial statements expressed in their
corresponding functional currencies are translated into US
dollars by applying the exchange rate at period-end for assets
and liabilities and the transaction date exchange rate for income
statement items. The resulting difference on consolidation is
included as a cumulative translation adjustment in equity.
(f) Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost
less accumulated depreciation and impairment losses. Cost
comprises its purchase price and directly attributable costs
of acquisition or construction required to bring the asset to the
condition necessary for the asset to be capable of operating
in the manner intended by management. Economical and
physical conditions of assets have not changed substantially
over this period.
The cost less residual value of each item of property, plant
and equipment is depreciated over its useful life. Each item’s
estimated useful life has been assessed with regard to both
its own physical life limitations and the present assessment of
economically recoverable reserves and resources of the mine
property at which the item is located. Estimates of remaining
useful lives are made on a regular basis for all mine buildings,
machinery and equipment, with annual reassessments for major
items. Depreciation is charged to cost of production on a units of
production 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 is recognised
in the income statement as incurred.
(g) Evaluation and exploration assets
Evaluation and exploration expenses are capitalised when
the future economic benefit of the project can reasonably be
regarded as assured. 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.
137 | Hochschild Mining PLC Annual Report & Accounts 2020
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Significant accounting policies continued
(h) Determination of ore reserves and resources
The Group estimates its ore reserves and mineral resources
based on information compiled by internal competent persons.
Reports to support these estimates are prepared each year and
are stated in conformity with the 2012 Joint Ore Reserves
Committee (JORC) code.
It is the Group’s policy to have the report audited 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.
(i) Intangible assets
Right to use energy of transmission line
Transmission line costs represent the investment made by the
Group to construct the transmission line on behalf of the
government to be granted the right to use it. 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 were recorded at cost and allow the Group 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.
(j) Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment.
The carrying amounts of property, plant and equipment and
evaluation and exploration assets are reviewed for impairment
if events or changes in circumstances indicate that the carrying
value may not be recoverable. If there are indicators of
impairment, an exercise is undertaken to determine whether the
carrying values are in excess of their recoverable amount. Such
review is undertaken on an asset by asset basis, except where
such assets do not generate cash flows independent of other
assets, and then the review is undertaken at the cash-
generating unit level.
The assessment requires the use of estimates and assumptions
such as long-term commodity prices, discount rates, future
capital requirements, reserves and resources volumes (reflected
in the production volume). 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 15) and for the
exploration projects is based on the value-in-situ methodology
(notes 16 and 17(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.
(k) Inventories
Inventories are valued at the lower of cost or net realisable value.
Cost is determined using the weighted average method.
The cost of work in progress and finished goods (ore inventories)
is based on the cost of production. For this purpose, the costs of
production include:
– costs, materials and contractor expenses which are directly
attributable to the extraction and processing of ore;
– depreciation of property, plant and equipment used in the
extraction and processing of ore; and
– related production overheads (based on normal operating
capacity).
Net realisable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses.
(l) Trade and other receivables
Current trade receivables are carried at the original invoice
amount less provision made for impairment of these receivables.
Non-current receivables are stated at amortised cost. A
provision for impairment of trade receivables is established
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. The
revaluation of provisionally priced contracts stated in 2(p) is
recorded as trade receivables.
(m) Share capital
Ordinary shares are classified as equity. Any excess above the
par value of shares received upon issuance of those shares is
classified as share premium. In the case the excess above par
value is available for distribution, it is classified as merger
reserve and then transferred to retained earnings.
138 | Hochschild Mining PLC Annual Report & Accounts 2020
(n) Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle
the obligation and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of money
is material, provisions are determined by discounting the
expected future cash flows at a pre tax rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
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, for
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 each year. This amount is charged to the income
statement within personnel expenses (note 9) and is considered
deductible for income tax purposes. The Group has no pension
or retirement benefit schemes.
Other
Other provisions are accounted for when the Group has a
legal or constructive obligation for which it is probable there
will be an outflow of resources for which the amount can be
reliably estimated.
(o) Share-based payments
Cash-settled transactions
The fair value of cash-settled share plans is recognised as a
liability over the vesting period of the awards. Movements in that
liability between reporting dates are recognised as 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 Total Shareholder Return (TSR)
performance. Fair values are subsequently remeasured at each
reporting date to reflect the number of awards expected to vest
based on the current and anticipated TSR performance.
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 9).
(p) 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 is transferred to the customer
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.
139 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Significant accounting policies continued
Income from services provided to related parties (note 31)
is recognised in revenue when services are provided.
Deferred revenue results when cash is received in advance of
revenue being earned. Deferred revenue is recorded as a liability
until it is earned. Once earned, the liability is reduced and
revenue is recorded. The Group analyses when revenue is
earned or deferred.
(q) Contingencies
Contingent liability is a possible obligation depending on
whether some uncertain future event occurs, or a present
obligation but payment is not probable or the amount cannot
be measured reliably. Contingent liabilities are not recognised
in the financial statements and are disclosed in notes to the
financial statements unless their occurrence is remote.
Contingent asset is a possible asset that arises from past
events, and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity. Contingent
assets are not recognised in the financial statements, but are
disclosed in the notes if their recovery is deemed probable.
(r) Finance income and costs
Finance income and costs comprise interest expense on
borrowings, the accumulation of interest on provisions, interest
income on funds invested, 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.
(s) Income tax
Income tax for the year comprises current and deferred tax.
Income tax is recognised in the income statement except to
the extent that it relates to items charged or credited directly
to equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable
income for the year, using tax rates enacted at the statement
of financial position date, and any adjustment to tax payable
in respect of previous years.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes, with the
following exceptions:
– Where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the
time of the transaction affects neither accounting nor taxable
profit or loss; and
– In respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures,
where the timing of the reversal of the temporary differences
can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is
realised or the liability is settled based on the tax rates (and tax
laws) that have been enacted or substantively enacted at the
statement of financial position date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable that the related tax
benefit will be realised.
(t) Uncertain tax positions
An estimate 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 35(a) for specific tax
contingencies.
(u) 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.
140 | Hochschild Mining PLC Annual Report & Accounts 2020
(v) 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 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.
The Group has 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.
The Group has listed equity investments and derivative
instruments under this category. 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.
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.
The Group’s financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts,
and derivative financial instruments.
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Cash flow hedges
Changes in the fair value of derivatives designated as cash flow
hedges, which are held to hedge the exposure to variability
in cash flows of the hedged items, are recognised in other
components of equity until changes in the fair value of the
hedged item are recognised in profit or loss. However, the
ineffective portion of the changes in the fair value of such
derivatives is recognised in profit or loss. The Group use cash
flow hedges for hedging the exposure to variability in interest
cash flows of a floating rate interest bearing liabilities arising
from changes in interest rates.
The amounts that have been recognised in other components
of equity relating to such hedging instruments are reclassified to
profit or loss when the hedged transaction affects profit or loss.
(w) 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.
(x) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at cost. For the purposes of the statement of
financial position, cash and cash equivalents comprise cash on
hand and deposits held with banks that are readily convertible
into known amounts of cash and which are subject to
insignificant risk of changes in value. For the purposes of the
cash flow statement, cash and cash equivalents, as defined
above, are shown net of outstanding bank overdrafts.
Liquidity funds are classified as cash equivalents if the amount
of cash that will be received is known at the time of the initial
investment and the risk of changes in value is considered
insignificant.
(y) Exceptional items
Exceptional items are those significant items which, due to their
nature or the expected infrequency of the events giving rise to
them, need to be disclosed separately on the face of the income
statement to enable a better understanding of the financial
performance of the Group and facilitate comparison with prior
years. Exceptional items mainly include:
– impairments or write offs of assets, property, plant and
equipment and evaluation and exploration assets;
– incremental cost due to pandemics which are not expected to
be recurring;
– 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.
2 Significant accounting policies continued
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.
– 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.
Derivative financial instruments and hedge accounting
In 2020, the Group used interest rate swaps to hedge certain of
its cash flows from loans against interest rate risk. Consequently,
the Group has opted to apply hedge accounting under the
requirements of IFRS 9 Financial Instruments.
Initial recognition and subsequent measurement
These derivative financial instruments were initially recognised
at fair value on the date on which the derivative contract was
entered into and were subsequently remeasured at fair value.
Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified
as cash flow hedges when hedging the exposure to variability
in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly
probable forecast transaction or the foreign currency risk
in an unrecognised firm commitment.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it
wishes to apply hedge accounting and the risk management
objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging
instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship
meets the hedge effectiveness requirements (including the analysis
of sources of hedge ineffectiveness and how the hedge ratio is
determined). A hedging relationship qualifies for hedge accounting
if it meets all of the following effectiveness requirements:
– There is ‘an economic relationship’ between the hedged item
and the hedging instrument.
– The effect of credit risk does not ‘dominate the value changes’
that result from that economic relationship.
– The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that
the Group actually hedges and the quantity of the hedging
instrument that the Group actually uses to hedge that
quantity of hedged item.
142 | Hochschild Mining PLC Annual Report & Accounts 2020
3 Segment reporting
The Group’s activities are principally related to mining
operations which involve the exploration, production and sale
of gold and silver. Products are subject to the same risks and
returns and are sold through similar distribution channels.
The Group undertakes a number of activities solely to support
mining operations including power generation and services.
Transfer prices between segments are set on an arm’s length
basis in a manner similar to that used for third parties. Segment
revenue, segment expense and segment results include
transfers between segments at market prices. Those transfers
are eliminated on consolidation.
For internal reporting purposes, management takes decisions
and assesses the performance of the Group through
consideration of the following reporting segments:
– Operating unit – San Jose, which generates revenue from
the sale of gold and silver (dore and concentrate).
– Operating unit – Pallancata, which generates revenue from
the sale of gold and silver (concentrate).
– 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 Arcata mine unit was put
into care and maintenance on 13 February 2019 and
consequently the revenue generated from the sale of gold and
silver concentrate (US$5,081,000) is reported in Other from
1 January 2020.
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 the adopted IFRS accounting policies in
the financial statements.
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.
(z) 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.
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 26 and 37(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.
143 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3 Segment reporting continued
(a) Reportable segment information
Year ended 31 December 2020
Revenue from external customers
Inter segment revenue
Total revenue from customers
Provisional pricing adjustment
Total revenue
Segment profit/(loss)
Others2
Profit from continuing operations before income tax
Other segment information
Depreciation3
Amortisation
Impairment and write-off of assets, net
Assets
Capital expenditure
Current assets
Other non-current assets
Total segment assets
Not reportable assets4
Total assets
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Other1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
96,134
199,803
314,742
–
–
–
96,134
199,803
314,742
4,540
6,295
164
100,674
206,098
314,906
–
–
–
–
–
149
6,918
7,067
–
–
610,828
(6,918)
–
(6,918)
610,828
–
10,999
7,067
(6,918)
621,827
3,989
47,290
129,103
(33,436)
5,699
(1,773)
150,872
(28,969)
(31,238)
(54,522)
–
(221)
(552)
7,750
(82)
(535)
(406)
(442)
(720)
(3,734)
(39)
(49)
7,399
23,030
62,128
12,772
2,595
24,692
43,735
14,613
–
33,784
166,887
516,505
232,135
58,476
210,622
531,118
232,135
4,675
52,037
56,712
–
–
–
–
276,998
58,476
210,622
531,118
232,135
333,710
(87,952)
62,920
(118,869)
(1,115)
6,225
107,924
87,715
–
–
–
–
–
– 1,001,348
– 1,089,063
–
276,998
– 1,366,061
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.
1
2 Comprised of administrative expenses of US$43,282,000, other income of US$3,617,000, other expenses of US$32,518,000, write-off of assets (net) of US$2,078,000, reversal
of impairment of assets of US$8,303,000, finance income of US$4,197,000, finance expense of US$23,560,000, and foreign exchange loss of US$2,631,000.
3 Includes depreciation capitalised in the Crespo project (US$768,000), and San Jose unit (US$1,349,000).
4 Not reportable assets are comprised of financial assets at fair value through OCI of US$402,000, financial assets at fair value through profit and loss of US$5,407,000, other
receivables of US$38,238,000, income tax receivable of US$59,000, deferred income tax asset of US$1,009,000, and cash and cash equivalents of US$231,883,000.
