REG - Hochschild MiningPLC - Final Results
20/04/2023 07:00
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RNS Number : 8855W Hochschild Mining PLC 20 April 2023
20 April 2023
Hochschild Mining PLC
Preliminary Results
Year ended 31 December 2022
HOCHSCHILD MINING PLC RESULTS FOR YEAR ENDED 31 DECEMBER 2022
2022 Financial performance
§ Revenue of $735.6 million (2021: $811.4 million)(( 1 ))
§ Adjusted EBITDA of $249.6 million (2021: $382.8 million)(( 2 ))
§ Profit before income tax (pre-exceptional) of $24.3 million (2021: $148.7
million)
§ Profit before income tax (post-exceptional) of $25.8 million (2021: $137.3
million)
§ Basic earnings per share (pre-exceptional) of $0.01 (2021: $0.14)
§ Basic earnings per share (post-exceptional) of $0.01 (2021: $0.15)
§ Cash and cash equivalent balance of $143.8 million as at 31 December 2022
(2021: $386.8 million)
§ Net debt of $175.1 million as at 31 December 2022 (2021: net cash of $86.3
million)
2022 Operational resilience(( 3 ))
§ Peruvian government decision on Inmaculada Modified Environmental Impact
Assessment expected during Q2 2023
§ All-in sustaining costs (AISC) from operations of $1,364 per gold
equivalent ounce (2021: $1,153) or $18.9 per silver equivalent ounce (2021:
$16.0) in line with full year cost guidance of $1,330-$1,370 per gold
equivalent ounce or $18.5-19.0 per silver equivalent ounce 4
§ Full year attributable production of 358,826 gold equivalent ounces (25.8
million silver equivalent ounces)
§ Solid operational performance despite moderate impact in Q4 from Peru
social disruptio
2022 Exploration & Project Highlights
§ 2022 Attributable Reserve & Resource additions:
o Reserves up 35%
o Resources up 18%
§ Inferred Mineral Resource of 51.2 million silver equivalent ounces
announced at Royropata Zone, Pallancata
o Average width of 5 metres at a combined Ag Eq grade of 848g/t
§ Mara Rosa project in Brazil advancing on schedule and on budget - total
project progress at over 70% with first production anticipated in H1 2024
o 27,600oz of gold hedged from March to December 2024 at a price of $2,100
per ounce
§ Option over Snip project in Canada recently terminated
2022 ESG KPIs
§ Lost Time Injury Frequency Rate of 1.37 (2021: 1.26) 5
§ Accident Severity Index of 93 (2021: 676) 6
§ Water consumption of 171lt/person/day (2021: 193lt/person/day)
§ Domestic waste generation of 1.05 kg/person/day (2021: 1.00kg/person/day)
§ ECO score of 5.27 out of 6 (2021: 5.29) 7
2023 Outlook
§ Production target:
o 301,000-314,0000 gold equivalent ounces (25.0-26.0 million silver
equivalent ounces) using 83x gold silver ratio
§ All-in sustaining costs target:
o $1,370-$1,450 per gold equivalent ounce ($16.5-$17.5 per silver equivalent
ounce) using 83x gold silver ratio
§ Total sustaining and development capital expenditure expected to be
approximately $125-135 million
§ Mara Rosa project capital expenditure expected to be approximately $100-110
million
§ 29,250 ounces of gold hedged for the remainder of 2023 at a price of $2,047
per ounce
$000 unless stated Year ended Year ended % change
31 Dec 2022 31 Dec 2021
Attributable silver production (koz) 11,003 12,174 (10)
Attributable gold production (koz) 206 221 (7)
Revenue 735,643 811,387 (9)
Adjusted EBITDA 249,605 382,837 (35)
Profit from continuing operations (pre-exceptional) 6,745 67,450 (90)
Profit from continuing operations (post-exceptional) 4,832 71,106 (93)
Basic earnings per share (pre-exceptional) $ 0.01 0.14 (93)
Basic earnings per share (post-exceptional) $ 0.01 0.15 (93)
________________________________________________________________________________________
A presentation will be held for analysts and investors at 9.30am (UK time) on
Thursday 20 April 2023 at the offices of Hudson Sandler,
25 Charterhouse Square, London, EC1M 6AE
The presentation and a link to the live audio webcast of the presentation
can be found at the Hochschild website:
www.hochschildmining.com (http://www.hochschildmining.com)
or:
https://stream.brrmedia.co.uk/broadcast/63c585b88b28b235f03655a4
To join the event via conference call, please see dial in details below:
UK Toll-Free Number: 0808 109 0700
International Dial in: +44 (0)330 551 0200
US/Canada Toll-Free Number: 866-580-3963
Password: Hochschild Full Year Results
________________________________________________________________________________________
Enquiries:
Hochschild Mining PLC
Charles Gordon
+44 (0)20 3709 3264
Head of Investor Relations
Hudson Sandler
Charlie Jack
+44 (0)20 7796 4133
Public Relations
________________________________________________________________________________________
Non-IFRS Financial Performance Measures
The Company has included certain non-IFRS measures in this news release. The
Company believes that these measures, in addition to conventional measures
prepared in accordance with IFRS, provide investors an improved ability to
evaluate the underlying performance of the Company. The non-IFRS measures are
intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with IFRS. These measures do not have any standardised meaning
prescribed under IFRS, and therefore may not be comparable to other issuers.
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 Mara
Rosa Advanced Project in Brazil as well as numerous long-term projects
throughout the Americas.
Forward looking statements
This announcement may contain forward looking statements. 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, for
various reasons, be materially different from any future results, performance
or achievements expressed or implied by such forward looking statements.
The forward-looking statements reflect knowledge and information available at
the date of preparation of this announcement. Except as required by the
Listing Rules and applicable law, the Board of Hochschild Mining PLC does not
undertake any obligation to update or change any forward-looking statements to
reflect events occurring after the date of this announcement. Nothing in this
announcement should be construed as a profit forecast.
Note
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(Regulation (EU) No.596/2014). Upon the publication of this announcement via a
Regulatory Information Service, this inside information is now considered to
be in the public domain.
LEI: 549300JK10TVQ3CCJQ89
CHAIRMAN'S STATEMENT
During the past year, our Company has been directly and indirectly impacted by
a range of political, social and regulatory challenges. However, the Board and
I want to congratulate our management team and all our colleagues on a highly
creditable operational performance and ensuring that our steadfast commitment
to the environment, stakeholders and communities remains a firm and an
integral part of our corporate purpose. At the time of writing, we are still
waiting for the final decision from the Peruvian Government on the
Modification of the Environmental Impact Assessment ("MEIA") for Inmaculada
but I would particularly like to thank the teams involved in four years of
hard work. It has proved to be an enormous undertaking, but I am sure that,
whatever the decision, Inmaculada will remain a key part of Hochschild's
strategy for decades to come.
We continued with our focus on safety and are delighted that, in 2022, our key
performance indicators highlighted a strong performance in this area with both
the accident frequency rate and accident severity indices demonstrating the
successful implementation of our safety culture plan. As mentioned last year,
following a trial period, we launched the Seguscore in 2022 which is being
used to appraise the safety performance of each mining unit based on, not only
using our traditional measures but also on the result of internal and external
safety audits.
Acknowledging the impact of our activities on the environment, I am proud that
through the "Green Challenges" set for our operations, we were able to reduce
our water consumption to the lowest level since 2015. This should not be
considered a one-off achievement but a reflection of an environmentally
conscious culture that has evolved since the adoption of our internal measure,
the ECO Score. Work is also on track to establish later this year our 2030
interim targets in order to achieve Net Zero by 2050.
We have continued with our valuable community relations initiatives which, in
line with the Company's approach, see resources dedicated to education, health
and nutrition, and sustainable development. During the year, we facilitated
the delivery of technical skills training through the establishment of three
digital centres in communities in southern Peru as part of our Future
Connection programme which has already benefited over 180 students. We also
worked in collaboration with the Peruvian Health Ministry in our "Always
Healthy" programme which ran campaigns staffed by a multi-disciplinary team of
medical practitioners thereby extending the reach of healthcare services. Our
Community Relations team has also continued with the various programmes we
have put in place to support local farmers in marketing and selling their
produce which, in certain cases, are destined for international markets.
2022 was another important year for strategic development. In April, we
completed the acquisition of Amarillo Gold with its Mara Rosa gold project in
Brazil, which is due to commence production in the first half of 2024. Since
then, we have made excellent progress at the project with over 70% constructed
already and we are on schedule and in line with our budget. We also delivered
a Preliminary Economic Assessment on our Snip project in British Columbia,
Canada which showed positive investment returns at conservative gold prices.
However, in line with Hochschild's capital allocation strategy where the focus
is on the Mara Rosa construction, we recently made the decision to terminate
the option on the project.
Turning to our operations, the team had to contend with substantial disruption
during the year, including a fire in the crushing area at San Jose, continued
Covid-related labour restrictions in Argentina and local and national social
disturbances in Peru. However, we are proud that we were able to maintain a
constructive dialogue with our communities and once again able to deliver a
robust operating performance, only moderately below our annual production
target and in line on costs. In addition, precious metal prices remained
relatively high, so our business continued to generate strong cashflow,
especially in the fourth quarter, and we therefore are in a good position to
deliver on our capital commitments, including construction at Mara Rosa.
In 2022, the brownfield exploration team made a significant discovery close to
Pallancata, within the Royropata zone. Although it is outside the permitted
area and will require approximately three years to receive the necessary
government approvals, the size of the resource is already over 50 million
silver equivalent ounces with significant exploration upside. We are confident
that this new zone will be the future of mining in the area in the medium
to-long-term, despite the likely necessity to place the mine on temporary care
and maintenance at some stage in 2023. At San Jose, we have also been able to
replace resources once again whilst at Inmaculada, the team is planning a busy
year of drilling subject to the Inmaculada MEIA approval.
During the year, we saw changes in the composition of the Board with the
retirement of Graham Birch and Dionisio Romero, who stepped down as
Non-Executive Directors at the 2022 AGM. In their place, we welcomed Mike
Sylvestre and Nicolas Hochschild.
At the forthcoming AGM, Nicolas and Eileen Kamerick will be stepping down from
the Board. Nicolas will be taking up the role of Corporate Development Manager
within the Company, reporting to the Director of Technical Services. We look
forward to continuing to work with Nicolas in his new role. Eileen will be
leaving the Board after a tenure of over six years. I would like to take this
opportunity to express my gratitude to Eileen for chairing the Audit Committee
with the utmost diligence and for her commitment to the Company. On behalf of
the Directors, we wish Eileen all the very best for the future. Jill Gardiner
has agreed to chair the Audit Committee on an interim basis with Mike
Sylvestre also joining the committee.
Outlook
In 2022, precious metal prices experienced considerable volatility. Gold rose
to over $2,000/ounce in the first quarter of the year as the Ukraine war
started but then fell steadily by 20% to just over $1,600 by November as
expectation of global interest rate rises became the theme. A rebound in
December left the metal flat versus 2021 with silver rising by 3% during the
year. These increases have continued in the first quarter of 2023 and
consequently, we are confident that when combined with our operational track
record and good cost control, we can maintain significant levels of
profitability and continued good cash flow. Strong balance sheet discipline
will be crucial as construction at Mara Rosa continues towards its completion
in 2024 and therefore the Board feels that it would be imprudent to pay a
final dividend for 2022 at this stage but will reassess the potential for
capital return at the interim results in August.
I would like to express gratitude to all stakeholders for their ongoing
support in what has been a tough period for the Company. I also want to
emphasise that we are clear-eyed in viewing the task ahead of us. We will
position the Company's strategy in line with the Peruvian government's
decision on the Inmaculada's MEIA extension and we hope that it will provide
renewed impetus. We look forward to a year of opportunity and to maintaining
the very highest levels of safety, environmental stewardship, responsible
business practices and community support as we work to deliver on our
commitments to all stakeholders.
Eduardo Hochschild, Chairman
19 April 2023
CHIEF EXECUTIVE OFFICER'S STATEMENT
The volatile political, economic and social situation has continued to impact
Peru in recent months, and this has resulted in a tough operating environment
for Hochschild's two mines. However, the team's response has once again been
something to be proud of. We remain confident that the permitting process for
Inmaculada's MEIA will conclude during Q2 2023 and believe the outcome will be
positive. We believe this world class deposit will continue to underpin our
Company for many decades to come and are looking forward to reigniting the
successful exploration programme and continuing to invest in the Ayacucho
region and its communities.
However, in advance of the government's decision, the Company has been
preparing for a number of scenarios and the resulting financing requirements
going forward. These include planning in the event of an outright MEIA denial
and the resulting requirement to resubmit the permit application as well as
the potential for additional short-to-medium term delays. We have also
recently taken advantage of precious metal price strength to hedge a total of
29,250 ounces of gold at a forward price of $2,047 per ounce in order to
realise a degree of cashflow certainty for the remainder of the year. In
addition, for 2024 we have also hedged a further 27,600 ounces of gold for the
period between March and December at a forward price of $2,100 per ounce. We
believe that such a strategy is appropriate whilst construction at Mara Rosa
is ongoing.
ESG
We remain resolutely committed to our sustainability strategy, making
consistent progress year-to-year in serving our communities, protecting the
environment, promoting health and safety, supporting our people, and ensuring
responsible business practices. In line with our decision to publish a
standalone sustainability report every other year, the Annual Report includes
a sustainability section that provides a detailed account of the progress made
in all these critical fronts. I am proud to report that our progress in ESG
has been externally recognised by several ESG rating agencies. I look forward
to next year's standalone sustainability report where we will be able to
further highlight our leadership in ESG-related matters.
Operations
Hochschild's output in 2022 continued our good track record. Overall
attributable production was 358,826 gold equivalent ounces (25.8 million
silver equivalent ounces) which was, as expected lower than the 2021 figure of
390,496 gold equivalent ounces (28.1 million silver equivalent ounces) mainly
due to scheduled grade reductions at Inmaculada and Pallancata. This was
produced at an all-in sustaining cost of $1,364 per gold equivalent ounce
($18.9 per silver equivalent ounce) which was slightly higher than 2021
reflecting the lower grades at both the Peruvian assets but boosted by the
implementation of a cost optimisation plan to contend with inflationary
pressures and commodity price volatility.
Despite substantial community disruption in the final quarter, the team at
Inmaculada had another commendable year producing 237,289 gold equivalent
ounces (2021: 252,337 ounces) at $1,058 per gold equivalent ounce. At
Pallancata, production in 2022 reflected a mining area that is almost depleted
with delivery of 3.2 million silver equivalent ounces (2021: 4.2 million
ounces) at a cost of $32.4 per silver equivalent ounce. In Argentina, there
was more disruption at San Jose from Covid as well as a fire in the mine's
crushing area which temporarily affected operations but, nevertheless,
production was only marginally below the 2021 figure at 11.0 million silver
equivalent ounces (2021: 11.3 million ounces), with costs at $21.7 per silver
equivalent ounce.
Projects
We completed the purchase of Amarillo Gold in Brazil on 1 April 2022 and have
made strong progress at the Mara Rosa project since taking control. We are now
over 70% of the way through the build, with many long lead-time items
purchased and construction of the plant and other site infrastructure well
advanced. We remain on track for first production at this low-cost project in
the first half of 2024 and have also been drilling several prospective
exploration targets in the surrounding area which, in time, may provide the
long-term upside for the project.
Work at the Snip project in Canada progressed well during the year and
included metallurgy, processing plant designs and resource model updates as
well as an additional drill campaign. This culminated in the completion of a
Preliminary Economic Assessment at the end of the year which provided the
basis for potential next steps on the project. However, early in April 2023,
we decided to terminate the option on the project due to the need to
concentrate on other capital allocation priorities, including expenditure in
Brazil and brownfield exploration at the mines.
Exploration
The brownfield programme for 2022 was focused on Pallancata and San Jose and I
am pleased to report that our team have had another highly successful
campaign, replacing resources at San Jose, and delivering a major discovery
close to Pallancata. The initial discovered resource from the new Royropata
zone to the west of existing operations was over 50 million silver equivalent
ounces. We have already commenced the permitting process and are excited that,
with strong exploration upside potential and high-grade structures (848
grammes per tonne silver equivalent) and widths averaging five metres, the new
zone can be the driver of Pallancata's medium-to-long-term future.
Financial position
Production has remained reliable and with the existing strong price
environment, the Company is generating healthy cashflow. Cash and cash
equivalents of $143.8 million at the end of December (2021: $386.8 million)
reflected the net payment of approximately C$135 million for Amarillo Gold and
expenditure of just over $21 million at the Snip project. This has led to a
net debt position of $175.1 million (31 December 2021: $86.3 million net
cash). In addition, the Company closed a $200 million committed medium-term
debt facility with BBVA and Scotiabank in December 2022. The loan has a
maturity of five years and two year of grace period, at a cost SOFR + 2.05%.
The facility will be become available on receipt of the Inmaculada MEIA
approval.
Financial results
Total Group production was lower versus 2021 and, combined with a 6% fall in
the silver price received and a flat year-on-year gold price, revenue
decreased by 9% to $735.6 million (2021: $811.4 million). All-in sustaining
costs were in line with guidance at $1,364 per gold equivalent ounce or $18.9
per silver equivalent ounce (2021: $1,153 per ounce/$16.0 per ounce). Adjusted
EBITDA of $249.6 million (2021: $382.8 million) mostly reflects reduced
production levels and increased cost of sales. Pre-exceptional earnings per
share of $0.01 (2021: $0.14 per share) includes the impact of an increase in
exploration expenses due to project expenditure at Snip in Canada and a
reduction in income tax mainly due to the lower profitability.
Post-exceptional earnings per share was lower at $0.01 (2021: $0.15 earnings
per share) and includes an impairment of the investment in Aclara Resources
Inc. of $9.9 million, the reversal of impairment loss in Pallancata of $15.5
million resulting from the new resources discovered in Royropata, and the
impairment of the Azuca project's evaluation and exploration costs of $4.2
million. The net after-tax effect of exceptional items is a loss of $1.9
million.
Outlook
We expect attributable production in 2023 of between 301,000-314,000 gold
equivalent ounces (25.0 to 26.0 million silver equivalent ounces) assuming the
silver to gold ratio of 83:1 (the average ratio for 2022). This will be driven
by: 204,000-211,000 gold equivalent ounces from Inmaculada; an attributable
contribution of 6.1 to 6.3 million silver equivalent ounces from San Jose; and
2.0-2.9 million ounces from Pallancata. All-in sustaining costs for operations
are expected at between $1,370 and $1,450 per gold equivalent ounce ($16.5 to
$17.5 per silver equivalent ounce). This forecast reflects slightly lower
output and a rise in mine development costs at Inmaculada in addition to a
further reduced contribution at Pallancata before its anticipated move to care
and maintenance later in 2023.
The achievement of the Inmaculada MEIA will be a key milestone for our Company
and we are looking forward to the next twenty years and more from this world
class mine. Although 2023 has started with more political and social
volatility in Peru, we believe that Hochschild's longstanding focus on our ESG
initiatives will stand us in good stead to withstand any future challenges. We
remain excited by the year ahead with our Brazil construction moving ahead
quickly and strong exploration potential at all our existing deposits.
Ignacio Bustamante, Chief Executive Officer
19 April 2023
OPERATING REVIEW
OPERATIONS
Note: 2022 and 2021 equivalent figures calculated using the previous Company
gold/silver ratio of 72x. All 2023 forecasts assume the average gold/silver
ratio for 2022 of 83x.
Production
In 2022, Hochschild delivered attributable production of 358,826 gold
equivalent ounces or 25.8 million silver equivalent ounces, moderately below
the Company's 2022 guidance due to the reduced contribution at Pallancata
resulting from lower grades which could not be fully offset by higher output
at Inmaculada. This was due to local community disturbances in Q4 along with
the wider political and subsequent civil unrest in Peru since December.
The overall attributable production target for 2023 is 301,000-314,000 gold
equivalent ounces or 25.0-26.0 million silver equivalent ounces.
Total 2022 group production
Year ended Year ended
31 Dec 2022 31 Dec 2021
Silver production (koz) 13,596 14,746
Gold production (koz) 244.63 262.39
Total silver equivalent (koz) 31,209 33,638
Total gold equivalent (koz) 433.46 467.19
Silver sold (koz) 13,536 14,712
Gold sold (koz) 242.89 260.71
Total production includes 100% of all production, including production
attributable to Hochschild's minority shareholder at San Jose.
Attributable 2022 group production
Year ended Year ended
31 Dec 2022 31 Dec 2021
Silver production (koz) 11,003 12,174
Gold production (koz) 206.01 221.42
Silver equivalent (koz) 25,835 28,116
Gold equivalent (koz) 358.83 390.50
Attributable production includes 100% of all production from Inmaculada,
Pallancata and 51% from San Jose.
Attributable 2023 Production forecast split
Operation Oz Au Eq Moz Ag Eq
Inmaculada 204,000-211,000 16.9-17.5
Pallancata 24,000-27,000 2.0-2.2
San Jose 73,000-76,000 6.1-6.3
Total 301,000-314,000 25.0-26.0
Costs
All-in sustaining cost from operations in 2022 was $1,364 per gold equivalent
ounce or $18.9 per silver equivalent ounce (2021: $1,153 per gold equivalent
ounce or $16.0 per silver equivalent ounce), higher than 2021 mainly as a
result of: expected lower average grades at Inmaculada and Pallancata; higher
costs at Inmaculada and Pallancata resulting from using a higher proportion of
conventional mining methods as well from local inflation; and higher costs in
San Jose mainly due to local inflation and expenditure related to the
accessing incremental resources. These was partially offset by local currency
devaluation in Argentina.
The all-in sustaining cost from operations in 2023 is expected to be between
$1,370 and $1,450 per gold equivalent ounce (or $16.5 and $17.5 per silver
equivalent ounce).
2023 AISC forecast split
Operation $/oz Au Eq $/oz Ag Eq
Inmaculada 1,260-1,320 15.2-15.9
Pallancata 2,050-2,310 24.7-27.8
San Jose 1,400-1,470 17.0-17.7
Total from operations 1,370-1,450 16.5-17.5
Inmaculada
The 100% owned Inmaculada gold/silver underground operation is located in the
Department of Ayacucho in southern Peru. It commenced operations in June 2015.
Inmaculada summary Year ended Year ended % change
31 Dec 2022 31 Dec 2021
Ore production (tonnes) 1,329,177 1,349,892 (2)
Average silver grade (g/t) 156 174 (10)
Average gold grade (g/t) 3.81 4.05 (6)
Silver produced (koz) 5,936 6,236 (5)
Gold produced (koz) 154.85 165.73 (7)
Silver equivalent produced (koz) 17,085 18,168 (6)
Gold equivalent produced (koz) 237.29 252.34 (6)
Silver sold (koz) 5,918 6,216 (5)
Gold sold (koz) 154.93 165.86 (7)
Unit cost ($/t) 118.7 99.2 18
Total cash cost ($/oz Au co-product) 693 557 24
All-in sustaining cost ($/oz Au Eq) 1,058 917 15
Production
The Inmaculada mine delivered Inmaculada has delivered gold equivalent
production of 237,289 ounces (2021: 252,337 ounces), in line with the upwards
revised forecast published in August 2022 and slightly reduced versus 2021
owing to budgeted lower grades.
Costs
All-in sustaining costs were $1,058 per gold equivalent ounce (2021: $917 per
ounce) with the increase versus 2021 due to scheduled lower grades and higher
production costs resulting from the use of more semi-mechanised mining methods
with a higher extraction cost and from inflation affecting mainly fuel,
reagents, and supplies.
Pallancata
The 100% owned Pallancata silver/gold property is located in the Department of
Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from
Pallancata is transported 22 kilometres to the Selene plant for processing.
Pallancata summary Year ended Year ended % change
31 Dec 2022 31 Dec 2021
Ore production (tonnes) 559,799 530,681 5
Average silver grade (g/t) 151 212 (29)
Average gold grade (g/t) 0.69 0.84 (18)
Silver produced (koz) 2,368 3,261 (27)
Gold produced (koz) 10.98 13.05 (16)
Silver equivalent produced (koz) 3,158 4,200 (25)
Gold equivalent produced (koz) 43.86 58.33 (25)
Silver sold (koz) 2,315 3,263 (29)
Gold sold (koz) 10.76 13.03 (17)
Unit cost ($/t) 131.9 124.8 6
Total cash cost ($/oz Ag co-product) 26.6 19.2 39
All-in sustaining cost ($/oz Ag Eq) 32.4 23.8 36
Production
In 2022, Pallancata produced 3.2 million silver equivalent ounces (2021: 4.2
million ounces) with the reduction versus 2021 and versus the revised forecast
(3.4 -3.6 million ounces) due to the effects of lower-than-expected grades in
line with the current declining production profile.
Costs
All-in sustaining costs were at $32.5 per silver equivalent ounce (2021: $23.8
per ounce) with the significant increase year-on-year due to lower grades, a
higher proportion of conventional mining resulting in higher production costs
and local inflation.
San Jose
The San Jose silver/gold mine is located in Argentina, in the province of
Santa Cruz, 1,750 kilometres south west of Buenos Aires. San Jose commenced
production in 2007. Hochschild holds a controlling interest of 51% and is the
mine operator. The remaining 49% is owned by McEwen Mining Inc.
San Jose summary Year ended Year ended % change
31 Dec 2022 31 Dec 2021
Ore production (tonnes) 507,189 539,229 (6)
Average silver grade (g/t) 369 344 7
Average gold grade (g/t) 5.55 5.47 1
Silver produced (koz) 5,292 5,250 1
Gold produced (koz) 78.80 83.62 (6)
Silver equivalent produced (koz) 10,966 11,270 (3)
Gold equivalent produced (koz) 152.31 156.53 (3)
Silver sold (koz) 5,303 5,233 1
Gold sold (koz) 77.20 81.83 (6)
Unit cost ($/t) 285.0 229.0 24
Total cash cost ($/oz Ag co-product) 14.4 13.3 8
All-in sustaining cost ($/oz Ag Eq) 21.7 18.4 18
Production
San Jose's production in 2022 totalled 11.0 million silver equivalent ounces
(2021: 11.3 million ounces) with the decrease versus 2021 reflecting first
quarter Covid-related employee absences and a fire in the crushing area, both
of which temporarily affected operations and explain the reduction in tonnage.
This was partially offset by better-than-budgeted grades.
Costs
All-in sustaining costs were at $21.7 per silver equivalent ounce (2021: $18.4
per ounce) with the rise versus 2021 due to local inflation affecting
production costs, higher mine development capital expenditure to access new
areas and lower production. This was partially offset by local currency
devaluation.
ADVANCED PROJECT: MARA ROSA
On 22 March 2022, the Company announced that it had received shareholder
approval for the acquisition of Amarillo Gold Inc. in Brazil with completion
occurring on 1 April 2022.
