REG - Hochschild MiningPLC - 2021 Annual Report and Notices of AGM and EGM

Hochschild MiningAnnouncement

20/04/2022 13:00

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RNS Number : 7806I  Hochschild Mining PLC  20 April 2022

 

 

_________________________________________________________________________________

20 April 2022

 

2021 Annual Financial Report,

2022 Annual General Meeting ("AGM") and

Circular relating to an Extraordinary General Meeting ("EGM") (incorporating
the Notice of EGM)

 

 

Following the release of Hochschild Mining PLC's 2021 full year results
announcement on 23 February 2022 (the "Preliminary Announcement"), the Company
announces it has published its Annual Report and Accounts for the year ended
31 December 2021 (the "2021 Annual Report").

 

In accordance with LR 9.6.1 R, the Company also announces that the following
documents have been submitted to the National Storage Mechanism and will be
available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)

 

·      2021 Annual Report

·      AGM circular (incorporating the Notice of AGM)

·      EGM circular (incorporating the Notice of EGM)

·      Notice of Availability of the 2021 Annual Report, AGM circular
and EGM circular

 

The above documents will be posted shortly or otherwise made available to
shareholders and, in accordance with the Disclosure Guidance and Transparency
Rules ("DTR"), the 2021 Annual Report, the AGM circular and EGM circular have
been published on the Company's website at www.hochschildmining.com
(http://www.hochschildmining.com/) .

 

GENERAL MEETING ARRANGEMENTS

The EGM and AGM (the "Hochschild Meetings") will be held on Thursday, 26th May
2022 at the offices of Hudson Sandler LLP, 25 Charterhouse Square, London EC1M
6AE at 8.45 a.m. and 9.00 a.m. respectively.

 

- EGM

The EGM circular, which was approved today by the Financial Conduct Authority,
sets out proposals to (a) rectify certain historic dividends (the "Relevant
Dividends") and enter into deeds of release in favour of the Company's
shareholders and directors; and (b) create distributable reserves for the
Company by way of:

 

(i)    a capitalisation of the Company's merger reserve followed by a
cancellation of the shares that are issued (the "Merger Reserve Capitalisation
and Cancellation");

(ii)   the subsequent reduction of all or part of the Company's share
premium account, including share premium created through the Merger Reserve
Capitalisation and Cancellation, and the crediting of the amount by which the
share premium account is reduced to the Company's retained earnings reserve
(the "Share Premium Reduction"); and

(iii)  the reduction in the nominal value of the ordinary shares from 25
pence per ordinary share to 1 pence per ordinary share (the "Capital
Reduction" and, together with the Share Premium Reduction, the "Company
Reductions").

 

The EGM circular includes a letter from the Chairman of the Company, which is
reproduced in Appendix 4 without material adjustment or amendment.

 

Completion of the dividend rectification and entry into the related party
transactions and the Company Reductions remain conditional on, among other
things, the approval of the Company's shareholders and, in the case of the
Company Reductions, approval by the Court of England and Wales.

 

- Attendance at the Hochschild Meetings

Shareholders who wish to attend either of the Hochschild Meetings in person
are requested to register their intention to attend by emailing
info@hocplc.com no later than 48 hours prior to the relevant Hochschild
Meeting to allow us to ensure that the venue can remain secure against
COVID-19 and allow us to make various health, safety and risk assessments.

 

We are pleased this year that shareholders will be able to physically attend
the Hochschild Meetings. In the event circumstances change before the
appointed time of the relevant Hochschild Meeting, we will notify shareholders
of any change to the arrangements through announcements via the London Stock
Exchange and by publishing details on the Company's website at
www.hochschildmining.com as early as is possible before the Hochschild
Meetings. For the safety of others, shareholders or proxies experiencing any
of the symptoms connected with COVID-19 are requested not to attend either of
the Hochschild Meetings. To mitigate the risk that shareholders or proxies
cannot attend because of COVID-19 or for whatever other reason, we would
encourage all shareholders to appoint the chairman as their proxy to exercise
their votes in accordance with their instructions.

 

- Proxy Voting at Hochschild Meetings

Full details on how to submit proxy votes and the deadlines to do so can be
found in the Notices of AGM and EGM.

 

Appendices 1 to 3 to this announcement contain the information required to be
disclosed under DTR 6.3.5 which has been reproduced from the 2021 Annual
Report and should be read in conjunction with the Preliminary Announcement.
All page references and cross-references in Appendices 1 to 3 are to
the 2021 Annual Report.

________________________________________________________________________________

Enquiries:

Hochschild Mining PLC

Raj Bhasin
 
 
     +44 (0)7825 533495

Company Secretary

 

Hudson Sandler

Charlie Jack
 
 
   +44 (0)20 7796 4133

Public Relations

________________________________________________________________________________________________

 

About Hochschild Mining PLC

Hochschild Mining PLC is a leading precious metals company listed on
the London Stock Exchange (HOCM.L / HOC LN) and crosstrades on the OTCQX
Best Market in the U.S. (HCHDF), with a primary focus on the exploration,
mining, processing and sale of silver and gold. Hochschild has over fifty
years' experience in the mining of precious metal epithermal vein deposits and
currently operates three underground epithermal vein mines, two located in
southern Peru and one in southern Argentina. Hochschild also owns the Posse
Advanced Project in Brazil which is currently in construction as well as
numerous long-term projects throughout the Americas.