144 | Hochschild Mining PLC Annual Report & Accounts 2020
(a) Reportable segment information continued
Year ended 31 December 2019
Revenue from external customers
Inter segment revenue
Total revenue from customers
Provisional pricing adjustment
Total revenue
Segment profit/(loss)
Others2
Profit from continuing operations before income tax
Other segment information
Depreciation3
Amortisation
Impairment and write-off of assets, net
Assets
Capital expenditure
Current assets
Other non-current assets
Total segment assets
Not reportable assets4
Total assets
Pallancata
US$000
San Jose
US$000
Inmaculada
US$000
Exploration
US$000
Other1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
140,784
242,972
351,936
–
–
–
140,784
242,972
351,936
6,814
7,743
207
147,598
250,715
352,143
–
–
–
–
–
5,400
6,101
–
741,092
(6,101)
–
11,501
(6,101)
741,092
(180)
–
14,584
11,321
(6,101)
755,676
15,187
61,472
144,199
(38,062)
7,142
(6,009)
183,929
(50,432)
(51,754)
(79,917)
–
(1,396)
(14,892)
(488)
(144)
(135)
(397)
(462)
315
(4,757)
(67)
(31)
25,357
43,623
66,435
62,881
6,820
20,500
48,286
26,601
38,301
50,438
163,656
506,779
220,934
70,938
211,942
533,380
259,235
5,006
57,391
62,397
–
–
–
–
215,356
70,938
211,942
533,380
259,235
277,753
(107,087)
76,842
(187,257)
(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. and the Arcata mine unit.
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 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.
145 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3 Segment reporting continued
(b) Geographical information
The revenue for the period based on the country in which the customer is located is as follows:
External customer
Switzerland
Korea
Canada
Germany
Japan
Chile
Bulgaria
USA
Peru
Total
Inter-segment
Peru
Total
Year ended 31 December
2020
US$000
2019
US$000
236,455
150,094
138,795
60,299
13,264
10,872
9,311
2,994
(257)
109,927
91,304
381,149
75,003
24,404
–
17,864
5,446
50,579
621,827
755,676
6,918
628,745
6,101
761,777
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:
Argor Heraus
LS Nikko
Asahi Refining Canada
MKS Switzerland S.A.
Asahi Refining USA
Year ended 31 December 2020
Year ended 31 December 2019
US$000
% Revenue
Segment
US$000
% Revenue
Segment
176,543
150,094
121,048
59,912
–
28%
24%
19%
10%
0%
Inmaculada
and San Jose
Pallancata
and San Jose
Inmaculada
Inmaculada
–
105,436
14%
San Jose
91,304
352,949
–
(806)
Pallancata
and San Jose
Inmaculada
–
12%
47%
0%
47%
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
Financial assets at fair value through profit and loss
Trade and other receivables
Deferred income tax assets
Total non-current assets
As at 31 December
2020
US$000
699,121
166,887
–
135,340
1,001,348
402
5,407
5,395
1,009
2019
US$000
709,022
163,656
838
125,682
999,198
6,159
–
5,188
1,627
1,013,561
1,012,172
146 | Hochschild Mining PLC Annual Report & Accounts 2020
4 Revenue
Year ended 31 December 2020
Revenue from customers
Goods sold
US$000
Gold (from dore bars)
255,142
Silver (from dore bars)
101,195
Shipping
services
US$000
577
383
Total
US$000
255,719
101,578
Provisional
pricing
US$000
Total
US$000
Goods sold
US$000
Year ended 31 December 2019
Revenue from customers
Shipping
services
US$000
Total
US$000
Provisional
pricing
US$000
144
62
255,863
101,640
320,813
134,757
1,011
321,824
766
135,523
238
60
Total
US$000
322,062
135,583
Gold (from
concentrates)
Silver (from
concentrates)
Services
Total
109,816
2,447
112,263
1,956
114,219
111,318
2,456
113,774
5,748
119,522
138,669
2,450
141,119
8,837
149,956
166,912
2,920
169,832
8,538
178,370
149
–
149
–
149
139
–
139
–
139
604,971
5,857
610,828
10,999
621,827
733,939
7,153
741,092
14,584
755,676
5 Cost of sales before exceptional items
Included in cost of sales are:
Depreciation and amortisation in cost of sales1
Personnel expenses (note 9)2
Mining royalty (note 36)
Change in products in process and finished goods
Fixed costs at the operations during stoppages and reduced capacity3
Other items4
Year ended 31 December
2020
US$000
114,662
65,077
5,208
17,323
46,480
–
2019
US$000
182,676
102,977
6,412
(3,782)
–
567
1 The depreciation and amortisation in production cost is US$113,146,000 (2019: US$184,388,000).
2 Includes workers’ profit sharing of US$2,632,000 (2019: US$3,878,000).
3 Corresponds to the unallocated fixed cost accumulated during the stoppage and operation of the mine units under planned operating capacity due to the Covid-19 pandemic.
These costs mainly include personnel expenses of US$32,117,000, third party services of US$8,948,000, supplies of US$1,698,000, depreciation and amortisation of US$1,818,000 and
others costs of US$1,899,000.
4 Other items in 2019 include costs related to stoppage of US$567,000 at the San Jose mine unit.
6 Administrative expenses
Personnel expenses (note 9)
Professional fees
Donations
Lease rentals
Travel expenses
Third party services
Communications
Indirect taxes
Depreciation and amortisation
Depreciation of rights of use
Technology and systems
Security
Other1
Total
Year ended 31 December
2020
US$000
27,016
4,978
373
1,353
188
241
427
2,029
1,723
284
1,063
891
2,716
2019
US$000
26,580
5,481
331
1,343
1,058
347
502
1,461
1,950
324
1,400
912
4,231
43,282
45,920
1
Predominantly related to advertising costs of US$292,000 (2019: US$388,000), insurance fees of US$464,000 (2019: US$384,000), repair and maintenance of US$314,000 (2019:
US$320,000), supply costs of US$42,000 (2019: US$202,000) and personnel transportation of US$115,000 (2019: US$330,000).
147 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
7 Exploration expenses
Mine site exploration1
Arcata
Ares
Inmaculada
Pallancata
San Jose
Prospects2
Peru
USA
Chile
Generative3
Peru
USA
Mexico
Chile
Personnel (note 9)
Others
Depreciation right-of-use assets
Total
Year ended 31 December
2020
US$000
2019
US$000
990
940
2,526
4,652
9,720
1,065
884
3,976
7,116
9,753
18,828
22,794
1,731
1,902
(211)
3,422
265
3,600
1,300
5,165
2,331
3,322
12
974
437
3,754
5,905
581
305
–
–
–
3,322
5,748
568
368
32,795
37,965
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 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$6,176,000 in 2020 (2019: US$7,503,000).
8 Selling expenses
Personnel expenses (note 9)
Warehouse services
Taxes1
Other
Total
1 Corresponds to the export duties in Argentina.
9 Personnel expenses
Salaries and wages
Workers’ profit sharing (note 27)
Other legal contributions
Statutory holiday payments
Long-Term Incentive Plan
Restricted share plan
Termination benefits
Other
Total
1
Includes exceptional personnel expenses amounting to US$4,595,000 (refer to note 10(1)) (2019: US$12,199,000 (refer to note 10(4)).
148 | Hochschild Mining PLC Annual Report & Accounts 2020
Year ended 31 December
2020
US$000
303
1,281
9,202
1,968
12,754
2019
US$000
288
1,627
16,259
2,897
21,071
Year ended 31 December
2020
US$000
104,331
4,986
22,158
6,214
1,764
–
1,495
752
2019
US$000
100,441
5,965
21,453
6,380
1,294
843
14,464
1,600
141,700
152,440
Personnel expenses are distributed as follows:
Cost of sales1
Administrative expenses
Exploration expenses
Selling expenses
Other expenses2
Capitalised as property, plant and equipment
Total
1 Exceptional personnel expenses included in cost of sales amount to US$4,210,000 (2019: US$nil).
2 Exceptional personnel expenses included in other expenses amount to US$385,000 (2019: US$12,199,000).
Average number of employees for 2020 and 2019 were as follows:
Peru
Argentina
Chile
United Kingdom
Total
Year ended 31 December
2020
US$000
101,404
27,016
5,905
303
4,255
2,817
2019
US$000
102,977
26,580
5,748
288
16,462
385
141,700
152,440
Year ended 31 December
2020
1,897
1,432
13
10
2019
2,072
1,394
3
10
3,352
3,479
10 Exceptional items
Exceptional items are those significant items which, due to their nature or the expected infrequency of the events giving rise to them,
need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance
of the Group and facilitate comparison with prior years. Unless stated, exceptional items do not correspond to a reporting segment
of the Group.
Cost of sales
Incremental costs due to Covid-19 pandemic1
Total
Other expenses
Incremental costs due to Covid-19 pandemic1
Restructuring of Arcata mine unit4
Total
(Impairment)/impairment reversal of non-financial assets, net
Impairment of assets5
Reversal of impairment of assets2 and 5
Total
Income tax benefit3 and 6
Total
Year ended
31 December
2020
US$000
Year ended
31 December
2019
US$000
(27,613)
(27,613)
(3,613)
–
(3,613)
–
8,303
8,303
7,157
7,157
–
–
–
(12,199)
(12,199)
(14,693)
315
(14,378)
7,933
7,933
149 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10 Exceptional items continued
The exceptional items for the year ended 31 December 2020 are as follows:
1
Incremental production costs incurred in the operating mine units to manage the Covid-19 pandemic have been presented within cost of sales and costs incurred by mine units
in care and maintenance and those related to corporate activities have been presented within other expenses:
Third party services
Personnel expenses (note 9)
Donations
Consumption of medical supplies
Cleaning and food services
Depreciation and amortisation
Others
Total
Year ended 31 December 2020
Cost of sales
US$000
Other expenses
US$000
18,823
4,210
124
1,062
1,493
534
1,367
27,613
665
385
1,365
248
59
–
891
3,613
These costs have been incurred in respect of the implementation of the necessary protocols including incremental third party services mainly related to accommodation whilst
testing all workers for active Covid-19 cases prior to travelling to mine units, medical tests and additional transportation costs to facilitate social distancing, personnel expenses
mainly reflecting one-off bonuses paid to those workers required to oversee critical processes during period of suspension, donations which includes the value of equipment
donated to assist the national effort in Peru to control the pandemic as well as the donations to hardship funds administered by educational institutions, UTEC and TECSUP (refer
to note 31)). These expenses are not expected to be recurring as a result of the efficiencies made to the health protocols and logistics required to operate throughout the pandemic.
For further details on the health protocols implemented across all operations refer to the detailed discussion outlined in the Risks section of the Annual Report.
2 Reversals of impairment related to the San Jose mine unit of US$8,303,000 (refer to notes 15, 16 and 17).
3 The current tax credit generated by the incremental costs arising from the Covid-19 pandemic of US$9,241,000 and the deferred tax charge generated by the reversal of the
impairment related to the San Jose mine unit of US$2,084,000.
The exceptional items for the year ended 31 December 2019 are as follows:
4 The termination benefits of 859 employees resulting from the restructuring process generated as the Arcata mine unit was placed on care and maintenance in February 2019.
5 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 (refer to notes 15, 16 and 17).
6 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.
11 Other income and other expenses before exceptional items
Other Income
Decrease in provision for mine closure (note 27(1))
Logistic services
Recovery of provision of obsolescence of supplies (note 21)
Income related to the San Felipe agreement
Other1
Total
Other expenses
Increase in provision for mine closure (note 27(1))
Provision of obsolescence of supplies (note 21)
Care and maintenance expenses of Ares mine unit
Write off of value added tax
Corporate social responsibility contribution in Argentina2
Care and maintenance expenses of Arcata mine unit
Provision for impairment of receivables3
Other4
Total
Year ended
31 December
2020
Before
exceptional
items
US$000
Year ended
31 December
2019
Before
exceptional
items
US$000
–
336
1,921
–
1,360
3,617
223
4,489
–
600
3,702
9,014
(16,056)
(13,621)
–
(2,578)
(101)
(2,689)
(2,966)
(996)
(3,519)
(28,905)
(1,449)
(4,593)
(144)
(3,636)
(4,888)
(3,706)
(1, 857)
(33,894)
1
Mainly corresponds to the gain on sale of property, plant and equipment of US$231,000 and the gain recognised for the Mosquito project of US$400,000 (2019: 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, the gain on recovery of expenses of US$623,000, gain on sale of
supplies of US$325,000 and the gain recognised for the Mosquito project of US$400,000).
2 Relates to a contribution in Argentina to the Santa Cruz province, calculated as a proportion of sales.
3 Mainly due to write-off of a claim receivable of US$996,000 (2019: US$2,934,000).
4 Mainly corresponds to the expenses due to concessions of US$295,000 (2019: US$667,000), depreciation expense for right-of-use assets of US$151,000 (2019: US$206,000), the loss on
recovery of expenses of US$158,000, and loss on sale of supplies of US$1,312,000.