On 10 August, the Company announced that the Goiás state's environmental
authority, the State Secretariat for the Environment and Sustainable
Development (SEMAD), had granted the key permit to enable the Company to start
construction of the processing plant. It also allowed all the required site
infrastructure for progressing the project's critical paths.
The progressed subsequently progressed according to schedule and budget with
total project progress now standing at over 70% and detailed engineering
almost complete. The Company continues to expect first production in H1 2024.
Earthworks
Site clearance for the processing plant and earthworks are at an advanced
stage (92% and 96% respectively) whilst the reservoir is fully operational and
already receiving pumped water from the pit. All sites being prepared for the
processing plant have been finished on time therefore allowing civil works to
start according to schedule.
Procurement
Currently purchase orders have been issued for 93% of the project equipment.
Deliveries are on schedule with key equipment such as the crusher, conveyor
belts, HDPE pipes, aluminium cabling for transmission lines, hydrocyclones,
agitators and equipment for the wastewater treatment station already received.
Key material packages that are pending include pipes and valves which are
expected to be closed in the first quarter.
Processing plant
The civil works contractor is fully mobilised and work on the plant site area
is at 32% completion rate. The concrete base for the grinding area is complete
with walls and equipment columns currently progressing and expected to be
finished by the end of February whilst deliveries for the tanks are due the
same month.
Infrastructure
Construction of infrastructure for the main access route is ongoing to allow
delivery of materials and heavy equipment. A preliminary drainage system that
will guarantee access to critical path areas was completed in Q4 whilst the
main project drainage system is 60% complete.
The power supply for the mine will be provided by the building of a 67km,
138kv transmission line from the Porangatu substation with work currently 45%
advanced and expected to be completed by June 2023.
Sustainability
Environmental controls to monitor construction work have been implemented to
ensure compliance with applicable permits. In September, the "Knowledge Trail"
was inaugurated with the presence of local authorities and the Hochschild COO.
The trail consists of an open ecological area with 13 stations highlighting
local history, culture, archaeological and environmental information, and
project history. The trail will be used as a learning tool by local schools
among other local stakeholders and to date almost 500 people have visited.
Local supplier and labour training programmes are continuing with over 80
local suppliers already on standby.
Health and Safety
Hochschild's health and safety corporate standards are currently being
implemented at the project, including the introduction of the Company's
Seguscore safety indicator. The project has recently surpassed one million
injury-free working hours and year-to-date Frequency and Severity Indexes are
currently at zero. Finally, Covid-19 prevention protocols are in place with no
positive cases recorded to date.
DEVELOPMENT PROJECT: SNIP
At the Snip project in British Columbia, Canada, exploration recommenced
during the first quarter of 2022, with approximately 2,500m drilled from
underground. Work also began on the Preliminary Economic Assessment (PEA),
which was awarded to Ausenco Engineering Canada. This included metallurgical
test work, an evaluation of ARD potential in waste samples, and a flowsheet
trade-off study. In addition, a new 2-year Environmental Baseline program was
approved and data collection began.
On 1 March 2022, Hochschild issued an updated mineral resource estimate.
Indicated mineral resources more than tripled to 840,000 ounces and inferred
resources almost doubled to 723,000 ounces (compared to the previous 2020
estimate) as a result of approximately 28,000m of drilling and the application
of Hochschild's standard approach to resource evaluation. Following on from
that, approximately 10,300m was drilled from underground in the second and
third quarters. Results received during Q3 had the following highlights:
Vein Results (Twin hole)
208 UG22-279: 4.3m @ 125.7g/t Au & 13g/t Ag
212 UG22-290: 2.1m @ 8.4g/t Au & 2g/t Ag
213 UG22-278: 2.3m @ 11.5g/t Au & 19g/t Ag
214 UG22-284: 4.5m @ 48.4g/t Au & 18g/t Ag
219 UG22-290: 3.8m @ 9.5g/t Au & 2g/t Ag
228 UG22-290: 2.5m @ 6.5g/t Au & 4g/t Ag
230 UG22-284: 4.1m @ 11.0g/t Au & 3g/t Ag
Vein Results (Infill hole)
215 UG22-317: 3.9m @ 33.4g/t Au & 3g/t Ag
219 UG22-330: 4.8m @ 45.1g/t Au & 14g/t Ag
219 UG22-332: 4.0m @ 12.8g/t Au & 2g/t Ag
231 UG22-300: 3.7m @ 9.2g/t Au & 8g/t Ag
240 UG22-334: 4.3m @ 31.7g/t Au & 9g/t Ag
A Communications and Engagement Agreement with the Tahltan Central Government
was signed at the beginning of 2022 with constructive discussions between the
two parties continuing throughout the remainder of the year which included a
project site visit by a leadership delegation site in August.
At the end of the year, the PEA was completed by Ausenco. Highlights are given
below.
Mineral Resource Estimate (effective as of 20 June 2022)
Category Domain Tonnes (000) Au Grade (g/t) Total Au Metal
Content
(000 oz)
Indicated Twin Main 3,847 9.8 1,217
Twin West 293 8.1 76
Total Indicated 4,140 9.7 1,293
Inferred Twin Main 829 12.3 329
Twin West 207 11.0 73
Total Inferred 1,036 12.1 402
Notes
1 These mineral resources are not mineral reserves and do not have
demonstrated economic viability.
2 The independent qualified person MRE, as defined by National Instrument
("NI") 43-101 guidelines, is Marc Jutras P.Eng., M.A.Sc., Principal, Mineral
Resources at Ginto Consulting Inc.
3 Follows CIM definitions (2014) for mineral resources.
4 Results are presented in-situ and undiluted and considered to have
reasonable prospects for economic extraction.
5 Reported for an underground scenario at a cut-off grade of 3.0 g/t
6 The number of tonnes and ounces were rounded to the nearest thousand.
7 Estimates are in total for the property and have not been adjusted to
reflect the proportion attributable to Hochschild on the basis of its joint
venture participation.
The update of the mineral resources of the project follows a drilling campaign
of 83 surface and underground holes carried out in 2021 and 2022. The drill
hole database is comprised of 3,507 historical drill holes and 415 holes
drilled by Skeena from 2016 to 2021 and 69 holes drilled by Hochschild in
2022. The historical holes were validated from a set of twin holes drilled by
Skeena in 2021 and Hochschild in 2022.
Mining
The Snip Project contemplates the underground exploitation of the Mineral
Resources of both Twin Main and Twin West deposit at a planned rate of 1,350
to 1,500 tpd over an eight-year period. Total mineralised material in the Life
of Mine (LOM) is 3.7mt @ 7.1 g/t Au, with an average gold production of 100
koz per year. A pre-production period of two years, including rehabilitation
and dewatering of existing tunnels and the ramp-up period in year two, will
allow for the start of full production beginning in year three.
Processing
The process plant design is based on composite samples that represent the
underground mining plan. The circuit selected is a gravity and whole ore leach
process to produce gold doré bars. The plant is designed for a through put of
1,350 tpd based on availability of 92%. The metallurgical recovery is
estimated at 96%. The process flowsheet consisted of: three-stage crushing and
ball mill grinding circuits; gravity and leach + carbon-in-leach (L/CIL)
circuits; desorption and carbon regeneration; electrowinning and smelting; and
cyanide destruction of tailings using SO₂/air process.
Capital Costs
The total initial capital cost is C$346.5m and the life-of-mine sustaining
cost is C$239.9m. The initial capital costs are summarised below:
Initial capital costs
Description C$m
Underground Mine 113.7
Process Plant 52.5
Tailings Storage Facility 35.4
Infrastructure 47.1
Total Direct Costs 248.7
Indirect costs 39.5
Contingency 58.3
Total 346.5
Project economics
The overall economics of the Project have been evaluated using a gold price of
US$1,700/oz, CAD/USD rate of 0.75 and a discount rate of 5%. Snip's valuation
has been estimated at C$183m post-tax NPV, with an IRR of 17%. The payback
period is expected to be 4 years from the start of production.
Key project economics
Description Units Value
Au Payable 000oz 797
Processed Tonnes Mt 3.65
Au Grade g/t 7.08
After-tax valuation indicators
Undiscounted cash flow C$m 373
NPV@5% C$m 183
Payback period years 4
IRR % 17
Project Capital (initial) C$m 347
AISC C$/oz Au 1,081
Termination
Due to the need to focus capital elsewhere in Hochschild's portfolio, on 5
April 2023, the Company announced that it had given notice to Skeena Resources
Limited ("Skeena") to terminate the option to earn-in a 60% interest in Snip.
Termination of the option became effective immediately and, as a result,
Hochschild has no liability to complete the Aggregate Expenditure Requirement.
In addition, Hochschild provided confirmation to Skeena that it had satisfied
the Minimum Annual Expenditure Requirement in respect of the 12-month period
that commenced on 14 October 2022. Accordingly, no cash payment is due from
Hochschild to Skeena under the terms of the option agreement.
DEVELOPMENT PROJECT: VOLCAN
In early 2022, the Company restructured its 100% ownership of the Volcan
project in Chile under a newly-established Canadian company, Tiernan Gold
Corp.
During the year, work continued to advance the project. This included updating
the Mineral Resource Estimate as well as developing an optimised mine and
project development plan. During the third quarter, the Company advanced
several trade-off studies aimed at creating additional project value. The
results of the engineering work were outlined in a new PEA completed by
Ausenco with highlights, as follows:
§ Open pit mining with 293 Mt of mineralised material mined over a 14 year
mine life;
§ 451 Mt of waste mined during the life of mine (1.5:1 strip ratio);
§ Processing of mineralised material by three-stages of crushing followed by
heap leaching and gold dore production;
§ Annual processing rate of 22 Mtpa producing an average of 350,000 oz per
year of gold for the first five years and a life of mine total of 3.82 million
ounces of gold recovered;
§ Initial capital cost of $900 million and average All-in-Sustaining Costs of
$1,002/oz;
§ After tax net present value (5% @ $1,800/oz gold) of $826 million with IRR
of 20.5%.
The Company is currently evaluating strategic alternatives for Tiernan.
BROWNFIELD EXPLORATION: PALLANCATA ROYROPATA RESOURCE
In the third quarter of the year, Hochschild announce a major discovery west
of current operations at Pallancata. The new area, named Royropata is part of
the extended Royropata system.
An initial Inferred Mineral Resource Estimate for the Royropata Zone to the
west of the existing Pallancata mine was completed in Q4. The Company
estimates that the zone contains an Inferred Mineral Resource of 1.88 million
tonnes at an average grade of 667 g/t Ag and 2.42 g/t Au containing 51.2
million silver equivalent ("Ag Eq") ounces at a combined Ag Eq grade of 848
g/t (see table below).
The programme started in 2019 with two long drill holes, with the second drill
hole intercepting 37.6m of quartz vein without economic values. In 2022, after
a period of geologic interpretation and 9,800m of drilling, a new vein system,
including the Marco West, (the main structure) Laura, Demian, Royropata 1, and
Royropata 2 veins was discovered (see maps below). The Royropata system is a
tabular sinistral strike-slip fault filled by hydrothermal quartz with
crustiform, coloform, banded, and breccia textures. The vein strikes 80-90°
and dips 60° to 75° to the southeast, reaching 750m in length and 200m in
depth. The host rocks are dacitic tuffs, andesitic tuffs, and andesitic flow.
The contained minerals are mainly: pyrargyrite, proustite, argentite,
electrum, and pearceite-polybasite at the precious metal level. The principal
gangue mineral is quartz and carbonates and silicified tuff fragments with an
argillic alteration. The Marco vein remains open to the southwest for another
900m according to the current geological interpretation.
Audited Royropata Inferred Mineral Resource Estimate
Vein Tonnes (k) Ag (g/t) Au (g/t) Ag Eq (g/t) Ag Eq (moz)
Marco West 1,497 763 2.81 973 46.8
Laura 247 203 0.62 250 2.0
Royropata 2 80 495 1.48 606 1.6
Demian 27 444 1.55 560 0.5
Royropata 1 26 285 0.81 346 0.3
Total/Average 1,876 667 2.42 848 51.2
Notes
1 Mineral Resources are 100% attributable to Hochschild.
2 Metal prices used for the Mineral Resources calculations: Au:
US$1,800/oz, Ag: US$24/oz.
3 AgEq = (Au x 75) + Ag.
4 AgEq Cut-off: 99 g/t AgEq.
5 Totals have been rounded to the appropriate number of significant
figures.
2023 next steps
In 2023, the Company will develop the Mineral Resource including infill
drilling to convert the Inferred Minerals Resources to Indicated and will also
proceed with basic engineering as well as the environmental permitting
process, including baseline studies. In addition, over the next few
quarters, the brownfield team will also target the upside potential in the
Royropata zone, including the extension of the Marco vein, the Royropata veins
and the Yanacochita and Bolsa structures according to ongoing permitting
progress. These veins are expected to add significant additional resources.
EXPLORATION
Inmaculada
In the first half of the year, most of the drilling at Inmaculada was
potential drilling at the Huarmapata area and resource drilling in the Josefa
vein with the best results from Josefa which them merited further drilling in
the second half. In addition, there was 2,900m of infill drilling in the
Juliana, Susana-Beatriz, Bety, Barbara and Noelia structures. Much of the
planned brownfield exploration work including surface drilling work was
curtailed in 2022 by a lack of permits.
Vein Results (resource drilling)
Josefa IMM22-139: 2.8m @ 1.9g/t Au & 43g/t Ag
IMM-22-172: 1.5m @ 6.1g/t Au & 186g/t Ag
Josefa Piso IMM-22-171A: 1.6m @ 8.5g/t Au & 104g/t Ag
IMM-22-172: 0.8m @ 6.9g/t Au & 13g/t Ag
Cloty IMM-22-172: 0.8m @ 3.9g/t Au & 90g/t Ag
San Jose
During the year, 18,150 of potential drilling was executed around the mine
area and in the Saavedra area in the Ayelen, Ayelen SE, Maura and Maura East
veins, among others, in addition to 2,800m of infill drilling in the Julia,
Isabel, Odion, Molle and Perla veins. The Company also started to explore the
Ciclon project (700m of drilling) further away in the Santa Cruz province.
Vein Results (potential/resource drilling)
Celina SJD-2451: 1.5m @ 6.0g/t Au & 236g/t Ag
SJD-2453: 1.2m @ 8.3g/t Au & 561g/t Ag
Celina Piso SJD-2453: 1.1m @ 2.8g/t Au & 546g/t Ag
Jimena SJD-2463: 5.2m @ 1.6g/t Au & 47g/t Ag
SJD-2465: 2.4m @ 2.8g/t Au & 48g/t Ag
Agostina SJD-2468: 4.1m @ 7.5g/t Au & 84g/t Ag
SJD-2469: 5.4m @ 3.3g/t Au & 29g/t Ag
SJD-2471: 1.9m @ 1.6g/t Au & 68g/t Ag
Ayelen SE SJM-594: 1.5m @ 6.9g/t Au & 648g/t Ag
SJD-2529: 2.4m @ 3.9g/t Au & 363g/t Ag
SJD-2531: 2.6m @ 10.0g/t Au & 1,321g/t Ag
Maura SJD-2554: 1.1m @ 4.7g/t Au & 102g/t Ag
SJD-2556: 0.8m @ 5.5/t Au & 103g/t Ag
SJD-2563: 1.3m @ 6.3g/t Au & 109g/t Ag
SJD-2570: 1.0m @ 15.1g/t Au & 123g/t Ag
SJD-2572: 2.5m @ 4.0g/t Au & 216g/t Ag
Ciclon DCE22-02: 2.9m @ 1.0g/t Au & 615g/t Ag
Olivia SJM-609: 1.1m @ 3.0g/t Au & 357g/t Ag
In 2022 as a whole 19.3 million silver equivalent ounces have been added to
the San Jose resource base at a silver equivalent grade of 983 grams per
tonne.
FINANCIAL REVIEW
The reporting currency of Hochschild Mining PLC is U.S. dollars. In
discussions of financial performance, the Group removes the effect of
exceptional items, unless otherwise indicated, and in the income statement
results are shown both pre and post such exceptional items. Exceptional items
are those items, which due to their nature or the expected infrequency of the
events giving rise to them, need to be disclosed separately on the face of the
income statement to enable a better understanding of the financial performance
of the Group and to facilitate comparison with prior years.
Revenue
Gross revenue 8
Gross revenue from continuing operations decreased by 10% to $751.3 million in
2022 (2021: $831.0 million) mainly due to the lower production and average
realised silver price. Output was mainly impacted by: lower expected grades in
Pallancata and Inmaculada; lower treated tonnage in San Jose due to
Covid-related employee absences in Q1 and a fire in the crushing area which
temporarily affected operations; and lower treated tonnage in Inmaculada
resulting from the local and national disruption in Peru in Q4. These were
partially offset by a slightly higher average realised gold price.
Gold
Gross revenue from gold in 2022 decreased to $435.1 million (2021: $464.3
million) due to the 7% decrease in gold sales resulting from lower gold
produced at all operations. This was partially offset by a 1% increase in the
average realised gold price.
Silver
Gross revenue from silver decreased in 2022 to $315.5 million (2021: $366.2
million) mainly due to a 6% decrease in the average realised silver price and
lower silver production at Pallancata and Inmaculada due to lower tonnage
treated and grades.
Gross average realised sales prices
The following table provides figures for average realised prices (before the
deduction of commercial discounts) and ounces sold for 2022 and 2021:
Average realised prices Year ended Year ended
31 Dec 2022
31 Dec 2021
Silver ounces sold (koz) 13,536 14,712
Avg. realised silver price ($/oz) 23.3 24.9
Gold ounces sold (koz) 242.89 260.71
Avg. realised gold price ($/oz) 1,791 1,781
4.0 million silver ounces of 2022 production were hedged at $26.86 per ounce,
boosting the realised price. On 10 November 2021, the Company hedged 3.3
million ounces of 2023 silver production at $25.00 per ounce.
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 2022, the
Group recorded commercial discounts of $15.7 million (2021: $19.6 million)
with the fall explained by the decrease in production. The ratio of commercial
discounts to gross revenue in 2022 was 2%, in line with 2021.
Net revenue
Net revenue was $735.6 million (2021: $811.4 million), comprising net gold
revenue of $429.8 million (2021: $457.8 million) and net silver revenue of
$305.2 million (2021: $353.1 million). In 2022, gold accounted for 58% and
silver 42% of the Company's consolidated net revenue (2021: gold 56% and
silver 44%).
Reconciliation of gross revenue by mine to Group net revenue
$000 Year ended Year ended % change
31 Dec 2022
31 Dec 2021
Silver revenue
Inmaculada 137,033 156,675 (13)
Pallancata 62,986 82,727 (24)
San Jose 115,477 126,790 (9)
Commercial discounts (10,334) (13,088) (21)
Net silver revenue 305,162 353,104 (14)
Gold revenue
Inmaculada 276,895 296,160 (7)
Pallancata 19,459 22,989 (15)
San Jose 138,782 145,187 (4)
Commercial discounts (5,335) (6,517) (18)
Net gold revenue 429,801 457,819 (6)
Other revenue 680 464 47
Net revenue 735,643 811,387 (9)
Cost of sales
Total cost of sales before exceptional items was $527.6 million in 2022 (2021:
$487.8 million). The direct production cost excluding depreciation was higher
at $384.2 million (2021: $323.4 million) mainly due to inflation impacting
fuel, reagents and supplies and the use of a higher proportion of conventional
mining methods. Depreciation in production cost decreased to $137.7 million
(2021: $148.8 million) due to lower extracted volumes across all operations.
Fixed costs incurred during total or partial production stoppages in Argentina
and Peru were $8.0 million in 2022 (2021: $8.7 million).
$000 Year ended Year ended % change
31 Dec 2022
31 Dec 2021
Direct production cost excluding depreciation 384,183 323,418 19
Depreciation in production cost 137,747 148,842 (7)
Other items and workers profit sharing 3,321 6,512 (49)
Fixed costs during operational stoppages and reduced capacity 8,023 8,680 (8)
Change in inventories (5,631) 320 (1,860)
Cost of sales 527,643 487,772 8
Fixed costs during operational stoppages and reduced capacity
$000 Year ended Year ended % Change
31 Dec 2022
31 Dec 2021
Personnel 4,498 7,607 (41)
Third party services 3,090 995 211
Supplies 146 - -
Depreciation and amortisation 2 - -
Others 287 78 268
Cost of sales 8,023 8,680 (8)
Unit cost per tonne
The Company reported unit cost per tonne at its operations of $158.7 per tonne
in 2022, a 19% increase versus 2021 ($133.5 per tonne) This was due to: higher
costs at Inmaculada resulting from using more semi-mechanised mining methods
with a higher extraction cost; higher costs at Pallancata due to the use of
more conventional mining methods; and higher costs in San Jose mainly due to
inflation and from expenditure related to the accessing and mining of
incremental resources.
Unit cost per tonne by operation (including royalties) 9 :
Operating unit ($/tonne) Year ended Year ended % change
31 Dec 2022
31 Dec 2021
Peru 122.9 106.5 15
Inmaculada 118.7 99.2 20
Pallancata 131.9 124.8 6
Argentina
San Jose 285.0 229.0 24
Total 158.7 133.5 19
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 reconciliation 10
Year ended 31 Dec 2022
$000 unless otherwise indicated Inmaculada Pallancata San Jose Total
Group cash cost 162,397 80,756 170,585 413,738
(+) Cost of sales 11 239,277 83,926 193,840 517,043
(-) Depreciation and amortisation in cost of sales (80,633) (8,671) (47,123) (136,427)
(+) Selling expenses 796 622 12,614 14,032
(+) Commercial deductions 12 2,957 4,879 11,254 19,090
Gold 2,131 969 4,630 7,730
Silver 826 3,910 6,624 11,360
Revenue 413,928 77,566 243,469 734,963
Gold 276,895 18,490 134,416 429,801
Silver 137,033 59,076 109,053 305,162
Ounces sold
Gold 154.9 10.8 77.2 242.9
Silver 5,918 2,315 5,303 13,536
Group cash cost ($/oz)
Co product Au 701 1,789 1,220 996
Co product Ag 9.1 26.6 14.4 12.7
By product Au 158 1,652 711 400
By product Ag (19.7) 26.5 6.0 (1.8)
Year ended 31 Dec 2021
$000 unless otherwise indicated Inmaculada Pallancata San Jose Total
Group cash cost 141,316 80,354 150,663 372,333
(+) Cost of sales 13 213,812 93,049 172,231 479,092
(-) Depreciation and amortisation in cost of sales (76,372) (19,915) (49,195) (145,482)
(+) Selling expenses 616 620 14,195 15,431
(+) Commercial deductions 14 3,260 6,600 13,432 23,292
Gold 2,164 1,034 5,717 8,915
Silver 1,096 5,566 7,715 14,377
Revenue 452,835 99,116 258,972 810,923
Gold 296,160 21,955 139,704 457,819
Silver 156,675 77,161 119,268 353,104
Ounces sold
Gold 165.9 13.0 81.8 260.7
Silver 6,216 3,263 5,233 14,712
Group cash cost ($/oz)
Co product Au 557 1,366 993 806
Co product Ag 7.9 19.2 13.3 11.0
By product Au (99) (182) 289 19
By product Ag (25.3) 17.6 1.0 (6.4)
Co-product cash cost per ounce is the cash cost allocated to the primary metal
(allocation based on proportion of revenue), divided by the ounces sold of the
primary metal. By-product cash cost per ounce is the total cash cost minus
revenue and commercial discounts of the by-product divided by the ounces sold
of the primary metal.
All-in sustaining cost reconciliation 15
All-in sustaining cash costs per silver equivalent ounce
Year ended 31 Dec 2022
$000 unless otherwise indicated Inmaculada Pallancata San Jose Main Corporate & Total
Operations others
(+) Direct production cost excluding depreciation 156,551 75,472 152,160 384,183 - 384,183
(+) Other items and workers profit sharing in cost of sales 1,777 1,544 - 3,321 - 3,321
(+) Operating and exploration capex for units 16 78,176 12,340 47,604 138,120 584 138,704
(+) Brownfield exploration expenses 2,946 6,000 7,700 16,646 2,537 19,183
(+) Administrative expenses (excl depreciation) 3,894 729 6,242 10,865 41,266 52,131
(+) Royalties and special mining tax 17 4,032 756 - 4,788 2,658 7,446
Sub-total 247,376 96,841 213,706 557,923 47,045 604,968
Au ounces produced 154,846 10,977 78,803 244,626 - 244,626
Ag ounces produced (000s) 5,936 2,368 5,292 13,596 13,596
Ounces produced (Ag Eq 000s oz) 17,085 3,158 10,966 31,209 - 31,209
Sub-total ($/oz Ag Eq) 14.5 30.7 19.5 17.9 1.5 19.4
(+) Commercial deductions 2,957 4,879 11,254 19,090 - 19,090
(+) Selling expenses 796 622 12,614 14,032 - 14,032
Sub-total 3,753 5,501 23,868 33,122 - 33,122
Au ounces sold 154,930 10,759 77,204 242,893 - 242,893
Ag ounces sold (000s) 5,918 2,315 5,303 13,536 - 13,536
Ounces sold (Ag Eq 000s oz) 17,073 3,090 10,862 31,025 - 31,025
Sub-total ($/oz Ag Eq) 0.2 1.8 2.2 1.1 - 1.1
All-in sustaining costs ($/oz Ag Eq) 14.7 32.4 21.7 18.9 1.5 20.4
All-in sustaining costs ($/oz Au Eq) 1,058 2,336 1,561 1,364 109 1,473
Year ended 31 Dec 2021
$000 unless otherwise indicated Inmaculada Pallancata San Jose Main Corporate & Total
operations others
(+) Direct production cost excluding depreciation 134,110 66,859 122,449 323,418 - 323,418
(+) Other items and workers profit sharing in cost of sales 3,489 3,023 - 6,512 - 6,512
(+) Operating and exploration capex for units 18 76,512 14,526 41,325 132,363 1,735 134,098
(+) Brownfield exploration expenses 3,276 5,993 9,654 18,923 3,658 22,581
(+) Administrative expenses (excl depreciation) 4,909 1,075 6,104 12,088 38,783 50,871
(+) Royalties and special mining tax 19 5,190 1,136 - 6,326 5,916 12,242
Sub-total 227,486 92,612 179,532 499,630 50,092 549,722
Au ounces produced 165,730 13,045 83,615 262,390 - 262,390
Ag ounces produced (000s) 6,236 3,261 5,250 14,746 14,746
Ounces produced (Ag Eq 000s oz) 18,168 4,200 11,270 33,638 - 33,638
Sub-total ($/oz Ag Eq) 12.5 22.1 15.9 14.9 1.4 16.3
(+) Commercial deductions 3,260 6,600 13,432 23,292 - 23,292
(+) Selling expenses 616 620 14,195 15,431 - 15,431
Sub-total 3,876 7,220 27,627 38,723 - 38,723
Au ounces sold 165,857 13,027 81,831 260,715 - 260,714
Ag ounces sold (000s) 6,216 3,263 5,233 14,712 - 14,712
Ounces sold (Ag Eq 000s oz) 18,158 4,201 11,124 33,483 - 33,483
Sub-total ($/oz Ag Eq) 0.2 1.7 2.5 1.2 - 1.2
All-in sustaining costs ($/oz Ag Eq) 12.7 23.8 18.4 16.0 1.5 17.5
All-in sustaining costs ($/oz Au Eq) 917 1,711 1,325 1,153 105 1,258
Administrative expenses
Administrative expenses were higher at $54.2 million (2021: $51.9 million)
mainly due to higher personnel expenses and travel expenses, and
administrative expenses related to the Mara Rosa project.