 

LEI: 549300JK10TVQ3CCJQ89

 

APPENDICES

Appendix 1

Risk Management

(reproduced from pages 68 to 75 of the 2021 Annual Report)

 

Management of the Group's operations and execution of its growth strategies
are subject to a number of risks, the occurrence of which could adversely
affect the performance of the Group. The Group's risk management framework is
premised on the continued monitoring of the prevailing environment, the risks
posed by it, and the evaluation of potential actions to mitigate those risks.

 

The Risk Committee is a management committee tasked with 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.

Risk appetite

Defining risk appetite is crucial in ensuring that a risk management system is
embedded into Hochschild's organisational culture. Our risk appetite approach
is to minimise our exposure to reputational, compliance and excessive
financial risk, whilst accepting a certain level of risk to achieve our
strategic goals. As part of setting risk appetite, the Board will consider and
monitor the level of acceptable risk it is willing to take in each of the
principal risk areas.

 

Appetite for risk will vary according to the activity undertaken, and is
predicated on the fact that a risk will only be tolerated after a full
understanding of the potential benefits and its implications before proceeding
with a course of action, and that sensible mitigation measures are identified
and implemented.

 

Covid-19

As reported in the 2020 Annual Report, in response to the Covid-19 pandemic,
Hochschild Mining established a Crisis Committee which oversaw the
implementation of the Covid-19 Crisis Plan. This plan resulted in the
instigation of, among other things, enhanced health protocols designed to
prioritise employee welfare. In 2021 the protocols on testing and social
distancing measures at the operations remained in place to control the spread
of the virus among employees.

 

2021 Risks

Details of the principal and emerging risks affecting the Group and the
associated mitigating actions are provided on the following pages. The risks
differ from those reported in the 2020 Annual Report in the following
respects:

 - Acknowledging the reduced impact of Covid-19 on the Group's principal
risks in 2021, Covid-19 has this year been presented as a separate risk; and

- The inclusion of Climate Change as a new risk which, as described later,
discusses both the impact on the business of the physical aspects of climate
change, as well as the impact on the Group in light of the transition to a
low-carbon economy which may include increased costs of compliance and
governance.

 

Reasons for the year-on-year change in the profile of a specific risk can be
found in the commentary section of the relevant risk, which also provides an
outlook on the risk for the current financial year.

 

Outlook

At the time of approval of this Annual Report, the number of new daily cases
in Peru and Argentina is falling from a recent peak due to the Omicron variant
which, although more transmissible, is resulting in a much lower proportion of
severe illness.

 

The Company continues to monitor the situation and, as described later in this
report, is able to scale up the implementation of the Covid-19 Crisis Plan as
required.

 

1. FINANCIAL RISKS

 

a) Commodity Price

Change in risk profile vs 2020: UNCHANGED

 

Impact

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.

 

Mitigation

-      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.

 

Commentary

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.

 

As reported in the Financial Review, the Group increased borrowing by an
additional $100m under its medium-term facility.

 

The Group has ended the year with a net cash position and is therefore in a
robust financial position.

 

As previously reported, 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 cash flows in Peru. In addition, in November 2021, the Group hedged
3.3 million ounces of silver for 2023 at $25 per ounce. These hedges will
ensure profitable production from existing resources mainly at Pallancata
while brownfield exploration efforts continue to add near-term resources.

 

See the Market Review on pages 10 to 13 for further details on how commodity
prices performed in 2021.

 

 

b) Commercial Counterparty

Change in risk profile vs 2020: UNCHANGED

 

Impact

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.

 

Mitigation

-      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

 

Commentary

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. Although the counterparty risk
analysis did not raise any material issues, we continue to require customers
to make advance payments for 90% - 98% of the amount sold. We also obtained
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.

 

2. OPERATIONAL RISKS

 

a) Operational Performance

Change in risk profile vs 2020: LOWER

 

Impact

Failure to meet production targets and manage the cost base could adversely
impact the Group's profitability.

 

Mitigation

-      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.

 

Commentary

In 2021 the Group benefited from a year of uninterrupted operations enabling
it to meet its production target for the year of 31.2m silver equivalent
ounces.

 

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 in line with guidance for the year, at $14.4 per silver
equivalent ounce (excluding exceptional items including Covid costs).

 

 

b) Business Interruption/Supply chain

Change in risk profile vs 2020: UNCHANGED

 

Impact

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.

 

Mitigation

-      Insurance coverage to protect against major risks.

-      Management reporting systems to support appropriate levels of
inventory.

-      Inspections every 18 months (to coincide 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.

 

Commentary

In addition to maintaining insurance policies covering machinery breakdown,
mitigating actions during the year include the following:

 

-      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.

 

Specifically with regards to supply chain risks, the Company:

-      has identified alternative suppliers;

-      has increased its stocks of critical consumables and strategic
spare parts; and

-      maintains ongoing dialogue with vendors and shippers.

 

c) Information security and cybersecurity

Change in risk profile vs 2020: UNCHANGED

 

Impact

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.

 

Mitigation

-      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

 

Commentary

Security of the Group's network infrastructure is assured through the
following means:

-      The inclusion of industrial networks into the Group's IS
Management System ('ISMS') which accordingly benefit from associated security
enhancements;

-      SMS received BSI certification; and

-      The implementation of the principal recommendations arising from
an ethical hacking assessment.

To counter the heightened risks as a result of the widespread use of remote
working, the Group has 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.