150 | Hochschild Mining PLC Annual Report & Accounts 2020
12 Finance income and finance costs before exceptional items
Finance income
Interest on deposits and liquidity funds
Interest income
Unwind of discount on mine rehabilitation (note 27)
Gain on discount of other receivables1
Gain from changes in the fair value of financial instruments2
Other
Total
Finance costs
Interest on secured bank loans (note 26)
Other interest
Interest expense
Fair value loss on interest rate swap reclassified from equity
Unwind of discount on mine rehabilitation (note 27)
Loss on discount of other receivables1
Loss from changes in the fair value of financial instruments3
Other
Total
Year ended
31 December
2020
Before
exceptional
items
US$000
Year ended
31 December
2019
Before
exceptional
items
US$000
2,106
2,106
387
335
1,057
312
4,197
(7,086)
(684)
(7,770)
(1,497)
–
–
(12,770)
(1,523)
(23,560)
2,557
2,557
–
–
–
381
2,938
(4,122)
(335)
(4,457)
–
(506)
(902)
(3,007)
(1,166)
(10,038)
1 Mainly related to the effect of the discount of tax credits in Argentina and Peru.
2 Related to the fair value adjustment of the Americas Gold and Silver Corporation (AGSC) shares received as a final payment of the San Felipe project (refer to note 23)
3 Represents the foreign exchange transaction costs to acquire US$14,486,000 dollars through the sale of bonds in Argentina (2019: US$11,835,000).
13 Income tax expense
Year ended 31 December 2020
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Year ended 31 December 2019
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
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 29)
Effect of change in income tax rates1
Corporate income tax
Current mining royalties
Mining royalty charge (note 36)
Special mining tax charge (note 36)
Total current mining royalties
31,551
(9,241)
22,310
402
–
402
31,953
(9,241)
22,712
35,543
3,253
38,796
(3,599)
31,944
–
3,253
(3,599)
35,197
10,491
2,084
12,575
–
10,491
42,444
–
2,084
(7,157)
–
12,575
35,287
(2,687)
(1,230)
(3,917)
34,879
(4,334)
–
(4,334)
(7,933)
(7,021)
(1,230)
(8,251)
26,946
4,088
3,119
7,207
–
–
–
4,088
3,119
7,207
5,028
3,429
8,457
–
–
–
5,028
3,429
8,457
Total taxation charge/(credit) in the income statement
49,651
(7,157)
42,494
43,336
(7,933)
35,403
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 2022.
151 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
13 Income tax expense continued
The weighted average statutory income tax rate was 30.8% for 2020 and 30.9% for 2019. 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 tax related to items charged to equity during the year ended 31 December 2020 of US$1,744,000 (2019: US$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 30.8% (2019: 30.9%)
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 regime1
Movement in unrecognised deferred tax2
Special mining tax and mining royalty deductible for corporate income tax
Other
Corporate income tax at average effective income tax rate of 36.8% (2019: 28.9%) before foreign exchange
effect and withholding tax
Special mining tax and mining royalty3
Corporate income tax and mining royalties at average effective income tax rate of 48.2% (2019: 39.9%)
Foreign exchange rate effect4
Corporate income tax and mining royalties at average effective income tax rate of 66.9% (2019: 41.8%) before
withholding tax
Withholding tax
Total taxation charge in the income statement at average effective tax rate 67.5% (2019: 46.1%) from
continuing operations
As at 31 December
2020
US$000
62,920
19,368
5,251
–
(1,529)
(2,870)
4,571
(2,126)
461
23,126
7,207
30,333
11,759
42,092
402
42,494
2019
US$000
76,842
23,740
360
(940)
1,230
(2,590)
5,223
(2,495)
(2,288)
22,240
8,457
30,697
1,453
32,150
3,253
35,403
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$1,687,000 (2019: US$836,000), the tax charge related to the Inmaculada mine unit depreciation of US$902,000 (2019:
US$1,636,000), and the effect of not recognised tax losses of US$1,982,000 (2019: US$2,751,000).
3 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 36).
4 The foreign exchange effect is composed of US$1,584,000 loss (2019: US$3,280,000 loss) from Argentina and a loss of US$10,175,000 (2019: US$1,827,000 gain) from Peru.
This mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the corresponding functional currency.
The main contributor of the foreign exchange effect on the tax charge in 2020 is the devaluation of the Peruvian soles (2019: Argentinian peso).
14 Basic and diluted earnings per share
Earnings per share (‘EPS’) is calculated by dividing profit for the year attributable to equity shareholders of the Parent by the
weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2020 and 2019, EPS has been calculated as follows:
Basic earnings/(loss) per share from continuing operations
Before exceptional items (US$)
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
2020
2019
0.06
(0.03)
0.03
0.06
(0.03)
0.03
0.09
(0.03)
0.06
0.09
(0.03)
0.06
152 | Hochschild Mining PLC Annual Report & Accounts 2020
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:
As at 31 December
2020
15,162
16,800
31,962
31,962
2019
28,954
18,644
47,598
47,598
As at 31 December
Basic weighted average number of ordinary shares in issue (thousands)
Effect of dilutive potential ordinary shares related to contingently issuable shares (thousands)
2020
513,876
600
Weighted average number of ordinary shares in issue for the purpose of diluted earnings per share (thousands)
514,476
2019
510,562
538
511,100
15 Property, plant and equipment
Mining
properties
and
development
costs1
US$000
Land and
buildings
US$000
Plant and
equipment
US$000
1 and 2 Vehicles5
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances4
US$000
Total
US$000
Year ended 31 December 2020
Cost
At 1 January 2020
Additions
Initial recognition
Change in discount rate (note 27(1))
Change in mine closure estimate (note 27(1))
Disposals
Write-offs
1,449,374
529,081
610,955
11,748
99,696
62,442
118
6,431
–
–
–
–
–
–
–
–
(132)
–
1,717
–
–
–
(1,870)
(8,613)
5,717
–
–
–
–
(31)
(1,127)
64
–
235
5,385
2,424
–
–
–
15,196
25,646
2,716,050
94,637
–
–
–
–
–
(7,522)
235
5,385
2,424
(2,033)
(9,740)
2,864
Transfers and other movements3
2,888
At 31 December 2020
Accumulated depreciation
and impairment
At 1 January 2020
Depreciation for the year
Disposals
Write-offs
Reversal of impairment
Transfers and other movements4
At 31 December 2020
Net book amount at 31 December 2020
1,514,704
530,784
612,620
10,654
107,740
33,320
2,809,822
1,119,462
334,065
384,155
72,067
19,030
22,700
–
–
(3,831)
706
(17)
–
(1,101)
111
(1,867)
(6,539)
(1,589)
(705)
1,188,404
326,300
352,088
178,696
396,155
216,465
7,310
2,618
(28)
(1,123)
–
(23)
8,754
1,900
74,834
2,454
–
–
(1,369)
–
75,919
31,821
947
1,920,773
–
–
–
–
(108)
118,869
(1,912)
(7,662)
(7,890)
(19)
839
2,022,159
32,481
787,663
1
Within mining properties and development costs and plant and equipment there are US$28,489,000 and US$6,718,000 related to the Crespo CGU that are not currently being
depreciated as the unit is not operating pending the feasibility of the project.
2 Within plant and equipment US$150,747,000 is subject to depreciation on a unit of production basis in line with accounting policies from page 134 for which the accumulated
depreciation is US$230,709,000 and depreciation charge for the year is US$10,289,000.
3 Transfers and other movements include US$2,828,000 that was transferred from evaluation and exploration assets (note 16).
4 There were borrowing costs capitalised in property, plant and equipment amounting to US$32,000.
5 Vehicles include US$410,000 of right of use assets (note 25).
153 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15 Property, plant and equipment continued
Mining
properties
and
development
costs1
US$000
Land and
buildings
US$000
Plant and
equipment1, 2
US$000
Vehicles5
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances4
US$000
Total
US$000
Year ended 31 December 2019
Cost
At 31 December 2018
1,345,516
519,450
590,447
Recognised on transition of IFRS 16
–
–
At 1 January 2019, after IFRS 16 adjustment
1,345,516
519,450
Additions
Asset acquisition
Change in discount rate (note 27(1))
Change in mine closure estimate (note 27(1))
Disposals
Write-offs
99,658
716
–
–
–
–
–
–
–
–
–
–
Transfers and other movements3
4,200
8,915
–
590,447
21,084
218
–
–
(1,893)
(3,426)
4,525
6,680
5,337
12,017
842
–
–
–
(1,969)
–
858
96,397
14,966
2,573,456
–
–
5,337
96,397
14,966
2,578,793
–
–
3,249
50
–
–
–
14,773
137,073
–
–
–
–
(241)
(14,302)
218
3,249
50
(3,862)
(3,667)
4,196
At 31 December 2019
Accumulated depreciation
and impairment
At 1 January 2019
Depreciation for the year
Disposals
Write-offs
Impairment charge
Transfers and other movements3
At 31 December 2019
Net book amount at 31 December 2019
1,449,374
529,081
610,955
11,748
99,696
15,196
2,716,050
999,695
108,911
298,024
34,177
–
–
10,856
–
1,119,462
329,912
–
–
1,864
–
334,065
195,016
349,908
37,076
(1,744)
(2,814)
1,798
(69)
384,155
226,800
4,707
3,262
(777)
–
49
69
7,310
4,438
71,003
3,831
–
–
–
–
947
1,724,284
–
–
–
–
–
187,257
(2,521)
(2,814)
14,567
–
74,834
24,862
947
1,920,773
14,249
795,277
1
Within mining properties and development costs and plant and equipment there are US$27,693,000 and US$6,718,000 related to the Crespo CGU that are not currently being
depreciated as the unit is not operating pending the feasibility of the project.
2 Within plant and equipment US$154,552,000 is subject to depreciation on a unit of production basis in line with accounting policies from page 134 for which the accumulated
depreciation is US$224,763,000 and depreciation charge for the year is US$20,452,000.
3 Transfers and other movements include US$4,200,000 that was transferred from evaluation and exploration assets (note 16).
4 There were no borrowing costs capitalised in property, plant and equipment.
5 Vehicles include US$2,533,000 of right of use assets (note 25).
In 2020, management determined that there was a trigger of impairment in the San Jose mine unit due to the increase of the
discount rate from 13.5% to 15.9%, mainly explained by the rise in country risk premium in Argentina. In addition, the increase in
the short and medium analysis consensus prices of gold and silver in the year represented a trigger of impairment reversal for the
Pallancata and San Jose mine units as both of these CGUs have previously been impaired.
The impairment test performed over the San Jose CGU resulted in a reversal of impairment recognised as at 31 December 2020
amounting to US$8,303,000 (US$7,890,000 in property, plant and equipment, US$100,000 in evaluation and exploration assets and
US$313,000 in intangibles). The reversal of impairment was mainly driven by an increase in the analysis consensus prices of silver
and gold which was partially offset by the impact of the increase in the discount rate.
The result of the impairment test performed over the Pallancata CGU showed that the recoverable value of Pallancata supports
the carrying value, and neither an impairment nor impairment reversal was recognised at 31 December 2020.
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.
In 2019, 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$126,000
in evaluation and exploration assets).
No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.
The recoverable values of the San Jose and Pallancata CGUs were determined using a fair value less costs of disposal (FVLCD)
methodology. FVLCD was determined using a combination of level 2 and level 3 inputs, which result in fair value measurements
categorised in their entirety as level 3 in the fair value hierarchy, to construct a discounted cash flow model to estimate the amount
that would be paid by a willing third party in an arm’s length transaction.
154 | Hochschild Mining PLC Annual Report & Accounts 2020
The key assumptions on which management has based its determination of FVLCD and the associated recoverable values
calculated are gold and silver prices, future capital requirements, production costs, reserves and resources volumes (reflected in
the production volume), and the discount rate.
2020
Real prices US$ per oz.
Gold
Silver
Discount rate (post-tax)
2021
1,937
26.4
2022
1,823
21.8
2023
1,684
21.0
2024
1,452
19.2
Long-term
1,400
17.8
San Jose
Pallancata
5.9%
4.1%
The 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 2020 (US$000)
Current carrying value of CGU, net of deferred tax
San Jose
Pallancata
127,500
35,481
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%)
Production costs (increase by 10%)
Production costs (decrease by 10%)
Production volume (decrease by 10%)
Production volume (increase by 10%)
Post tax discount rate (increase by 3%)
Post tax discount rate (decrease by 3%)
Capital expenditure (increase by 10%)
Capital expenditure (decrease by 10%)
US$000
San Jose
Pallancata
(12,200)
9,7501
(4,700)
4,700
(61,800)
7,7001
(32,800)
7,7001
(11,800)
7,7001
(8,200)
7,7001
(10,300)
7,7001
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.
Management has also determined that the Group’s CGUs are sensitive to future stoppage of operations as a result of Covid-19.
In the absence of any changes to the current gold and silver price projections or any of the other key assumptions, we would expect
the estimated recoverable amount of our CGUs related to the San Jose and Pallancata mine units could be reduced by
US$8,900,000 and US$3,700,000 respectively, per month of stoppage.
2019
US$ per oz.