Exploration expenses
In 2022, exploration expenses increased to $56.8 million (2021: $39.9 million)
mainly due to the Snip project's exploration expenses of $20.8 million (2021:
Nil), partially offset by lower exploration expenses across all mines of $3.9
million.
In addition, the Group capitalises part of its brownfield exploration, which
mostly relates to costs incurred converting potential resources to the
Inferred or Measured and Indicated categories. In 2022, the Company
capitalised $0.7 million relating to brownfield exploration compared to $6.1
million in 2021, bringing the total investment in exploration for 2022 to
$57.6 million (2021: $46.0 million).
Selling expenses
Selling expenses decreased to $14.0 million (2021: $15.4 million) mainly due
to lower volumes sold in Argentina.
Other income/expenses
Other income before exceptional items was lower at $3.3 million (2021: $8.4
million) mainly due to decreased gains on the sale of equipment of $3.0
million and $2.0 million of higher income on the recovery of provisions in
2021.
Other expenses before exceptional items were lower at $39.3 million (2021:
$44.6 million) with the reduction mainly due to lower increases in provision
for mine closure of $17.8 million (2021: $22.1 million), lower expenses from a
voluntary redundancy programme in Argentina of $1.3 million (2021: $8.3
million). These were partially offset by: an increase in care and maintenance
costs to $7.4 million (H1 2021: $5.7 million); higher labour contingencies in
Argentina of $3.1 million (2021: $0.8 million); increased provision for
administrative fines of $1.6 million (2021: $0.1 million), and the insurance
deductible plus expenses not covered by insurance relating to the fire in San
Jose of $0.9 million.
Adjusted EBITDA
Adjusted EBITDA decreased by 35% to $249.6 million (2021: $382.8 million)
mainly due to the decrease in revenue resulting from lower gold and silver
production, and the lower average realised silver price. In addition, there
was an increase in production costs mainly due to inflation, higher mine
development capex and the use of a higher proportion of conventional mining
methods.
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 Year ended Year ended % change
31 Dec 2022
31 Dec 2021
Profit from continuing operations before exceptional items, net finance 45,190 179,438 (75)
income/(cost), foreign exchange loss and income tax
Depreciation and amortisation in cost of sales 136,427 145,482 (6)
Depreciation and amortisation in administrative expenses and other expenses 2,135 2,184 (2)
Exploration expenses 56,826 39,848 43
Personnel and other exploration related fixed expenses (10,602) (7,099) 49
Other non-cash income, net 20 19,629 22,958 (15)
Adjusted EBITDA 249,605 382,811 (35)
Adjusted EBITDA margin 34% 47% (28)
Finance income
Finance income before exceptional items of $5.2 million increased from 2021
($3.9 million) mainly due to higher interest on deposits of $2.4 million
(2021: $1.6 million).
Finance costs
Finance costs before exceptional items decreased from $32.1 million in 2021 to
$21.8 million in 2022 principally due to: lower foreign exchange transaction
costs to acquire $5.2 million dollars in Argentina of $5.0 million (2021:
$15.3 million); the capitalisation of $4.9 million interest expenses that are
directly attributable to the construction of Mara Rosa; and the cancelation of
the Libor rate swap of the refinanced $200 million medium-term loan of $3.8
million in 2021. These effects were partially offset by higher interest paid
of $12.9 million in 2022 (2021: $5.7 million) mainly due to an additional $100
million medium-term loan drawn down in December 2021 and higher interest
rates, and the fair value loss on financial investments of $2.1 million (2021:
$0.8 million).
Foreign exchange (losses)/gains
The Group recognised a foreign exchange loss of $2.6 million (2021: $2.4
million loss) as a result of exposures in currencies other than the functional
currency.
Income tax
The Company's pre-exceptional income tax charge was $17.6 million (2021: $81.3
million). The significant decrease in the charge is mainly explained by lower
profitability versus 2021.
The effective tax rate (pre-exceptional) for the period was 72.3% (2021:
54.7%), compared to the weighted average statutory income tax rate of 35.6%
(2021: 30.9%). The high effective tax rate in 2022 versus the average
statutory rate is mainly explained by: the impact of non-recognised tax losses
in non-operating companies increasing the rate by 36.5%, Royalties and the
Special Mining Tax which increased the effective rate by 21.8%; partially
offset by the effect of foreign exchange in Peru and Argentina decreasing the
rate by 19.2%.
Exceptional items
Exceptional items in 2022 totalled a $1.9 million loss after tax (2021: $3.7
million loss after tax) related to: the impairment of the investment in Aclara
Resources Inc. of $9.9 million; the reversal of impairment loss in Pallancata
of $15.5 million resulting from the new resources discovered in the Royropata
zone; and the impairment of the Azuca project's evaluation and exploration
costs of $4.2 million.
The tax effect of these exceptional items was a $3.3 million tax loss (2021:
$15.1 million tax gain). The net attributable loss of exceptional items was
$1.9 million.
Cash flow and balance sheet review
Cash flow:
$000 Year ended Year ended Change
31 Dec 2022
31 Dec 2021
Net cash generated from operating activities 102,918 282,520 (179,602)
Net cash used in investing activities (337,580) (183,434) (154,146)
Cash flows generated generated/(used in) from financing activities (6,588) 59,307 (65,895)
Foreign exchange adjustment (1,695) (3,487) 1,792
Net increase in cash and cash equivalents during the year (242,945) 154,906 (397,851)
Net cash generated from operating activities decreased from $282.5 million in
2021 to $102.9 million in 2022 mainly due to lower Adjusted EBITDA of $249.6
million (2021: $382.8 million), and an increased working capital position.
Net cash used in investing activities increased from $183.4 million in 2021 to
$337.6 million in 2022 mainly due to the acquisition cost of Mara Rosa and
subsequent capex of $193.2 million. This effect was partially offset by the
purchase of Aclara shares for $20.0 million in 2021, and lower foreign
exchange transaction costs to acquire dollars in Argentina of $5.0 million
(2021: $15.3 million).
Cash from financing activities decreased to an outflow of $6.6 million from an
inflow of $59.3 million in 2021, primarily due to the additional medium-term
loan of $100.0 million drawn down in December 2021, partially offset by
proceeds from Minera Santa Cruz stock market promissory notes of $14.5
million, and lower dividends to non-controlling interest of $0.3 million
(2021: $9.8 million).
Working capital
$000 As at As at
31 December 2022 31 December 2021
Trade and other receivables 85,408 69,749
Inventories 61,440 49,184
Derivative financial assets/(liabilities) 2,186 14,073
Income tax payable, net 7,100 (22,322)
Trade and other payables (144,102) (133,482)
Provisions (24,177) (32,058)
Working capital (12,145) (54,856)
The Group's working capital position increased by $42.7 million from $(54.9)
million to $(12.1) million. The key drivers of the increase were: higher
income tax payable of $29.4 million; higher trade and other receivables of
$15.7 million; and lower derivative financial assets of $11.9
million.
Net (debt)/cash
$000 unless otherwise indicated As at As at
31 December 2022 31 December 2021
Cash and cash equivalents 143,844 386,789
Non-current borrowings (275,000) (300,000)
Current borrowings 21 (43,989) (499)
Net cash / (net debt) (175,145) 86,290
The Group's reported net debt position was $175.1 million as at 31 December
2022 (31 December 2021: net cash of $86.3 million). The decrease is mainly
explained by: the acquisition cost of Mara Rosa and subsequent construction
capex of $193.2 million; the Snip project's exploration expenses of $19.6
million; and temporary changes in working capital.
$000 Year ended Year ended
31 Dec 2022
31 Dec 2021
Inmaculada 78,176 76,512
Pallancata 13,518 14,250
San Jose 50,112 43,666
Operations 141,806 134,428
Mara Rosa 193,218 -
Aclara - 11,476
Other 4,842 7,957
Total 339,866 153,861
2022 capital expenditure of $339.9 million (2021: $153.9 million) mainly
comprised the acquisition cost of Mara Rosa and subsequent capex of $193.2
million and operational capex of $141.8 million (2021: $134.4 million).
Operational capex was higher mainly due to higher capex for development work
at Pallancata to access newly economic resources which have further extended
the mine life, and higher mine development capital expenditure in San Jose.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that to the best of their knowledge:
o the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
o the Management report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
Consolidated income statement
For the year ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
Notes Before exceptional items US$000 Exceptional items Total Before exceptional items US$000 Exceptional items Total
US$000
US$000
(note 11) (note 11)
US$000 US$000
Revenue 5 735,643 - 735,643 811,387 - 811,387
Cost of sales 6 (527,643) - (527,643) (487,772) (22,511) (510,283)
Gross profit 208,000 - 208,000 323,615 (22,511) 301,104
Administrative expenses 7 (54,158) - (54,158) (51,905) - (51,905)
Exploration expenses 8 (56,826) - (56,826) (39,848) - (39,848)
Selling expenses 9 (14,032) - (14,032) (15,431) - (15,431)
Other income 12 3,340 - 3,340 8,435 37,461 45,896
Other expenses 12 (39,302) - (39,302) (44,565) (1,503) (46,068)
(Impairment)/reversal of impairment and write-off of non-current assets, net (1,832) 11,363 9,531 (863) (24,846) (25,709)
Profit/(loss) before net finance income/(cost), foreign exchange loss and 45,190 11,363 56,553 179,438 (11,399) 168,039
income tax
Share of loss of an associate 19 (1,677) (9,923) (11,600) (169) - (169)
Finance income 13 5,211 - 5,211 3,946 - 3,946
Finance costs 13 (21,776) - (21,776) (32,061) - (32,061)
Foreign exchange loss, net (2,622) - (2,622) (2,424) - (2,424)
Profit/(loss) from before income tax 24,326 1,440 25,766 148,730 (11,399) 137,331
Income tax (expense)/benefit 14 (17,581) (3,353) (20,934) (81,280) 15,055 (66,225)
Profit/(loss) for the year 6,745 (1,913) 4,832 67,450 3,656 71,106
Attributable to:
Equity shareholders of the Parent 4,874 (1,913) 2,961 69,567 7,367 76,934
Non-controlling interests 1,871 - 1,871 (2,117) (3,711) (5,828)
6,745 (1,913) 4,832 67,450 3,656 71,106
Basic earnings/(loss) per ordinary share for the year (expressed in US dollars 15 0.01 - 0.01 0.14 0.01 0.15
per share)
Diluted earnings/(loss) per ordinary share for the year (expressed in US 15 0.01 - 0.01 0.13 0.01 0.14
dollars per share)
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Year ended 31 December
Notes 2022 2021
US$000
US$000
Profit for the year 4,832 71,106
Other comprehensive income that might be reclassified to profit or loss in
subsequent periods, net of tax:
Net (loss)/gain on cash flow hedges 38(a), 38(g) (16,929) 25,028
Deferred tax benefit/(charge) on cash flow hedges 30 4,994 (7,383)
Exchange differences on translating foreign operations (12,739) (21,282)
Cumulative exchange differences gain transferred to the income statement on 4 - 9,995
disposal of foreign operations
Share of other comprehensive income/(loss) of an associate 19 1,283 (9)
(23,391 ) 6,349
Other comprehensive income that will not be reclassified to profit or loss in
subsequent periods, net of tax:
Net (loss)/gain on equity instruments at fair value through other 20 (152) 261
comprehensive income ('OCI')
(152) 261
Other comprehensive (loss)/income for the year, net of tax (23,543) 6,610
Total comprehensive (loss)/income for the year (18,711) 77,716
Total comprehensive (loss)/income attributable to:
Equity shareholders of the Parent (20,582) 83,544
Non-controlling interests 1,871 (5,828)
(18,711) 77,716
Consolidated statement of financial position
As at 31 December 2022
Notes As at As at
31 December 2022
31 December 2021
US$000
US$000
ASSETS
Non-current assets
Property, plant and equipment 16 926,913 738,119
Evaluation and exploration assets 17 123,462 123,304
Intangible assets 18 19,328 18,094
Investment in an associate 19 33,242 43,559
Financial assets at fair value through OCI 20 509 661
Financial assets at fair value through profit and loss 21 1,015 3,155
Trade and other receivables 22 6,498 2,470
Derivative financial assets 38(a) - 5,042
Deferred income tax assets 30 4,213 484
1,115,180 934,888
Current assets
Inventories 23 61,440 49,184
Trade and other receivables 22 85,408 69,749
Derivative financial assets 38(a) 2,186 14,073
Income tax receivable 14 9,226 32
Cash and cash equivalents 24 143,844 386,789
302,104 519,827
Total assets 1,417,284 1,454,715
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital 29 9,061 226,506
Share premium 29 - 438,041
Other reserves (238,800) (217,657)
Retained earnings 886,980 248,664
657,241 695,554
Non-controlling interests 65,475 63,890
Total equity 722,716 759,444
Non-current liabilities
Trade and other payables 25 1,623 2,815
Borrowings 27 275,000 300,000
Provisions 28 123,506 116,835
Deferred income tax liabilities 30 80,045 87,228
480,174 506,878
Current liabilities
Trade and other payables 25 144,102 133,482
Borrowings 27 43,989 499
Provisions 28 24,177 32,058
Income tax payable 14 2,126 22,354
214,394 188,393
Total liabilities 694,568 695,271
Total equity and liabilities 1,417,284 1,454,715
These financial statements were approved by the Board of Directors on 19 April
2023 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
19 April 2023
Consolidated statement of cash flows
For the year ended 31 December 2022
Year ended 31 December
Notes 2022 2021
US$000
US$000
Cash flows from operating activities
Cash generated from operations 34 144,271 319,588
Interest received 2,409 1,938
Interest paid 27 (12,962) (5,720)
Payment of mine closure costs 28 (10,409) (9,083)
Income tax, special mining tax and mining royalty paid1 (20,391) (22,021)
Net cash generated from operating activities 102,918 284,702
Cash flows from investing activities
Purchase of property, plant and equipment (210,372) (130,965)
Purchase of evaluation and exploration assets 17 (122,988) (21,398)
Purchase of intangibles (353)
Purchase of financial assets at fair value through OCI 20 - (7)
Purchase of investment in associate - (19,995)
Purchase of financial assets at fair value through profit and loss 21 - (3,308)
Purchase of Argentinian bonds 13 (10,204) (33,469)
Proceeds from sale of Argentinian bonds 13 5,248 18,133
Proceeds from sale of financial assets at fair value through OCI 20 - 9
Proceeds from sale of financial assets at fair value though profit and loss 21 - 4,726
Proceeds from sale of property, plant and equipment 1,089 3,393
Cash and cash equivalent of demerged entity 4 - (553)
Net cash used in investing activities (337,580) (183,434)
Cash flows from financing activities
Proceeds from borrowings 27 28,911 105,954
Repayment of borrowings 27 (11,557) (14,793)
Payment of lease liabilities 26 (1,639) (2,182)
Dividends paid to non-controlling interests 31 (286) (9,832)
Dividends paid 31 (22,017) (22,022)
Cash flows (used in)/generated from financing activities (6,588) 57,125
Net (decrease)/increase in cash and cash equivalents during the year (241,250) 158,393
Exchange difference (1,695) (3,487)
Cash and cash equivalents at beginning of year 386,789 231,883
Cash and cash equivalents at end of year 24 143,844 386,789
1 Taxes paid have been offset with value added tax (VAT) credits of US$nil
(2021:US$3,478,000).
Consolidated statement of changes in equity
For the year 31 December 2022
Other reserves
Notes Equity share capital US$000 Share premium US$000 Fair value reserve of financial assets at fair value through OCI Share of other comprehensive loss of an associate US$000 Dividends expired US$000 Cumulative translation adjustment Unrealised gain/ Merger reserve US$000 Share- based payment reserve US$000 Total Retained earnings US$000 Capital and reserves attributable to shareholders Non-controlling interests Total
US$000 US$000
other reserves US$000
of the Parent
US$000
equity
(loss) on hedges
US$000
US$000
US$000
Balance at 1 January 2021 226,506 438,041 (205) - 99 (13,876) (4,169) (210,046) 2,533 (225,664) 287,652 726,535 79,550 806,085
Other comprehensive income/(expense) - - 261 (9) - (11,287) 17,645 - - 6,610 - 6,610 - 6,610
Profit for the year - - - - - - - - - - 76,934 76,934 (5,828) 71,106
Total comprehensive income/ - - 261 - (11,287) 17,645 - - 6,610 76,934 83,544 (5,828) 77,716
(expense) for the year
(9)
Sale of financial assets at fair 20 - - 18 - - - - - - 18 (18) - - -
value through OCI
Dividends 31 - - - - - - - - - - (22,022) (22,022) - (22,022)
In specie dividends - - - - - - - - - - (94,945) (94,945) - (94,945)
Dividends to non - 31 - - - - - - - - - - - (9,832) (9,832)
controlling interests
Share-based payments 29(c) - - - - - - - - 2,442 2,442 - 2,442 - 2,442
Forfeiture of share options 29(c) - - - - - - - - (1,063) (1,063) 1,063 - - -
Balance at 31 December 2021 226,506 438,041 74 (9) 99 (25,163) 13,476 (210,046) 3,912 (217,657) 248,664 695,554 63,890 759,444
Other comprehensive income/(expense) - - (152) 1,283 - (12,739) (11,935) - - (23,543) - (23,543) - (23,543)
Profit for the year - - - - - - - - - - - 2,961 2,961 1,871 4,832
Total comprehensive income/ - - (152) - - (12,739) (11,935) - - (23,543) 2,961 (20,582) 1,871 (18,711)
(expense) for the year
1,283
Dividends 31 - - - - - - - - - - - (22,017) (22,017) - (22,017)
Dividends paid to non - 31 - - - - - - - - - - - - - (286) (286)
controlling interests
Issuance of deferred bonus shares 29 303,268 - - - - - - - - - (303,268) - - -
Cancelation of deferred bonus shares 29 (303,268) - - - - - - - - - 303,268 - - -
Cancelation of share premium account 29 - (438,041) - - - - - - - - 438,041 - - -
Nominal value reduction 29 (217,445) - - - - - - - - - 217,445 - - -
Share-based payments 29(c) - - - - - - - - 4,286 4,286 - 4,286 - 4,286
Forfeiture of share options 29(c) - - - - - - - - (1,886) (1,886) 1,886 - - -
Balance at 31 December 2022 9,061 - (78) 1,274 99 (37,902) 1,541 (210,046) 6,312 (238,800) 886,980 657,241 65,475 722,716
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2022
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 38.32% and it is held through Pelham
Investment Corporation ("Pelham"), a Cayman Islands company.
On 8 November 2006, the Company's shares were admitted to the Official List of
the UKLA (United Kingdom Listing Authority) and to trading on the London Stock
Exchange.
The Group's principal business is the mining, processing and sale of silver
and gold. The Group has two operating mines (Pallancata and Inmaculada)
located in southern Peru and one operating mine (San Jose) located in
Argentina. The Group also has a portfolio of projects located across Peru,
Argentina, Mexico, United States, Canada, Brazil and Chile at various stages
of development.
These consolidated financial statements were approved for issue by the Board
of Directors on 19 April 2023.
The Group´s subsidiaries are as follows:
Equity interest at
31 December
Company Principal activity Country of 2022 2021
incorporation
%
%
Hochschild Mining (Argentina) Corporation S.A.1 Holding company Argentina 100 100
MH Argentina S.A.2 Exploration office Argentina 100 100
Minera Santa Cruz S.A.1 and 10 Production of gold and silver Argentina 51 51
Minera Hochschild Chile S.C.M. 3 Exploration Chile 100 100
Andina Minerals Chile SpA (formerly Andina Minerals Chile Ltd.) 3 Exploration Chile 100 100
Southwest Minerals (Yunnan) Inc. 4 Exploration China 100 100
Hochschild Mining Holdings Limited5 Holding company England and Wales 100 100
Hochschild Mining Ares (UK) Limited5 Administrative office England and Wales 100 100
Southwest Mining Inc. 4 Exploration Mauritius 100 100
Southwest Minerals Inc. 4 Exploration Mauritius 100 100
Minera Hochschild Mexico, S.A. de C.V. 6 Exploration Mexico 100 100
Hochschild Mining (Peru) S.A. 4 Holding company Peru 100 100
Compañía Minera Ares S.A.C. 4 Production of gold and silver Peru 100 100
Compañía Minera Arcata S.A. 4 Production of gold and silver Peru 99.1 99.1
Empresa de Transmisión Aymaraes S.A.C. 4 Power transmission Peru 100 100
Minera Antay S.A.C. 4 Exploration Peru 100 100
Hochschild Mining (US) Inc. 7 Holding company USA 100 100
Hochschild Mining Canada Corp8 Exploration Canada 100 100
Hochschild Mining Brazil Holdings Corp. (formerly 1334940 BC)8 Holding company Canada 100 100
Tiernan Gold Corp. 8 Holding company Canada 100 0
Amarillo Mineracao do Brasil Ltda. 9 Exploration Brazil 100 0
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. Apoquindo 4775 of 1002, Comuna Las
Condes, Santiago de Chile, Chile.
4 Registered address: La Colonia 180, Santiago de Surco,
Lima, Peru.
5 Registered address: 17 Cavendish Square, London, W1G0PH,
United Kingdom.
6 Registered address: Calle Aguila Real No 122, Colonia
Carolco, Monterrey, Nuevo Leon, CP 64996, Mexico.
7 Registered address: 1025 Ridgeview Dr. 300, Reno, Nevada
89519, USA.
8 Registered address: Suite 1700, Park Place, 666 Burrard
Street, Vancouver BC, V6C 2X8.
9 Registered address: Fazenda Invernada s/n, Zona Rural, Mara Rosa
- Goiás - Brazil, CEP: 76.490-000.
10 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 2022 and
2021 is as follows:
As at 31 December
2022 2021
US$000 US$000
Non-current assets 159,703 157,629
Current assets 99,997 89,923
Non-current liabilities (67,710) (68,667)
Current liabilities (61,230) (51,354)
Equity (130,760) (127,531)
Cash and cash equivalents 15,473 25,942
Revenue 243,469 258,972
Depreciation and amortisation (50,967) (52,069)
Interest income 652 1,558
Interest expense (4,364) (3,196)
Income tax 7,761 (13,550)
Profit for the year and total comprehensive income 3,811 (11,891)
Net cash generated from operating activities 18,085 62,614
Net cash used in investing activities (47,197) (43,667)
Net cash (used in)/generated from financing activities 18,643 (30,900)
(Loss)/profit attributable to non-controlling interests in the consolidated
income statement, non-controlling interest in the consolidated statement of
financial position, and dividends declared to non-controlling interests in the
consolidated statement of changes in equity are solely related to Minera Santa
Cruz.
2 Significant accounting policies
(a) Basis of preparation
The consolidated financial statements of the Group have been prepared in
accordance with UK adopted International Accounting Standards.
The basis of preparation and accounting policies used in preparing the
consolidated financial statements for the years ended 31 December 2022 and
2021 are set out below. The consolidated financial statements have been
prepared on a historical cost basis except for the revaluation of certain
financial instruments that are measured at fair value at the end of each
reporting period, as explained below. These accounting policies have been
consistently applied, except for the effects of the adoption of new and
amended accounting standard.
The financial statements are presented in US dollars (US$) 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 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 2021. Other amendments and interpretations apply for the first time
in 2022, 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 2023 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(k), 16, 17 and 18.
The values of the Group's mining assets are sensitive to a range of
characteristics unique to each mine unit. Key sources of estimation for all
assets include uncertainty around ore reserve estimates and cash flow
projections. In performing impairment reviews, the Group assesses the
recoverable amount of its operating assets principally with reference to fair
value less costs of disposal, assessed using discounted cash flow models. The
Group uses two approaches to estimate the fair value less costs of disposal,
depending on the circumstances: (i) the traditional approach, which uses a
single cash flow projection, and (ii) the expected cash flow approach, which
uses multiple, probability-weighted cash flow projections. As at 31 December
2022, the impairment reviews for the Group´s operating assets were performed
using a traditional approach, with the exception of Inmaculada where the Group
used an expected cash flow approach. 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 the risk factor 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(o)
and 28(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. 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. In July
2021, the mine closure law for the province of Santa Cruz in Argentina was
published, establishing a period of 180 business days to present the Mine
Closure Plan. The regulation has not been published as of the date of the
financial statements. The Group considers the mine closure provision in San
Jose to be largely aligned with Argentinean´s new law, subject to further
review once regulation is published.
• Valuation of financial instruments - note 38
The valuation of certain Group assets and liabilities reflects the changes to
certain assumptions used in the determination of their value, such as future
gold and silver prices(note 38).
• Non market performance conditions on LTIP 2021 and LTIP
2022- note 29(c)
There are two parts to the performance conditions attached to LTIP awards: 50%
is subject to the Company's TSR ranking relative to a tailored peer group of
mining companies, 50% is subject to internal KPIs split equally between: (i)
3-year growth of the Company´s Measured and Indicated Resources (MIR) per
share (calculated on an enterprise value basis), and (ii) average outcome of
the annual bonus scorecard in respect of 2021, 2022 and 2023, regarding LTIP
2021, and 2022, 2023 and 2024, regarding LTIP 2022, calculated as the simple
mean of the three scorecard outcomes.
Critical judgements:
• Income tax - notes 2(t), 2(u), 14,
30 and 36(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
generating profit in all the companies and determines the recognition of
deferred tax. No deferred tax asset is recognised in the holding and
exploration entities as they are not expected to generate any profit to settle
the temporary difference (refer to note 30).
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 by 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 recognised
if it is probable that a liability will arise (refer to note 36(a)). The final
resolution of these transactions may give rise to material adjustments to the
income statement and/or cashflow in future periods. The Group reviews each
significant tax liability or benefit each period to assess the appropriate
accounting treatment.
• Life of mine ("LOM").
