REG - Hochschild MiningPLC - Interim Results
17/08/2022 07:00
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RNS Number : 2562W Hochschild Mining PLC 17 August 2022
17 August 2022
Hochschild Mining PLC
Interim Results
Six months ended 30 June 2022
PRODUCTION AND COSTS ON TRACK WITH FULL YEAR GUIDANCE UNCHANGED
STRONG PROGRESS AT KEY GROWTH PROJECTS
Financial Highlights
§ Revenue of $347.8 million (H1 2021: $394.8 million)(( 1 ))
§ Adjusted EBITDA of $130.5 million (H1 2021: $198.5 million)(( 2 ))
§ Profit before income tax (pre-exceptional) of $15.3 million (H1 2021: $97.8
million)
§ Profit before income tax (post-exceptional) of $5.4 million (H1 2021: $83.8
million)
§ Basic earnings per share (pre-exceptional) of $0.01 (H1 2021: $0.08)
§ Basic loss per share (post-exceptional) of $(0.01) (H1 2021: $0.07)
§ Cash and cash equivalent balance of $204.3 million as at 30 June 2022 (31
December 2021: $386.8 million) following completion of the Amarillo
acquisition on 1 April
§ Net debt of $109.3 million as at 30 June 2022 (31 December 2021: net cash
of $86.3 million)
§ Interim dividend of 1.95 cents per share totalling $10.0 million (H1 2021:
1.95 cents per share totalling $10.0 million)
Operational Highlights 3
§ All-in sustaining costs (AISC) from operations of $1,371 per gold
equivalent ounce (H1 2021: $1,055) or $19.0 per silver equivalent ounce (H1
2021: $14.7) 4 , in line with guidance
§ H1 2022 attributable production of 166,708 gold equivalent ounces or 12.0
million silver equivalent ounces (H1 2021: 188,509 gold equivalent ounces or
13.6 million silver equivalent ounces)
Project & Exploration Highlights
§ Mara Rosa project in Brazil is advancing on schedule - total project
progress to date is 9% with a key environmental authorisation announced on 10
August and first production on track for H1 2024
§ Drilling commenced at Snip with encouraging results, pre-feasibility study
to be completed by end of 2022
§ Brownfield programme conducted in the surrounding areas of all three mines
o Pallancata medium-term drill programme delivering positive results -
continuing to test short-term targets
o Exploration commenced at Ciclon project in Santa Cruz, Argentina
2022 outlook
§ On track to deliver overall 2022 production target of 360,000-375,000 gold
equivalent ounces or 26.0-27.0 million silver equivalent ounces
§ 2022 AISC on track to meet guidance of $1,330 - $1,370 per gold equivalent
ounce or $18.5-$19.0 per silver equivalent ounce
ESG highlights
§ 2021 Sustainability Report recently published
§ Lost Time Injury Frequency Rate of 1.28 (FY 2021: 1.26)(( 5 ))
§ Accident Severity Index of 72 (FY 2021: 676)(( 6 ))
§ Water consumption of 175lt/person/day (FY 2021: 193lt/person/day)
§ Domestic waste generation of 1.01 kg/person/day (FY 2021:
1.00kg/person/day)
§ ECO score of 5.35 out of 6 (FY 2021: 5.29)(( 7 ))
$000 unless stated Six months to 30 June 2022 Six months to 30 June 2021 % change
Attributable silver production (koz) 5,065 5,922 (14)
Attributable gold production (koz) 96 106 (9)
Revenue 347,781 394,750 (12)
Adjusted EBITDA 130,525 198,504 (34)
Profit/(loss) from continuing operations (pre-exceptional) 9,503 38,065 (75)
Profit/(loss) from continuing operations (post-exceptional) (420) 28,594 (101)
Basic earnings/(loss) per share (pre-exceptional) $ 0.01 0.08 (88)
Basic earnings/(loss) per share (post-exceptional) $ (0.01) 0.07 (114)
_______________________________________________________________________________________
A live conference call and audio webcast will be held at 2.00pm (London time)
on Wednesday 17 August 2022 for analysts and investors.