Gold
Silver
Discount rate (post-tax)
2019
1,506
18.3
2020
1,492
17.5
2021
1,469
17.7
2022
1,377
17.7
2023
1,340
18.5
Long-term
1,369
17.7
San Jose
Pallancata
13.5%
6.5%
The periods of six and two years were used to prepare the cash flow projections of 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
The estimated recoverable values of the Group’s CGUs are equal to, or not materially different from their carrying values.
155 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15 Property, plant and equipment continued
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above
would cause the carrying value of any of its cash-generating units to exceed its recoverable amount.
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%)
Production costs (increase by 10%)
Production costs (decrease by 10%)
Production volume (decrease by 10%)
Production volume (increase by 10%)
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
(19,900)
8,500
(11,300)
10,600
(6,000)
4,900
(62,700)
17,8391
(38,000)
17,8391
(28,700)
17,8391
(11,200)
12,900
(11,700)
11,7001
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 believed that a 3% change was 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.
16 Evaluation and exploration assets
Cost
Balance at 1 January 2019
82,026
26,599
55,450
–
94,682
19,364
278,121
Azuca
US$000
Crespo
US$000
San Felipe
US$000
Biolantanidos
US$000
Volcan
US$000
Others
US$000
Total
US$000
Asset acquisition
Additions
Transfers to assets held for sale (note 23)
Transfers to property, plant and equipment
(note 15)
Balance at 31 December 2019
Additions
Transfers to property, plant and equipment
(note 15)
–
687
–
–
82,713
551
–
–
643
–
–
27,242
1,684
–
Balance at 31 December 2020
83,264
28,926
Accumulated impairment
Balance at 1 January 2019
(Impairment reversal)/impairment
Transfers to assets held for sale (note 23)
Transfers to property, plant and equipment
(note 15)
45,876
9,878
–
–
–
–
–
–
Balance at 31 December 2019
45,876
9,878
(Impairment reversal)/impairment
Transfers to property, plant and equipment
(note 15)
Balance at 31 December 2020
Net book value as at 31 December 2019
Net book value as at 31 December 2020
–
–
45,876
36,837
37,388
–
–
9,878
17,364
19,048
(55,450)
–
–
–
–
–
17,470
(315)
(17,155)
–
–
–
–
–
–
–
–
–
59,358
1,149
–
–
–
770
–
–
–
6,025
59,358
9,274
–
(55,450)
(4,236)
(4,236)
60,507
8,297
95,452
1,068
21,153
1,687
287,067
13,287
–
–
(2,857)
(2,857)
68,804
96,520
19,983
297,497
–
–
–
–
–
–
–
–
60,507
68,804
44,381
5,275
122,880
–
–
–
44,381
–
–
44,381
51,071
52,139
126
–
(31)
5,370
(100)
(29)
5,241
15,783
14,742
(189)
(17,155)
(31)
105,505
(100)
(29)
105,376
181,562
192,121
At 31 December 2020, the Group has recorded a reversal of impairment with respect to evaluation and exploration assets of
the San Jose mine unit of US$100,000 (2019: impairment charge of the Pallancata mine unit of US$126,000). The calculation
of the recoverable values is detailed in note 15).
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.
156 | Hochschild Mining PLC Annual Report & Accounts 2020
17 Intangible assets
Cost
Balance at 1 January 2019
Additions
Transfer
Transmission
line1
US$000
Water
permits2
US$000
Software
licences
US$000
Legal rights3
US$000
Total
US$000
22,157
26,583
1,888
8,580
59,208
–
–
–
–
2
9
–
–
2
9
Balance at 31 December 2019
22,157
26,583
1,899
8,580
59,219
Additions
Transfer
Balance at 31 December 2020
Accumulated amortisation and impairment
Balance at 1 January 2019
Amortisation for the year4
Transfer
Balance at 31 December 2019
Amortisation for the year4
Reversal of impairment
Balance at 31 December 2020
Net book value as at 31 December 2019
Net book value as at 31 December 2020
–
–
–
–
–
7
–
–
–
7
22,157
26,583
1,906
8,580
59,226
15,276
1,210
–
12,686
–
–
16,486
12,686
535
(313)
16,708
5,671
5,449
–
–
12,686
13,897
13,897
1,741
186
(54)
1,873
17
–
1,890
26
16
5,142
673
–
34,845
2,069
(54)
5,815
36,860
563
–
6,378
2,765
2,202
1,115
(313)
37,662
22,359
21,564
1
The transmission line is amortised using the units of production method. At 31 December 2020 the remaining amortisation period is approximately 7 years (2019: 6 years) in line
with the life of the mine. At 31 December 2020, the Group has recorded a reversal of impairment with respect to the transmission line of the San Jose mine unit of US$313,000 (the
calculation of the recoverable values is detailed in note 15).
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$7.40 per gold equivalent ounce of resources at 31 December 2020 (2019: US$6.60). The risk adjusted
enterprise value figure has been determined using a combination of level 2 (enterprise values and gold prices) and level 3 inputs (unprocessed mineral resources and risk factor)
which result in a fair value measurement categorised in its entirety as level 3 in the fair value hierarchy, to estimate the amount that would be paid by a willing third party in an arm’s
length transaction, taking into account the water restrictions imposed by the Chilean government.
3 Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production. At 31 December 2020
the remaining amortisation period is from 2.5 to 12.5 years (2019: 4 to 14 years).
4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess
of its recoverable amount. No impairments were recognised in 2020 and 2019. The estimated recoverable amount is not materially
different to its carrying value.
Key assumptions
Risk adjusted value per in-situ (gold equivalent ounce) US$
US$000
Current carrying value Volcan CGU
2020
7.40
2020
66,036
2019
6.60
2019
64,968
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 (20% decrease)
Value per in-situ ounce (20% increase)
Risk factor (increase by 5%)
Risk factor (decrease by 5%)
2020
(14,100)
14,100
(5,400)
5,400
2019
(12,594)
12,594
(4,844)
4,844
157 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
18 Financial assets at fair value through OCI
Beginning balance
Acquisitions1
Fair value change recorded in OCI
Disposals2
Transfer of shares3
Ending balance
Year ended 31 December
2019
US$000
2020
US$000
6,159
–
1,765
(7,522)
–
402
5,296
1,100
3,628
(421)
(3,444)
6,159
1 Corresponds to the purchase of 147,831,737 shares of REE UNO SpA (US$500,000), and 452,200 shares of Americas Silver Corporation (ASC) (US$600,000).
2 As the investments were not considered to be strategic, the Group sold 452,200 shares of ASC, 7,399,331 shares of Skeena Resources Limited and 7,000,026 shares of Goldspot
Discoveries Inc. with a fair value at the date of sale of US$1,257,000, US$5,337,000 and US$928,000, generating a gain on disposal of US$658,000, US$1,091,000 and US$239,000
respectively. (2019: 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.)
3 Corresponds to the reclassification of the investment held in REE UNO Spa to subsidiary, following its acquisition on 2 October 2019. On reclassification of the investment,
US$944,000 was reclassified from the fair value reserves of financial assets at fair value through OCI to retained earnings.
The Group made the election at initial recognition to measure the below equity investments at fair value through OCI as they are
not held for trading. The fair value at 31 December 2020 and 31 December 2019 is as follows:
Listed equity investments:
Power Group Projects Corp (formerly Cobalt Power Group)
Revelo Resources Corp.
Skeena Resources Limited
Goldspot Discoveries Inc.
Americas Gold and Silver Corporation (formerly Americas Silver Corporation)
Empire Petroleum Corp.
Total listed equity investments
Total non-listed equity investments
Total
2020
US$000
2019
27
8
325
–
–
42
402
–
402
28
4
3,937
755
1,417
18
6,159
–
6,159
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.
19 Financial assets at fair value through profit and loss
Beginning balance
Acquisitions1
Fair value change recorded in profit and loss
Disposals
Ending balance
Year ended 31 December
2019
US$000
2020
US$000
–
4,301
1,106
–
5,407
–
–
–
–
–
1
Corresponds to 1,687,401 shares of Americas Gold and Silver Corporation received as a payment for the balance receivable for the sale of the San Felipe project recognised as
an asset held for sale as at 31 December 2019 (refer to note 23).
The below equity investments are classified at fair value through profit and loss as they are held for trading. The fair value at
31 December 2020 and 31 December 2019 is as follows:
Listed equity investments:
Americas Gold and Silver Corporation
Total listed equity investments
2020
5,407
5,407
US$000
2019
–
–
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.
158 | Hochschild Mining PLC Annual Report & Accounts 2020
20 Trade and other receivables
Trade receivables
Advances to suppliers
Duties recoverable from exports of Minera Santa Cruz1
Receivables from related parties (note 31(a))
Loans to employees
Interest receivable
Receivable from Kaupthing, Singer and Friedlander Bank
Other2
Provision for impairment3
Assets classified as receivables
Prepaid expenses
Value Added Tax (VAT)4
Total
As at 31 December
2020
2019
Non-current
US$000
Current
US$000
Non-current
US$000
–
–
846
–
603
–
–
1,519
–
2,968
212
2,215
5,395
45,353
4,045
–
388
101
126
201
10,298
(7,111)
53,401
4,606
20,189
78,196
–
–
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
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 (2019: 18 and 24 months) at a rate of 14.03% (2019:
22.24%) for dollar denominated amounts and 40.34% (2019: 48.93%) for Argentinian pesos. The gain on the unwinding of the discount is recognised within finance income (2019:
finance costs).
2 Mainly corresponds to account receivables from contractors for the sale of supplies of US$1,642,000 (2019: US$2,426,000), receivables from government agencies of US$4,476,000
(2019: US$3,809,000), loan to third parties of US$512,000 (2019: US$540,000), claim receivable of US$1,269,000 (2019: US$1,365,000), receivable from the sale of VAT in San Jose of
US$1,222,000 (2019: US$nil) and other tax claims of US$45,000 (2019: US$663,000).
3 Includes the provision for impairment of trade receivable from customers in Peru of US$1,403,000 (2019: US$1,533,000), the impairment of deposits in Kaupthing, Singer and
Friedlander of US$201,000 (2019: US$197,000), the impairment of the account receivables from government agencies of US$4,476,000 (2019: US$3,809,000), the impairment of
account receivable from third parties of US$656,000 (2019: US$817,000) and other receivables of US$375,000 (2019: US$410,000).
4 Primarily relates to US$9,747,000 (2019: US$12,832,000) 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$9,154,000 (2019: US$7,724,000), REE UNO SpA of US$2,166,000
(2019; US$1,424,000) and Empresa de Transmisión Aymaraes S.A.C. of US$590,000 (2019: US$2,435,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
At 1 January 2019
Provided for during the year (note 11)
Released during the year1
At 31 December 2019
Provided for during the year (note 11)
Foreign exchange effect
At 31 December 2020
Individually
impaired
US$000
5,997
3,706
( 2,937)
6,766
996
(651)
7,111
1 Corresponds to the release of the provision of US$5,000 and write off of US$2,932,000.
As at 31 December 2020 and 2019, none of the financial assets classified as receivables (net of impairment) were past due.
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
2020
US$000
–
4,087
4,413
38,778
47,278
(4,916)
42,362
2019
US$000
1,950
19,460
6,445
41,582
69,437
(6,837)
62,600
Finished goods include ounces of gold and silver, dore and concentrate. Products in process include stockpile (2019: 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 2020 and 2019 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.
159 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
21 Inventories continued
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 contracts as at 31 December 2020 of US$10,628,000 (2019: US$nil) (refer to note 26).
The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw
materials is US$76,739,000 (2019: US$112,383,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$nil (2019: US$1,449,000) and the reversal
of US$1,921,000 related to supplies and spare parts, that had been provided for (2019: US$nil).
22 Cash and cash equivalents
Cash at bank
Liquidity funds1
Current demand deposit accounts2
Time deposits3
Cash and cash equivalents considered for the statement of cash flows
As at 31 December
2019
US$000
2020
US$000
1,198
–
79,834
150,851
231,883
331
16
37,900
128,110
166,357
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.
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.
1
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of 45 days (2019: average of 7 days).
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. 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.
As the sale was highly probable to be completed within 12 months of the year-end, the assets and liabilities were transferred to
assets and liabilities related to asset held for sale, respectively, as at 31 December 2019. 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 16)
Total non-current assets
Liabilities
Provision for mine closure (note 27)
Deferred income
Total liabilities directly associated with assets held for sale
Net assets directly associated with assets held for sale
US$000
38,295
38,295
(899)
(33,646)
(34,545)
3,750
Upon exercise of the option in July 2020, AGSC (formerly known as ASC) agreed to issue a fixed number of AGSC shares to the
Group (1,687,401 shares) which were valued at US$4,301,000.