There are several aspects which are determined by the life of mine, such as
ore reserves and resources, recoverable values of mining assets, mine
rehabilitation provision and depreciation. The life of mine for an
operation is specified in the relevant Environmental Impact Assessment ("EIA")
which is amended from time to time as more resources at the mine are
identified. EIAs are permits which are granted in the ordinary course of
business to the mining industry. While the processing of such permits may be
subject to delays, the Group has never had an EIA denied. A crucial element
of Peru's legal framework is the principle of predictability which, in
essence, means that if the legal requirements for any given permit have been
satisfied, the State cannot l awfully deny the granting of the permit.
Taking this into consideration, as well as the Group's operational experience,
the Group believes that permits will be secured such that operations can
continue without interruption. In the unlikely scenario that this does not
occur, there could be material changes to those items in the financial
statements that are determined by the life of mine.
• Determination of functional
currencies - note 2(e).
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 Argentina, the exchange control restrictions limit the
companies to hold US$ dollars but do not restrict carrying out transactions in
US dollar.
• Recognition of evaluation and
exploration assets and transfer to development costs - notes 2(g), 16 and 17.
Judgement is required in determining when the future economic benefit of a
project can reasonably be regarded as assured, at which point evaluation and
exploration expenses are capitalised. This includes the assessment of whether
there is sufficient evidence of the probability of the existence of
economically recoverable minerals to justify the commencement of
capitalisation of costs; the timing of the end of the exploration phase, the
start of the development phase; and the commencement of the production phase.
For this purpose, the future economic benefit of the project can reasonably be
regarded as assured when the Board authorises management to conduct a
feasibility study, mine-site exploration is being conducted to convert
resources to reserves, or mine-site exploration is being conducted to confirm
resources, all of which are based on supporting geological information.
• Pandemic expenses
The Group analyses the effect of pandemics in its operations and accounting
treatment, because they generate stoppages, low capacity production and
incremental costs. In the case of COVID -19, the fixed "normal" production
costs during stoppages are recognised as expenses and are not considered as
costs of the inventories produced. In the Income Statement these fixed costs
are classified as "Pre-Exceptional.
To determine whether the incremental Covid-related costs should berecognised
as exceptional expenses, consideration has been made as to whether they meet
the criteria as set out in the Group´s accounting policy (note 2(z)), in
particular regarding the expected infrequency of the events that have given
rise to them.
The pandemic can be considered a single protracted globally pervasive event
with a financial impact over a number of reporting periods. Management initial
expectation was that these cost would ceased to be incurred at the end of 2020
or early 2021, and whilst the majority of the costs have reduced over time as
a result of the efficiencies made to the health protocols and logistics
required to operate throughout the pandemic, some residual costs continue to
be incurred to date. In order to provide the users of the financial statements
with a better understanding of the financial performance of the Group in the
year, and to facilitate comparison with the prior period, we have considered
it appropriate to continue to disclose separately as exceptional these
incremental Covid-related cost up to December 2021.
Following the outbreak of the Omicron variant, the virus appears to have
shifted into an endemic phase. Consequently, these costs will no longer be
presented as exceptional items from 2022 and will form part of the underlying
profits.
• Climate change
- General
The Group is in the process of completing a climate change risk assessment and
strategy and developing an action plan to continually reduce operational
energy, GHG emissions and water consumption, with the ultimate aim of reaching
net zero GHG emissions. As a result, the Group is currently unable to
determine the full future economic impact of this strategy on their business
model and operational plans and therefore the potential impacts are not fully
incorporated in these financial statements.
In addition, societal expectations are driving government action that may
impose further requirements and cost on companies in the future. Therefore
risks associated with climate change could, over time impose changes that
may potentially impact (among other things) capital expenditure, mine
closure provisions and production costs. However, currently the financial
statements cannot capture such possible future outcomes as these are not yet
known. With regards to the calculation of those items in the financial
statements that rely on life of mine calculations (such as impairments,
deferred tax and depreciation), it should be highlighted that as an
underground mining company, Hochschild Mining's operating assets have much
lower lives than conventional open-pit mining companies. As such, by virtue
of the longer-term time horizon of the physical risks of climate change, the
financial impact on such items will be less pronounced than may otherwise be
expected.
The adoption of the Group's climate change strategy and the implementation of
climate-change regulations in the countries where the Group operates may
impact the Group's significant judgements and key estimates and could result
in material changes to financial results and the carrying values of certain
assets and liabilities in future reporting periods.
- Physical risks
As previously stated, the Group is progressing work to assess the potential
impact of physical risks of climate change. Given the ongoing nature of the
Group's physical risk assessment process, reflecting adaptation risk in the
Group's operating plans, and associated asset valuations, is currently
limited. As the Group progresses its adaptation strategy, the identification
of additional risks or the detailed development of the Group's response may
result in material changes to financial results and the carrying values of
assets and liabilities in future reporting periods.
• Acquiring a subsidiary or a group
of assets - note 4(b).
In identifying a business combination (note 2(c)) or acquisition of assets the
Group considers the underlying inputs, processes and outputs acquired as a
part of the transaction. For an acquired set of activities and assets to be
considered a business there must be at least some inputs and processes that
have the capability to achieve the purposes of the Group. Where significant
inputs and processes have not been acquired, a transaction is considered to be
the purchase of assets. For the assets and assumed liabilities acquired the
Group allocates the total consideration paid (including directly attributable
transaction costs) based on the relative fair values of the underlying items.
On 1 April 2022 the Group acquired the control of the Amarillo Gold Group
(note 4(b)). The transaction was accounted as a purchase of assets as no
systems, processes or outputs were acquired, with the main asset acquired
being the Mara Rosa project which is in a development stage.
(c) Basis of consolidation
The consolidated financial statements set out the Group's financial position,
performance and cash flows as at 31 December 2022 and 31 December 2021 and for
the years then ended, respectively.
Subsidiaries are those entities controlled by the Group regardless of the
amount of shares owned by the Group. Control is achieved when the Group is
exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over
the investee. Non-controlling interests' rights to safeguard their interest
are fully considered in assessing whether the Group controls a subsidiary.
Specifically, the Group controls an investee if, and only if, the Group has:
• power over the investee (i.e.
existing rights that give it the current ability to direct the relevant
activities of the investee);
• exposure, or rights, to variable
returns from its involvement with the investee; and
• the ability to use its power over
the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in
control. To support this presumption and when the Group has less than a
majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an
investee, including:
• the contractual arrangement with
the other vote holders of the investee;
• rights arising from other
contractual arrangements; and
• the Group's voting rights and
potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control.
Basis of consolidation
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Group obtains control, and continue to be consolidated until
the date that such control ceases.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated financial statements from
the date the Group gains control until the date the Group ceases to control
the subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders
of the parent of the Group and to the non-controlling interests, even if this
results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to
bring their accounting policies in line with the Group's accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cash
flows relating to transactions between members of the Group are eliminated in
full on consolidation.
A change in the ownership interest of a subsidiary, without loss of control,
is accounted for as an equity transaction, affecting retained earnings. If the
Group loses control over a subsidiary, it (i) derecognises the assets
(including goodwill) and liabilities of the subsidiary; (ii) derecognises the
carrying amount of any non-controlling interest ('NCI'); (iii) derecognises
the cumulative translation differences, recorded in equity; (iv) recognises
the fair value of the consideration received; (v) recognises the fair value of
any investment retained; (vi) recognises any surplus or deficit in profit or
loss; and (vii) reclassifies the parent's share of components previously
recognised in other comprehensive income to profit or loss or retained
earnings, as appropriate.
An NCI represents the equity in a subsidiary not attributable, directly and
indirectly, to the parent company and is presented separately within equity in
the consolidated statement of financial position, separately from equity
attributable to owners of the parent.
Losses within a subsidiary are attributable to the NCI even if that results in
a deficit balance.
Business combinations
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any NCI
in the acquiree. The choice of measurement of NCI, either at fair value or at
the proportionate share of the acquiree's identifiable net assets, is
determined on a transaction by transaction basis. Acquisition costs incurred
are expensed and included in administrative expenses.
Goodwill is initially measured at cost, being the excess of the aggregate of
the consideration transferred and the amount recognised for the NCI, and any
interest previously 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 criteria 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 2022 Annual Report's
Strategic Report. The financial position of the Group, its cash flows,
liquidity position and borrowings are described in the Financial Review on
pages 14 to 19 and discussion of the Group's viability on the occurrence of
certain scenarios is provided in the Viability Statement in the 2022 Annual
Report. In addition, note 38 to the financial statements includes the Group's
objectives, policies and processes for managing its capital; its financial
risk management objectives; details of its financial instruments; and its
exposure to credit risk and liquidity risk.
The Directors have also considered any additional risks to liquidity posed by
the polarised political climate in Peru resulting in a heightened level of
risk of social conflict with some local communities seeking to take advantage
of the situation and increasing their economic demands. As a result, social
conflicts have increased with numerous mining companies facing invasions at
their mine sites and road blockades which have disrupted operations. The
impeachment of President Castillo in December 2022 exacerbated these fragile
social conditions with widespread protests challenging the legitimacy of Dina
Boluarte's appointment.
A key element of the Group's sustainability strategy is active engagement with
local communities to build sustainable relations such that the risk of
disruption to operating activities is mitigated and there is continuous
production from the Inmaculada and Pallancata mines based in Peru. Details of
specific initiatives pursued during the year can be found in the 2022 Annual
Report's Sustainability Report. In the year-to date, there has been no loss of
production as a result of community-led action.
The Directors' going concern assessment is supported by future cash flow
forecasts. As stated earlier, the Company awaits the decision from the
Peruvian authorities with regards to the modified Environmental Impact
Assessment ("MEIA") for Inmaculada for which a decision is expected in H1
2023. The Company is optimistic that such approval will be forthcoming. On
the assumption of the MEIA being approved, the Directors have reviewed Group
liquidity, including cash resources and borrowings (refer to note 27 on
details of the US$300 million medium-term loan) and related covenant forecasts
to assess whether the Group is able to continue in operation for the period to
31 May 2024 (the 'Going Concern Period') which is a period of at least 12
months from the date of these financial statements.
In line with their usual practice, the Directors considered the impact of a
number of potential downside scenarios on the Group's future cash flows and
liquidity position and debt covenant compliance. The scenarios were further
reviewed under varying precious metal price assumptions. Within these
scenarios, given the current social climate in Peru, consideration was also
given to the potential impact of operational disruption and cost increases.
More specifically, the scenarios reviewed by the Directors included a base
case (the 'Base Scenario'), reflecting (among other things), approval of the
MEIA, budgeted production for 2023, life-of-mine plans for Inmaculada,
Pallancata and San Jose, and precious metal prices of $1,714/oz for gold and
$20.4/oz for silver, being the average analysts' consensus in December 2022
(the 'Assumed Prices') for the next 13 months. The forecast financing
cashflows assumed that the newly negotiated US$200 million medium-term
committed loan will be available for use, following approval of the MEIA.
The Directors also considered 'Downside' and 'Remote' cases which took into
account a combination of circumstances. The former assumes a four-week
suspension of all operations and community relations-related cost increases.
The latter assumes the cumulative impact of the Downside Case and precious
metal prices which are 10% lower than the Assumed Prices and a 5% reduction in
costs to offset a low-price environment. Those prices would be significantly
below current spot prices. After taking the financial benefits of the newly
negotiated $200m committed loan into account, all scenarios indicate that the
Group has sufficient liquidity and is covenant compliant for 13 months from
the date of its report.
Whilst the Group remains optimistic that the MEIA approval will be
forthcoming, the decision of the authorities has not yet been made and so the
outcome is uncertain and outside of the Group's control. The Directors
therefore also considered a MEIA denial case (the 'Denial Scenario'),
reflecting that production from Inmaculada will stop at the end of the year
until a revised MEIA is approved. This is not expected to be for more than 3
years. As the Group's flagship operation, the suspension of Inmaculada would
have a material impact on revenues leading to insufficient liquidity to
support the Group's operation. Therefore, as a contingency measure, the
Company has adopted mitigation plans to preserve cash including reducing
administrative costs including through headcount reductions, hedging a higher
proportion of production from Inmaculada for the remainder of 2023 and from
Mara Rosa in 2024 and deferring capital expenditure.
As part of the Denial Scenario, the Directors have made 2 significant
assumptions to optimise cash and in forming an assessment on the Group's
ability to continue as going concern:
i. A restructuring of the existing $300 million Medium Term Loan deferring
repayments until Inmaculada resumes operations; and
ii. The successful completion of a $50 million equity financing with existing
shareholders
(collectively 'Refinancing Actions').
The principal lenders are informed of these measures and are supportive.
The Directors reviewed the cash flow forecasts and liquidity position as well
as debt covenant compliance after executing the Refinancing Actions within the
Denial Scenario. Consistent with the Base Scenario, the Directors considered
the impact of a number of potential downside scenarios to the Denial Scenario
on the Group's future cash flows and liquidity position as well as debt
covenant compliance. The scenarios were further reviewed under lower precious
metal price assumptions. Within these scenarios, given the current social
climate in Peru, consideration was also given to the potential impact of
operational disruption.
The Denial Scenario was also analysed under different sets of assumptions
which included a base case reflecting (among other things), budgeted
production for 2023 adjusted for the suspension of Inmaculada, life-of-mine
plans for Inmaculada, Pallancata and San Jose, significantly reduced corporate
expenses and precious metal prices at the Assumed Prices for the next 13
months. The forecast financing cashflows assumed that the Refinancing Actions
would be successfully completed such that the Group would continue through the
going concern period to 31 May 2024.
The Directors also considered 'Downside' and 'Remote' versions of the Denial
Scenario which modelled the impact of a combination of circumstances, after
taking into account the financial benefits of the Refinancing Actions. The
former assumes a four-week suspension of all operations and the latter assumes
the cumulative impact of the Downside Case and precious metal prices which are
10% lower than the Assumed Prices and a 5% reduction in costs to offset a
low-price environment. Those prices would be significantly below current spot
prices. All scenarios indicate that the Group is covenant compliant and
remains liquid for 13 months from the date of approval of the annual financial
statements.
Having held discussions with its major shareholder and management having held
discussions with its lenders, the Directors have a reasonable expectation that
the potential Refinancing Actions would proceed successfully, although there
can be no certainty of that outcome.
Accordingly, the securing of the MEIA and the Refinancing Actions under the
Denial Scenario each represent a material uncertainty that may cast
significant doubt on the Group's ability to continue as a going concern to 31
May 2024.
After consideration of these material uncertainties, and on the assumption
that the Group is able to secure approval of the Inmaculada MEIA or, where it
cannot, the Group is able to successfully complete the Refinancing Actions,
the Directors have a reasonable expectation that the Group and the Company
have adequate resources to continue in operational existence during the Going
Concern Period. Accordingly, they continue to adopt the going concern basis of
accounting in preparing the annual financial statements.
(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 prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are remeasured at the exchange rate prevailing 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. On disposal of a
foreign operation, the component of OCI relating to that particular foreign
operation is reclassified to profit or loss.
(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:
Years
Buildings
3 to 33
Plant and equipment 5 to 10
Vehicles
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. Capital advances to suppliers
related to the purchase of property, plant and equipment are disclosed in
construction in progress.
Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and
equipment is capitalised separately with the carrying amount of the component
being written-off. Other subsequent expenditure is capitalised if future
economic benefits will arise from the expenditure. All other expenditure
including repairs and maintenance expenditures are recognised in the income
statement as incurred.
(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.
(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) Investment in associates
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but is not control or joint
control over those policies.
The considerations made in determining significant influence are similar to
those necessary to determine control over subsidiaries. The Group's investment
in its associate are accounted for using the equity method.
Under the equity method, the investment in an associate is initially
recognised at cost. The carrying amount of the investment is adjusted to
recognise changes in the Group's share of net assets of the associate since
the acquisition date. Goodwill relating to the associate is included in the
carrying amount of the investment and is not tested for impairment separately.
The statement of profit or loss reflects the Group's share of the results of
operations of the associate. Any change in OCI of those investees is presented
as part of the Group's OCI. In addition, when there has been a change
recognised directly in the equity of the associate, the Group recognises its
share of any changes, when applicable, in the statement of changes in equity.
Unrealised gains and losses resulting from transactions between the Group and
the associate are eliminated to the extent of the interest in the associate.
The aggregate of the Group's share of profit or loss of an associate is shown
on the face of the statement of profit or loss outside operating profit and
represents profit or loss after tax and non-controlling interests in the
subsidiaries of the associate.
The financial statements of the associate are prepared for the same reporting
period as the Group. When necessary, adjustments are made to bring the
accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is
necessary to recognise an impairment loss on its investment in its associate.
At each reporting date, the Group determines whether there is objective
evidence that the investment in the associate is impaired. If there is such
evidence, the Group calculates the amount of impairment as the difference
between the recoverable amount of the investment and its carrying value, and
then recognises the loss within 'Share of profit of an associate' in the
statement of profit or loss.
Upon loss of significant influence over the associate, the Group measures and
recognises any retained investment at its fair value. Any difference between
the carrying amount of the associate upon loss of significant influence and
the fair value of the retained investment and proceeds from disposal is
recognised in profit or loss.
(j) 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 are 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 (note 18(2)).
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.
(k) 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.
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. The Group uses two
approaches to estimate the fair value less costs of disposal, depending on the
circumstances: (i) the traditional approach, which uses a single cash flow
projection, and (ii) the expected cash flow approach, which uses multiple,
probability-weighted cash flow projections. As at 31 December 2022, the
impairment reviews for the Group´s operating assets were performed using a
traditional approach, with the exception of Inmaculada where the Group used an
expected cash flow approach. 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.
The recoverable values of the CGUs and advanced exploration projects are
determined using a FVLCD methodology. FVLCD for CGUs was determined using a
combination of level 2 and level 3 inputs. The FVLCD of the producing and
developing stage mine assets is determined using a discounted cash flow model
(note 16) and for the advanced exploration projects is determined using a
discounted cash flow model or a comparative valuation analysis methodology
(notes 17 and 18(2)), to estimate the amount that would be paid by a willing
third party in an arm's length transaction.
Reversal of impairment
An impairment loss is reversed if there has been a change in the estimates
used to determine the recoverable amount. An impairment loss is reversed only
to the extent that the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
(l) 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.
(m) 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 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(q) is
recorded as trade receivables.
(n) 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. The
Group had the merger reserve available for distribution within retained
earnings.
(o) 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 (note 28). 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, if reductions
to the estimated costs exceed 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 in each year. This
amount is charged to the income statement within personnel expenses (note 10)
and is considered deductible for income tax purposes. The Group has no pension
or retirement benefit schemes.
Other
Other provisions are accounted for when the Group has a legal or constructive
obligation for which it is probable there will be an outflow of resources for
which the amount can be reliably estimated.
(p) 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 10).
Service and non-market performance conditions are not taken into account when
determining the grant date fair value of awards, but the likelihood of the
conditions being met is assessed as part of the Group's best estimate of the
number of equity instruments that will ultimately vest. Market performance
conditions are reflected within the grant date fair value. Any other
conditions attached to an award, but without an associated service
requirement, are considered to be non-vesting conditions. Non-vesting
conditions are reflected in the fair value of an award and lead to an
immediate expensing of an award unless there are also service and/or
performance conditions. No expense is recognised for awards that do not
ultimately vest because non-market performance and/or service conditions have
not been met. Where awards include a market or non-vesting condition, the
transactions are treated as vested irrespective of whether the market or
non-vesting condition is satisfied, provided that all other performance and/or
service conditions are satisfied. When the terms of an equity-settled award
are modified, the minimum expense recognised is the grant date fair value of
the unmodified award, provided the original vesting terms of the award are
met. An additional expense, measured as at the date of modification, is
recognised for any modification that increases the total fair value of the
share-based payment transaction, or is otherwise beneficial to the employee.
Where an award is cancelled by the entity or by the counterparty, any
remaining element of the fair value of the award is expensed immediately
through profit or loss.
(q) Revenue recognition
The Group is involved in the production and sale of gold and silver from dore
and concentrate containing both gold and silver. Dore bars are either sold
directly to customers or are sent to a third-party for further refining into
gold and silver before they are sold. Concentrate is sold directly to
customers.
Revenue from contracts with costumers is recognised when control of the goods
or services are 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.
Commercial discounts related to the refining, recovery and treatment of
minerals are presented netted from sales.
A proportion of the Group's sales are sold under CIF Incoterms, whereby the
Group is responsible for providing freight/shipping services (as principal)
after the date that the Group transfers control of the metal in concentrate to
its customers. The Group, therefore, has separate performance obligations for
freight/shipping services which are provided solely to facilitate sale of the
commodities it produces.
Other Incoterms commonly used by the Group are FOB, where the Group has no
responsibility for freight or insurance once control of the products has
passed at the loading port, and Delivered at Place (DAP) where control of the
goods passes when the product is delivered to the agreed destination. For
arrangements which have these Incoterms, the only performance obligations are
the provision of the product at the point where control passes.
For CIF arrangements, the transaction price (as determined above) is allocated
to the metal in concentrate and freight/shipping services using the relative
stand-alone selling price method. Under these arrangements, a portion of
consideration may be received from the customer in cash at, or around, the
date of shipment under a provisional invoice. Therefore, some of the upfront
consideration that relates to the freight/shipping services yet to be
provided, is deferred. It is then recognised as revenue over time using an
output method (being days of shipping/transportation elapsed) to measure
progress towards complete satisfaction of the service as this best represents
the Group's performance. This is on the basis that the customer simultaneously
receives and consumes the benefits provided by the Group as the services are
being provided. The costs associated with these freight/shipping services are
also recognised over the same period of time as incurred.
Income from services provided to related parties (note 32) 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.
(r) Contingencies
A contingent liability is a possible obligation depending on whether some
uncertain future event occurs, or a present obligation where 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 (note 36).
A 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 (note 36).
(s) 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.
(t) 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 and associates, 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.
(u) Uncertain tax positions
An estimated tax liability is recognised when the Group has a present
obligation as a result of a past event, it is probable that the Group will be
required to settle that obligation and a reliable estimate can be made of the
amount of the obligation. The liability is the best estimate of the
consideration required to settle the present obligation at the balance sheet
date, taking into account risks and uncertainties surrounding the obligation.
Separate liabilities for interest and penalties are also recorded if
appropriate.
Movements in interest and penalty amounts in respect of tax liability are not
included in the tax charge, but are disclosed in the income statement. Tax
liabilities are based on management's interpretation of country-specific tax
law and the likelihood of settlement. This involves a significant amount of
judgement as tax legislation can be complex and open to different
interpretation. Management uses in-house tax experts, professional firms and
previous experience when assessing tax risks. Where actual tax liabilities
differ from the liabilities, adjustments are made which can have a material
impact on the Group's profits for the year. Refer to note 36(a) for specific
tax contingencies.
(v) Leases
Right-of-use assets (note 26)
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 in 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 twelve 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.
(w) 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, the Group's financial assets are
classified in the following 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 embedded derivatives 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.
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 in 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 2021, the Group signed silver forward agreements.The silver forward is
being used to hedge the exposure to changes in the cashflows of the silver
commodity prices. 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
Changes in the fair value of derivatives designated as cash flow hedges 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 uses cash flow hedges for hedging the exposure to
variability in silver prices.
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.
(x) 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.
(y) 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.
(z) 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.
(aa) 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 best economic 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 note 38(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 categorization (based
on the lowest level input that is significant to the fair value measurement as
a whole) at the end of each reporting period.
The Group determines the policies and procedures for both recurring fair value
measurement and unquoted financial assets, and for non-recurring measurement.
At each reporting date, the Group analyses the movements in the values of
assets and liabilities which are required to be re-measured or re-assessed as
per the Group's accounting policies. For this analysis, the Group verifies the
major inputs applied in the latest valuation by agreeing the information in
the valuation computation to contracts and other relevant documents.
The Group, in conjunction with its external valuers where applicable, also
compares the changes in the fair value of each asset and liability with
relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of
assets and liabilities on the basis of the nature, characteristics and risks
of the asset or liability and the level of the fair value hierarchy as
explained above.
3 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 at 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 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.
(a) Reportable segment information
Inmaculada US$000 San Jose US$000 Pallancata US$000 Exploration Other1 Adjustment Total
US$000
US$000
and
US$000
eliminations
US$000
Year ended 31 December 2022
Revenue from external customers 413,899 243,958 78,429 - 680 736,966
Inter segment revenue - - - - 9,872 (9,872) -
Total revenue from customers 413,899 243,958 78,429 - 10,552 (9,872) 736,966
Provisional pricing adjustment 29 (489) (863) - - - (1,323)
Total revenue 413,928 243,469 77,566 - 10,552 (9,872) 735,643
Segment profit/(loss) 163,509 31,512 (8,789) (57,798) 8,323 385 137,142
Others2 (111,376)
Profit from operations before income tax 25,766
Other segment information
Depreciation3 (78,553) (50,243) (9,046) (380) (4,264) - (142,486)
Amortisation (86) (724) - 39 (199) - (970)
Reversal of impairment/(impairment) and write-off of assets, net (1) - 15,476 (5,346) (598) - 9,531
Assets
Capital expenditure 78,176 50,112 13,518 196,792 1,268 - 339,866
Current assets 19,872 62,796 16,965 - 4,171 - 103,804
Other non-current assets 508,768 159,617 21,345 337,654 42,319 - 1,069,703
Total segment assets 528,640 222,413 38,310 337,654 46,490 - 1,173,507
Not reportable assets4 - - - - 243,777 - 243,777
Total assets 528,640 222,413 38,310 337,654 290,267 - 1,417,284
1 'Other' revenue relates to revenues earned by Empresa de Transmisión
Aymaraes S.A.C.
2 Comprised of administrative expenses of US$54,158,000, other income of
US$3,340,000, other expenses of US$39,302,000, write-off of assets (net) of
US$1,832,000, reversal of impairment of non-current assets net of
US$11,363,000, share of losses of an associate of US$11,600,000, finance
income of US$5,211,000, finance expense of US$21,776,000, and foreign exchange
loss of US$2,622,000.
3 Includes depreciation capitalised in the Crespo project (US$284,000),
San Jose unit (US$2,508,000), Mara Rosa project (US$39,000), products in
process (-US$403,000) and recognised against the mine rehabilitation provision
(US$970,000).
4 Not reportable assets are comprised of financial assets at fair value
through OCI of US$509,000, financial assets at fair value through profit and
loss of US$1,015,000, other receivables of US$49,542,000, income tax
receivable of US$9,226,000, deferred income tax asset of US$4,213,000,
investment in associates US$33,242,000, derivative financial assets of
US$2,186,000 and cash and cash equivalents of US$143,844,000.