 

d) Exploration & Reserve and Resource Replacement

Change in risk profile vs 2020: HIGHER

 

(d)(i) Impact

The Group's future operating margins and profitability depend upon its ability
to find mineral resources and to replenish reserves.

 

Mitigation

-      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.

-      Comprehensive engagement activities with communities and
governmental authorities (see later sections on Macroeconomic and
Sustainability risks).

 

Commentary

General

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.

Developments during the year

As described elsewhere in the Annual Report, social 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, impacting the Group's exploration programme.

Following events in southern Ayacucho in November 2021 (as described in the
commentary of Political, legal and regulatory risks), the risk of delay in the
granting of environmental permits for exploration in Ayacucho, where
Pallancata and Inmaculada are located, has increased substantially.

Further details on brownfield exploration are provided on pages 33 and 34 and
in relation to greenfield projects, on page 34.

 

(d)(ii) Impact

Reserves stated in this Annual Report are estimates.

 

Mitigation

-       Engagement of independent experts to undertake annual audit of
mineral reserve and resource estimates.

-       Adherence to the JORC Code and guidelines therein.

 

Commentary

The Group has engaged P&E Consultants to undertake the annual audit of
mineral reserve and resource estimates.

 

See page 198 for further details

 

(e) Personnel: Recruitment and Retention

Change in risk profile vs 2020: UNCHANGED

 

Impact

Inability to attract or retain personnel through a shortage of skilled
personnel.

 

Mitigation

-      The Group's approach to recruitment and retention provides for the
payment of competitive compensation packages, well defined career plans,
training and development opportunities and the overall employee value
proposition.

 

Commentary

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.

 

Training programmes for supervisors and hourly workers continued to be
delivered virtually during 2021.

 

Enhancing the Group's employee value proposition includes the launching of
initiatives related to causes that are valued by employees; providing
employees 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.

 

 

(f) Personnel: Labour Relations

Change in risk profile vs 2020: HIGHER

 

Impact

Failure to maintain good labour relations with workers and/or unions may
result in work slowdown, stoppage or strike.

 

Mitigation

-      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.

 

Commentary

Peru

The Group's Peruvian operation generated sufficient taxable income to give
rise to an entitlement to statutory profit sharing for Peruvian mineworkers.

In keeping with recent practice, 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.

The left-wing Castillo administration, elected in July 2021, has expressed its
support for the country's labour unions and the right for employees to strike.
This has resulted in an increased risk in labour relations overall relative to
2020.

Argentina

In Argentina the Company maintains constructive relations with the labour
unions through ongoing and regular dialogue.

 

3. MACRO-ECONOMIC RISKS

 

Political, Legal and Regulatory

Change in risk profile vs 2020: HIGHER

 

Impact

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.

 

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.

 

Delays in granting/securing the necessary environmental permits for
exploration or operations could affect future production and financial results
of the Group.

 

Mitigation

- Local specialist personnel continually monitor and react, as necessary, to
policy changes. In addition, political, social and communications advisers
have been engaged to support the Group in responding to developments.

- Participation in local industry organisations.

 

Commentary

 

Peru

- General

After suffering from the devastating impact of the Covid-19 pandemic in 2020,
the first half of the year saw political uncertainty in Peru in the lead up to
the Presidential elections. The second round of voting in June polarised the
country along political lines and saw a contested victory by Pedro Castillo of
the left-wing Free Peru party who was inaugurated in late July 2021.

 

On assuming office, President Castillo announced his government's intentions
to increase state participation in the economy and to form a constituent
assembly to oversee constitutional reform. The

government's stated focus with regards to the mining sector was to implement a
policy of enhancing 'social profitability' which would see mining companies
facilitating the promotion of local development, increasing State revenues and
facilitating the redistribution of wealth.  President Castillo has appointed
four successive Prime Ministers who have been vocal proponents of the
government's stated objectives.

 

With the arrival of the new administration, mining has become highly
politicised and has prompted many social conflicts with local communities
seeking to capitalise on the Government's commitments

during the presidential campaign and election (see commentary on Community
relations risks for further details). In line with its election campaign
pledge, the Executive sought to increase taxes on the mining industry but
failed to seek the requisite authority from Congress.

 

- The Coracora Act

As announced by the Company, in November 2021, a meeting by the Head of
Cabinet and certain vice-ministers in a town in southern Ayacucho resulted in
the publication of minutes (the 'Coracora Act')

which (a) alleged undisclosed environmental complaints, and (b) established a
commission (the 'Executive Commission') to negotiate the timetable and terms
for the closure and withdrawal of certain mining projects in southern Ayacucho
including the Company's Pallancata and Inmaculada mines. It was further
announced that approvals would no longer be granted to authorise additional
mining, exploration, or expansion activities in relation to these mines.

 

In response to protests from the industry, the business community in general
and other organisations, official statements were issued expressing the
Government's commitment to upholding the rule of law and acknowledging the
continued rights of mining companies to request extensions and modifications
of existing permits for mining and exploration activities.

 

In mid-December 2021, the Government announced its intention to issue, before
the end of the year, a decree formalising the Executive Commission. In
mid-January 2022, a temporary working group for

the development of certain provinces in southern Ayacucho was established to
oversee the implementation of the Coracora Act.

 

-  Environmental permits

With regards to environmental permits for operating activities, the Group was
expecting to hold the virtual townhall in mid-December 2021 in connection with
the second modification of the detailed Environmental Impact Study ('EIS') for
Inmaculada. Less than 24 hours prior to the scheduled time of the event, the
Company was notified by the relevant authority (SENACE) of its cancellation
citing safety concerns. The Company believes that this decision was premature
and unfounded and it made its position known to the relevant officials and
authorities.