For a live webcast of the presentation please click on the link below:
https://stream.brrmedia.co.uk/broadcast/62cf10ef287bf548a3b8d1d2
(https://stream.brrmedia.co.uk/broadcast/62cf10ef287bf548a3b8d1d2)
Conference call dial in details:
UK: +44 (0)330 165 4012
UK Toll Free: 0800 279 6877
US/Canada Toll Free: 800-289-0720
Pin: 8806529
_______________________________________________________________________________________
Investor Meet Company presentation
Hochschild will provide a live presentation relating to the Interim Results
via the Investor Meet Company platform today at 4.00PM (BST).
The presentation is open to all existing and potential shareholders. Questions
can be submitted via the Investor Meet Company platform at any time during the
live presentation.
Investors can sign up to Investor Meet Company for free and add to meet
Hochschild Mining PLC via the following link. Investors who already
follow the Company on the Investor Meet Company platform will automatically
be invited.
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_______________________________________________________________________________________
Enquiries:
Hochschild Mining PLC
Charles Gordon
+44
(0)20 3709 3264
Head of Investor Relations
Hudson Sandler
Charlie Jack
+44 (0)207 796 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
IGNACIO BUSTAMANTE, CHIEF EXECUTIVE OFFICER SAID:
In the first half of 2022, we have once again seen a period of global turmoil
which has significantly impacted both commodity markets and the local
political and economic environments in which Hochschild operates. The response
from our teams has been highly commendable and we remain well positioned to
meet all our 2022 priorities. These include delivering on our production and
cost targets, investment in our Mara Rosa project in Brazil and meeting our
ESG commitments which are focused on the wellbeing of our employees, the
environment and the communities in our areas of influence.
Following the Russian invasion of Ukraine in late February, all commodities
rose strongly in response to expected supply deficits or as stores of value
with gold passing $2,000 per ounce in early March. But since then, with
inflation increasing substantially and the resulting steep interest rate rises
likely to lead to dollar strength and global recession, we have seen a major
pullback in our underlying commodities with gold and silver prices falling
substantially from their recent peaks. This volatile market environment has
presented challenges for our business but we can look forward to a busy second
half with opportunities for value accretive investment in exploration and
project development across our portfolio.
ESG
We have made further good progress on our ESG performance in the first-half.
On the subject of safety, the implementation of the second iteration of our
Safety Culture Transformation Plan, was extended to our new locations in
Brazil and Canada whilst, in Peru, we commenced a risk perception training
programme focussing on the subject of workplace accidents. I am happy to
report that our historically low safety KPIs (as at 30th June) are indicative
of the success of this and other safety-related initiatives.
The Company has also had a busy six months with regards to environmental
management. As at 30 June, we have achieved an excellent ECO score of 5.35 out
of 6 (FY 2022 Target: 5.0), with two of our operations achieving a perfect
score to date. In addition, we have made considerable progress on our
environmental culture transformation programme. This seeks to embed an
environmentally conscious culture across all areas of our business. Meanwhile,
we continue to work to achieve a positive impact in the local communities
surrounding our operations involving collaboration with full respect for local
customs and social dynamics. Our efforts have been focussed on: local
employment; procurement of local goods and services; investments in education,
connectivity, health and nutrition and socio-economic development; and
supporting local governments.
Following the publication of a Global Industry Standard on Tailings Management
by the International Council on Mining and Metals last year, we commenced a
review of the governance of our Tailings Storage Facilities ("TSFs"). This
led to the adoption, by the Board, of a Tailings Management Policy which has
initiated several workstreams including the allocation of responsibilities for
internal and external oversight of our TSFs. Finally, I am delighted that
following the appointment of our first Sustainability Director, we continue to
progress with our reporting on overall ESG matters with the recent publication
of our 2021 Sustainability Report. Our next key milestone will be the
publication of our roadmap to achieving Net Zero by 2050.
Operations
Hochschild's production in the first half was in line with our expectations.