Inmaculada US$000 San Jose US$000 Pallancata US$000 Exploration Other1 Adjustment Total
US$000
US$000
and
US$000
eliminations
US$000
Year ended 31 December 2021
Revenue from external customers 452,849 260,879 103,809 - 464 - 818,001
Inter segment revenue - - - - 9,225 (9,225) -
Total revenue from customers 452,849 260,879 103,809 - 9,689 (9,225) 818,001
Provisional pricing adjustment (14) (1,907) (4,693) - - - (6,614)
Total revenue 452,835 258,972 99,116 - 9,689 (9,225) 811,387
Segment profit/(loss) 226,727 52,614 343 (40,520) 7,345 (684) 245,825
Others2 (108,494)
Profit from operations before income tax 137,331
Other segment information
Depreciation3 (75,524) (51,217) (22,618) (396) (5,795) - (155,550)
Amortisation (108) (852) - (107) (51) - (1,118)
Impairment and write-off of assets, net (326) (354) (24,940) - (89) (25,709)
Assets
Capital expenditure 76,512 43,666 14,250 15,896 3,537 - 153,861
Current assets 20,182 43,473 9,072 - 4,230 - 76,957
Other non-current assets 515,943 157,749 3,241 155,702 46,882 - 879,517
Total segment assets 536,125 201,222 12,313 155,702 51,112 - 956,474
Not reportable assets4 - - - - 498,241 - 498,241
Total assets 536,125 201,222 12,313 155,702 549,353 - 1,454,715
1 'Other' revenue relates to revenues earned by Empresa de Transmisión
Aymaraes S.A.C.
2 Comprised of administrative expenses of US$51,905,000, other income of
US$45,896,000, other expenses of US$46,068,000, write-off of assets (net) of
US$863,000, impairment of non-current assets of US$24,846,000, share of losses
of an associate of US$169,000, finance income of US$3,946,000, finance expense
of US$32,061,000, and foreign exchange loss of US$2,424,000.
3 Includes depreciation capitalised in the Crespo project (US$430,000),
San Jose unit (US$2,341,000), products in process (US$509,000) and recognised
against the mine rehabilitation provision (US$1,978,000).
4 Not reportable assets are comprised of financial assets at fair value
through OCI of US$661,000, financial assets at fair value through profit and
loss of US$3,155,000, other receivables of US$44,446,000, income tax
receivable of US$32,000, deferred income tax asset of US$484,000, investment
in associates US$43,559,000, derivative financial assets of US$19,115,000 and
cash and cash equivalents of US$386,789,000.
(b) Geographical information
The revenue for the period based on the country in which the customer is
located is as follows:
Year ended 31 December
2022 2021
US$000
US$000
External customer
Switzerland 350,898 360,838
Canada 143,216 213,350
South Korea 126,321 135,162
Germany 51,033 47,014
Japan 14,490 26,151
Chile (88) 13,184
United Kingdom 20,428 7,982
Bulgaria 4,703
USA 27,481 -
China 1,167 -
Peru 697 3,003
Total 735,643 811,387
Inter-segment
Peru 9,872 9,225
Total 745,515 820,612
In the periods set out below, certain customers accounted for greater than 10%
of the Group's total revenues as detailed in the following table:
Year ended 31 December 2022 Year ended 31 December 2021
US$000 % Revenue Segment US$000 % Revenue Segment
Argor Heraus 195,148 27% Inmaculada and San Jose 208,037 26% Inmaculada and San Jose
LS MnM (formerly LS Nikko) 126,321 17% Pallancata and San Jose 135,162 17% Pallancata and San Jose
Asahi Refining Canada 135,563 18% Inmaculada 198,254 24% Inmaculada
MKS Switzerland S.A. 155,750 21% Inmaculada 152,801 19% 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:
As at 31 December
2022 2021
US$000
US$000
Peru 668,353 665,839
Brazil 184,811 -
Argentina 159,617 157,750
Chile 56,867 55,922
Canada 55 6
Total non-current segment assets 1,069,703 879,517
Financial assets at fair value through OCI 509 661
Financial assets at fair value through profit and loss 1,015 3,155
Investment in associates 33,242 43,559
Trade and other receivables 6,498 2,470
Deferred income tax assets 4,213 484
Derivative financial instruments - 5,042
Total non-current assets 1,115,180 934,888
4 Acquisitions and disposals
(a) Demerger of Aclara Resources Inc. ('Aclara')
Hochschild Mining Holdings Ltd ('HM Holdings'), a wholly owned subsidary of
the Group, had interests over a Chilean company named REE UNO SpA. This entity
holds the project Aclara (formerly named Biolantanidos), which is located in
the south of Chile, and is currently focused on the development of the Penco
module, which will aim to produce a rare earth concentrate through a
processing plant that will be fed by clays from nearby deposits.
The Group separated the Aclara project from itsother businesses dedicated to
the extraction and production of gold and silver. For this purpose, a new
company named Aclara Resources Inc. located in Canada (hereinafter, 'Aclara')
was incorporated by the Group. The investment held in REE UNO SpA was then
transferred to Aclara .
A distribution of 70,606,502 Aclara Shares, representing 80% of the Aclara
Shares, was made to the holders of ordinary shares of the Group by way of a
dividend in specie (the "Demerger Dividend"). The approval of the Group's
shareholders in respect of the Demerger Dividend was granted at the
Extraordinary General Meeting held on 5 November 2021. The Demerger Dividend
was effected on 10 December 2021, shortly before the Aclara Initial Public
Offering ('IPO') was completed later that day.
Once the Aclara IPO was completed, Aclara became an independent company listed
on the Toronto Stock Exchange.
The ratio of Demerged Aclara Shares to the number of ordinary shares in the
Group was 70,606,502 to 513,875,563. Therefore, the shareholders who were
entitled to receive the Demerger Dividend received 0.1374 Aclara Shares for
each ordinary share in the Group. The value of the Demerger Dividend was
C$120,031,053 (equivalent to US$94,945,000) in aggregate based on the offering
price of C$1.70 per Aclara Share (the Offering Price).
HM Holdings retained 20% of the Aclara Shares. The investment was recorded
at initial recognition at fair value, based on the Offering Price.
The fair value of the Demerger Dividend at the date of the demerger and
retained investment is therefore a level 1 fair value measurement.
Immediately following the Demerger Dividend and pursuant to the subscription
agreement with Aclara dated 2 December 2021, HM Holdings purchased 14,870,397
Aclara Shares at the Offering Price for aggregate gross proceeds to Aclara of
C$25,279,675 (equivalent to US$19,996,000).
The consolidated effect in the financial statements of the Group as at 31
December 2021 was an exceptional gain of US$37,461,000 presented within other
income .
Details of the net gain on demerger of Aclara as at 31 December 2021 are shown
below:
US$000
Property, plant and equipment 507
Evaluation and exploration assets 70,311
Other non-current assets 2,668
Current assets 1,210
Current liabilities (3,465)
Aclara net assets and liabilities demerged1 71,231
Net cash and cash equivalents demerged (553)
Net cash outflow from demerger of Aclara (553)
In specie dividends relating to Aclara demerger 94,945
Retained financial investments in associate 23,742
Net assets demerged (71,231)
Reclassification of foreign currency translation reserve (9,995)
Gain on demerger of Aclara 37,461
1 Considered in the exploration segment of the Group.
On completion of the demerger, the Group retained an 20% interest in Aclara
through the Aclara Resources Inc. investment Company. An investment in
associates of US$23,742,000 was recognised on the Group's consolidated balance
sheet as at 31 December 2021 in respect of this interest.
(b) Acquisition of Amarillo Gold Group ("Amarillo")
On 1 April 2022, the Group acquired a 100% interest in Amarillo Gold
Corporation (Amarillo) flagship Mara Rosa ("Mara Rosa") project located in
Goiás State, Brazil, which includes the construction stage Posse gold project
as well as certain early-stage and pre resource stage exploration targets.
Posse has a positive definitive feasibility study that shows it can be built
into a profitable operation with low costs and a strong financial return. Mara
Rosa also shows the potential for discovering additional near-surface deposits
that will extend Posse's mine life beyond its initial ten years. Considering
the significant experience in developing precious metal deposits in the
Americas, the Group is ideally placed to take Posse to its next stage and
generate strong sustainable value for the company and the project's
stakeholders.
The Group has applied its judgement to weigh the characteristics of
Amarillo´s acquisition and conclude whether it constitutes the acquisition of
a business or a set of assets and activities. Since there are no outputs
acquired, the Group based its conclusion on the fact that the processes
acquired are not critical to the ability to develop or convert the actual
inputs into outputs. In this context, and in application of IFRS 3, the
Group concluded that the acquisition of Amarillo does not constitute the
acquisition of a business but the acquisition of a set of assets.
The consideration paid for the transaction amounted to C$154,429,478
(US$123,420,039), and transaction costs amounted to US$4,830,000. In
addition, a 2 per cent net smelter revenue royalty on certain exploration
properties owned by Amarillo that are separate from Posse was granted.
Amarillo consolidates its financial information with the Group from 1 April
2022, being the date on which the Group obtained control.
The fair value of assets acquired and liabilities assumed as at 1 April 2022
comprise the following:
US$000
Cash and cash equivalents 4,246
Other receivables 968
Intangibles (note 18) 21
Evaluation and exploration assets (note 17) 107,362
Property, plant and equipment (note 16) 15,078
Deferred income tax asset 3,775
Income tax receivable 36
Total assets 131,486
Accounts payable and other liabilities (3,236)
Total liabilities (3,236)
Net assets acquired 128,250
Consideration for the acquisition of Amarillo Gold Canada shares 123,420
Transaction costs 4,830
Total consideration 128,250
Cash paid 128,250
Less cash acquired with the subsidiary (4,246)
Net cash flow on acquisition 124,004
The Group recognises individual identifiable assets (and liabilities) by
allocating the cost of acquisition on the basis of the relative fair values at
the date of purchase:
Step 1: Identify assets and liabilities acquired, adjusting them to the
Group´s accounting policies and presentation;
Step 2: Determine the purchase consideration; and
Step 3: Purchase Price Allocation: The consideration paid is allocated to the
fair value of the identifiable assets and liabilities assumed with the
remainder allocated to the mineral property acquired.
The fair value at the time of acquisition is the amount for which an asset
could be exchanged, or a liability settled, between knowledgeable, will- ing
parties in an arm's-length transaction.
5 Revenue
Year ended 31 December 2022 Year ended 31 December 2021
Revenue from customers Revenue from customers
Goods sold US$000 Shipping services Total US$000 Provisional pricing Total US$000 Goods sold US$000 Shipping services Total US$000 Provisional pricing Total US$000
US$000
US$000
US$000 US$000
Gold (from dore bars) 337,847 915 338,762 (11) 338,751 353,258 914 354,172 40 354,212
Silver (from dore bars) 183,381 696 184,077 57 184,134 207,022 804 207,826 (52) 207,774
Gold (from concentrates) 89,991 2,687 92,678 (1,628) 91,050 100,233 2,462 102,695 912 103,607
Silver (from concentrates) 117,534 3,235 120,769 259 121,028 150,140 2,704 152,844 (7,514) 145,330
Services 680 - 680 - 680 464 - 464 - 464
Total 729,433 7,533 736,966 (1,323) 735,643 811,117 6,884 818,001 (6,614) 811,387
6 Cost of sales before exceptional items
Included in cost of sales are:
Year ended 31 December
2022 2021
US$000
US$000
Depreciation and amortisation in cost of sales1 136,427 145,482
Personnel expenses (note 10)2 121,203 101,682
Mining royalty (note 37) 6,307 7,171
Change in products in process and finished goods (5,631) 320
Fixed costs at the operations during stoppages, reduced capacity and excess 8,023 8,680
absenteeism3
1 The depreciation and amortisation in production cost is US$137,747,000
(2021: US$148,842,000).
2 Includes workers profit sharing of US$3,321,000 (2021: US$6,512,000) and
excludes personnel expenses of US$4,498,000 (2021: US$7,607,000) included
within unallocated fixed cost at the operations (see below).
3 Corresponds to the unallocated fixed cost accumulated as a result of
excess absenteeism and idle capacity. These costs mainly include personnel
expenses of US$4,498,000 (2021: US$7,607,000), third party services of
US$3,090,000 (2021: US$995,000), supplies of US$146,000 (2021: US$nil),
depreciation and amortisation of US$2,000 (2021: US$nil) and other costs of
US$287,000 (2021: US$78,000).
7 Administrative expenses
Year ended 31 December
2022 2021
US$000
US$000
Personnel expenses (note 10) 30,478 29,832
Professional fees1 9,206 8,710
Donations 445 587
Lease rentals 1,218 1,301
Third party services 630 302
Communications 479 473
Indirect taxes 2,077 2,057
Depreciation and amortisation 1,844 1,823
Depreciation of rights of use 184 226
Technology and systems 1,391 1,207
Security 821 956
Other2 5,385 4,431
Total 54,158 51,905
1 Corresponds to audit fees of US$1,813,000 (2021. US$1,373,000), legal
fees of US$1,733,000 (2021: US$2,019,000), tax and advisory fees of
US$3,954,000 (2021: US$3,373,000), and other professional fees of US$1,706,000
(2021: US$1,945,000).
2 Predominantly relates to advertising costs of US$376,000 (2021:
US$372,000), insurance fees of US$888,000 (2021: US$837,000), repair and
maintenance of US$489,000 (2021: US$326,000), supplies costs of US$237,000
(2021: US$102,000), tax penalties of -US$660,000 (2021: US$1,476,000), travel
expenses of US$822,000 (2021: US$105,000) and personnel transportation of
US$165,000 (2021: US$108,000).
8 Exploration expenses
Year ended 31 December
2022 2021
US$000
US$000
Mine site exploration1
Arcata 877 2,189
Ares 366 628
Inmaculada 2,946 3,276
Pallancata 6,000 5,993
San Jose 7,700 9,653
17,889 21,739
Prospects2
Peru 772 2,677
USA 4,337 3,731
Chile (77) (53)
Canada4 19,632 51
Brazil 1 -
24,665 6,406
Generative3
Peru 783 3,263
USA 97 11
Mexico 313 861
Brazil 2,301 -
Chile - 177
3,494 4,312
Personnel (note 10) 7,535 6,368
Others 3,067 731
Depreciation right-of-use assets 176 292
Total 56,826 39,848
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.
4 Corresponds to the SNIP project managed by Hochschild Mining Canada
Corp.
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$26,318,000 in 2022 (2021: US$12,163,000).
9 Selling expenses
Year ended 31 December
2022 2021
US$000
US$000
Personnel expenses (note 10) 482 304
Warehouse services 1,328 1,392
Taxes1 10,344 11,765
Other2 1,878 1,970
Total 14,032 15,431
1 Corresponds to the export duties in Argentina.
2 Mainly corresponds to insurance expenses of US$337,000 (2021:
US$309,000), other professional fees of US$460,000 (2021: US$561,000),
analysis services of US$516,000 (2021: US$564,000), and consumption of
supplies of US$221,000 (US$212,000).
10 Personnel expenses
Year ended 31 December
2022 2021
US$000
US$000
Salaries and wages 121,999 109,769
Workers' profit sharing (note 28) 4,733 11,018
Other legal contributions 27,866 23,792
Statutory holiday payments 7,413 7,237
Long Term Incentive Plan 3,002 1,783
Termination benefits 5,468 6,470
Other1 1,568 1,101
Total1 172,049 161,170
1 Mainly includes training expenses of US$1,219,000 (2021:
US$1,061,000).
2 Includes exceptional personnel expenses amounting to US$nil (2021:
US$2,745,000) (refer to note 11(1)).
Personnel expenses are distributed as follows:
Year ended 31 December
2022 2021
US$000
US$000
Cost of sales1 125,701 111,613
Administrative expenses 30,478 29,832
Exploration expenses 7,535 6,368
Selling expenses 482 304
Other expenses2 5,802 11,579
Capitalised as property, plant and equipment 2,051 1,474
Total 172,049 161,170
1 Personnel expenses related to unallocated fixed cost accumulated as a result
of excess absenteeism and idle capacity included in cost of sales amount to
US$4,498,000. Exceptional personnel expenses included in cost of sales amount
to US$nil (2021: US$2,324,000).
2 Exceptional personnel expenses included in other expenses amount to US$nil
(2021: US$421,000).
The average number of employees for 2022 and 2021 were as follows:
Year ended 31 December
2022 2021
Peru 2,177 2,057
Argentina 1,407 1,478
Chile 4 42
Brazil 88 -
Canada 13 -
United Kingdom 11 10
Total 3,700 3,587
11 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.
Year ended Year ended
31 December
31 December
2022
2021
US$000
US$000
Cost of sales
Incremental costs due to Covid-19 pandemic1 - (22,511)
Total - (22,511)
Other income
Demerger of Aclara (note 4 (a)) - 37,461
Total - 37,461
Other expenses
Incremental costs due to Covid-19 pandemic1 - (1,503)
Total - (1,503)
Share of loss on an associate
Impairment of Aclara Resources Inc. (2) (9,923) -
Total (9,923) -
(Impairment)/impairment reversal of non-financial assets, net
Impairment of non-financial assets3 (4,199) (24,846)
Reversal of impairment of non-financial assets4 15,562 -
Total 11,363 (24,846)
Income tax (charge)/benefit5 (3,353) 15,055
Total (3,353) 15,055
The exceptional items for the year ended 31 December 2022 and 2021 correspond
to:
1 Incremental production costs incurred in the operating mine units to
manage the Covid-19 pandemic have been presented within costs of sales and
costs incurred by mine units in care and maintenance and those related to
corporate activities have been presented within other expenses:
Year ended 31 December
2022 2021
Cost of sales US$000 Other expenses US$000 Cost of sales US$000 Other expenses US$000
Third party services - - 16,032 873
Personnel expenses (note 10) - - 2,324 421
Consumption of medical supplies - - 1,327 120
Cleaning and food services - - 2,728 24
Depreciation and amortisation - - 37 29
Others - - 63 36
Total - - 22,511 1,503
These costs were 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.
2 Corresponds to the impairment charge of US$9,923,000 based on the
updated valuation of the investment in Aclara Resources Inc. as at 31 December
2022 (refer to note 19).
3 Corresponds to the impairment related to the Azuca project of
US$4,199,000 (2021: corresponds to the impairment related to the Pallancata
mine Unit of US$24,846,000) (refer to notes 16 and 17).
4 Reversals of impairment related to the Pallancata mine unit (refer to
notes 16 and 17).
5 The current tax credit generated by the incremental costs arising from
the Covid-19 pandemic of US$nil (2021: US$7,725,000) and the deferred tax
credit generated by the impairment of the Azuca project of US$1,238,000 (2021:
US$nil), net of the deferred tax charge generated by the reversal of the
impairment of the Pallancata mine unit of US$4,591,000 (2021: deferred tax
credit of US$7,330,000).
12 Other income and other expenses before exceptional items
Year ended Year ended
31 December 2022
31 December 2021
Before Before
exceptional
exceptional
items
items
US$000
US$000
Other income
Gain on sale of property, plant and equipment 294 3,342
Logistic services 218 7
Income on recovery of expenses 337 418
Recovery of provision of obsolescence of supplies (note 23) - 2,338
Recovery of previously written off account receivable 546 -
Other1 1,945 2,330
Total 3,340 8,435
Other expenses
Increase in provision for mine closure (note 28(1)) (17,797) (22,095)
Provision of obsolescence of supplies (note 23) (422) (559)
Care and maintenance expenses of Ares mine unit (3,291) (2,903)
Write off of value added tax (159) (188)
Corporate social responsibility contribution in Argentina2 (3,360) (3,911)
Care and maintenance expenses of Arcata mine unit (4,207) (2,772)
Voluntary retirement plan in Argentina3 (1,329) (8,263)
Damage Inmaculada machine belt (1,321) -
Depreciation right-of-use assets (105) (135)
Contingency4 (3,098) (794)
Other5 (4,213) (2,945)
Total (39,302) (44,565)
1 Mainly corresponds to the gain on sale of supplies of US$480,000 (2021:
gain recognised for the Mosquito project of US$400,000).
2 Relates to a contribution in Argentina to the Santa Cruz province
calculated as a proportion of sales.
3 Related to payments made and the provision recognised under voluntary
retirement plan in Minera Santa Cruz.
4 Mainly related to contingencies in Minera Santa Cruz related to new labor
lawsuits.
5 Mainly corresponds to the expenses due to concessions of US$nil (2021:
US$179,000), loss on sale of supplies of US$nil (2021: US$2,027,000),
insurance of Minera Santa Cruz of US$941,000 (2021: US$nil), termination
benefits in Pallancata mine unit of US$987,000 (2021: US$nil).
13 Finance income and finance costs
Year ended Year ended
31 December 2022
31 December 2021
US$000 US$000
Finance income
Interest on deposits and liquidity funds1 2,553 1,815
Interest on loans to related parties - 11
Interest income 2,553 1,826
Unwind of discount on mine rehabilitation (note 28) 1,931 2,038
Other 727 82
Total 5,211 3,946
Finance costs
Interest on secured bank loans (note 27) (10,360) (5,951)
Other interest (1,551) (1,332)
Interest expense (11,911) (7,283)
Fair value loss on interest rate swap reclassified from equity (note 38 (e)) - (5,521)
Loss on discount of other receivables2 (779) (632)
Loss from changes in the fair value of financial instruments3 (7,096) (16,170)
Other (1,990) (2,455)
Total (21,776) (32,061)
1 Interest on deposits and liquidity funds of US$1,838,000 that is directly
attributable to the construction of Mara Rosa has been recognised in property,
plant and equipment as a reduction to construction in progress and capital
advances and mining properties and development costs, and evaluation and
exploration assets.
2 Mainly related to the effect of the discount of tax credits in Argentina and
Peru.
3 Represents the fair value change of US$2,140,000 on the C3 Metals Inc shares
(note 21) (2021: fair value change of US$834,000 on the AGSC and C3 Metals Inc
shares) and the foreign exchange transaction costs of US$4,956,000 (2021:
US$15,336,000) to acquire US$5,248,000 dollars through the sale of bonds in
Argentina (2021: US$18,133,000).
14 Income tax expense
Year ended 31 December 2022 Year ended 31 December 2021
Before Exceptional items Total Before Exceptional items Total
exceptional
US$000
US$000
exceptional
US$000
US$000
items
items
US$000
US$000
Current corporate income tax
Corporate income tax charge 18,253 - 18,253 53,965 (7,725) 46,240
Prior year adjustment in Minera Santa Cruz (2,353) (2,353)
Withholding tax 276 - 276 689 - 689
16,176 - 16,176 54,654 (7,725) 46,929
Deferred taxation
Origination and reversal of temporary differences (note 30) (5,376) 3,353 (2,023) 26,885 (7,330) 19,555
Prior year adjustment in Amarillo (664) - (664)
Effect of change in income tax rates1 - - - (12,501) - (12,501)
(6,040) 3,353 (2,687) 14,384 (7,330) 7,054
Corporate income tax 10,136 3,353 13,489 69,038 (15,055) 53,983
Current mining royalties
Mining royalty charge (note 37) 4,787 - 4,787 6,326 - 6,326
Special mining tax charge (note 37) 2,658 - 2,658 5,916 - 5,916
Total current mining royalties 7,445 - 7,445 12,242 - 12,242
Total taxation charge/(credit) in the income statement 17,581 3,353 20,934 81,280 (15,055) 66,225
1 On 16 June 2021, the Argentinian government published the Law 27630 that
establishes taxable net income brackets: up to 5Mm pesos is 0%, more than 5Mm
up to 50Mm pesos is 30%, and more than 50Mm pesos is 35%. with effect from 1
January 2021. The UK Government increased the rate of Corporation Tax to 25%
on profits over £250,000 from April 2023. There is no impact on the deferred
tax calculation of the Group arising from the change in the Corporation Tax in
the UK.
The weighted average statutory income tax rate was 39.2% for 2022 and 27.7%
for 2021. 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 were tax charges in relation to the cash flow hedge losses (2021: gains)
recognised in equity during the year ended 31 December 2022 of US$4,994,000
(2021: US$7,383,000).
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:
As at 31 December
2022 2021
US$000
US$000
Profit from operations before income tax 25,766 137,331
At average statutory income tax rate of 39.2% (2021: 27.7%) 10,088 37,996
Expenses not deductible for tax purposes 2,239 5,482
Change in statutory income tax rate - 12,501
Non-taxable income resulted from Aclara demerger - (7,118)
Deferred tax recognised on special investment regime1 (2,412) (3,561)
Movement in unrecognised deferred tax2 14,047 2,922
Special mining tax and mining royalty deductible for corporate income tax (2,196) (3,611)
Current income tax adjustment in Minera Santa Cruz (2,353) -
Tax credit adjustment from Amarillo (664) -
Other 446 2,176
Corporate income tax at average effective income tax rate of 74.5% (2021: 19,195 46,787
34.1%) before foreign exchange effect and withholding tax
Special mining tax and mining royalty3 7,445 12,242
Corporate income tax and mining royalties at average effective income tax rate 26,640 59,029
of 103.4% (2021: 43.0%)
Foreign exchange rate effect4 (5,982) 6,507
Corporate income tax and mining royalties at average effective income tax rate 20,658 65,536
of 80.2% (2021: 47.7%) before withholding tax
Withholding tax 276 689
Total taxation charge in the income statement at average effective tax rate 20,934 66,225
81.2% (2021: 48.2%) from operations
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$282,000
(2021: -US$1,325,000), the tax charge related to the Inmaculada mine unit
depreciation of US$787,000 (2021: US$1,090,000), and the effect of not
recognised tax losses of US$10,811,000 (2021: US$3,157,000).
3 Corresponds to the impact of a mining royalty and special mining tax in
Peru (note 37).
4 The foreign exchange effect is composed of US$2,847,000 profit (2021:
US$934,000 profit) from Argentina and a profit of US$1,816,000 (2021:
US$7,441,000 loss) from Peru and a profit of US$1,315,000 from Brazil. 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 2022
is the devaluation of the Argentinian pesos (2021: Peruvian soles).
The amounts after offset, as presented on the face of the statement of
financial position, are as follows:
As at 31 December
2022 2021
US$000
US$000
Current corporate income tax assets1 9,226 32
Current corporate income tax liabilities and mining royalties2 (2,126) (22,354)
Total 7,100 (22,322)
1 Mainly corresponds to the tax credit of Compañia Minera Ares of
US$5,643,000, Minera Santa Cruz of US$3,124,000 and Empresa de Transmisión
Aymaraes S.A.C. of US$422,000 (2021: Mainly corresponds to the tax credit of
Minera Hochschild Mexico of US$24,000)
2 Mainly corresponds to the mining royalties payables of Compañia Minera Ares
of US$2,079,000 (2021: Mainly corresponds to the mining royalties payables of
Compañia Minera Ares of US$2,223,000 and the current corporate income tax
liability of Compañia Minera Ares of US$15,634,000, Minera Santa Cruz of
US$3,556,000 and Empresa de Transmisión Aymaraes S.A.C. of US$872,000).