 

As a result, the virtual townhall had to be rescheduled and was held on 12
February 2022 which, in turn, will cause the EIS approval process to be
delayed, potentially impacting future mine developments and production at
Inmaculada. The virtual townhall was held successfully and the EIS approval
process continues to advance, with approval expected during H2 2022.

 

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.

 

Mid-term congressional elections in November 2021 saw the ruling Peronist
Government lose its majority in Congress as well as the key stronghold of
Buenos Aires province.

 

2022 Outlook

-  Peru

The political outlook for 2022 in Peru remains uncertain with opponents to
mining accusing the Castillo Government of reneging on its commitments in the
Coracora Act and calling for strikes and other

action. Accordingly, the risk of stoppage has increased substantially, as well
as the granting of new permits for explorations and operations under complex
social conditions. In addition, with regional and local elections scheduled
for October 2022, the risk of further political turmoil and polarisation
remains high.

 

The Government has announced that it plans to submit a legislative bill to
Congress to increase taxes on the mining sector during the first quarter of
2022.

 

-  Argentina

President Fernandez's administration is expected to continue cautiously
supporting mining activity, however its approach will be influenced by the
dynamics within the coalition government and the general state of the economy
which is expected to be dominated by high rates of inflation and limited
growth.

 

4. SUSTAINABILITY RISKS

 

(a) Health and Safety

Change in risk profile vs 2020: UNCHANGED

 

Impact

Group employees working in the mines may be exposed to severe health and
safety risks.

 

Failure to manage these risks may result in occupational illness, accidents, a
work slowdown, stoppage or strike and/or may damage the reputation of the
Group and hence its ability to operate.

 

Mitigation

-      Health & Safety operational policies and procedures reflect
the Group's zero tolerance approach to accidents.

-      Use of world-class DNV safety management systems.

-   Dedicated personnel to ensure the safety of employees at the operations
via stringent controls, training and prevention programmes.

-   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.

 

Commentary

The Group reported two fatalities at its operations during 2021 which occurred
at the San Jose and Aclara sites. For further details on the investigation of
these accidents, please refer to the Sustainability Report on pages 59 and 60.

 

During the year, there was a particularly tragic traffic accident involving a
bus operated by one of our contractors resulting in the loss of 26 lives. The
Group worked together with the contractor in question and the relevant
authorities to take all necessary measures to collectively mitigate the risk
of such a tragic accident from recurring.

 

Management continued with the implementation of 'Safety 2.0', an action plan
to reinforce a safety-first culture. The plan, which combines technical and
people-led approaches, comprises seven key attributes covering training,
effective communication, recognition and aligning compensation with measurable
safety performance.

 

In addition, during the year:

- a new internal safety indicator, the Seguscore, was developed for roll-out
in 2023; and

- the Health team partnered with the Community Relations team to visit local
families to promote early childhood development.

 

For further details on the above, please refer to the safety section of the
Sustainability Report on pages 59 and 60.

 

(b) Covid-19

Change in risk profile vs 2020: LOWER

 

Impact

Another wave of infections, whether in general in Peru/Argentina, or localised
at the Group's operations, could result in a) operational disruption or
stoppages (e.g. due to personnel shortage,

disruption in the supply chain etc), b) increased costs and c) reputational
risks.

 

Secondary Covid-19 risks include legal risks (e.g. litigation from
suppliers/contractors), permitting

delays, IT risks (in light of increased reliance on IT systems) and fraud risk
due to increased use of

remote working.

 

Mitigation

- Covid-19 Crisis Plan

 

Commentary

Management designed and implemented the Covid-19 Crisis Plan following the
outbreaks in 2020 (further details of which can be found in the 2020 Annual
Report). The protocols in the Crisis Plan continue to be largely in place and
can be scaled up at short notice on the signs of an increase in the level of
infections. In summary, these protocols include:

 

- a comprehensive testing programme;

- the increased presence of medical personnel and availability of medical
facilities;

- the redeployment of high-risk employees;

- the adaptation of working areas and transportation;

- the use of technology-based systems to monitor cases and support the
logistics related to shift changes; and

- adapting the focus and style of delivery of our Community Relations
programmes.

 

As reported in the 2020 Annual Report, a tailored Covid-19 risk matrix was
compiled which, in addition to forming the basis of the operating protocols
referred to above, also established mitigating actions with regards to
secondary Covid-19 risks.

 

During 2021, the Company took a number of steps to increase its level of
preparedness through:

- the commissioning of an audit of its biosecurity protocols which were
certified by Bureau Veritas; and

- the procurement of stocks of medication, personal protective equipment and
testing kits.

 

 

(c) Environmental

Change in risk profile vs 2020: UNCHANGED

 

Impact

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.

 

Mitigation

- 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.

 

Commentary

In 2021, the Group performed highly in its ECO Score (with a score of 5.29 out
of 6 (2020: 5.74)), reflecting the following notable achievements:

 

- Four operations achieving a perfect score of 6 out of 6 (Inmaculada, San
Jose, Pallancata and Arcata);

- The lowest water consumption since 2015;

- The lowest amount of waste generated since 2015 (0.98 kg/person/day);

- The highest level of environmental culture compliance (using an internal
scoring system).