160 | Hochschild Mining PLC Annual Report & Accounts 2020
24 Trade and other payables
Trade payables1
Salaries and wages payable2
Dividends payable
Taxes and contributions
Guarantee deposits
Mining royalties (note 36)
Accounts payable to related parties (note 30(a))
Lease liabilities (note 25)
Other
Total
2020
Non-current
US$000
–
–
–
3
–
–
–
–
As at 31 December
Current
US$000
72,066
26,580
34
5,075
5,962
315
266
617
2019
Non-current
US$000
–
–
–
6
–
–
–
–
202
205
3,500
114,415
520
526
Current
US$000
75,252
26,956
37
5,220
5,440
607
192
2,577
4,256
120,537
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 2020, this comprised Board members’ remuneration payable of US$151,000 (2019: US$184,000)
and no Long-Term Incentive Plan payable (2019: US$nil).
25 Leases
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:
Depreciation expense for right-of-use assets
Interest expense on 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
As at 31 December
2020
US$000
(2,123)
(62)
(2,335)
(1,062)
(4,614)
(10,196)
2019
US$000
(2,454)
(96)
(4,985)
(1,233)
(3,470)
(12,238)
The Group had total cash outflows for leases of US$10,032,000 in 2020 (2019: US$12,194,000). 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$2,473,000 (2019: US$5,527,000).
161 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26 Borrowings
As at 31 December
2020
2019
Effective
interest rate
Non-current
US$000
Current
US$000
Effective
interest rate
Non-current
US$000
Current
US$000
Secured bank loans (a)
Pre-shipment loans in Minera Santa Cruz (note 21)
28% to 35%
Bank loans
Total
1.5%
–
199,554
199,554
10,628
150
10,778
3.05%
–
199,308
199,308
–
234
234
(a) Secured bank loans:
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 in
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 interest payable net of capitalised expenses
related to the borrowing (US$446,000 (2019: US$692,000)) at 31 December 2020 is US$199,554,000 (2019: US$199,542,000).
The maturity of non-current borrowings is as follows:
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
As at 31 December
2020
US$000
66,666
2019
US$000
–
132,888
199,308
–
–
199,554
199,308
The carrying amount of current borrowings differs from their fair value only with respect to differences arising under the effective
interest rate calculations described above. The carrying amount and fair value of the non-current borrowings are as follows:
Secured bank loans
Total
The movement in borrowings during the year is as follows:
Current
Bank loans
Accrued interest
Non-current
Bank loans
Carrying amount
as at 31 December
Fair value
as at 31 December
2020
US$000
199,554
199,554
2019
US$000
199,308
199,308
2020
US$000
199,110
199,110
2019
US$000
186,653
186,653
As at 1
January 2020
US$000
Additions
US$000
Repayments
US$000
Reclassifications
US$000
As at 31
December 2020
US$000
–
234
234
199,308
199,308
48,520
6,759
55,279
327
327
(37,717)
(6,312)
(44,029)
–
–
(702)
(4)
(706)
(81)
(81)
10,101
677
10,778
199,554
199,554
162 | Hochschild Mining PLC Annual Report & Accounts 2020
27 Provisions
At 1 January 2019
(Reductions)/additions
Accretion (note 12)
Change in discount rate
Change in estimates
Foreign exchange effect
Transfer to trade and other payables
Payments
At 31 December 2019
Less: current portion
Non-current portion
At 1 January 2020
Additions
Accretion (note 12)
Change in discount rate
Change in estimates
Foreign exchange effect
Payments
At 31 December 2020
Less: current portion
Non-current portion
Provision
for mine
closure1
US$000
93,855
–
506
3,819
12,878
–
(899)
(3,488)
106,671
9,358
97,313
106,671
235
(387)
7,129
16,736
–
(3,987)
126,397
19,390
107,007
Long-Term
Incentive
Plan2
US$000
1,002
(184)
–
–
–
–
–
–
818
–
818
818
308
–
–
–
–
–
1,126
–
1,126
Workers’ profit
sharing
US$000
–
5,965
–
–
–
98
–
–
6,063
6,063
–
6,063
4,986
–
–
–
(11)
(5,649)
5,389
5,389
–
Other
US$000
2,936
(71)
–
–
–
(846)
–
–
2,019
828
1,191
2,019
41
–
–
–
(435)
–
1,625
725
900
Total
US$000
97,793
5,710
506
3,819
12,878
(748)
(899)
(3,488)
115,571
16,249
99,322
115,571
5,570
(387)
7,129
16,736
(446)
(9,636)
134,537
25,504
109,033
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 inflation as at 31 December 2020 and 2019 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 -1.58% (2019: 0.00%). Expected cash flows will be over a period from one to seventeen years (2019: over a period from one to eighteen years).
Based on the internal and external reviews of mine rehabilitation estimates, the provision for mine closure increased by US$16,736,000 mainly due to increase in the Ares mine
unit of US$14,070,000 and San Jose mine unit of US$1,944,000 (2019: increase by US$12,878,000, mainly due to the increase in Ares mine unit of US$7,787,000 and Sipan mine unit
of US$5,264,000).
A net charge of US$16,056,000 related to changes in estimates (US$14,312,000) and discount rates (US$1,744,000) for mines already closed were recognised directly in the income
statement (2019: 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 were recognised directly
in the income statement).
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$000
12,639
(6,557)
2 Corresponds to the provision related to awards granted under the Long-Term Incentive Plan (‘LTIP’) to designated personnel of the Group. Includes the following benefits: (i)
2020 awards, granted in February 2020, payable in February 2023, as 50% in cash (refer to note 28(c)), (ii) 2019 awards, granted in February 2019, payable in February 2022, as
50% in cash (refer to note 28(c)), (iii) 2018 awards, granted in May 2018, payable in May 2021, as 50% in cash with a result of US$nil (refer to note 28(c)). 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 FTSE 350 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 increase to the provision of US$308,000 (2019: US$184,000 net decrease) have been
recorded as administrative expenses US$295,000 (2019: US$172,000) and exploration expenses US$13,000 (2019: US$12,000).
The following tables list the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2020 and 2019, respectively:
For the period ended
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Weighted average share price (pence £)
LTIP 2018
LTIP 2019
LTIP 2020
31 December
2020
US$000
31 December
2019
US$000
31 December
2020
US$000
31 December
2019
US$000
31 December
2020
US$000
31 December
2019
US$000
–
–
–
–
–
1.73
2.70
0.61
1
1.43
3.39
-0.12
1
1.73
2.70
0.53
2
1.43
3.39
-0.13
2
235.08
161.37
161.37
179.61
–
–
–
–
–
The expected volatility reflects the assumption that the historical volatility over a period is similar to the life of the awards and is
indicative of future trends, which may not necessarily be the actual outcome.
163 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2020 and 2019 is as follows:
Class of shares
Ordinary shares
Issued
Number
Amount
513,875,563
£128,468,891
At 31 December 2020 and 2019, all issued shares with a par value of 25 pence each were fully paid (2020: weighted average
of US$0.441 per share, 2019: weighted average of US$0.441 per share).
The changes in share capital are as follows:
Number of
shares
Share capital
US$000
Share premium
US$000
Shares issued as at 1 January 2019
510,553,920
Shares issued according to the Restricted Share Plan benefit on 31 December 2019 at GBP 0.25
3,321,643
Shares issued as at 31 December 2019
Shares issued as at 31 December 2020
513,875,563
513,875,563
225,409
1,097
226,506
226,506
438,041
–
438,041
438,041
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(o)).
The movements in treasury shares are as follows:
– 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.
– On 30 March 2020, the Group purchased 182,941 shares for a total consideration of £234,000 (equivalent to US$292,000).
– On 30 March 2020, 182,941 treasury shares with a value of US$292,000 (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 2020 the balance of treasury shares is nil (31 December 2019: nil).
(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.
Cash flow hedges
Changes in the fair value of derivatives designated as cash flow hedges, which are held to hedge the exposure to variability in cash
flows of the hedged items, are recognised in other components of equity until changes in the fair value of the hedged item are
recognised in profit or loss. The Group uses cash flow hedges for hedging the exposure to variability in interest cash flows of floating
rate interest bearing liabilities arising from changes in interest rates.
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.
164 | Hochschild Mining PLC Annual Report & Accounts 2020
(i) 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 2020 is US$nil (2019: US$1,047,000) with the amount recognised in the consolidated
income statement of US$39,000 (2019: US$203,000).
As at 31 December 2019, 538,061 ordinary shares were pending to vest. The vesting percentage of the 50% of the award (538,061
shares) resulted in 34% and on 30 March 2020 the CEO received 182,941 treasury shares, and US$794,000 was transferred from
the share-based payment reserve to retained earnings.
As at 31 December 2020 nil ordinary shares are pending to vest (31 December 2019: 538,061 ordinary shares).
The remaining contract life is nil days (2019: 80 days). The movement in other reserves is as follows:
Balance at 1 January 2019
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
Expense recognised in the period
Vesting at 20 March 2020, treasury shares received by the CEO on 30 March 2020 with a value of US$1.60 per share totalling
US$292,000 (refer to (b))
Balance at 31 December 2020
The movement of the shares according the date of vesting is as follows:
Balance of shares pending to vest at 1 January 2019
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
Shares lapsed on 20 March 2020 (50% of the award)
Shares vested on 20 March 2020
Balance of shares pending to vest at 31 December 2020
US$000
1,359
203
(515)
1,047
40
(1,087)
–
Number of
shares
807,091
(153,348)
(115,682)
538,061
(355,120)
(182,941)
–
(ii) Long-Term Incentive Plan (‘LTIP’)
On 25 May 2018 the Group approved the grant of 2018 LTIP awards, on 20 February 2019 the Group approved the grant of 2019
LTIP awards and on 19 February 2020 the grant of 2020 LTIP awards. The award gives a right to receive a cash payment equivalent to
the 50% of the prize (cash-settled transaction) (refer to note 27(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 2018 LTIP, 2019 LTIP, and 2020 LTIP:
Dividend yield (%)
Expected volatility (%)
Risk–free interest rate (%)
Expected life (years)
LTIP 2020
LTIP 2019
LTIP 2018
0.87
3.19
0.51
2.5
1.46
2.90
0.42
2.4
1.18
5.2
0.55
2.6
Weighted average share price (pence £)
179.61
161.37
235.08
The remaining contract life is 0.4 years (2019: 1.4 years), 1.1 years (2019: 2.1 years) and 2.1 years for the 2018 LTIP, 2019 LTIP and
2020 LTIP respectively.
The movement in other reserves is as follows:
Balance at 1 January 2019
Expense recognised in the period
Balance at 31 December 2019
Expense recognised in the period
Balance at 31 December 2020
No shares vested during the period (2019: nil).
LTIP 2018
US$000
LTIP 2019
US$000
LTIP 2020
US$000
212
354
566
354
920
–
551
551
624
1,175
–
–
–
438
438
165 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28 Equity continued
(iii) Restricted Share Plan (‘RSP’)
At the beginning of 2015, the Group introduced the RSP, which is a 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. The carrying amount of the
share-based payment reserve relating to the RSP at 31 December 2020 was US$4,132,000. The expenses recognised in the year
ended 31 December 2019 amounted to US$843,000.
29 Deferred income tax
The changes in the net deferred income tax assets/(liabilities) are as follows:
Beginning of the year
Income statement (credit)/charge (note 13)
Equity charge
End of the year
As at 31 December
2020
US$000
(61,476)
(12,575)
1,744
(72,307)
2019
US$000
(69,727)
8,251
–
(61,476)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.
The movement in deferred income tax assets and liabilities before offset during the year is as follows:
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Provisional
pricing
adjustment
US$000
Deferred income tax liabilities
At 1 January 2019
Income statement (credit)/charge
At 31 December 2019
Income statement (credit)/charge
At 31 December 2020
Deferred income tax assets
At 1 January 2019
Income statement credit/(charge)
At 31 December 2019
Income statement credit/(charge)
Equity credit/(charge)
At 31 December 2020
40,214
(3,444)
36,770
2,751
39,521
Provision
for mine
closure
US$000
18,403
2,977
21,380
4,004
–
Differences
in cost
of PP&E
US$000
26,298
4,746
31,044
(10,914)
–
20,130
25,384
83,588
(1,820)
81,768
3,184
84,952
1,010
(657)
353
343
696
Others
US$000
Total
US$000
1,676
2,607
4,283
(636)
3,647
126,488
(3,314)
123,174
5,642
128,816
Tax
losses
US$000
Mine
development
US$000
Others1
US$000
Total
US$000
204
(204)
–
–
–
–
693
(109)
584
(110)
–
474
11,163
(2,473)
8,690
87
1,744
10,521
56,761
4,937
61,698
(6,933)
1,744
56,509
1
Credit/(charge) in the period mainly related to interest rate swap of US$1,744,000 (2019: US$nil), statutory holiday provision of US$857,000 (2019: US$866,000), Long-Term
Incentive Plan plan of US$771,000 (2019: US$574,000) and inventory of US$nil (2019: US$1,149,000).