15 Basic and diluted earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year
attributable to equity shareholders of the Parent by the weighted average
number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2022 and 2021, EPS has been calculated as follows:
As at 31 December
2022 2021
Basic earnings per share
Before exceptional items (US$) 0.01 0.14
Exceptional items (US$) - 0.01
Total for the year (US$) 0.01 0.15
Diluted earnings per share
Before exceptional items (US$) 0.01 0.13
Exceptional items (US$) - 0.01
Total for the year (US$) 0.01 0.14
Profit before exceptional items and attributable to equity holders of the
Parent is derived as follows:
As at 31 December
2022 2021
Profit attributable to equity holders of the Parent (US$000) 2,961 76,934
Exceptional items after tax - attributable to equity holders of the Parent 1,913 (7,367)
(US$000)
Profit before exceptional items attributable to equity holders of the Parent 4,874 69,567
(US$000)
Profit before exceptional items attributable to equity holders of the Parent 4,874 69,567
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
2022 2021
Basic weighted average number of ordinary shares in issue (thousands) 513,876 513,876
Effect of dilutive potential ordinary shares related to contingently issuable 8,387 5,689
shares (thousands)
Weighted average number of ordinary shares in issue for the purpose of diluted 522,263 519,565
earnings per share (thousands)
16 Property, plant and equipment
Mining properties and development Land and buildings US$000 Plant and equipment1 and 2 Vehicles5 US$000 Mine Construction in progress and capital advances4 and 7 US$000 Total
costs1 and 4
US$000
closure
US$000
US$000
asset
US$000
Year ended 31 December 2022
Cost
At 1 January 2022 1,605,319 555,532 635,076 11,997 106,382 11,841 2,926,147
Additions 113,127 1,211 19,815 - - 67,294 201,447
Change in discount rate (note 28(1)) - - - - (13,490) - (13,490)
Change in mine closure estimate (note 28(1)) - - - - 7,554 - 7,554
Disposals - - (1,143) (198) - (1) (1,342)
Write-offs8 (1,524) (10) (9,805) - - (122) (11,461)
Acquisition of assets (note 4 (b)) - 2,849 108 37 - 12,084 15,078
Foreign exchange effect 3,670 (293) (13) (4) - (1,725) 1,635
Transfers and other movements3 102,615 4,493 7,060 470 - (12,517) 102,121
Initial recognition6 - - - - 4,414 - 4,414
At 31 December 2022 1,823,207 563,782 651,098 12,302 104,860 76,854 3,232,103
Accumulated depreciation
and impairment
At 1 January 2022 1,300,392 377,712 421,067 6,713 80,901 1,243 2,188,028
Depreciation for the year 93,518 20,005 26,053 1,760 1,150 - 142,486
Disposals - - (350) (197) - - (547)
Write-offs8 (376) (10) (9,243) - - - (9,629)
Impairment/(reversal of impairment) net (9,942) (262) (3,774) (838) (329) - (15,145)
Foreign exchange effect - - (10) - - - (10)
Transfers and other movements3 8 86 (23) 22 - (86) 7
At 31 December 2022 1,383,600 397,531 433,720 7,460 81,722 1,157 2,305,190
Net book amount at 31 December 2022 439,607 166,251 217,378 4,842 23,138 75,697 926,913
1 Within mining properties and development costs and plant and equipment
there are US$29,259,000 and US$6,741,000 related to the Crespo CGU that is not
currently being depreciated as the unit is not operating pending the
feasibility of the project and considering that the depreciation method is
units of production.
2 Within plant and equipment, costs of US$394,746,000 are subject to
depreciation on a unit of production basis in line with accounting policy on
note 2(f) for which the accumulated depreciation is US$255,508,000 and
depreciation charge for the year is US$11,622,000.
3 Transfers and other movements include US$102,119,000 that was
transferred from evaluation and exploration assets (Mara Rosa of
US$101,897,000 and San José of US$222,000) (note 17) as they are related to
convert resources in to reserves.
4 There were borrowing costs capitalised in property, plant and equipment
amounting to US$1,974,000
5 Vehicles include US$2,900,000 of right of use assets (note 26).
6 Recognition of the mine closure provision of the Mara Rosa project located
in Brazil.
7 Within construction in progress and capital advances there are capital
advances amounting to US$33,466,000, mainly related to Mara Rosa project of
US$31,889,000.
8 Corresponds to the write-off of property, plant and equipment as long as
they will no longer be used in the Group due to obsolescence.
Mining properties and development Land and buildings US$000 Plant and equipment1 and 2 Vehicles5 US$000 Mine Construction in progress and capital advances4 and 6 US$000 Total
costs1
US$000
closure
US$000
US$000
asset
US$000
Year ended 31 December 2021
Cost
At 1 January 2021 1,514,704 530,784 612,620 10,654 107,740 33,320 2,809,822
Additions 89,551 735 16,373 6,095 - 19,709 132,463
Change in discount rate (note 28(1)) - - - - (2,344) - (2,344)
Change in mine closure estimate (note 28(1)) - - - - 986 - 986
Disposals - - (1,430) (5,654) - - (7,084)
Write-offs - - (7,529) (419) - - (7,948)
Demerger Aclara (note 4) - (201) (432) - - - (633)
Foreign exchange effect - (21) (158) - - - (179)
Transfers and other movements3 1,064 24,235 15,632 1,321 - (41,188) 1,064
At 31 December 2021 1,605,319 555,532 635,076 11,997 106,382 11,841 2,926,147
Accumulated depreciation
and impairment
At 1 January 2021 1,188,404 352,088 396,155 8,754 75,919 839 2,022,159
Depreciation for the year 95,308 24,188 29,080 2,593 4,381 - 155,550
Disposals - - (1,392) (5,515) - - (6,907)
Write-offs - - (6,676) (409) - - (7,085)
Demerger Aclara (note 4) - - (126) - - - (126)
Foreign exchange effect - - (126) - - - (126)
Impairment 16,643 1,506 4,575 1,201 601 - 24,526
Transfers and other movements3 37 (70) (423) 89 - 404 37
At 31 December 2021 1,300,392 377,712 421,067 6,713 80,901 1,243 2,188,028
Net book amount at 31 December 2021 304,927 177,820 214,009 5,284 25,481 10,598 738,119
1 Within mining properties and development costs and plant and equipment
there are US$28,947,000 and US$6,742,000 related to the Crespo CGU that is not
currently being depreciated as the unit is not operating pending the
feasibility of the project and considering that the depreciation method is
units of production.
2 Within plant and equipment, costs of US$391,152,000 are subject to
depreciation on a unit of production basis in line with accounting policy on
note 2(f) for which the accumulated depreciation is US$248,187,000 and
depreciation charge for the year is US$15,377,000.
3 Transfers and other movements include US$1,027,000 that was transferred
from evaluation and exploration assets (note 17), as they are related to
convert resources in to reserves.
4 There were borrowing costs capitalised in property, plant and equipment
amounting to US$37,000.
5 Vehicles include US$3,258,000 of right of use assets (note 26).
6 Within construction in progress and capital advances there are capital
advances amounting to US$1,064,000.
The delay on the government decision on Inmaculada MEIA constitutes a trigger
for impairment as at 31 December 2022.
The company used an expected cash flow approach, assigning probabilities to
the following possible scenarios regarding the government decision on
Inmaculada´s MEIA: (i) MEIA is approved, (ii) MEIA is denied, reapplication
is needed and consequently Inmaculada is placed in care and maintenance by end
of 2023, resuming operations in H2 2026. Management considers scenario (i) as
the most likely one, and scenario (ii) to have a probability of less than 25%
of occurrence. The valuation test performed over Inmaculada CGU, using a
probability weighted approach, resulted in no impairment. If the probability
of occurrence of scenario (ii) was higher than 25%, an impairment charge would
be required for Inmaculada.
The recoverable value of the Inmaculada CGU was determined using a fair value
less costs of disposal (FVLCD) methodology. FVLCD was determined using a
combination of level 2 and level 3 inputs, which result in fair value
measurements categorised in its entirety as level 3 in the fair value
hierarchy, to construct a discounted cash flow model to estimate the amount
that would be paid by a willing third party in an arm's length transaction.
Real prices US$ per oz. 2023 2024 2025 2026 2027 2028-2038
Gold 1,716 1,711 1,603 1,545 1,466 1,561
Silver 20.3 20.7 19.6 20.6 23.3 20.8
Inmaculada
Discount rate (post-tax) 5.2%
31 December 2022 (US$000) Inmaculada
Current carrying value of CGU, net of deferred tax 443,447
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:
Inmaculada San Jose
Gold and silver prices (decrease by 10%) (175,112) (53,746)
Gold and silver prices (increase by 10%) 171,794 54,557
Production costs (increase by 10%) (96,669) (49,831)
Production costs (decrease by 10%) 94,693 49,831
Production volume (decrease by 10%) (73,298) (78,936)
Production volume (increase by 10%) 73,099 78,941
Post tax discount rate (increase by 3%) (69,003) (7,749)
Post tax discount rate (decrease by 3%) 91,717 8,793
Capital expenditure (increase by 10%) (35,584) (11,608)
Capital expenditure (decrease by 10%) 35,582 11,608
As at 31 December 2022, management determined that the newly discovered area
Royropata, west of current operations at Pallancata, was a trigger for
reversal of impairment. The new area is estimated to contain 51.2 million
silver equivalent ("Ag Eq") ounces. These new resources, constitute a
significant change in the estimates used to determine the asset's recoverable
amount since the last impairment loss was recognised as at 31 December 2021.
The valuation test performed over the Pallancata GCU resulted in a reversal of
impairment recognised as at December 31, 2022 of US$15,145,000 in property,
plant and equipment, and US$417,000 in evaluation and exploration assets).
The recoverable value of the Pallancata CGU was determined using a fair value
less costs of disposal (FVLCD) methodology. FVLCD was determined using a
combination of level 2 and level 3 inputs, which result in fair value
measurements categorised in its entirety as level 3 in the fair value
hierarchy, to construct a discounted cash flow model to estimate the amount
that would be paid by a willing third party in an arm's length transaction.
Real prices US$ per oz. 2026 2027 2028
Gold 1,545 1,466 1,561
Silver 20.6 23.3 20.8
Pallancata
Discount rate (post-tax) 5.1%
31 December 2022 (US$000) Pallancata
Current carrying value of CGU, net of deferred tax 21,345
Sensitivity analysis
Given that Pallancata´s recoverable value is significantly higher than the
reversal of impairment amount recognised, there is no reasonably possible
change in any of the key assumptions that would decrease the reversal of
impairment amount recognised.
2021
As at 31 December 2021, management determined that there was a trigger of
impairment in the Pallancata mine unit due to lower grades production and the
need of an increase of capital expenditure to access new low grade areas and
extend the life of mine by one year to 2023.
The impairment test performed over the Pallancata CGU resulted in an
impairment charge recognised as at 31 December 2021 amounting to US$24,846,000
(US$24,526,000 in property, plant and equipment, and US$320,000 in evaluation
and exploration assets).
No indicators of impairment or reversal of impairment were identified in the
other CGUs, which includes other exploration projects.
The recoverable value of the Pallancata CGU was determined using a fair value
less costs of disposal (FVLCD) methodology. FVLCD was determined using a
combination of level 2 and level 3 inputs, which result in fair value
measurements categorised in its entirety as level 3 in the fair value
hierarchy, to construct a discounted cash flow model to estimate the amount
that would be paid by a willing third party in an arm's length transaction.
The key assumptions on which management has based its determination of FVLCD
and the associated recoverable values calculated are gold and silver prices,
future capital requirements, production costs, reserves and resources volumes
(reflected in the production volume), and the discount rate.
Real prices US$ per oz. 2022 2023
Gold 1,764 1,669
Silver 23.5 22.3
Pallancata
Discount rate (post-tax) 3.3%
The period of 2 years were used to prepare the cash flow projections of the
Pallancata mine unit which is in line with their life of mine.
31 December 2021 (US$000) Pallancata
Current carrying value of CGU, net of deferred tax 3,241
17 Evaluation and exploration assets
Azuca Crespo Mara Rosa US$000 Aclara (formerly Biolantanidos) US$000 Volcan Others Total
US$000
US$000
US$000
US$000
US$000
Cost
Balance at 1 January 2021 83,264 28,926 - 68,804 96,520 19,983 297,497
Additions 580 2,421 - 11,349 953 6,095 21,398
Demerger (note 4 (a)) - - - (70,311) - - (70,311)
Disposals - - - (122) - - (122)
Foreign exchange effect - - - (9,720) (16,222) - (25,942)
Transfers to property plant and equipment (note 16) - - - - (1,064) (1,064)
-
Balance at 31 December 2021 83,844 31,347 - - 81,251 25,014 221,456
Additions 506 1,086 11,733 - 1,607 694 15,626
Acquisition (note 4 b) - - 107,362 - - - 107,362
Foreign exchange effect - - (14,492) - (992) - (15,484)
Transfers to property plant and equipment (note 16) - - - - (230) (102,127)
(101,897)
Transfer to intangibles - - (1,927) - - - (1,927)
Balance at 31 December 2022 84,350 32,433 779 - 81,866 25,478 224,906
Accumulated impairment
Balance at 1 January 2021 45,876 9,878 - - 44,381 5,241 105,376
Impairment - - - - - 320 320
Foreign exchange effect - - - - (7,507) - (7,507)
Transfers to property, plant and equipment (note 16) - - - - (37) (37)
-
Balance at 31 December 2021 45,876 9,878 - - 36,874 5,524 98,152
Impairment/(reversal of impairment) net 4,199 - - - - (417) 3,782
Foreign exchange effect - - - - (482) - (482)
Transfers to property, plant and equipment (note 16) - (8) (8)
Balance at 31 December 2022 50,075 9,878 - - 36,392 5,099 101,444
Net book value as at 31 December 2021 37,968 21,469 - - 44,377 20,517 123,304
Net book value as at 31 December 2022 34,275 22,555 779 - 45,474 20,379 123,462
At 31 December 2022, the Group has recorded an reversal of impairment with
respect to evaluation and exploration assets of the Pallancata mine unit of
US$417,000 and an impairment of the Azuca project of US$4,199,000 (2021:
impairment with respect to evaluation and exploration assets of the Pallancata
mine unit of US$320,000). The calculation of the recoverable values of the
Pallancata mine unit is detailed in note 16.
There were borrowing costs capitalised in evaluation and exploration assets of
US$1,087,000 (2021: US$nil).
18 Intangible assets
Transmission Water Software Legal rights3 US$000 Total
line1
permits2
licences
US$000
US$000
US$000
US$000
Cost
Balance at 1 January 2021 22,157 26,583 1,906 8,580 59,226
Foreign exchange effect - (4,499) - - (4,499)
Disposals - - (17) - (17)
Balance at 31 December 2021 22,157 22,084 1,889 8,580 54,710
Foreign exchange effect - (289) - 71 (218)
Additions - - 353 - 353
Transfers - - 6 1,927 1,933
Balance at 31 December 2022 22,157 21,795 2,248 10,578 56,778
Accumulated amortisation and impairment
Balance at 1 January 2021 16,708 12,686 1,890 6,378 37,662
Amortisation for the year4 843 - 8 267 1,118
Disposals - - (17) - (17)
Foreign exchange effect - (2,147) - - (2,147)
Balance at 31 December 2021 17,551 10,539 1,881 6,645 36,616
Amortisation for the year4 719 - 164 87 970
Transfers - - 1 - 1
Foreign exchange effect - (137) - - (137)
Balance at 31 December 2022 18,270 10,402 2,046 6,732 37,450
Net book value as at 31 December 2021 4,606 11,545 8 1,935 18,094
Net book value as at 31 December 2022 3,887 11,393 202 3,846 19,328
1 The transmission line is amortised using the units of production method.
At 31 December 2022 the remaining amortisation period is approximately 7 years
(2021: 7 years) in line with the life of the mine.
2 Corresponds to the acquisition of water permits of Andina Minerals Group
("Andina"). These permits have an indefinite life according to Chilean law.
The Group used a discounted cash flow approach to determine the fair value
less costs of disposal. The model is based on the Preliminary Economic
Assessment (PEA) (2021: 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$7.15 per gold equivalent ounce of resources at 31 December 2021. The
risk adjusted enterprise value figure has been determined using a combination
of level 2 (enterprise values and gold prices) and level 3 inputs (unprocessed
mineral resources and risk factor) which result in a fair value measurement
categorised in its entirety as level 3 in the fair value hierarchy, to
estimate the amount that would be paid by a willing third party in an arm's
length transaction, taking into account the water restrictions imposed by the
Chilean government).
3 Legal rights correspond to expenditures required to give the Group the
right to use a property for the surface exploration work, development and
production. At 31 December 2022 the remaining amortisation period is from 2 to
14 years (2021: 1.5 to 11.5 years).
4 The amortisation for the period is included in cost of sales and
administrative expenses in the income statement.
The carrying amount of the Volcan CGU, which includes the water permits, is
reviewed annually to determine whether it is in excess of its recoverable
amount. No impairments were recognised in 2022 and 2021. The estimated
recoverable amount is not materially different than its carrying value.
Key assumptions value per in-situ
2021
Risk adjusted value per in-situ (gold equivalent ounce) US$ 7.15
US$000 2022 2021
Current carrying value Volcan CGU 56,867 55,922
The estimated recoverable amount is not materially different 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
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 2021
following changes (US$000)
Value per in-situ ounce (20% decrease) (13,661)
Value per in-situ ounce (20% increase) 13,661
Risk factor (increase by 5%) (5,254)
Risk factor (decrease by 5%) 5,254
19 Investment in an associate
The Group retains a 20.0% interest in Aclara Resources Inc. ("Aclara"), a
listed company involved in the exploration of, rare-earth metals in Chile. The
company was incorporated under the laws of British Columbia, Canada, where the
principal executive offices are located. The operations are conducted through
one wholly-owned subsidiary named REE UNO SpA, located in Chile.
Upon Aclara´s Initial Public Offering ('IPO') on 10 December 2021, HM
Holdings retained 20% of Aclara shares. The investment was recorded at initial
recognition at fair value, based on the IPO´ offering price, and is accounted
for using the equity method in the consolidated financial statements.
The fair value of Aclara shares as at 31 December 2022 amounted to
US$7,679,000 (31 December 2021: US$37,080,000).
The following table summarises the financial information of the Group's
investment in Aclara Resources Inc:
As at 31 As at 31
December
December
2022
2021
US$000 US$000
Current assets 67,291 91,320
Non-current assets 90,271 68,126
Current liabilities (3,674) (3,185)
Non-current liabilities (1) -
Equity 153,887 156,261
Group's share in equity (20%) 30,777 31,252
Fair value adjustment allocated to the evaluation and exploration assets on 12,388 12,307
initial recognition(1)
Impairment(2) (9,923) -
Group´s carrying amount of the investment 20% 33,242 43,559
Summarised consolidated statement of profit and loss
Revenue - -
Administrative expenses (5,261) (324)
Exploration expenses (3,642) (510)
Finance income 648 -
Finance cost (18) (17)
Foreign exchange loss (111) (479)
Loss from operations for the period (8,384) (1,330)
Loss from operation for the period (2021: from incorporation) (8,384) (847)
Group's share of loss for the period (1,677) (169)
Other comprehensive profit/(loss) that may be reclassified to profit or loss
in subsequent periods, net of tax
Exchange differences on translating foreign operations 6,417 (4,526)
Total comprehensive profit/(loss) for the period 6,417 (4,526)
Total comprehensive profit/(loss) (2021: from incorporation) 6,417 (46)
Group´s share of comprehensive profit/(loss) for the period 1,283 (9)
1. This represents the 20% of the fair value adjustment, estimated by the
Group, to Aclara's exploration and evaluation assets on initial recognition,
representing US$61,940,000 (2021:US$61,535,000).
2. This represents the 20% share in the total impairment, estimated by the
Group, of Aclara´s exploration and evaluation assets of US$49,615,000
(2021:nil).
The movement of investment in associate is as follows:
Year ended 31 December
2022 2021
US$000
US$000
Beginning balance 43,559 -
Initial recognition - 43,737
Impairment (9,923) -
Share of loss for the period (1,677) (169)
Share of comprehensive profit/(loss) for the period 1,283 (9)
Ending balance 33,242 43,559
At the moment of the acquisition of the associate the loss of the period was
US$483,000 and the comprehensive loss for the period was US$4,480,000.
The decrease in the fair value of Aclara's shares, and Aclara's withdrawal of
the application for an environmental impact assessment ("EIA") of its flagship
project "Penco" (now planned to be filed by Q2 2023), which is expected to
result in a two-year delay to anticipated first production date, were
considered indications of impairment. Therefore, in compliance with IAS 36,
the Group has performed a valuation on Aclara, and determined an impairment
charge of US$9,923,000.
The recoverable value of Aclara was determined using a value in use
methodology. The key assumptions on which management has based its valuation
of Aclara´s shares are the independent technical report of Penco module
issued in September 2021, forecast prices, a discount rate of 8.5%, and a
2-year delay in the first production date due to the withdrawal of the
application for the EIA.
Sensitivity analysis
An increase of 1% in the discount rate and a delay of 1 additional year in the
first production date would have the following impact in the Group´s
investment in Aclara:
US$000
Discount rate (increase by 1%) (2,549)
Delay in first production date (1 additional year) (3,682)
The carrying amount of the investment recognised the changes in the Group's
share of net assets of the associate since the acquisition date. The balance
as at 31 December 2022, after recognising the changes in the Group´s share of
net assets of the associate and the impairment charge is US$33,242,000 (31
December 2021: US$43,559,000).
No dividends were received from the associate during 2022 and 2021.
The associate had no contingent liabilities or capital commitments as at 31
December 2022 and 31 December 2021.
20 Financial assets at fair value through OCI
Year ended 31 December
2022 2021
US$000
US$000
Beginning balance 661 402
Acquisitions1 - 7
Fair value change recorded in OCI (152) 261
Disposals2 - (9)
Ending balance 509 661
1 Corresponds to the purchase of 47,625 shares of Austral Gold (US$7,000).
2 Corresponds to the sale of 51,857 shares of Revelo Resources Corp. with
a fair value at the date of sale of US$9,000 generating a loss on disposal of
US$18,000 that was recycled 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 2022 and 31 December 2021 is as follows:
US$000
2022 2021
Listed equity investments:
Power Group Projects Corp (formerly Cobalt Power Group) 6 12
Austral Gold 1 3
Skeena Resources Limited 160 312
Empire Petroleum Corp. 342 334
Total listed equity investments 509 661
Total non-listed equity investments - -
Total 509 661
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.
21 Financial assets at fair value through profit and loss
Year ended 31 December
2022 2021
US$000
US$000
Beginning balance 3,155 5,407
Acquisitions1 - 3,308
Fair value change recorded in profit and loss (note 13(2)) (2,140) (834)
Disposals2 - (4,726)
Ending balance 1,015 3,155
1 Corresponds to 25,001,540 shares of C3 Metals Inc.
received in payment of the sale of the Jasperoide property in Peru.
2 During 2021 the Group sold 1,687,401 shares of AGSC,
classified as financial assets at fair value through profit and loss, with a
fair value at the date of the sale of US$4,726,000, generating a loss on
disposal of US$681,000 which was recognised within finance costs.
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 2022 and 31
December 2021 is as follows:
US$000
2022 2021
Listed equity investments:
C3 Metals Inc. 1,015 3,155
1,015 3,155
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.
22 Trade and other receivables
As at 31 December
2022 2021
Non-current Current Non-current Current
US$000
US$000
US$000
US$000
Trade receivables1 - 41,031 - 26,496
Advances to suppliers - 2,242 - 5,119
Duties recoverable from exports of Minera Santa Cruz2 224 - 184 -
Receivables from related parties (note 32(a)) - 774 - 224
Loans to employees 502 215 531 257
Interest receivable - 238 - 95
Receivable from Kaupthing, Singer and Friedlander Bank3 - - - 3
Tax claims 130 6,442 47 2,103
Other4 1,520 11,294 1,493 5,963
Assets classified as receivables 2,376 62,236 2,255 40,260
Prepaid expenses 764 4,309 174 6,047
Value Added Tax (VAT)5 3,358 18,863 41 23,442
Total 6,498 85,408 2,470 69,749
The fair values of trade and other receivables approximate their book value.
1 Net of a provision for impairment of trade receivables from customers in
Peru of US$1,333,000 (2021: US$1,277,000).
2 Relates to export benefits through the Patagonian Port and silver refunds
in Minera Santa Cruz, discounted over 18 months (2021: 18 and 24 months) at a
rate of 26.58% (2021: 15.55%) for dollars denominated amounts and 68.50%
(2021: 40.17%) for Argentinian pesos. The loss on the unwinding of the
discount is recognised within finance expense (2021: finance expense).
3 Net of a provision for impairment of receivables of US$176,000 (2021:
US$197,000).
4 Mainly corresponds to account receivables from contractors for the sale
of supplies of US$2,311,000 (2021: US$2,164,000), loan to third parties of
US$772,000 (2021: US$790,000), and claim receivable of US$1,242,000 (2021:
US$1,165,000), net of a provision for impairment of receivables of
US$1,004,000 (2021: US$947,000).
5 Primarily relates to US$12,672,000 (2021: US$17,053,000) 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$4,875,000 (2021: US$5,570,000), and Amarillo Mineracao do Brasil of
US$3,360,000 (2021: US$nil). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
Individually
impaired
US$000
At 1 January 2021 7,111
Write- off (4,476)
Foreign exchange effect (214)
At 31 December 2021 2,421
Change for the year 35
Foreign exchange effect 57
At 31 December 2022 2,513
As at 31 December 2022 and 2021, none of the financial assets classified as
receivables (net of impairment) were past due.
23 Inventories
As at 31 December
2022 2021
US$000
US$000
Finished goods valued at cost 446 220
Products in process valued at cost 8,952 3,547
Products in process accrual valued at cost 7,272 7,534
Supplies and spare parts 47,358 41,021
64,028 52,322
Provision for obsolescence of supplies (2,588) (3,138)
Total 61,440 49,184
Finished goods include concentrate. Products in process include stockpile and
concentrate (2021: stockpile).
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 2022 and 2021 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.
Products in process accrual valued at cost include stockpile (2021:
stockpile).
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 2022 of US$2,161,000 (2021: US$nil) (refer to note 27).
The amount of expense recognised in profit and loss related to the consumption
of inventory of supplies, spare parts and raw materials is US$118,520,000
(2021: US$109,191,000).
Movements in the provision for obsolescence comprise an increase in the
provision of US$422,000 (2021: US$559,000) and the reversal of US$nil related
to supplies and spare parts, that had been provided for (2021: US$2,338,000).
24 Cash and cash equivalents
As at 31 December
2022 2021
US$000
US$000
Cash in hand 922 1,065
Current demand deposit accounts1 53,697 86,058
Time deposits2 89,225 299,666
Cash and cash equivalents considered for the statement of cash flows (note 143,844 386,789
2(y))
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.