 

In addition, during the year:

- the Environmental team had an unprecedented year in terms of reporting on
the Group's environmental performance by participating in numerous reporting
initiatives;

- there was continued progress with the implementation of the Environment
Culture Transformation Plan (ECTP) which, in 2021, focused on people,
innovation and technology; and

- as part of the ECTP, 85 environmental ambassadors were appointed across the
operations in Peru and Argentina tasked with promoting a robust environmental
culture across the organisation.

 

As disclosed in the Operational risks, 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 independent review conducted in 2021 did not identify any material issues.

 

For further details, please refer to the environmental section of the
Sustainability Report on pages 56 to 58.

 

(d) Climate Change

Change in risk profile vs 2020: NEW

 

Impact

Changes in climate and weather patterns, including the occurrence of extreme
weather events such as higher rainfall, droughts, and storm conditions, may
cause operational disruption and, at worse, could result in a suspension of
operations.

 

Failure to comply with climate-related laws and regulations could result in
reputational risks for the

Group, increased costs and longer permitting delays.

 

Lack of climate change actions could result in restricted access to capital.

 

Mitigation

- Enhanced management oversight and operating protocols to:

·      maximise the use of natural resources and minimize energy
consumption.

·      monitor weather projections for operations, incorporating weather
assessments in operating applications.

 

- Promoting transparency with regards to the Group's performance through
participation in investor-led reporting initiatives.

 

Commentary

Actions taken in 2021 include:

- The recognition of climate-change related risks on the Group Risk Register
resulting in the monitoring of mitigating actions by the Risk Committee,
Sustainability Committee and, as appropriate, by the Board;

- Increasing the percentage of recycled water used in processing plants at
Inmaculada and San Jose;

- Assessing purchasing increased levels of energy from renewable sources.

 

Reporting of the Group's performance has been enhanced through:

- external assurance of the calculation of the Group's carbon footprint at
operations;

- participation in CDP information request; and

- voluntary TCFD disclosure in respect of 2020.

 

The 2022 Action Plan includes, most notably, the launch of Hochschild's Carbon
Neutral strategy.

 

Read our 2021 TCFD Report from page 64.

 

(e) Community Relations

Change in risk profile vs 2020: HIGHER

 

Impact

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.

 

Mitigation

- The Group has a dedicated team responsible for Community Relations.

- Constructive engagement with local communities based on several years of
positive relations.

- Community Relations strategy focuses on promoting education, health and
nutrition, and sustainable development.

- Policy to actively recruit workers from local communities.

- Policy of hiring service providers from local communities.

- The Group has also engaged with local governments to support public
investment initiatives through technical assistance and direct investment.

 

Commentary

- Overall

The overall social climate has become markedly hostile to mining since July
2021 as the promises made by the governing party during the presidential
campaign resulted in increased and unrealistic expectations. Social conflicts
have led to the temporary stoppage of major mining operations such as Las
Bambas and Antamina. In addition, in October 2021, violent protests against
the Apumayo mining unit in Southern Ayacucho led to the attack and burning
down of Apumayo's camp and certain mining infrastructure.

 

The Group experienced brief stoppages at Pallancata and Inmaculada but they
did not affect production during the year. However, social conflicts have led
to the stoppage of certain of the Group's exploration projects in Peru, such
as Corina and Huacullo.

 

As described earlier (in relation to political, legal and regulatory risks),
given the actions of the Government in Southern Ayacucho since November 2021,
the political and social risks have increased substantially as the Government
has further raised expectations which, if not met, could lead to further acts
of violence and attempts to disrupt mining operations in general.

 

Governmental authorities remain very sensitive to conflicts between
communities and mining companies and typically take a cautious approach by
prioritising dialogue between parties and supporting social demands regardless
of their merit.

 

-  Hochschild developments

The Group continues to implement its social engagement strategy 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 $5.4m to benefit local communities and supported
local community-run businesses;

- we continued to support the communities with a wide range of programmes
covering our areas of focus: education, health and nutrition, and sustainable
development;

- 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.

 

Further details can be found in the Sustainability Report from page 54.

 

 

Appendix 2

Related-Party Balances and Transactions, and

Compensation of key management personnel of the Group

(reproduced from pages 174 and 175 of the 2021 Annual Report)

 

 (a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the
years ended 31 December 2021 and 2020. The related parties are companies owned
or controlled by the main shareholder of the Parent Company or associates.

 

                                 Accounts receivable as at 31 December            Accounts payable as at        31 December
                                 2021                          2020               2021                                  2020
                                 US$000                        US$000             US$000                                US$000
 Current related party balances
 Cementos Pacasmayo S.A.A.(1)    217                           387                152                                   146
 Tecsup(2)                       1                             1                  115                                   120
 Universidad UTEC(2)             -                             -                  5                                     -
 REE UNO SpA(3)                  6                             -                  -                                     -
 Aclara Resources Inc(3)         -                             -                  12                                    -
 Total                           224                           388                284                                   266

( )

(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.

(3) Associated companies of the Aclara Group (refer to notes 4 and 19).

 

As at 31 December 2021 and 2020, all other accounts are, or were, non-interest
bearing.

 

No security has been granted or guarantees given by the Group in respect of
these related party balances.