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
Total
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
166 | Hochschild Mining PLC Annual Report & Accounts 2020
As at 31 December
2020
US$000
1,009
(73,316)
(72,307)
2019
US$000
1,627
(63,103)
(61,476)
As at 31 December
2020
US$000
2019
US$000
–
–
–
–
171,527
171,527
–
4,843
2,990
–
174,771
182,604
Other unrecognised deferred income tax assets comprise (gross amounts):
Provision for mine closure1
As at 31 December
2020
US$000
9,212
2019
US$000
7,456
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 2020 and 2019, 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.
30 Dividends
Dividends paid and proposed during the year
Equity dividends on ordinary shares:
Final dividend for 2019: nil US cents per share (2018: 1.959 US cents per share)
Interim dividend for 2020: 4.000 US cents per share (2019: 2.000 US cents per share)
Total dividends paid on ordinary shares
Proposed dividends on ordinary shares:
2020
US$000
2019
US$000
–
20,556
20,556
10,002
10,211
20,213
Final dividend for 2020: 2.335 US cents per share (2019: nil US cents per share)
12,000
–
Dividends declared to non-controlling interests: 0.002 US$ per share (2019: 0.05 US$ per share)
Total dividends declared to non-controlling interests
345
345
8,859
8,859
Dividends paid in 2020 to non-controlling interests amount to US$345,000 (2019: US$11,069).
Dividends per share
The interim dividend paid in December 2020 was US$20,556,000 (4.000 US cents per share). A proposed dividend in respect of the
year ending 31 December 2020 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 27 May 2021 and is not recognised as a liability as at 31 December 2020.
31 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 2020 and 2019.
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
Tecsup2
Universidad UTEC2
Total
Accounts receivable
as at 31 December
2019
US$000
2020
US$000
Accounts payable
as at 31 December
2019
US$000
2020
US$000
387
1
–
388
569
–
–
569
146
120
–
266
56
41
95
192
1
The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A, an entity controlled by Eduardo Hochschild. The account
payable relates to the payment of rentals.
2 Peruvian not for profit educational institutions controlled by Eduardo Hochschild.
As at 31 December 2020 and 2019, 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.
167 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 Related-party balances and transactions continued
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
Expense donations to Tecsup
Expense donations to Universidad UTEC
Year ended
2020
US$000
2019
US$000
(469)
–
(505)
(875)
(200)
(480)
–
(240)
The Group entered in 2019 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 Plans and Restricted Share Plan
Total compensation paid to key management personnel
Year ended 31 December
2020
US$000
7,330
808
8,138
2019
US$000
7,911
1,184
9,095
This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$3,821,000 (2019:
US$4,238,000).
32 Auditor’s remuneration
The Auditor’s remuneration for services provided to the Group during the years ended 31 December 2020 and 2019 is as follows:
Audit fees pursuant to legislation1
Audit-related assurance services2
Other assurance services
Other non-audit services3
Total
Amounts paid to Ernst & Young in
the year ended 31 December
2020
US$000
2019
US$000
855
90
12
37
994
730
65
–
4
799
1 The total audit fee in respect of local statutory audits of subsidiaries is US$323,000 (2019: US$368,000).
2 Related to assurance services over the Group’s environmental ECO Score.
3 Related to corporate finance transaction services for a transaction that did not proceed (2019: related to the advice on the depreciation accounting policies in use by the Group).
In 2020 and 2019, all fees are included in administrative expenses.
168 | Hochschild Mining PLC Annual Report & Accounts 2020
33 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 3(a))
Amortisation of intangibles (note 17)
Write-off of assets (note 15)
Provision of doubtful receivable (note 11)
(Reversal)/impairment of assets (note 10)
Gain on sale of available-for-sale financial assets, net
Gain on sale of property, plant and equipment
Provision for obsolescence of supplies (note 11)
Increase of provision for mine closure (note 11)
Finance income (note 12)
Finance costs (note 12)
Income tax expense (note 13)
Other
Increase/(decrease) of cash flows from operations due to changes in assets and liabilities
Trade and other receivables
Income tax receivable
Other financial assets and liabilities
Inventories
Trade and other payables
Provisions
Cash generated from operations
As at 31 December
2020
US$000
2019
US$000
20,426
41,439
116,920
185,167
1,115
2,078
996
(8,303)
(231)
(1,921)
16,056
(4,197)
23,560
42,494
4,012
2,069
1,449
3,706
14,378
(4)
853
13,398
(2,938)
10,038
35,403
5,391
(18,905)
(9,748)
2,189
90
21,991
(8,611)
(760)
–
47
(6,950)
(8,344)
4,962
208,999
290,316
34 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
(b) Capital commitments
Peru
Chile
Argentina
As at 31 December
2020
US$000
3,837
35,552
2019
US$000
2,245
28,802
For the year ended 31 December
2019
US$000
2020
US$000
1,800
–
2,111
3,911
35,370
983
4,487
40,840
169 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
35 Contingencies
As at 31 December 2020 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 2020, the
Group had exposures totalling US$26,706,000 (2019: US$29,334,000).
When the tax authority challenges the deductibility of certain expenses the Group reassesses the case internally and externally,
with the support of a third party professional to determine the probability of success, and depending on the result, makes the
decision to continue with the claim. 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 no tax liability is required to
be recognised 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 27(1)).
36 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.
As at 31 December 2020, the amount payable as under the new mining royalty and the SMT amounted to US$1,544,000 (2019:
US$1,263,000) and US$1,492,000 (2019: US$1,196,000) respectively. The new mining royalty and SMT is reported as ‘Income tax
payable’ in the statement of financial position. The amount recorded in the income statement was US$4,088,000 (2019:
US$5,028,000) of new mining royalty and US$3,119,000 (2019: US$3,429,000) 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 2020, the amount payable as mining royalties amounted to US$315,000 (2019: US$607,000). The amount
recorded in the income statement as cost of sales was US$5,208,000 (2019: US$6,412,000).
170 | Hochschild Mining PLC Annual Report & Accounts 2020
37 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 2020 and 2019 the Group had no hedging instruments.
At 31 December 2020 and 2019 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 4). 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
2020
2019
Increase/
decrease in
price of
ounces of:
Effect on
profit before tax
US$000
Gold +/-10%
Silver+/-10%
Gold +/-10
Silver+/-10%
+/-210
+/-890
+/-599
+/-895
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in
pounds sterling, Peruvian nuevos soles, Canadian dollars, Argentinian pesos, Chilean pesos and Mexican pesos. Accordingly, the
Group’s financial results may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-
term relationship between commodity prices and currencies in the countries in which the Group operates provides a certain degree
of natural protection. The Group does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their
respective currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant,
of the Group’s profit before tax and the Group’s equity.
Year
2020
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
2019
Pounds sterling
Argentinian pesos
Mexican pesos
Peruvian nuevos soles
Canadian dollars
Chilean pesos
Increase/
decrease in
US$/other
currencies’
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-10%
+/-11
+/-867
+/-2,026
-/+4,059
+/-424
-/+144
+/-17
-/+886
+/-2,198
-/+2,584
-/+21
+/-145
–
–
–
–
+/-37
–
–
–
–
–
+/-615
–
171 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
37 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 and other receivables, embedded derivatives and
cash balances in banks as at 31 December 2020 and 31 December 2019:
Summary commercial partners
Trade receivables
As at
31 December
2020
US$000
% collected as
at 16 February
2021
As at
31 December
2019
US$000
% collected as
at 17 February
2020
45,353
56%
37,799
64%
Other receivables include advances to suppliers and receivables from contractors for the sale of supplies. There is no credit risk on
these amounts as the Group can withhold the balances that it owes the suppliers or contractors for their services.
Cash and cash equivalents – Credit rating1
A+
A
A-
AA+
AAA
BBB+
BBB
NA
Total
As at
31 December
2020
US$000
As at
31 December
2019
US$000
20,000
14,479
79,559
–
–
100,421
14,528
2,896
32,005
–
72,494
1,161
229
49,998
9,792
678
231,883
166,357
1 Represents the long-term credit rating as at 4 February 2021 (2019: 4 February 2020).
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 37(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 2020 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$101,000 (2019: +/-US$1,540,000) recognised in equity. The sensitivity to
reasonable movements in the share price of financial assets at fair value through profit and loss of +/- 25% with all other variables
held constant is +/-US$1,352,000 (2019: US$nil) recognised in the consolidated statement of profit and loss.
172 | Hochschild Mining PLC Annual Report & Accounts 2020
(e) Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
As at 31 December 2020 and 2019, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Equity shares (notes 18 and 19)
Trade receivables (note 20)
Liabilities measured at fair value
Derivative financial liabilities
Assets measured at fair value
Equity shares (notes 18 and 19)
Trade receivables (note 20)
31 December
2020
US$000
5,809
45,353
(6,003)
31 December
2019
US$000
6,159
37,799
Level 1
US$000
5,809
–
Level 2
US$000
–
–
Level 3
US$000
–
45,353
(6,003)
–
Level 1
US$000
6,159
–
Level 2
US$000
–
–
Level 3
US$000
–
37,799
During the period ending 31 December 2020 and 2019, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Unlisted equity shares
Balance at 1 January 2019
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 (note 4)
Realised price adjustments during the year
Balance at 31 December 2019
Net change in trade receivables from goods sold
Changes in fair value of price adjustments (note 4)
Realised price adjustments during the year
Balance at 31 December 2020
Unlisted equity
shares
US$000
3,186
500
1,868
(3,444)
(2,110)
–
–
–
–
–
–
–
–
Trade
receivables/
price
adjustments
US$000
45,201
–
–
–
–
(4,887)
14,584
(17,099)
37,799
6,289
10,999
(9,734)
45,353
(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.
173 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
37 Financial risk management continued
At 31 December 2020
Trade and other payables
Borrowings
Derivative financial liabilities1
Total
At 31 December 2019
Trade and other payables
Borrowings
Total
Less than
1 year
US$000
103,419
14,316
1,500
119,235
109,953
6,150
116,103
Between
1 and
2 years
US$000
211
69,124
1,557
70,892
344
6,083
6,427
Between
2 and
5 years
US$000
–
135,424
2,946
138,370
230
209,898
210,128
Over
5 years
US$000
–
–
–
–
–
–
–
Total
US$000
103,630
218,864
6,003
328,497
110,527
222,131
332,658
1 The interest rate swap settles the difference between the fixed and floating interest rate on a net basis on a quarterly basis.
(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
Liabilities
Floating rate
Liabilities
Fixed rate
Assets
Floating rate
Liabilities
Within
1 year
US$000
150,851
(10,628)
As at 31 December 2020
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
–
–
–
–
(150)
(66,666)
(132,888)
–
–
–
Within
1 year
US$000
128,110
(234)
As at 31 December 2019
Between
1 and
2 years
US$000
–
–
Between
2 and
5 years
US$000
–
(199,308)
Over
5 years
US$000
–
–
Total
US$000
150,851
(10,628)
(199,704)
Total
US$000
128,110
(199,542)
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 +/-20bps change in interest rates has a -/+US$400,000 effect on profit before tax (2019:
-/+US$15,000). The Group is exposed to fluctuations in market interest rates.
This assumes that the amount remains unchanged from that in place at 31 December 2020 and 2019 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.
174 | Hochschild Mining PLC Annual Report & Accounts 2020
Derivative financial liabilities – Interest rate swap
On 14 February 2020, the Group and JP Morgan Chase Bank, N.A. entered into an interest rate swap with a notional amount equal
to the principal of the medium-term loan whereby the Group pays fixed rate of 2.534% and receives interest at a variable rate equal
to LIBOR+1.15% on the notional amount from 17 March 2020 to 17 December 2024. The interest rate swap is being used to hedge
the exposure to changes in the cash flows of its variable rate medium-term loan. In accordance with IFRS 9, this derivative
instrument is categorised as a cash flow hedge at the inception of the hedging relationship, and on an ongoing basis, the Group
assesses whether a hedging relationship meets the hedge effectiveness requirements. At a minimum, an entity shall perform the
ongoing assessment at each reporting date or upon a significant change in the circumstances affecting the hedge effectiveness
requirements, whichever comes first. The assessment relates to expectations about hedge effectiveness and is therefore only
forward-looking.
The Group has established a ratio of 1:1 for the hedging relationship as the underlying risk of the interest rate swap is identical to
the hedged risk component. The hedging instrument and the hedged item have values which move in the opposite direction due to
the same risk and, therefore, there is an economic relationship between the hedged item and the instrument coverage as the terms
of the interest rate swap match the terms of the fixed rate loan (i.e. notional amount, maturity and payment dates). That said, it is
observed that the effectiveness tests comply with the requirements of IFRS 9 and conclude that the hedging strategy is highly
effective. There is no ineffectiveness recognised in profit or loss.