The fair value of cash and cash equivalents approximates their book value. The
Group has US$200,000,000 of undrawn medium-term debt facility that will become
available on receipt of the Inmaculada MEIA approval.
1 Relates to bank accounts which are freely available and bear interest.
2 These deposits have an average maturity of 18 days (2021: average of 18
days).
25 Trade and other payables
As at 31 December
2022 2021
Non-current Current Non-current Current
US$000
US$000
US$000
US$000
Trade payables1 - 88,817 - 78,695
Salaries and wages payable2 - 28,755 - 30,850
Dividends payable - 32 - 31
Taxes and contributions - 10,287 1 9,607
Guarantee deposits3 - 8,623 - 5,773
Mining royalties (note 37) - 1,211 - 1,505
Accounts payable to related parties (note 32(a)) - 622 - 284
Lease liabilities (note 26) 1,239 1,637 2,814 1,597
Other4 384 4,118 - 5,140
Total 1,623 144,102 2,815 133,482
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 2022, there were Board members remuneration payable of US$69,000
(2021: US$170,000) and no long-term incentive plan payable (2021: US$nil).
3 Guarantee deposits made by the contractors of the Group to guarantee the
fulfilment of their tasks. The guarantee will be returned to the contractor at
the end of the service and when it is verified that it has been completed
correctly.
4 Mainly due to the accrual of the 6 days of production from 26 to 31
December 2022.
26 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 twelve 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 related to the
leases according IFRS 16 and the other leases that the Group has not
capitalised:
As at 31 December
2022 2021
US$000 US$000
Depreciation expense for right-of-use assets (1,112) (1,969)
Interest expense on lease liabilities (104) (42)
Expense relating to short-term leases (included in cost of sales, (1,679) (2,751)
administrative, exploration and other expenses)
Expense relating to leases of low-value assets (included in cost of sales, (1,355) (1,031)
administrative, exploration and other expenses)
Variable lease payments (included in cost of sales and exploration expenses) (7,643) (5,643)
Total amount recognised in profit or loss (11,893) (11,436)
The Group had total cash outflows for leases of US$12,316,000 in 2022 (2021:
US$11,606,000). There were additions to right-of-use assets and lease
liabilities during the year of US$nil (2021: US$6,046,000). The future cash
outflows relating to leases that have not yet commenced are US$2,950,000
(2021: US$ US$4,587,000).
The movement in IFRS 16 lease liabilities in the year is as
follows:
As at 1 Additions US$000 Repayments US$000 Interest expense US$000 As at 31 December 2022 US$000
January 2022 US$000
Lease liabilities 4,411 - (1,639) 104 2,876
Less: current balance (1,597) (1,637)
Non-current balance 2,814 1,239
27 Borrowings
As at 31 December
2022 2021
Effective Non-current Current Effective Non-current Current
interest rate
US$000
US$000
interest rate
US$000
US$000
Secured bank loans (a)
· Pre-shipment loans in Minera Santa Cruz (note 23) 47.25% and 48.00% - 2,161 - - -
· Mid-term Bank loans 7.74% 275,000 27,328 2.17% 300,000 499
Other loans (b)
· Stock market promissory note in Minera Santa Cruz - - 14,500 - - -
Total 275,000 43,989 300,000 499
(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
was payable on equal quarterly instalments from the second anniversary of the
loan with an interest rate of Libor three months plus 1.15% payable quarterly
until maturity on 13 December 2024. In September 2021, the Group negotiated
with the same counterpart a US $ 200,000,0000 loan to replace the original
loan, plus an additional US $ 100,000,000 optional loan. US $ 200,000,000 was
withdrawn on 21 September 2021, and the optional US $ 100,000,000 loan was
withdrawn on 1 December 2021. The maturity was extended until September 2026,
and the interest rate increased to 3-month USD Libor plus a spread of 1.65%. A
structuring fee of US$900,000 was paid to the lender and additional US$193,000
was incurred as transaction costs. In addition, a commitment fee of US$120,000
was paid for the period that the optional US $100,000,000 loan remained
undrawn. This was considered a substantial modification to the terms of the
loan, and consequently, it was treated as an extinguishment of the loan which
resulted in the derecognition of the existing liability and recognition of a
new liability. The associated costs and fees incurred have been recognised
as part of the loss on the extinguishment.
The Group has US$200,000,000 of undrawn medium-term debt facility that will
become available on receipt of the Inmaculada MEIA approval.
(b) Other loans:
Stock market promissory note:
From August to November 2022 Minera Santa Cruz signed 15 stock market
promissory notes with Max Capital, a finance advisory company located in
Argentina, amounting to US$15,500,000. The expiration date of the notes is
from December 2022 to November 2023. During the year 2022 the Group repaid
US$1,000,000. The balance as at 31 December 2022 is US$14,500,000.
(c) Capitalised borrowing costs:
Interest expense of US$4,899,000 that is directly attributable to the
construction of Mara Rosa (US$4,786,000) and Compañía Minera Ares S.A.C.
(US$113,000) has been capitalised and is included in property, plant and
equipment within construction in progress and capital advances (US$1,140,000)
and mining property and development costs (US$1,804,000), and exploration and
evaluation assets (US$1,955,000).
The carrying value including accrued interests payable as at 31 December 2022
is US$302,328,000. The maturity of non-current borrowings is as follows:
As at 31 December
2022 2021
US$000
US$000
Between 1 and 2 years 100,000 25,000
Between 2 and 5 years 175,000 275,000
Over 5 years - -
Total 275,000 300,000
The carrying amount of the pre-shipment loans approximates their fair value.
The carrying amount and fair value of the mid-term loan are as follows:
Carrying amount Fair value
as at 31 December
as at 31 December
2022 2021 2022 2021
US$000
US$000
US$000
US$000
Secured bank loans 302,328 300,499 283,677 296,122
Total 302,328 300,499 283,677 296,122
The movement in borrowings during the year is as follows:
As at 1 Additions US$000 Repayments US$000 Reclassifications US$000 As at 31 December 2022 US$000
January 2022 US$000
Current
Bank loans - 13,411 (10,557) 23,839 26,693
Stock market promissory note - 15,500 (1,000) - 14,500
Accrued interest 499 10,360 (12,962) 4,899 2,796
499 39,271 (24,519) 28,738 43,989
Non-current
Bank loans 300,000 - - (25,000) 275,000
300,000 - - (25,000) 275,000
28 Provisions
Provision Long Term Incentive Workers profit sharing US$000 Contingencies3 Total
US$000
US$000
for mine closure1 Plan2
US$000 US$000
At 1 January 2021 126,397 1,126 5,389 1,625 134,537
Additions - (659) 11,018 2,164 12,523
Accretion (note 13) (2,038) - - - (2,038)
Change in discount rate (1,627) - - - (1,627)
Change in estimates 22,364 - - - 22,364
Foreign exchange effect - - (525) (290) (815)
Utilisation (1,978) - - - (1,978)
Payments (9,083) - (4,990) - (14,073)
At 31 December 2021 134,035 467 10,892 3,499 148,893
Less: current portion (19,670) - (10,892) (1,496) (32,058)
Non-current portion 114,365 467 - 2,003 116,835
At 1 January 2022 134,035 467 10,892 3,499 148,893
Additions - (467) 4,733 1,813 6,079
Accretion (note 13) (1,931) - - - (1,931)
Change in discount rate (17,849) - - - (17,849)
Change in estimates 34,124 - - - 34,124
Foreign exchange effect - - 322 434 756
Utilisation (970) - - - (970)
Payments (10,409) - (11,000) (10) (21,419)
At 31 December 2022 137,000 - 4,947 5,736 147,683
Less: current portion (17,668) - (4,947) (1,562) (24,177)
Non-current portion 119,332 - - 4,174 123,506
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 2022
and 2021 respectively, and the cash flows have been adjusted to reflect the
risk attached to these cash flows. Uncertainties on the timing for use of this
provision include changes in the future that could impact the time of closing
the mines, as new resources and reserves are discovered. The discount rate
used was 0.95% (2021: -2.09%). Expected cash flows will be over a period from
one to 21 years (2021: over a period from one to 17 years).
Based on the internal and external reviews of mine rehabilitation
estimates, the provision for mine closure increased by US$34,124,000 due to
increase in the Ares mine unit of US$10,509,000, the Arcata mine unit of
US$1,671,000, the San Jose mine unit of US$7,901,000, the Matarani unit of
US$19,000, the Azuca project of US$1,000, the Crespo project of US$5,000, the
Pallancata mine unit of US$58,000 and the Sipan mine unit of US$12,858,000,
net of the decrease in the Selene mine unit of US$2,882,000 and the Inmaculada
mine unit of US$430,000, and the initial recognition of the Mara Rosa project
of USS$4,414,000 (2021: increase by US$22,364,000 due to increase in the
Selene mine unit of US$14,032,000, the Sipan mine unit of US$3,103,000, the
Arcata mine unit of US$2,620,000, the Ares mine unit of US$1,623,000, the
Inmaculada mine unit of US$369,000 and the San José mine unit of US$640,000,
net of the decrease of the Matarani unit of US$2,000, the Azuca project of
US$9,000, the Crespo project of US$9,000 and the Pallancata mine unit of
US$3,000).
A net charge of US$17,797,000 related to changes in estimates
(US$22,156,000) and discount rates (-US$4,359,000) for mines already closed
were recognised directly in the income statement (2021: net charge of
US$22,095,000 related to changes in estimates (US$21,378,000) and discount
rates (US$717,000) for mines already closed were recognised directly in the
income statement).
A net credit of US$5,936,000 related to changes in estimates (US$7,554,000)
and discount rates (-US$13,490,000) for mines, projects and units that are not
already closed were recognised directly in the property, plant and equipment
in the statement of financial position (2021: net credit of US$1,358,000
related to changes in estimates (US$986,000) and discount rates (US$2,344,000)
for mines, projects and units that are not already closed were recognised
directly in the property, plant and equipment in the statement of financial
position).
Utilisation for the year corresponds to depreciation of certain assets which
are used as part of mine rehabilitation. This has been recognised against the
mine rehabilitation provision.
The decrease in the accretion from 2021 (US$2,038,000) to 2022
(US$1,931,000) is explained because the Group is closer to the budget
execution periods and the discount rates used for 2021 were more negatives
than those of 2022.
A change in any of the following key assumptions used to determine the
provision would have the following impact:
US$000
Closure costs (increase by 10%) increase of provision 13,700
Discount rate (increase by 0.5%) (decrease of provision) (8,137)
An element of mine closure planning can be water management which relates to
the treatment of contact water. The cost of this water processing could
continue for a number of years after closure activities have been completed
and is therefore, potentially, exposed to long-term climate change. Mine
planning for Hochschild's operating assets takes into account mine-closure
activities. In the case of the now-closed Sipan mine, due to the specific
characteristics of the closed mine components, contact water treatment is
ongoing. According to our most recent approved Mine Closure Plan (July
2021), Sipan will be the subject of ongoing treatment until 2030 or until
baseline water quality conditions have been met. As at the date of approval
of these financial statements, the impact of climate change on Sipan's mine
closure planning is not expected to be material.
2 Corresponds to the provision related to awards granted under the
Long-Term Incentive Plan ('LTIP') to designated personnel of the Group.
Includes the 2020 awards, granted in February 2020, payable in February 2023,
as 50% in cash (refer to note 29(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 decrease to the provision of US$467,000 (2021: US$659,000 net
decrease) have been recorded as administrative expenses -US$442,000 (2021:
-US$630,000) and exploration expenses -US$25,000 (2021: -US$29,000). The final
result of the benefit was nil.
The following tables list the inputs to the last Monte Carlo model used for
the LTIPs as at 31 December 2021:
LTIP 2020
For the period ended 31 December 2021
US$000
Dividend yield (%) 2.37
Expected volatility (%) 3.70
Risk-free interest rate (%) 0.02
Expected life (years) 1
Weighted average share price (pence £) 179.61
The expected volatility reflects the assumption that the historical volatility
over a period similar to the life of the awards and is indicative of future
trends, which may not necessarily be the actual outcome. The outcome of the
LTIP 2020 as at 31 December 2022 was US$nil.
3 Mainly corresponds to contingencies in Minera Santa Cruz due to new labor
lawsuits.
29 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2022 is as follows:
Issued
Class of shares Number Amount
Ordinary shares (1 pence per share) 513,875,563 £5,138,756
The issued share capital of the Company as at 31 December 2021 is as follows:
Issued
Class of shares Number Amount
Ordinary shares (25 pence per share) 513,875,563 £128,468,891
At 31 December 2022 and 2021, all issued shares with a par value of 1 pence and 25 pence each respectively were fully paid (2022: weighted average of US$0.018 per share, 2021: weighted average of US$0.441 per share).
The movement in share capital of the Company from 1 January 2021 to 31
December 2022 is as follows:
Number of ordinary shares Share capital US$000 Share premium US$000
Shares issued as at 1 January 2021 513,875,563 226,506 438,041
Shares issued as at 31 December 2021 513,875,563 226,506 438,041
Deferred bonus shares issued on 20 June 2022 513,875,563 303,268 -
Cancelation of deferred bonus shares on 22 June 2022 (513,875,563) (303,268) -
Cancelation of share premium account on 24 June 2022 - - (438,041)
Reduction of nominal value to 1 pence on 24 June 2022 - (217,445) -
Shares issued as at 31 December 2022 513,875,563 9,061 -
Following the passing of certain special resolutions at an Extraordinary
General Meeting of shareholders held on 26th May 2022, the Company capitalised
the Company's distributable merger reserve, within retained earnings, by
applying its balance to the issuance of 513,875,563 bonus shares with a
nominal value of US$0.59 each (the "Bonus Shares").
Subsequently, the Company obtained, on 21 June 2022, the approval of the High
Courts of Justice of England and Wales (the Companies Court (Ch D) of the
Business and Property Courts) to:
(a) the cancellation of the Bonus Shares with the sum arising on
the cancellation being credited to the Company's retained earnings reserve;
(b) the reduction of the Company's share premium account to nil and
crediting the corresponding amount to the Company's retained earnings reserve;
and
(c) the reduction in the nominal value of the Ordinary Shares from 25
pence per Ordinary Share to 1 pence per Ordinary Share,
(d) (both (ii) and (iii) above collectively referred to as "the
Reductions").
The Reductions were effective on registration of the relevant court order by
the Registrar of Companies, which took place on 24th June 2022.
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 movement in treasury shares are as follows:
• 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 2022 and 31 December 2021 the balance of treasury shares is
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. In
addition a merger reserve was generated by certain share placing transactions
made by the Group after the IPO. The merger reserve available for distribution
is disclosed within retained earnings.
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 silver prices.
Share-based payment reserve
The share-based payment reserve is used to recognise the value of
equity-settled share-based payment transactions provided to employees, as a
part of their remuneration.
(i) Long term incentive plan ('LTIP')
On 11 February 2019 the Group approved the grant of 2019 LTIP awards, on 19
February 2020 the Group approved the grant of 2020 LTIP awards, on 26 May 2021
the Group approved the grant of 2021 LTIP awards and on 23 February 2022 the
Group approved the grant of 2022 LTIP awards. The 2019 and 2020 awards give a
right to receive a cash payment equivalent to the 50% of the prize
(cash-settled transaction) (refer to note 28(2)), and the other 50% will be
used to acquire shares of the Company (equity-settled transaction).
The vesting of the 2021 LTIP and 2022 LTIP awards are subject to the
following performance conditions: 50% on Hochschild's 3-year total shareholder
return ("TSR") and 50% on Internal Key Performance Indicators (KPIs) measured
during the same period. The performance period will be from 1 January 2021 to
31 December 2023 and 1 January 2022 to 31 December 2024 respectively. The
award will vest in May 2024 and in February 2025 respectively.
The whole of any vested LTIP award will be deferred in the Company shares for
two years. The award will lapse if the beneficiary ceases to be an employee of
the Group other than as a good leaver or on death.
Further details on the design of the LTIP award are included in the Directors'
Remuneration Report.
The fair value of the option based on the TSR was determined using the Monte
Carlo model. The following tables list the inputs to the Monte Carlo model
used for the 2019 LTIP, 2020 LTIP, 2021 LTIP and 2022 LTIP:
LTIP 2022 LTIP 2021 LTIP 2020 LTIP 2019
Dividend yield (%) 5.73 2.37 0.87 1.46
Expected volatility (%) 3.97 3.71 3.19 2.90
Risk-free interest rate (%) 4.13 0.23 0.51 0.42
Expected life (years) 2.3 2 2.5 2.4
Weighted average share price (pence £) 179.61 161.37
141.46 221.99
The 50% subject to internal KPIs is split equally between:
i) 3-year growth of the Company´s
Measured and Indicated Resources (MIR) per share (excluding Volcan), The
3-year MIR growth was projected using a normal distribution based on
historical data, and factoring in the additional growth expected from
acquisitions, and
ii) average outcome of the annual
bonus scorecard in respect of 2021, 2022 and 2023 for 2021 LTIP, and 2022,
2023 and 2024 for 2022 LTIP calculated as the simple mean of the three
scorecard outcomes.
Probabilities assigned to each possible outcome, based on historical data and
management judgement.
The remaining contract life is nil years (2021: 0.1 years), 0.1 years (2021:
1.1 years), 1.4 years (2021: 2.4 years) and 2.2 years for the 2019 LTIP,
2020 LTIP, 2021 LTIP and 2022 LTIP respectively.
The movement in other reserves is as follows:
LTIP 2018 LTIP 2019 LTIP 2020 LTIP 2021 LTIP 2022 US$000
US$000
US$000
US$000
US$000
Balance at 1 January 2021 920 1,175 438 - -
Expense recognised in the period 143 623 509 1,167 -
Forfeiture of share options (1,063) - - - -
Balance at 31 December 2021 - 1,798 947 1,167 -
Expense recognised in the period - 88 509 1,478 1,395
Forfeiture of share options - (1,886) - - -
Balance at 31 December 2022 - - 1,456 2,645 1,395
No shares vested during the period (2021: nil).
(ii) 2022 bonus of employees
The Group agreed to partially pay the 2022 bonus by an issuance of shares. The
total amount that will be paid in shares is US$816,000.
30 Deferred income tax the net deferred income tax assets/(liabilities)
are as follows:
As at 31 December
2022 2021
US$000
US$000
Beginning of the year (86,744) (72,307)
Income statement credit/(charge) (note 14) 2,687 (7,054)
Equity credit/(charge) 8,167 (7,383)
Deferred tax recognised for payment 58 -
End of the year (75,832) (86,744)
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 Mine development US$000 Provisional pricing adjustment US$000 Others Total
in cost
US$000
US$000
of PP&E
US$000
Deferred income tax liabilities
At 1 January 2021 39,521 84,952 696 3,647 128,816
Income statement charge/(credit) 6,108 (67) (752) (495) 4,794
At 31 December 2021 45,629 84,885 (56) 3,152 133,610
Income statement charge 1,281 4,630 359 1,627 7,897
Equity charge 362 - - - 362
At 31 December 2022 47,272 89,515 303 4,779 141,869
Differences Provision Mine development Others(1) Total
in cost
for mine
US$000
US$000
US$000
of PP&E
closure
US$000
US$000
Tax losses US$000
Deferred income tax assets
At 1 January 2021 20,130 25,384 474 - 10,521 56,509
Income statement (charge)/credit (7,333) 5,082 (109) - 100 (2,260)
Equity charge - - - - (7,383) (7,383)
At 31 December 2021 12,797 30,466 365 - 3,238 46,866
Income statement credit/(charge) 1,747 1,048 (1,021) 2,483 5,780 10,037
Equity credit - - 1,377 1,855 5,902 9,134
At 31 December 2022 14,544 31,514 721 4,338 14,920 66,037
1 Credit/(charge) in the year mainly related to silver forward of
US$645,000 (2021: silver forward of US$5,634,000), statutory holiday provision
of US$1,157,000 (2021: US$1,121,000) and long term incentive plan of
US$1,512,000 (2021: US$746,000).
The amounts after offset, as presented on the face of the statement of
financial position, are as follows:
As at 31 December
2022 2021
US$000
US$000
Deferred income tax assets 4,213 484
Deferred income tax liabilities (80,045) (87,228)
Total (75,832) (86,744)
Unrecognised tax losses expire in the following years:
As at 31 December*
2022 2021
US$000
US$000
Recognised
Expire after four years 12,759 --
12,759 --
Unrecognised
Expire after four years 191,051 167,273
191,051 167,273
Total 203,810 167,273
Other unrecognised deferred income tax assets comprise (gross amounts):
As at 31 December
2022 2021
US$000
US$000
Provision for mine closure1 8,191 7,887
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 2022 and 2021, 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.
31 Dividends
2022 2021
US$000
US$000
Dividends paid and proposed during the year
Equity dividends on ordinary shares:
Final dividend for 2021: 2.335 US cents per share (2020: 2.335 US cents per 11,998 12,002
share)
Interim dividend for 2022: 1.95 US cents per share (2021: 1.95 US cents per 10,019 10,020
share)
Total dividends paid in cash 22,017 22,022
Dividends in specie paid with Aclara shares (note 4 (a)) - 94,945
Total dividends paid on ordinary shares 22,017 116,967
Proposed dividends on ordinary shares:
Final dividend for 2022: nil US cents per share (2021: 2.335 US cents per - 11,998
share)
Dividends declared to non-controlling interests: 0.002 US$ per share (2021: 286 9,832
0.058 US$ per share)
Total dividends declared to non-controlling interests 286 9,832
Dividends paid in 2022 to non-controlling interests amounted to US$286,000
(2021: US$9,832,000).
In August 2021, the Board became aware of an issue concerning technical
compliance with the Companies Act 2006 in relation to the 2017 final dividend,
the 2018 interim and final dividends, the 2019 interim dividend, and the 2020
interim and final dividends (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 2017 final dividend, adequate
distributable reserves would have been available to the Company.
As previously reported, the Board put resolutions to shareholders at a General
Meeting to i) complete the rectification of this past issue and ii) increase
further, to the extent practicable, the level of Distributable Reserves
available to the Company.
Dividends per share
The interim dividend paid in September 2022 was US$10,019,000 (1.95 US cents
per share). There is no proposed final dividend in respect of the year
ending 31 December 2022.
32 Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and transactions during the
years ended 31 December 2022 and 2021. The related parties are companies owned
or controlled by the main shareholder of the Parent company or associates.
Accounts receivable Accounts payable
as at 31 December
as at 31 December
2022 2021 2022 2021
US$000
US$000
US$000
US$000
Current related party balances
Cementos Pacasmayo S.A.A.1 733 217 249 152
Tecsup2 - 1 352 115
Universidad UTEC2 - - 5 5
REE UNO SpA3 30 6 - -
Aclara Resources Inc3 9 - - 12
Aclara Resources Peru S.A.C. 3 2 - 16 -
Total 774 224 622 284
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(a) and 19).
As at 31 December 2022 and 2021, all accounts are, or were, non-interest
bearing.
No security has been granted or guarantees given by the Group in respect of
these related party balances.
Principal transactions between affiliates are as follows:
Year ended
2022 2021
US$000
US$000
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A. (376) (403)
Expense technical services from Tecsup (418) (292)
Income from reimbursement of expenses of Cementos Pacasmayo S.A.A. 494 729
Income from administrative services to REE UNO SpA 248 -
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) 2022 2021
US$000
US$000
Short-term employee benefits 7,121 7,509
Long Term Incentive Plans 1,174 776
Total compensation paid to key management personnel 8,295 8,285
This amount includes the remuneration paid to the Directors of the Parent
Company of the Group of US$4,228,000 (2021: US$3,967,000).
(c) Related Party Transaction
Participation of Pelham Investment Corporation in the IPO of Aclara
As announced by the Company on 3rd 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.
33 Auditor's remuneration
The auditor's remuneration for services provided to the Group during the years
ended 31 December 2022 and 2021 is as follows:
Amounts paid
to Ernst & Young
in the year ended
31 December
2022 2021
US$000
US$000
Audit fees pursuant to legislation1 1,181 1,206
Audit-related assurance services 95 130
Other assurance services2 - 176
Total 1,276 1,512
1 The total fee includes statutory audit fee of US$416,000 in respect of local
statutory audits of subsidiaries (2021: US$417,000)
2 Includes US$164,000 for assurance services (including comfort letters) in
relation to the spin-off of Aclara and US$12,000 for assurance services over
the Group's environmental ECO score.
In 2022 and 2021, all fees are included in administrative expenses.
34 Notes to the statement of cash flows
As at 31 December
2022 2021
US$000
US$000
Reconciliation of loss for the year to net cash generated from operating
activities
Profit for the year 4,832 71,106
Adjustments to reconcile Group loss to net cash inflows from operating
activities
Depreciation (note 3(a)) 139,088 150,292
Amortisation of intangibles (note 18) 970 1,118
Write-off of assets (note 16) 1,832 863
Provision of doubtful receivable 35 -
Impairment /(reversal of impairment) of assets (note 11) (11,363) 24,846
Gain on demerger of Aclara (note 4 (a)) (37,461)
Loss from changes in the fair value of financial assets at fair value through 2,140 834
profit and loss (note 21)
Share of post-tax losses of associates 11,600 169
Gain on sale of property, plant and equipment (294) (3,342)
Provision and recovery for obsolescence of supplies (note 12 and 23) 422 (1,779)
Increase of provision for mine closure (note 12) 17,797 22,095
Finance income (note 13) (5,211) (3,946)
Finance costs (note 13) 21,776 32,061
Income tax expense (note 14) 20,934 66,225
Other 12,507 7,742
Increase/(decrease) of cash flows from operations due to changes in assets and
liabilities
Trade and other receivables (52,972) (13,734)
Income tax receivable (5) (3,501)
Other financial assets and liabilities 4,956 15,336
Inventories (13,081) (4,534)
Trade and other payables (6,632) (9,542)
Provisions (5,060) 4,740
Cash generated from operations 144,271 319,588
35 Commitments
(a) Mining rights purchase options
During the ordinary course of business, the Group enters into agreements to
carry out exploration under concessions held by third parties. Generally,
under the terms of these agreements, the Group has the option to acquire the
concession or invest in the entity holding the concession. In order to
exercise these options the Group must satisfy certain financial and other
obligations during the term of the agreement. The options lapse in the event
that the Group does not meet its financial obligations. At any point in time,
the Group may cancel the agreements without penalty, except where specified
below. 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:
As at 31 December
2022 2021
US$000
US$000
Commitment for the subsequent twelve months - 12,583
More than one year 4,747 66,218
(b) Capital commitments
For the year ended
31 December
2022 2021
US$000
US$000
Peru 1,563 24,946
Argentina 3,687 13,812
Brazil 13,412 -
18,662 38,758
36 Contingencies
As at 31 December 2022 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, ten years in Brazil 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 2022, the Group had exposures
totalling US$20,713,000 (2021: US$20,622,000).