 

Principal transactions between affiliates are as follows:

                                                                       Year ended 31 December
                                                                       2021                2020
                                                                       US$000              US$000
 Expenses                                                              (403)               (469)

Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.
 Expense donations to Tecsup                                           -                   (505)
 Expense donations to Universidad UTEC                                 -                   (875)
 Expense technical services from Tecsup                                (292)               (190)

 

Transactions between the Group and these companies are at an arm's length
basis.

 

 

(b) Compensation of key management personnel of the Group

 

                                                                 Year ended 31 December
 Compensation of key management personnel (including directors)  2021                2020

                                                                 US$000              US$000

 Short-term employee benefits                                    7,509               7,330
 Long Term Incentive Plans                                       776                 808
 Total compensation paid to key management personnel             8,285               8,138

 

This amount includes the remuneration paid to the Directors of the Parent
Company of the Group of US$3,967,000 (2020: US$3,821,000).

 

(c) Related party transaction

Participation of Pelham Investment Corporation in the IPO of Aclara

As announced by the Company on 3 December 2021, Pelham Investment Corporation
('Pelham'), a company controlled by the Chairman, Eduardo Hochschild, entered
into a subscription agreement with Aclara on 2 December 2021 pursuant to which
Pelham agreed to purchase, on a prospectus exempt basis in Canada, 22,791,399
Aclara shares at a price of C$1.70 per share (the 'Offering Price'). In
addition, Pelham subscribed for 9,855,660 Aclara shares at the Offering Price
as part of the IPO. These share acquisitions, which are in addition to the
Aclara shares acquired by Pelham as part of the demerger dividend, constitute
a smaller related party transaction for the purposes of the UK Listing Rules.
Accordingly, as also announced, the Company obtained a written confirmation
from a sponsor that the terms of the smaller related party transaction were
fair and reasonable as far as the shareholders of the Company are concerned.

 

 

Appendix 3

Statements of Directors' Responsibilities

 

 

A) Reproduced from page 82 of the 2021 Annual Report

 

The Directors confirm that to the best of their knowledge:

 

-     that the consolidated financial statements, prepared in accordance
with UK-adopted international accounting standards give a true and fair view
of the assets, liabilities, financial position and profit of the parent
company and 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.

 

B) Reproduced from page 124 of the 2021 Annual Report

 

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 UK-adopted international accounting standards ('IFRS'). 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 UK-adopted international accounting standards.

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 and
Parent Company financial position and financial performance;

- in respect of the Group financial statements, state whether UK-adopted
international accounting standards 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
UK-adopted international accounting standards 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.

 

 

Appendix 4

Letter from the Chairman of Hochschild Mining PLC

 

 Directors:                                            Registered Office:
 Eduardo Hochschild (Chairman)                         17 Cavendish Square
 Ignacio Bustamante (Chief Executive Officer)          London W1G 0PH
 Michael Rawlinson (Senior Independent Director)       United Kingdom
 Dr Graham Birch (Independent Non-Executive Director)
 Jorge Born Jr. (Independent Non-Executive Director)
 Jill Gardiner (Independent Non-Executive Director)
 Eileen Kamerick (Independent Non-Executive Director)
 Tracey Kerr (Independent Non-Executive Director)
 Dionisio Romero Paoletti (Non-Executive Director)

 20 April 2022

Dear Shareholder,

Proposed dividend rectification, capitalisation of Merger Reserve, reduction
of Share Premium Account and reduction of the nominal value of the Ordinary
Shares

1      Introduction

In August 2021, the board of directors of the Company (the "Board") became
aware of an issue concerning technical compliance with the Companies Act 2006
("CA 2006") in relation to the payment of certain historic dividends paid
between 2018 and 2021, being the 2017 Final Dividend, the 2018 Interim
Dividend, the 2018 Final Dividend, the 2019 Interim Dividend, the 2020 Interim
Dividend and the 2020 Final Dividend (the "Relevant Dividends"). In
particular, the Relevant Dividends were paid to shareholders when the Company
did not have adequate distributable reserves. Significant corrective
transactions (namely, a capital reduction and dividend distribution by the
Company's wholly owned subsidiary, Hochschild Mining Holdings Limited) were
implemented by the Company in September 2021, shortly after discovery of the
issue. Had these internal corporate transactions been implemented prior to the
payment of the first of the Relevant Dividends, adequate distributable
reserves would have been available to the Company.

Whilst this breach is technical in nature, the Company theoretically has
claims against all shareholders past and present who received dividends as
well as persons who were directors of the Company at the time of payment of
the Relevant Dividends. The Company has no intention to follow up on such
claims and wishes to take steps to rectify this breach.

The Resolutions, as explained further in the EGM Circular, seek to put
Shareholders, the Directors and the Former Director into the position in which
they were intended to be. The entry by the Company into the Shareholders' Deed
of Release and the Directors' Deed of Release (further details of which are
included in the EGM Circular) constitute a related party transaction as
defined in the Listing Rules. Additionally, the Company proposes to take a
number of actions to create additional distributable reserves.

Finally, I would like to emphasise that none of the actions proposed will
impact the Company's financial position. To effect these changes we are asking
our shareholders to vote on the three Resolutions.