The fair value of the interest rate swap was calculated using a discounted cash flow model applying a combination of level 1 (USD
swap curve and USD zero yield curve) and level 2 inputs. This approach results in the fair value measurement categorised in its
entirety as level 2 in the fair value hierarchy. The fair value of the interest rate swap as at 31 December 2020 is as follows:
Current derivative financial liabilities
Non-current derivative financial liabilities
The effect recorded is as follows:
Income statement – Finance costs
Equity – Cash flow hedge reserve
US$000
1,500
4,503
6,003
US$000
90
5,913
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 +/-20bps change in interest rates has a US$977,000 / -US$984,000 effect on OCI.
(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 26
and 28).
In 2020 the Group collected US$48,520,000 (2019: collected US$315,808,000 net of transaction costs of US$692,000) due to
proceeds of borrowings while US$37,717,000 (2019: US$272,500,000) 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.
38 Subsequent events
(a) On 8 February 2021, the Group signed agreements to hedge the sale of 4,000,000 ounces of silver at US$27.10 per ounce for
2021 and a further 4,000,000 ounces of silver at US$26.86 per ounce for 2022. This is to protect cash flows from the Pallancata
mine in the next two years with the existing resource base.
(b) In February 2021, the Group sold 324,001 shares of AGSC for a total consideration of US$891,000 generating a loss of
US$147,000, recognised in profit and loss.
175 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information Parent company statement of financial position
As at 31 December 2020
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
2020
US$000
2019
US$000
Notes
5
6
7
8
8
9
10
9
2,104,219
2,104,219
1,815,913
1,815,913
2,603
748
3,351
6,282
554
6,836
2,107,570
1,822,749
226,506
458,267
2,533
1,127,421
1,814,727
226,506
458,267
2,164
863,622
1,550,559
872
81
953
291,890
291,890
292,843
1,166
60
1,226
270,964
270,964
272,190
2,107,570
1,822,749
The profit of the Company after tax amounted to US$283,560,000 (2019: US$160,858,000).
The financial statements were approved by the Board of Directors on 17 February 2021 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
17 February 2021
176 | Hochschild Mining PLC Annual Report & Accounts 2020
Parent company statement of cash flows
For the year ended 31 December 2020
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
Year ended 31 December
2020
US$000
2019
US$000
Notes
283,560
160,858
Reversal of impairment on investment in subsidiary
5
(288,306)
(165,984)
Share-based payments
Finance income
Finance costs
(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 (used in)/generated from operating activities
Cash flows from investing activities
Repayment of loans to subsidiaries
Dividends collected
Net cash generated from investing activities
Cash flows from financing activities
Dividends paid
Purchase of treasury shares
Repayment of loan from subsidiary
Loans from subsidiaries
Cash flows used in financing activities
Net increase/(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
1,456
(296)
12
(1,496)
390
21
(4,659)
1
(4,658)
5,175
–
5,175
1,951
(36)
14
(1,925)
10,655
691
6,224
25
6,249
4,014
21
4,035
(20,556)
(20,213)
(292)
(5,000)
25,525
(323)
194
554
748
(309)
–
10,000
(10,522)
(238)
792
554
10
12
8(b)
7
177 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information Parent company statement of changes in equity
For the year ended 31 December 2020
Balance at 1 January 2019
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
Other comprehensive income
Profit for the year
Total comprehensive profit for the year
Exercise of share options
Dividends
Purchase of treasury shares
Share-based payments
Balance at 31 December 2020
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
225,409
458,267
–
–
–
–
–
1,097
–
–
–
–
–
–
–
–
–
–
226,506
458,267
–
–
–
–
–
–
–
–
–
–
–
–
–
–
226,506
458,267
8(c)
12
8(a)
8(b)
8(c)
8(c)
12
8(b)
8(c)
–
–
–
–
4,860
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)
–
–
–
–
–
292
–
(292)
–
–
–
–
–
–
–
–
1,951
2,164
1,951
2,164
–
–
–
–
–
–
(20,213)
(20,213)
–
–
–
1,097
(309)
1,951
863,622 1,550,559
–
–
283,560
283,560
283,560
283,560
(1,087)
(1,087)
795
–
–
–
1,456
2,533
–
–
1,456
(20,556)
(20,556)
–
–
(292)
1,456
2,533
1,127,421 1,814,727
178 | Hochschild Mining PLC Annual Report & Accounts 2020
NOTES TO THE PARENT COMPANY 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 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 accounting standards in
conformity with the requirements of 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 financial position of the Company is set out in the
Statement of Financial Position. The Company has received
a support letter from its wholly owned subsidiary, Hochschild
Mining Holdings Ltd, indicating that it will not request a
repayment of the interest free loan of US$287,385,000 for a
period of at least 12 months from the date of approval of the
balance sheet of the Company.
The ability for the Company to continue as a going concern
is dependent on Compañía Minera Ares S.A.C. (‘Minera Ares’),
another wholly owned subsidiary of the Company providing
additional funding to the extent that the operating inflows of the
Company are insufficient to meet future cash requirements.
The Company has obtained a letter of support from Minera Ares
indicating that the financial support will continue until at least
12 months from the date of these financial statements.
Considering the impact of Covid-19 pandemic and the support
available from the subsidiaries described above, the Directors
have a reasonable expectation that the Company has adequate
resources to continue in operation until 31 March 2022, being
a period of at least 12 months from the date of these financial
statements. These considerations included the impact of
Covid-19 pandemic on the wider Hochschild Group and the
Hochschild Group´s Directors’ assessment of going concern.
Accordingly, the financial statements have been prepared 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 2020 and 31 December 2019.
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 Company financial statements 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 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.
Significant estimates:
– Impairment in subsidiaries – notes 2(e) and 5
Estimates are required to be made by management in
determining the recoverable value of the investments in
subsidiaries. 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, to which a control premium
is applied. Judgement is involved in determining the control
premium rate to be paid by market participants in an arm’s
length transaction.
Critical judgements:
– Income tax – note 2(n)
The Company analyses the possibility of generation of profit
and determined the recognition of deferred tax. No deferred
tax asset is being recognised by the Company as it does not
expect to generate any profit to settle the temporary
difference.
(h) Other receivables
Other receivables are initially recognised at fair value 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.
179 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
2 Significant accounting policies continued
(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 its subsidiaries operate and therefore
drives their ability to pay dividends.
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. Nonmonetary 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.
(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:
– where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a transaction
that is not a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss;
– in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures,
where the timing of the reversal of the temporary differences
can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is
realised or the liability is settled based on the tax rates (and tax
laws) that have been enacted or substantively enacted at the
statement of financial position date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable that the related tax
benefit will be realised.
(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.
Subsequent measurement
The Company measures financial assets at amortised cost
(debt instruments) 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.
180 | Hochschild Mining PLC Annual Report & Accounts 2020
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 other 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.
The Company’s financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts,
and financial guarantee liabilities.
Subsequent measurement
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the
effective interest rate (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.
(p) Financial guarantees
Financial guarantees are initially recognised in the financial
statements at fair value at the time the guarantee is issued.
The Company estimates the fair value of the financial guarantee
contract as the difference between the net present value of the
contractual cash flows required under a debt instrument, and
the net present value of the net contractual cash flows that
would have been required without the guarantee. The present
value is calculated using a risk-free interest rate.
Subsequent to initial recognition, the Company’s liability under
each guarantee is measured at the higher of the amount initially
recognised less cumulative amortisation recognised in profit
and loss, and the amount of ECL. Financial guarantee ECL
reflect the cash shortfalls adjusted by the risks that are specific
to the cash flows. If the ECL exceeds the initially recognised
guarantee amount less cumulative amortisation the difference
is taken to profit and loss.
A financial guarantee liability is derecognised when the liability
underlying the guarantee is discharged or cancelled or expires,
or if the guarantee is withdrawn or cancelled. The carrying
amount of the financial guarantee is taken to the statement
of profit or loss.
(q) 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$283,560,000 (2019: US$160,858,000).
4 Property, plant and equipment
At 31 December 2020 and 2019 the Company has property,
plant and equipment with cost of equipment of US$265,000
which is fully depreciated.
There were no additions during 2019 and 2020.
181 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
5 Investments in subsidiaries
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
Year ended 31 December 2020
Cost
At 1 January 2020
At 31 December 2020
Accumulated impairment
At 1 January 2020
Reversal of impairment
At 31 December 2020
Net book value at 31 December 2020
Total
US$000
2,336,010
1,472
2,337,482
687,553
(165,984)
521,569
1,815,913
2,337,482
2,337,482
521,569
(288,306)
233,263
2,104,219
In 2020, the Company tested its investment in subsidiary for impairment reversal in light of 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$288,306,000 (2019: US$165,984,000).
The recoverable value of the investment in Hochschild Mining Holdings Ltd 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
2020 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 assets and liabilities
held directly by the Company, which result in fair value measurements categorised in its entirety as level 3 in the fair value hierarchy.
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 by US$181,638,000 (2019: 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:
As at
31 December
2020
US$000
As at
31 December
2019
US$000
72,655
(72,655)
223,524
86,953
Name
As at 31 December 2020
Equity interest
%
Country of
incorporation
Carrying value
US$000
As at 31 December 2019
Equity interest
%
Country of
incorporation
Hochschild Mining Holdings Ltd
England and Wales
100%
2,104,219
England and Wales
100%
Total
2,104,219
Carrying value
US$000
1,815,913
1,815,913
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 Compania Minera Ares, one of its indirectly held subsidiaries (note 9).
182 | Hochschild Mining PLC Annual Report & Accounts 2020
6 Other receivables
Amounts receivable from subsidiaries (note 11)
Prepayments
Receivable from Kaupthing, Singer and Friedlander
Other receivable
Provision for impairment1
Total
Less current balance
Year ended 31 December
2020
US$000
2,371
231
201
1
2,804
(201)
2,603
(2,603)
2019
US$000
6,188
93
197
1
6,479
(197)
6,282
(6,282)
Total
US$000
195
2
197
4
201
1 Corresponds to the balance of the impairment of cash deposits with Kaupthing, Singer and Friedlander of US$201,000 accrued in 2008 (2019: US$197,000).
The fair values of other receivables approximate their book values.
Movements in the provision for impairment of receivables:
At 1 January 2019
Provided for during the year
At 31 December 2019
Provided for during the year
At 31 December 2020
As at 31 December 2020 and 2019, none of the financial assets classified as receivables (net of impairment) were past due.
7 Cash and cash equivalents
Bank current account1
Time deposits2
Cash and cash equivalents considered for the cash flow statement
1 Relates to bank accounts which are freely available and bear interest.
2 These deposits have an average maturity of nil days (2019: 2 days).
8 Equity
(a) Share capital and share premium (note 28 of consolidated financial statements)
Issued share capital
The issued share capital of the Company as at 31 December 2020 and 2019 is as follows:
Class of shares
Ordinary shares
Year ended 31 December
2020
US$000
2019
US$000
411
337
748
420
134
554
Issued
Number
Amount
513,875,563 £128,468,891
At 31 December 2020 and 2019, all issued shares with a par value of 25 pence each were fully paid (weighted average of US$0.441
per share).
The changes in share capital are as follows:
Shares issued as at 1 January 2019
Shares issued according to the Restricted Share Plan benefit on 31 December 2019
Shares issued as at 31 December 2019
Shares issued as at 31 December 2020
Number of
shares
Share capital
US$000
Share premium
US$000
510,553,920
3,321,643
513,875,563
513,875,563
225,409
1,097
226,506
226,506
458,267
–
458,267
458,267
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.
183 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
8 Equity continued
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining PLC shares purchased in the market and held by the trustee of the
Hochschild Mining Employee Share Trust to satisfy the award of conditional shares under the Company’s Enhanced Long-Term
Incentive Plan granted to the CEO (note 2(l)).
The movements in the treasury shares are as follows:
– 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.
– On 30 March 2020, the Group purchased 182,941 shares for a total consideration of £234,000 (equivalent to US$292,000).
– On 30 March 2020, 182,941 treasury shares with a value of US$292,000 (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 2020 the balance of treasury shares is nil (31 December 2019: nil).
(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 28(c) to the consolidated financial statements for details of the share-based payment reserve at 31 December 2020
and 2019.
9 Trade and other payables
Trade payables
Payables to subsidiaries (note 11 (a))
Remuneration payable
Taxes and contributions
Financial guarantees1
Total
2020
Non-current
US$000
–
–
–
–
872
872
As at 31 December
Current
US$000
286
290,952
244
113
295
291,890
2019
Non-current
US$000
–
–
–
–
1,166
1,166
Current
US$000
422
269,917
236
94
295
270,964
1
The Company provided a financial guarantee to the bank loan entered into by its subsidiary Compania Minera Ares. The financial guarantee was recognised at its fair value at
initial recognition of US$1,472,000. This fair value was determined through the use of certain level 3 estimates, the most significant of which being the estimated rate of interest
Compania Minera Ares would have been charged were it not for the guarantee provided by the Company.