When the Tax authority challenges the deductibility of certain expenses the
Group reassess 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 whether or not 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 28(1)).
37 Mining royalties
Peru
In accordance with Peruvian legislation, owners of mining concessions must pay
a mining royalty for the exploitation of metallic and non‑metallic
resources. Mining royalties have been calculated with rates ranging from 1% to
3% of the value of mineral concentrate or equivalent sold, based on quoted
market prices.
In October 2011 changes came into effect for mining companies, with the
following features:
a) Introduction of a Special Mining Tax ('SMT'), levied on mining companies at
the stage of exploiting mineral resources. The additional tax is calculated by
applying a progressive scale of rates ranging from 2% to 8.4%, of the
quarterly operating profit.
b) Modification of the mining royalty calculation, which consists of applying
a progressive scale of rates ranging from 1% to 12%, of the quarterly
operating profit. The former royalty was calculated on the basis of monthly
sales value of mineral concentrates. The SMT and modified mining royalty are
accounted for as an income tax in accordance with IAS 12 "Income Taxes".
c) For companies that have mining projects benefiting from tax stability
regimes, mining royalties are calculated and recorded as they were previously,
applying an additional new special charge on mining that is calculated using
progressive scale rates, ranging from 4% to 13.12% of quarterly operating
profit.
As at 31 December 2022, the amount payable as under the new mining royalty and the SMT amounted to US$1,234,000 (2021: US$1,341,000) and US$845,000 (2021: US$882,000) respectively. The new mining royalty and SMT are reported as 'Income tax payable' in the Statement of Financial Position. The amount recorded in the income statement was US$4,787,000 (2021: US$6,326,000) of new mining royalty and US$2,658,000 (2021: US$5,916,000) 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 2022, the amount payable as
mining royalties amounted to US$1,211,000 (2021: US$1,505,000). The amount
recorded in the income statement as cost of sales was US$6,307,000 (2021:
US$7,171,000).
38 Financial risk management
The Group is exposed to a variety of risks and uncertainties which may have a
financial impact on the Group and which also impact the achievement of social,
economic and environmental objectives. These risks include strategic,
commercial, operational and financial risks and are further categorised into
risk areas to facilitate consolidated risk reporting across the Group.
The Group has made significant developments in the management of the Group's
risk environment which seeks to identify and, where appropriate, implement the
controls to mitigate the impact of the Group's significant risks. This effort
is supported by a Risk Committee with the participation of the CEO, the Vice
Presidents, and the head of the internal audit function. The Risk Committee is
responsible for implementing the Group's policy on risk management and
internal control in support of the Company's business objectives, and
monitoring the effectiveness of risk management within the organisation.
(a) Commodity price risk
Silver and gold prices have a material impact on the Group's results of
operations. Prices are significantly affected by changes in global economic
conditions and related industry cycles. Generally, producers of silver and
gold are unable to influence prices directly; therefore, the Group's
profitability is ensured through the control of its cost base and the
efficiency of its operations.
The Group´s policy is generally to remain hedge-free. However, management
continuously monitors silver and gold prices and reserves the right to take
the necessary action, where appropriate and within Board approved parameters,
to mitigate the impact of this risk.
Derivative financial assets - Silver forward
On 8 February 2021, the Group signed agreements with JP Morgan 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.
On 10 November 2021, the Group signed agreements with JP Morgan to hedge the
sale of 3,300,000 ounces of silver at US$25.0 per ounce for 2023.
The silver forwards are being used to hedge exposure to changes in cashflows
from silver commodity prices. There is an economic relationship between the
hedged item and the hedging instruments due to a common underlying. In
accordance with IFRS 9, the derivative instruments are categorised as cash
flow hedges at the inception of the hedging relationship and, on an ongoing
basis, the Group assesses whether a hedging relationship meets the hedge
effectiveness requirements. The Group has established a hedge ratio of 1:1 for
the hedging relationships as the underlying risk of the silver forwards is
identical to the hedged risk components. To test the hedge effectiveness, the
Group uses the hypothetical derivative method and compares the changes in the
fair value of the silver forwards against the changes in fair value of the
hedged item attributable to the hedged risk. That said, it is observed that
the effectiveness tests comply with the requirements of IFRS 9 and that the
hedging strategy is highly effective.
The fair values of the silver forwards were calculated using a discounted cash
flow model applying a combination of level 1 (USD quoted market commodity
prices) and level 2 inputs. The models used to value the commodity forward
contracts are standard models, that calculate the present value of the
fixed-legs (the fixed silver leg) and compare them with the present value of
the expected cash flows of the flowing legs (the London metal exchange "LME"
silver fixing). In the case of the commodity forward contracts, the models use
the LME AG forward curve and the US LIBOR swap curve for discounting.
This approach results in the fair value measurement categorised in its
entirety as level 2 in the fair value hierarchy. The fair values of the silver
forwards as at 31 December 2022 and 31 December 2021 are as follows:
31 December 2022
US$000
Current assets 2,186
Non-current assets -
2,186
The effect recorded is as follows:
US$000
Income statement - revenue 20,428
Equity - Unrealised loss on hedges 16,929
31 December 2021
US$000
Current assets 5,042
Non-current assets 14,073
19,115
The effect recorded is as follows:
US$000
Income statement - revenue 7,982
Equity - Unrealised gain on hedges 19,115
The sensitivity to a reasonable movement in the commodity prices, with all
other variables held constant, determined as a +/-10% change in prices
-US$5,475,000/ US$9,848,000 effect on OCI.
The Group has price adjustments arising from the sale of concentrate and dore
which were provisionally priced at the time the sale was recorded (refer to
note 5). The sensitivity of the fair value to an immediate 10% favourable or
adverse change in the price of gold and silver (assuming all other variables
remain constant), is as follows:
Year Increase/ Effect on
decrease in price of
profit before tax
ounces of:
US$000
2022 Gold +/-10% +/-165
Silver+/-10%
+/-138
2021 Gold +/-10% +/-95
Silver+/-10%
+/-757
(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A
proportion of the Group's costs are incurred in Peruvian nuevos soles,
Argentinian pesos, Brazilian reais, sterling pounds, Canadian dollars, Chilean
pesos, and Mexican pesos. Accordingly, the Group's financial results may be
affected by exchange rate fluctuations between the US dollar and the local
currency. The long-term relationship between commodity prices and currencies
in the countries in which the Group operates provides a certain degree of
natural protection. The Group does not use derivative instruments to manage
its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and
liabilities, at the reporting date, denominated in their respective
currencies, to a reasonably possible change in the US dollar exchange rate,
with all other variables held constant, of the Group's profit before tax and
the Group's equity.
Year Increase/ Effect Effect
decrease in US$/other
on profit
on equity
currencies'
before tax
US$000
rate
US$000
2022
Pounds sterling +/-10% -/+155 -
Argentinian pesos +/-10% -/+3,775 -
Mexican pesos +/-10% +/-1,821 -
Peruvian nuevos soles +/-10% -/+15,326 -
Reais +/-10% -/+7,230 -
Canadian dollars +/-10% -/+461 +/-17
Chilean pesos +/-10% +/-763 -
2021
Pounds sterling +/-10% -/+248 -
Argentinian pesos +/-10% -/+3,084 -
Mexican pesos +/-10% +/-1,879 -
Peruvian nuevos soles +/-10% -/+3,663 -
Canadian dollars +/-10% -/+270 +/-32
Chilean pesos +/-10% -/+82 -
(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, hedge instruments and cash
balances in banks as at 31 December 2022 and 31 December 2021:
Summary commercial partners As at % collected as at 19 April 2023 As at % collected as at 21 February 2022
31 December 2022
31 December 2021
US$000 US$000
US$000
Trade receivables 42,364 73% 27,773 74%
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 As at As at
31 December
31 December
2022
2021
US$000
US$000
A+ 55,847 60,000
A 1,066 -
A- 2,436 142,740
A2 42,091 -
AA2 8 -
Aa3 8,000 -
Baa1 109 -
BB- 10,505 -
BBB+ 60 171,328
BBB 5,210 -
BBB- 4,419 -
Caa1 1 -
NA 14,092 12,721
Total 143,844 386,789
1 Represents the long-term credit rating as at 3 January 2023 (2021:
3 January 2022).
As at 31 December 2022, the credit rating of the counterparty of the silver
forward hedges is A- (31 December 2021 is A-).
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).
· Increase the utilisation of UK bank accounts.
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
22, 24 and 38(e).
The Group's risk assessment procedures includes 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 2022 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$127,000 (2021: +/-US$165,000) 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$254,000 (2021: +/-US$789,000)
recognised in the consolidated statement of profit and loss.
(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 2022 and 2021, the Group held the following financial
instruments measured at fair value:
31 December 2022 Level 1 Level 2 Level 3
US$000
US$000
US$000
US$000
Assets measured at fair value
Equity shares (notes 20 and 21) 1,524 1,524
Trade receivables (note 22) 42,364 42,364
Derivative financial assets 2,186 2,186
31 December 2021 Level 1 Level 2 Level 3
US$000
US$000
US$000
US$000
Assets measured at fair value
Equity shares (notes 20 and 21) 3,816 3,816
Trade receivables (note 22) 27,773 27,773
Derivative financial assets 19,115 19,115
During the period ending 31 December 2022 and 2021, there were no transfers
between these levels.
The reconciliation of the financial instruments categorised as level 3 is as
follows:
Trade receivables/ price adjustments
US$000
Balance at 1 January 2021 45,353
Net change in trade receivables from goods sold (12,969)
Changes in fair value of price adjustments (note 5) (6,614)
Realised price adjustments during the year 2,003
Balance at 31 December 2021 27,773
Net change in trade receivables from goods sold 8,063
Changes in fair value of price adjustments (note 5) (1,323)
Realised price adjustments during the year 7,851
Balance at 31 December 2022 42,364
The impact of the hedging instrument and hedge item on the statement of
financial position is, as follows:
Line item in the statement of Carrying amount of hedging instrument Change in fair value of hedging instrument used for measuring ineffectiveness Change in fair value of hedged item used for measuring ineffectiveness for the
US$000 for the period period
Silver ounces Average price US$/ounce financial position
US$000
US$000
2022
Silver forward contracts 3.3 million 25.00 Derivative financial asset 2,186 1,541
1,541
2021
Silver forward contracts 7.5 million 26.03 Derivative financial asset 19,115 13,476 13,476
The hedging gain recognised in OCI before tax on silver forward hedges is
equal to the change in fair value of the hedged item attributable to the
hedged risk used for measuring effectiveness. There is no ineffectiveness
recognised in profit or loss.
Impact of hedging on equity
Set out below is the reconciliation of each component of equity and the
analysis of other comprehensive income:
Interest rate swap Silver forward Total
US$000
US$000
US$000
Balance at 1 January 2021 (4,169) - (4,169)
Reclassification adjustments for items included in the income statement on
realisation:
Transfer to silver sales (revenue) - (7,982) (7,982)
Transfer to finance costs 5,521 - 5,521
Revaluation arising on the year 392 27,097 27,489
Movement in deferred tax (1,744) (5,639) (7,383)
Balance at 31 December 2021 - 13,476 13,476
Reclassification adjustments for items included in the income statement on
realisation:
Transfer to silver sales (revenue) - (20,428) (20,428)
Revaluation arising on the year - 3,499 3,499
Movement in deferred tax - 4,994 4,994
Balance at 31 December 2022 - 1,541 1,541
(f) Liquidity risk
Liquidity risk arises from the Group's inability to obtain the funds it
requires to comply with its commitments, including the inability to sell a
financial asset quickly enough and at a price close to its fair value.
Management constantly monitors the Group's level of short- and medium-term
liquidity, and their access to credit lines, in order to ensure appropriate
financing is available for its operations.
The table below categorises the undiscounted cash flows of Group's financial
liabilities into relevant maturity groupings based on the remaining period as
at the statement of financial position to the contractual maturity date.
Interest cash flows have been calculated using the spot rate at year end.
Less than Between Between Over Total
1 year
1 and
2 and
5 years
US$000
US$000
2 years
5 years
US$000
US$000
US$000
At 31 December 2022
Trade and other payables 125,192 1,623 - - 126,815
Borrowings 61,133 116,729 193,885 - 371,747
Total 186,325 118,352 193,885 - 498,562
At 31 December 2021
Trade and other payables 118,110 1,637 1,177 - 120,924
Borrowings 5,644 30,597 285,387 - 321,628
Total 123,754 32,234 286,564 - 442,552
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.
As at 31 December 2022
Within Between Between Over Total
1 year
1 and
2 and
5 years
US$000
US$000
2 years
5 years
US$000
US$000
US$000
Fixed rate
Assets 89,225 - - - 89,225
Liabilities (16,661) - - - (16,661)
Floating rate
Liabilities (27,328) (100,00) (175,000) - (302,328)
As at 31 December 2021
Within Between Between Over Total
1 year
1 and
2 and
5 years
US$000
US$000
2 years
5 years
US$000
US$000
US$000
Fixed rate
Assets 299,666 - - - 299,666
Floating rate
Liabilities (499) (25,000) (275,000) - 300,499
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$600,000 effect
on profit before tax (2021: -/+US$600,000). The Group is exposed to
fluctuations in market interest rates.
This assumes that the amount remains unchanged from that in place at 31
December 2022 and 2021 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.
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 paid a fixed rate of at 2.534% and received
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 was used to hedge
the exposure to changes in the cashflows of the Group's variable rate
medium-term loan. In accordance with IFRS 9, this derivative instrument was
categorised as a cash flow hedge at the inception of the hedging relationship,
and on an ongoing basis, the Group assessed 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 move in
the opposite direction due to the same risk and, therefore, that 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 Group repaid the interest rate swap on 21 September 2021 paying
US$3,774,000. The Group do not have any interest rate swap in 2022.
The effect recorded was as follows:
US$000
Income statement - Finance costs 5,521
Equity - Cash flow hedge reserve 5,913
(h) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders, benefits for other stakeholders, and to maintain an optimal
capital structure to reduce the cost of capital. Management considers as part
of its capital, the financial sources of funding from shareholders and third
parties (notes 27 and 29).
In 2022 the Group received proceeds from borrowings of US$28,911,000 (2021:
US$105,954,000) whilst US$11,557,000 (2021: US$14,793,000) was repaid. In
addition, in 2022 the Group closed a US$200,000,000 medium term committed debt
facility with Scotiabank and BBVA. The facility is available and subject to
obtaining Inmaculada's MEIA
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.
39 Subsequent events
(a) Hedges
In April 2023, the Group entered into the following hedges to increase cash
flow certainty for the rest of the year and during the construction of Mara
Rosa and its first year of production:
· 29,250 ounces of 2023 gold production at $2,047 per ounce; and
· 27,600 ounces of 2024 gold production at $2,100.
(b) Termination of Snip Option
On 4 April 2023, the Company terminated the option to earn-in a 60% interest
in the Snip project. Termination of the option became effective immediately
and, as a result, the Company has no liability to complete the Aggregate
Expenditure Requirement.
In addition, the Company provided confirmation to Skeena that it had satisfied
the Minimum Annual Expenditure Requirement in respect of the 12-month period
that commenced on 14 October 2022. Accordingly, no cash payment is due under
the terms of the option agreement.
Profit by operation1
(Segment report reconciliation) as at 31 December 2022
Group (US$000) Inmaculada San Jose Pallancata Consolidation adjustment and others Total/HOC
Revenue 413,928 243,469 77,566 680 735,643
Cost of sales (pre consolidation) (249,623) (199,343) (85,733) 7,056 (527,643)
Consolidation adjustment 6,732 (243) 567 (7,056) -
Cost of sales (post consolidation) (242,891) (199,586) (85,166) - (527,643)
Production cost excluding depreciation (156,551) (152,160) (75,472) - (384,183)
Depreciation in production cost (79,760) (48,484) (9,503) - (137,747)
Workers profit sharing (1,777) - (1,544) - (3,321)
Other items (2,525) (5,003) (495) - (8,023)
Change in inventories (2,278) 6,061 1,848 - 5,631
Gross profit 164,305 44,126 (8,167) 7,736 208,000
Administrative expenses - - - (54,158) (54,158)
Exploration expenses - - - (56,826) (56,826)
Selling expenses (796) (12,614) (622) - (14,032)
Other income/(expenses) - - - (35,962) (35,962)
Operating profit before impairment 163,509 31,512 (8,789) (139,210) 47,022
Reversal impairment/(impairment) and write-off of non-current assets, net - - - 9,531 9,531
Share of post-tax losses from associate - - - (11,600) (11,600)
Finance income - - - 5,211 5,211
Finance costs - - - (21,776) (21,776)
Foreign exchange loss - - - (2,622) (2,622)
Profit/(loss) from operations before (160,466) 25,766
income tax
163,509 31,512 (8,789)
Income tax expense - - - (20,934) (20,934)
Profit/(loss) for the year from operations
163,509 31,512 (8,789) (181,400) 4,832
1 On a post-exceptional basis.
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 89 to 91 were prepared by or under the supervision of
Competent Persons (as defined in the JORC Code). Competent Persons are
required to have sufficient relevant experience and understanding of the style
of mineralisation, types of deposits and mining methods in the area of
activity for which they are qualified as a Competent Person under the JORC
Code. The Competent Person must sign off their respective estimates of the
original mineral resource and ore reserve statements for the various
operations and consent to the inclusion of that information in this report, as
well as the form and context in which it appears.
Hochschild Mining PLC employs its own Competent Person who has audited all the
estimates set out in this report. Hochschild Mining Group companies are
subject to a comprehensive programme of audits which aim to provide assurance
in respect of ore reserve and mineral resource estimates. These audits are
conducted by Competent Persons provided by independent consultants. The
frequency and depth of an audit depends on the risks and/or uncertainties
associated with that particular ore reserve and mineral resource, the overall
value thereof and the time that has lapsed since the previous independent
third-party audit.
The JORC Code requires the use of reasonable economic assumptions. These
include long-term commodity price forecasts (which, in the Group's case, are
prepared by ex-house specialists largely using estimates of future supply and
demand and long-term economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing economic
conditions, technical issues, environmental regulations and any other relevant
new information and therefore these can vary from year-to-year. Mineral
resource estimates can also change and tend to be influenced mostly by new
information pertaining to the understanding of the deposit and secondly the
conversion to ore reserves.
The estimates of ore reserves and mineral resources are shown as at 31
December 2022, 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$24.0 per ounce.
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2022
Reserve category Proved and probable Ag Au Ag Au Ag Eq
(t)
(g/t)
(g/t)
(moz)
(koz)
(moz)
OPERATIONS¹
Inmaculada
Proved 1,150,208 178 4.1 6.6 152.2 18.0
Probable 4,061,192 149 3.5 19.4 456.6 53.7
Total 5,211,400 155 3.6 26.0 608.8 71.7
Pallancata
Proved 260,868 236 1.1 2.0 9.0 2.7
Probable 83,149 199 1.2 0.5 3.2 0.8
Total 344,017 227 1.1 2.5 12.1 3.4
San Jose
Proved 261,412 337 5.9 2.8 50.0 6.6
Probable 218,141 346 6.9 2.4 48.2 6.0
Total 479,553 341 6.4 5.3 98.2 12.6
Mara Rosa
Proved 11,791,000 - 1.2 - 455.8 34.2
Probable 12,014,000 - 1.2 - 446.2 33.5
Total 23,805,000 - 1.2 - 902.0 67.6
GRAND TOTAL
Proved 13,463,488 26 1.5 11.4 666.9 61.4
Probable 16,376,482 43 1.8 22.4 954.3 94.0
TOTAL 29,839,970 35 1.7 33.8 1,621.2 155.4
Note: Where reserves are attributable to a joint venture partner, reserve
figures reflect the Company's ownership only. Includes discounts for ore loss
and dilution.
1 Operations were audited by P&E Consulting.
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2022(1,2)
Resource category Tonnes Ag Au Ag Eq Ag Au Ag Eq
(t) (g/t) (g/t) (g/t) (moz) (koz) (moz)
OPERATIONS
Inmaculada
Measured 1,942,000 184 4.39 514 11.5 274.2 32.1
Indicated 5,651,000 158 3.79 442 28.6 688.2 80.2
Total 7,593,000 164 3.94 460 40.1 962.3 112.3
Inferred 11,272,000 96 2.49 283 34.9 902.2 102.5
Pallancata
Measured 1,409,000 296 1.36 398 13.4 61.5 18.0
Indicated 706,000 238 1.11 321 5.4 25.1 7.3
Total 2,115,000 277 1.27 372 18.8 86.6 25.3
Inferred 3,702,000 452 1.70 579 53.8 202.7 69.0
San Jose
Measured 701,760 483 8.07 1,088 10.9 182.0 24.6
Indicated 467,160 386 6.66 885 5.8 100.0 13.3
Total 1,168,920 444 7.50 1,007 16.7 282.0 37.9
Inferred 1,051,110 404 5.99 854 13.7 202.5 28.8
Mara Rosa
Measured 13,600,000 - 1.20 90 - 510.0 38.3
Indicated 18,700,000 - 1.10 83 - 640.0 48.0
Total 32,300,000 - 1.10 83 - 1,150.0 86.3
Inferred 100,000 - 0.52 39 - 1.7 0.1
GROWTH PROJECTS
Crespo
Measured 5,211,000 47 0.47 82 7.9 78.6 13.8
Indicated 17,298,000 38 0.40 68 20.9 222.5 37.6
Total 22,509,000 40 0.42 71 28.8 301.0 51.4
Inferred 775,000 46 0.57 88 1.1 14.2 2.2
Azuca
Measured 191,000 244 0.77 302 1.5 4.7 1.9
Indicated 6,859,000 187 0.77 244 41.2 168.8 53.8
Total 7,050,000 188 0.77 246 42.7 173.5 55.7
Inferred 6,946,000 170 0.89 237 37.9 199.5 52.9
Volcan
Measured 123,979,000 - 0.700 53 - 2,792.0 209.4
Indicated 339,274,000 - 0.643 48 - 7,013.0 526.0
Total 463,253,000 - 0.658 49 - 9,804.0 735.3
Inferred 75,018,000 - 0.516 39 - 1,246.0 93.5
Arcata
Measured 834,000 438 1.35 539 11.7 36.1 14.4
Indicated 1,304,000 411 1.36 512 17.2 56.9 21.5
Total 2,138,000 421 1.35 523 29.0 93.0 35.9
Inferred 3,533,000 371 1.26 465 42.1 142.6 52.8
GRAND TOTAL
Measured 147,867,760 12 0.83 74 57.0 3,939.1 352.4
Indicated 390,259,160 9 0.71 63 119.2 8,914.4 787.7
Total 538,126,920 10 0.74 66 176.1 12,852.5 1,140.1
Inferred 102,397,110 56 0.88 122 183.4 2,911.4 401.8
1 Prices used for resources calculation: Au: $1,800/oz and Ag: $24.0/oz
and Ag/Au ratio of 75x.
2 Tables represents 100 % of the Mineral Resource. Resources are inclusive
of Reserves.
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Ag equivalent content (million ounces) Category Percentage attributable December December 2022 Net difference % change
December
2021
Att.¹
2022
Att.¹
Inmaculada Resource 100% 235.4 214.8 (20.6) (8.7%)
Reserve 87.0 71.7 (15.3) (17.6%)
Pallancata Resource 100% 45.2 94.3 49.0 108.4%
Reserve 9.2 3.4 (5.7) (62.6%)
San Jose Resource 51% 64.9 66.7 1.8 2.8%
Reserve 18.8 12.6 (6.2) (33.0%)
Mara Rosa Resource 100% - 86.4 86.4 -
Reserve - 67.6 67.6 -
Crespo Resource 100% 53.6 53.6 - -
Reserve - - - -
Azuca Resource 100% 108.6 108.6 - -
Reserve - - - -
Volcan Resource 100% 716.2 828.8 112.6 15.7%
Reserve - - - -
Arcata Resource 100% 88.7 88.7 - -
Reserve - - - -
Total Resource 1,312.6 1,541.9 229.3 17.5%
Reserve 115.0 155.4 40.4 35.1%
1 Attributable reserves and resources based on the Group's percentage
ownership of its joint venture projects.
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).
17 Cavendish Square
London
W1G 0PH
United Kingdom
1 Revenue presented in the financial statements is disclosed as net revenue
and is calculated as gross revenue less commercial discounts plus services
revenue
(2)Please see the Financial Review page 17 for a definition of Adjusted EBITDA
3 2022 and 2021 equivalent figures calculated using the previous Company
gold/silver ratio of 72x. All 2022 forecasts assume the average 2022
gold/silver ratio of 83x.
4All-in sustaining cost per (AISC) silver equivalent ounce: Calculated before
exceptional items and includes production cost excluding depreciation, other
items and workers profit sharing in cost of sales, administrative expenses
(excl depreciation), brownfield exploration, operating and exploration capex
and royalties and special mining tax (presented with income tax) divided by
silver or gold equivalent ounces produced, plus commercial deductions and
selling expenses divided by silver or gold equivalent ounces sold using a
gold/silver ratio of 72:1.
5 Calculated as total number of accidents per million labour hours
(( 6 ))Calculated as total number of days lost per million labour hours.
7 The ECO Score is an internally designed Key Performance Indicator measuring
environmental performance in one number and encompassing numerous fronts
including management of waste water, outcome of regulatory inspections and
sound environmental practices relating to water consumption and the recycling
of materials.
8 Includes revenue from services
9 Unit cost per tonne is calculated by dividing mine and treatment production
costs (excluding depreciation) by extracted and treated tonnage respectively
10 Cash costs are calculated to include cost of sales, commercial discounts
and selling expenses items less depreciation included in cost of sales
(( 11 ))Does not include Fixed costs during operational stoppages and reduced
capacity of $8.0 million
12 Includes commercial discounts (from the sales of concentrate) and
commercial discounts from the sale of dore
(( 13 ))Does not include Fixed costs during operational stoppages and reduced
capacity of $8.7 million
14 Includes commercial discounts (from the sales of concentrate) and
commercial discounts from the sale of dore
15 Calculated using a gold/silver ratio of 72:1
16 Operating capex from San Jose does not include capitalised DD&A
resulting from mine equipment utilised for mine developments
17 Royalties arising from revised royalty tax schemes introduced in 2011 and
included in income tax line
18 Operating capex from San Jose does not include capitalised DD&A
resulting from mine equipment utilised for mine developments
19 Royalties arising from revised royalty tax schemes introduced in 2011 and
included in income tax line
20 Adjusted EBITDA has been presented before the effect of significant
non-cash (income)/expenses related to changes in mine closure provisions which
were $22.1 million in 2021 and $16.1 million in 2020, and the write-off of
property, plant and equipment
21 Includes pre-shipment loans and short term interest payables
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