This letter sets out the details of proposals to (a) rectify the Relevant
Dividends and enter into the Shareholders' Deed of Release and the Directors'
Deed of Release in connection with their issue and (b) create distributable
reserves for the Company by way of:

(i)    a capitalisation of the Company's merger reserve followed by a
cancellation of the shares that are issued (the "Merger Reserve Capitalisation
and Cancellation");

(ii)   the subsequent reduction of all or part of the Company's share premium
account, which will include the share premium created through the Merger
Reserve Capitalisation and Cancellation (the "Share Premium Account"), and the
crediting of the amount by which the Share Premium Account is reduced to the
Company's retained earnings reserve (the "Share Premium Reduction"); and

(iii)  the reduction in the nominal value of the Ordinary Shares from 25
pence per Ordinary Share to 1 pence per Ordinary Share (the "Capital
Reduction" and, together with the Share Premium Reduction, the "Company
Reductions").

Entry into the Shareholders' Deed of Release and the Directors' Deed of
Release, the Merger Reserve Capitalisation and Cancellation and the Company
Reductions are conditional upon, among other things:

·              the Resolutions being passed at the Hochschild
General Meeting;

·              the confirmation of the Company Reductions by the
Court at the Court Hearing; and

·              a copy of the Court Order having been delivered
to the Registrar of Companies and registered by them.

A full explanation of the proposed Resolutions are set out in Part II of the
EGM Circular.

1.1          Dividend rectification

The Relevant Dividends were paid to shareholders when the Company did not have
adequate distributable reserves. Had certain internal corporate transactions
been implemented prior to the payment of the 2017 Final Dividend, adequate
distributable reserves would have been available to the Company.

The CA 2006 provides that a public company may pay a dividend out of its
distributable profits as shown in the last annual accounts circulated to
shareholders or, if those accounts do not show sufficient distributable
reserves, interim accounts must be prepared. The CA 2006 also requires that
interim accounts, where used by a public company to justify the declaration of
an interim dividend, must be prepared on an individual accounting basis and
filed at Companies House prior to payment of the relevant dividend.
Accordingly, each of the Relevant Dividends was distributed otherwise than in
accordance with the CA 2006.

The Company has been advised that, as a consequence of the Relevant Dividends
having been distributed otherwise than in accordance with the CA 2006, it may
have claims against past and present shareholders who were recipients of the
Relevant Dividends and against persons who were directors of the Company at
the time of payment of the Relevant Dividends. It is therefore proposed that
the Company put resolutions before Shareholders to complete the rectification
of the Relevant Dividends and the Company enter into (i) a deed of release in
favour of all shareholders who appeared on the register of members on the
record date for each of the Relevant Dividends from any and all claims which
the Company has or may have in respect of the payment of those Relevant
Dividends (the "Shareholders' Deed of Release") and (ii) a deed of release by
which the Company waives any rights to make claims against the Directors and
the Former Director in respect of the Relevant Dividends (the "Directors' Deed
of Release"). The maximum potential amount to which the Shareholders' Deed of
Release will relate is $73,766,000, being the aggregate amount of the Relevant
Dividends paid to Shareholders. The maximum potential amount to which the
Directors' Deed of Release will relate is $73,766,000, being the aggregate
amount of the Relevant Dividends which were approved by the Directors.

The entry by the Company into the Directors' Deed of Release and the
Shareholders' Deed of Release constitute related party transactions (as
defined in the Listing Rules). Therefore, the Resolutions will also seek the
specific approval of the Company's Shareholders for the entry into the
Directors' Deed of Release and the Shareholders' Deed of Release as related
party transactions, in accordance with the requirements of the Listing Rules.

1.2          Merger Reserve Capitalisation and Cancellation

As a matter of company law, a merger reserve cannot be reduced directly in a
reduction of capital and so an additional intermediate step will be required
in order to effect the reduction of capital. The reduction of capital will
therefore be executed through a capitalisation issue of the Bonus Shares paid
up out of the Merger Reserve, followed by the cancellation of the Bonus Shares
in a court-approved reduction of capital.

The capitalisation of the Merger Reserve will be achieved by means of an issue
of new fully paid-up deferred ordinary shares in the capital of the Company
(whereby the nominal value of such shares is equal to the sum that is obtained
by dividing the number of such shares to be issued into US$303,268,000) (the
"Bonus Shares") to each Shareholder, on the basis of one Bonus Share for each
Ordinary Share held at the Company Reductions Record Time. Immediately
following the issuance of the Bonus Shares, the Bonus Shares will then be
cancelled. The cancellation of the Bonus Shares will result in the nominal
value of such shares being credited to the Share Premium Account.

1.3          Share Premium Reduction

The Company will undertake a reduction of the Company's Share Premium Account.

Share premium forms part of the capital of the Company which arises on the
issue by the Company of Ordinary Shares at a premium to their nominal value.
The premium element is credited to the Share Premium Account. Under the CA
2006, the Company is generally prohibited from paying any dividends or making
other distributions in the absence of positive distributable reserves, and the
Share Premium Account, being a non-distributable reserve, can be applied by
the Company only for limited purposes.

However, provided the Company obtains the approval of Shareholders by way of a
special resolution and the subsequent confirmation by the Court, it may
undertake the Share Premium Reduction.

1.4          Capital Reduction

Under the CA 2006, a company may, with the sanction of a special resolution
and the confirmation of the Court, reduce or cancel its existing share
capital, provided the company's articles of association do not contain any
provisions restricting or prohibiting such reduction or cancellation.

The Company's articles of association do not prohibit the Company from
reducing or cancelling its share capital and the Company therefore proposes
the Capital Reduction.

A full explanation of the proposed Resolutions is set out in Part II of the
EGM Circular.