Trade payables mainly relate to the purchase of third-party services. These payables do not accrue interest and no guarantees
have been granted in relation to these payables. The fair value of trade and other payables approximate their book values.
10 Provisions
Beginning balance
Increase/(decrease) in provision, net
At 31 December
Less: current portion
Non-current portion
As at 31 December
2020
US$000
2019
US$000
60
21
81
–
81
71
(11)
60
–
60
1 Corresponds to the provision related to cash-settled share-based payment awards granted under the Long-Term Incentive Plan (‘LTIP)’ to designated personnel of the
Company. Includes the following benefits: (i) Long-Term Incentive Plan awards, granted in February 2020, payable in February 2023, as 50% in cash (ii) Long-Term Incentive
Plan awards, granted in February 2019, payable in February 2022 (iii) Long-Term Incentive Plan awards, granted in May 2018, payable in May 2021, with a result of US$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 27 to the consolidated financial statements for details of the LTIP awards and assumptions used for the valuation as at 31 December 2020
and 2019.
184 | Hochschild Mining PLC Annual Report & Accounts 2020
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 2020 and 31
December 2019.
Subsidiaries
Compañía Minera Ares S.A.C.1
Hochschild Mining Holdings Ltd2
Other subsidiaries
Total
As at 31 December 2020
As at 31 December 2019
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
Accounts
payable
US$000
1,416
–
955
3,545
287,385
22
2,371
290,952
5,349
–
839
6,188
3,037
266,860
20
269,917
1
The account receivable mainly relates to the LTIP 2020, LTIP 2019 and LTIP 2018 (50% paid in shares that are going to be paid by Hochschild Mining PLC in shares on behalf of
Compania Minera Ares). The account payable mainly relates to the services performed by Compania Minera Ares to the Company, which during 2020 amounts to US$508,000
(2019: US$1,145,000). The Company provided certain financial guarantees on behalf of Compania 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. In February 2021, the Company
has received a support letter from Hochschild Mining Holdings Ltd indicating that it will not request a repayment of the interest free loan for a period of at least 12 months from
the date of approval of the balance sheet of the Company.
The fair values of the receivables and payables approximate their book values. Transactions between the Company and these
companies are on an arm’s length basis.
(b) Compensation of key management personnel of the Company
Key management personnel include the Directors who receive remuneration. The amount of this remuneration totals US$1,030,000
(2019: US$990,000).
12 Dividends paid and proposed
Dividends per share
The interim dividend paid in December 2020 was US$20,556,000 (4.000 US cents per share). A proposed dividend in respect of the
year ending 31 December 2020 of 2.335 US cents per share, amounting to a total dividend of US$12,000,000, is subject to approval
at the Annual General Meeting to be held on 27 May 2021 and is not recognised as a liability as at 31 December 2020 (refer to note
30 to the consolidated financial statements).
13 Financial risk management
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas to
facilitate risk assessment.
The Company is not exposed to significant sources of commodity price, equity or interest rate risk.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling.
Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company does not use
derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity of financial assets
and liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible change in the US dollar
exchange rate, with all other variables held constant, of the Company’s profit before tax and the Company’s equity.
Year
2020
Pounds Sterling
2019
Pounds Sterling
Increase/
decrease in
US$/other
currencies rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
+/-10%
+/-14
+/-10%
+/-14
–
–
(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);
– 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.
185 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
13 Financial risk management continued
(c) Liquidity risk
Liquidity risk arises from the Company’s inability to obtain the funds it requires to comply with its commitments. Management
constantly monitors the Company’s level of short- and medium-term liquidity 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 equivalents held by the Company of US$748,000 (2019: US$554,000) and the financial support
provided by Minera Ares (see note 2(b). 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 2020
Trade and other payables
At 31 December 2019
Trade and other payables
Less than
1 year
US$000
291,482
270,575
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
–
–
–
–
–
–
Total
US$000
291,482
270,575
The table below analyses the maximum amounts payable under financial guarantees provided to Minera Ares (note 9), considering
that if the guarantees were to be called, the guaranteed amounts would be due immediately:
At 31 December 2020
Financial guarantees1
At 31 December 2019
Financial guarantees1
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
200,000,000
200,000,000
–
–
–
–
–
–
200,000,000
200,000,000
1 Not including any accumulated interest that may be payable at the call date.
(d) Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order
to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the
cost of capital. Management considers as part of its capital the financial sources of funding from shareholders and third-parties
(notes 8 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.
186 | Hochschild Mining PLC Annual Report & Accounts 2020
PROFIT BY OPER ATION 1 (SEGMENT REPORT RECONCILIATION) AS AT 31 DECEMBER 2020
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
Reversal of impairment and write-off of assets, net
Finance income
Finance costs
Foreign exchange loss
Pallancata
Inmaculada
(181,467)
(147,062)
Consolidation
adjustment and
others
149
3,136
3,136
–
–
–
–
–
–
3,285
(43,282)
(32,795)
–
San Jose
206,098
(147,103)
(41)
(79,804)
(30,979)
–
(33,971)
(2,308)
58,995
–
–
(11,705)
–
(28,901)
314,906
(185,386)
(3,919)
(86,874)
(53,472)
(1,383)
(26,517)
(13,221)
129,520
–
–
(417)
–
129,103
47,290
(101,693)
–
–
–
–
–
–
–
–
6,225
4,197
(23,560)
(2,631)
Total/HOC
621,827
(425,406)
–
(425,406)
(218,212)
(113,146)
(2,632)
(74,093)
(17,323)
196,421
(43,282)
(32,795)
(12,754)
(28,901)
78,689
6,225
4,197
(23,560)
(2,631)
100,674
(96,053)
824
(96,877)
(51,534)
(28,695)
(1,249)
(13,605)
(1,794)
4,621
–
–
(632)
–
3,989
–
–
–
–
Profit/(loss) from continuing operations before
income tax
3,989
129,103
47,290
(117,462)
62,920
Income tax
–
–
–
(42,494)
Profit/(loss) for the year from continuing operations
3,989
129,103
47,290
(159,956)
(42,494)
20,426
1 On a post-exceptional basis.
187 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information 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 188 to 190 was prepared by or under the supervision of Competent Persons (as defined in the JORC
Code). Competent Persons are required to have sufficient relevant experience and understanding of the style of mineralisation, types
of deposits and mining methods in the area of activity for which they are qualified as a Competent Person under the JORC Code.
The Competent Person must sign off their respective estimates of the original mineral resource and ore reserve statements for the
various operations and consent to the inclusion of that information in this report, as well as the form and context in which it appears.
Hochschild Mining PLC employs its own Competent Person who has audited all the estimates set out in this report. Hochschild
Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore
reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants.
The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and
mineral resource, the overall value thereof and the time that has lapsed since the previous independent third-party audit.
The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts (which,
in the Group’s case, are prepared by ex-house specialists largely using estimates of future supply and demand and long-term
economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental
regulations and any other relevant new information and therefore these can vary from year-to-year. Mineral resource estimates can
also change and tend to be influenced mostly by new information pertaining to the understanding of the deposit and secondly the
conversion to ore reserves.
The estimates of ore reserves and mineral resources are shown as at 31 December 2020, 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$1,800 per ounce and Ag price: US$20.0 per ounce.
Attributable metal reserves as at 31 December 2020
Reserve category
OPERATIONS1
Inmaculada
Proved
Probable
Total
Pallancata
Proved
Probable
Total
San Jose
Proved
Probable
Total
GRAND TOTAL
Proved
Probable
TOTAL
Proved and
probable
(t)
2,490,623
5,267,732
7,758,354
515,499
118,910
634,409
403,140
108,019
511,159
3,409,261
5,494,661
8,903,922
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
154
98
116
283
216
270
466
146
399
210
102
143
3.7
2.4
2.8
1.1
0.9
1.1
7.6
2.4
6.5
3.8
2.3
2.9
12.3
16.6
28.9
4.7
0.8
5.5
6.0
0.5
6.5
23.0
18.0
41.0
297.7
401.7
699.3
18.3
3.6
22.0
98.3
8.4
106.7
414.3
413.7
828.0
37.9
51.2
89.1
6.3
1.1
7.4
14.5
1.2
15.7
58.7
53.5
112.2
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.
188 | Hochschild Mining PLC Annual Report & Accounts 2020
Attributable metal resources as at 31 December 20201,2
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)
2,406,000
5,253,000
7,659,000
9,921,000
1,454,000
691,000
2,145,000
1,947,000
893,520
510,000
1,403,520
949,110
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
116,907,520
315,678,000
432,585,520
65,624,110
193
127
148
104
329
239
300
248
484
335
429
345
47
38
40
46
244
187
188
170
–
–
–
–
438
411
421
370
17
11
13
67
4.75
3.17
3.67
2.66
1.41
1.11
1.31
1.13
7.89
5.68
7.09
5.58
0.47
0.40
0.42
0.57
0.77
0.77
0.77
0.89
0.738
0.698
0.709
0.502
1.34
1.36
1.35
1.26
0.88
0.74
0.77
1.00
602
400
463
333
450
335
413
345
1,162
823
1,039
825
87
72
76
95
310
253
254
247
63
60
61
43
553
527
537
478
93
74
79
153
15.0
21.4
36.3
33.3
15.4
5.3
20.7
15.5
13.9
5.5
19.4
10.5
7.9
21.0
28.8
1.1
1.5
41.2
42.7
37.9
–
–
–
–
11.7
17.2
29.0
42.1
65.3
111.6
176.9
140.5
367.7
535.8
903.4
849.1
65.8
24.6
90.4
70.8
226.6
93.1
319.7
170.2
78.6
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
36.1
56.9
92.9
142.6
3,292.6
7,469.6
46.6
67.5
114.0
106.3
21.0
7.4
28.5
21.6
33.4
13.5
46.9
25.2
14.7
40.1
54.7
2.4
1.9
55.7
57.6
55.1
216.1
547.6
763.8
57.7
14.8
22.1
36.9
54.3
348.5
753.9
10,762.1
1,102.4
2,117.0
322.5
1 Prices used for resources calculation: Au: $1,800/oz and Ag: $20.0/oz and Ag/Au ratio of 86x.
2 Tables represent 100% of the Mineral Resource. Resources are inclusive of Reserves.
189 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther Information
RESERVES AND RESOURCES CONTINUED
Change in attributable reserves and resources
Ag equivalent content (million ounces)
Category
Percentage
attributable
December
2020
December
2019
Att.1
December
2020
Att.1 Net difference
Inmaculada
Pallancata
San Jose
Crespo
Azuca
Volcan
Arcata
Total
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
Resource
Reserve
100%
233.8
220.3
100%
51%
100%
100%
100%
100%
76.1
58.6
11.9
71.4
18.3
57.1
–
112.7
–
821.5
–
91.3
–
89.1
50.1
7.4
72.0
15.7
57.1
–
112.7
–
821.5
–
91.3
–
(13.5)
12.9
(8.5)
(4.5)
0.6
(2.6)
–
–
–
–
–
–
–
–
% change
(5.8%)
17.0%
(14.5%)
(38.0%)
0.9%
(14.1%)
–
–
–
–
–
–
–
–
1,446.3
1,425.0
106.4
112.2
(21.3)
5.8
(1.5%)
5.5%
1 Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
190 | Hochschild Mining PLC Annual Report & Accounts 2020
SHAREHOLDER INFORMATION
Company website
Hochschild Mining PLC Interim and Annual Reports and results announcements are available via the internet on our website at
www.hochschildmining.com. Shareholders can also access the latest information about the Company and press announcements
as they are released, together with details of future events and how to obtain further information.
Registrars
The Registrars can be contacted as follows for information about the AGM, shareholdings, and dividends and to report changes
in personal details:
By post
Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
By telephone
If calling from the UK: 0371 664 0300 (calls cost 12p per minute plus your phone company’s access charge. Lines are open 9.00am-
5.30pm Mon to Fri 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 14 May 2021 in respect of the 2020 final dividend.
The Company’s registrars can also arrange for the dividend to be paid directly into a shareholder’s UK bank account. This
arrangement is only available in respect of dividends paid in UK pounds sterling. To take advantage of this facility in respect of the
2020 final dividend, a dividend mandate form, also available from the Company’s registrars, should be completed and returned to
the registrars by 14 May 2021. Alternatively you can register your bank details via Signal Shares, a secure online site where you can
manage your shareholding quickly and easily. To register for Signal Shares just visit www.signalshares.com. All you need is your
investor code, which can be found on your share certificate or a previous dividend confirmation voucher. 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
2021
6 May
7 May
14 May
2 June
191 | Hochschild Mining PLC Annual Report & Accounts 2020
Strategic ReportFinancial StatementsGovernanceFurther 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.
192 | Hochschild Mining PLC Annual Report & Accounts 2020
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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