2      Notice of Extraordinary General Meeting

The Notice of Extraordinary General Meeting convening the Hochschild General
Meeting is contained at the end of the EGM Circular. The Hochschild General
Meeting will be held at the offices of Hudson Sandler LLP, 25 Charterhouse
Square, London EC1M 6AE, United Kingdom to consider and, if thought
appropriate, pass the proposed Resolutions as special resolutions.

Definitions for capitalised terms used in this letter can be found in Part IV
(Definitions and Glossary) of the EGM Circular.

3      Action to be taken

Whether or not you will be attending the Hochschild General Meeting, I would
urge you to appoint a proxy in accordance with the instructions below and
ensure that such proxy is lodged and received by the Company's Registrars,
Link Group, as soon as possible and, in any event, by no later than 8.45 a.m.
on Tuesday 24 May 2022.

A Shareholder can appoint a proxy by:

·              logging on to www.signalshares.com and following
the instructions;

·              requesting a hard copy form of proxy from the
Company's Registrars, Link Group, by:

·              sending a letter addressed to Link Group at 10th
Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL, United Kingdom; or

·              contacting Link Group on +44 (0) 371 664 0300
(calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9.00 a.m. and 5.30 p.m., Monday to
Friday excluding public holidays in England and Wales (the "Shareholder
Helpline"). Please note that the helpline operators cannot provide advice on
the merits of the Resolutions or give any financial, legal or tax advice),

and completing, signing and returning such hard copy form of proxy in
accordance with the instructions set out thereon; or

·              in the case of CREST Members, utilising the CREST
electronic proxy appointment service in accordance with the procedures set out
in note 6 of the Notice of Extraordinary General Meeting set out on page 21 of
the EGM Circular,

in each case so that such proxy is received no later than 8.45 a.m. on Tuesday
24 May 2022.

If you are an institutional investor, you may be able to appoint a proxy
electronically via the Proxymity platform. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 8.45
a.m. on Tuesday 24 May 2022 in order to be considered valid.

Further details in relation to the appointment of proxies, including the CREST
electronic proxy appointment service, are given in the notes to the Notice of
Extraordinary General Meeting set out on pages 21 and 22 of the EGM Circular.

Additional forms of proxy may be obtained by contacting Link Group on the
Shareholder Helpline.

Appointing a proxy online, completing and returning a hard copy form of proxy
or appointing a proxy using the CREST electronic proxy appointment service
will not preclude Shareholders from attending and voting in person at the
Hochschild General Meeting, should they so wish.

The attention of corporate Shareholders wishing to appoint more than one
corporate representative is drawn to note 8 of the Notice of Extraordinary
General Meeting set out on page 22 of the EGM Circular.

If you are in any doubt as to the action you should take, you are recommended
to seek your own financial and/or legal advice immediately from your
stockbroker, bank manager, solicitor, accountant or other independent
financial adviser authorised under FSMA, if you are resident in the United
Kingdom or, if not, from another appropriately authorised independent
financial adviser.

4      Further information

Your attention is drawn to the further information contained in the remaining
sections of the EGM Circular. Shareholders should read the whole of the EGM
Circular and not rely solely on information summarised in this letter.

5      Recommendation

5.1          Resolution 1 (Relevant Dividend rectification and
release and related party transactions)

In shareholder circulars it is customary for directors to (i) state that the
proposed resolutions are in the best interests of the company and its
shareholders as a whole and (ii) recommend shareholders to vote in favour of
the proposed resolutions. However, as the Directors have an interest in
Resolution 1 as beneficiaries of the Directors' Deed of Release, they are
unable to make the customary statement and recommendation with respect to
Resolution 1.  The Board does, however, recommend that Shareholders vote on
Resolution 1.

Given the interests of the Board in Resolution 1 (Relevant Dividend
rectification and release and related party transactions), and as required by
the Listing Rules:

(a)   the Board has not considered whether Resolution 1 is in the best
interests of the Company. Accordingly, the Board cannot recommend that
Shareholders vote in favour of Resolution 1 but recommends that Shareholders
vote on it. However, as required by Listing Rule 13.6.1(5), each of (i) the
waiver of claims against the Directors and the Former Director pursuant to
paragraph (d) of Resolution 1, (ii) the entry into of the Directors' Deed of
Release, (iii) the waiver of claims against Shareholders pursuant to paragraph
(b) of Resolution 1, and (iv) the entry into of the Shareholders' Deed of
Release, is fair and reasonable as far as the shareholders of the Company are
concerned and the Directors have been so advised by RBC, in its capacity as
the Company's sponsor; and

(b)   each of the Directors, the Related Party Former Director, the
Substantial Shareholder and each of their respective associates are precluded
from voting on Resolution 1. Therefore, each of them will not vote on, and
have undertaken to take all reasonable steps to ensure that their associates
abstain from voting on, Resolution 1.

The Board has taken steps to ensure that, in future, the issues referred to in
the EGM Circular do not arise in relation to the payment of future dividends.
We are grateful for Shareholders' understanding in respect of the issues set
out in the EGM Circular.

5.2          Resolution 2 (Capitalisation of Merger Reserve and
cancellation of Bonus Shares) and Resolution 3 (Reduction of Capital)

The Directors consider that, for the reasons set out in this document,
Resolutions 2 and 3 are, in the Board's opinion, in the best interests of the
Company and its Shareholders as a whole and unanimously recommend Shareholders
to vote in favour of them, as they intend to in respect of their own
beneficial holdings.

Yours faithfully,

 Signed 

 

Eduardo Hochschild

Chairman

 

 

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