This was achieved despite more disruption at San Jose from Covid as well as a
fire in the mine's crushing area which temporarily affected operations but did
not impact our full-year production forecasts. Attributable production was
166,708 gold equivalent ounces (12.0 million silver equivalent ounces), which
was lower than the first half of 2021 due to declining grades at Pallancata,
scheduled lower grades at Inmaculada, and the stoppages at San Jose. This was
delivered at an all-in sustaining cost ("AISC") of $1,371 per gold equivalent
ounce ($19.0 per silver equivalent ounce). Inmaculada had another solid half
with production of 111,766 gold equivalent ounces (H1 2021: 117,975 ounces)
and AISC in line with expectations at $1,015 per gold equivalent ounce (H1
2021: $890 per ounce). Although costs are in line with guidance, the Company
has started a cost optimisation plan to contend with inflationary pressures
and commodity price volatility.
Pallancata's current mining area is almost depleted, and grades have been
declining for several quarters with the result that the Company has updated
the mine plan for 2022 and is considering all geological options with regards
to the mine's future. Output reflected the declining grades and was 1.6
million silver equivalent ounces (H1 2021: 2.5 million ounces) with the mine's
AISC unsurprisingly higher at $33.1 per silver equivalent ounce (H1 2021:
$18.0 per ounce). In Argentina, the above-mentioned Covid and operational
issues led to production of 4.7 million silver equivalent ounces in the first
half (H1 2021: 5.0 million ounces) and also affected AISC which were at $22.9
per silver equivalent ounce (H1 2021: $16.9 per ounce).
Projects
The Hochschild project pipeline has been transformed in the last year with the
purchase of Amarillo Gold in Brazil, which we completed on 1 April, and the
commencement of earning-in 60% of Skeena Resource's interest in the Snip Gold
project in British Columbia, Canada. Both projects deliver the prospect of
near to medium-term growth and are expected to be highly value accretive
additions to our portfolio with strong geological upside.
At the Mara Rosa project in the state of Goias in Brazil, we have made strong
progress in the second quarter since taking control. We are now at 9% total
completion with many long lead-time items already purchased and site
preparation well advanced. A key remaining permit has recently been granted
which will enable the team to start construction of the processing plant and
other site infrastructure. We remain on track for first production at this
low-cost project in the first half of 2024 and will provide regular progress
updates over the next few quarters.
The first half was also one of solid progress at the Snip project. Work on a
pre-feasibility study began and included metallurgical work, processing plant
designs and resource model updates. A drill campaign also commenced and has
already delivered some encouraging intercepts with assay results expected
through to the end of the year when we expect to complete the overall study.
Exploration
Our brownfield exploration programme started in the first half in the
surrounding areas of all three of our mines. We have seen a good set of
drilling results at Pallancata which, although outside the current permitted
area, could represent the medium-term future for the mine. We will also
continue to test our short-term targets close to the current mining operations
for the remainder of the year. At San Jose, exploration also continued in the
area surrounding the mine but in addition we began drilling the Ciclon project
which is further away from the San Jose district and is one of a number of
greenfield projects we control in the wider Santa Cruz province. Finally, at
Inmaculada, we have decided to slow the brownfield exploration programme given
that the resources added in the last few years have taken the mine-life to
well over ten years and it is currently a strategic priority to allocate cash
for capital expenditure requirements at our Mara Rosa advanced project.
Financial results
Both silver and gold production were lower, as guided, versus H1 2021 and
consequently, when combined with a 10% fall in the average silver price
achieved (partially offset by a 6% rise in the average gold price achieved),
revenue decreased by 12% to $347.8 million (H1 2021: $394.8 million). AISC was
$1,371 per gold equivalent ounce (H1 2021: $1,055 per ounce) with the rise
reflecting the scheduled decreased production at Inmaculada and Pallancata,
and the stoppages at San Jose. Adjusted EBITDA of $130.5 million (H1 2021:
$198.5 million) mostly reflects the decreased production levels and increased
costs whilst pre-exceptional earnings per share were $0.01 (H1 2021: $0.08 per
share). Post-exceptional earnings per share were also lower at ($0.01) (H1
2021: $0.07), and include an impairment of $9.9 million in the investment in
Aclara Resources Inc.
Financial position
Our balance sheet remains in a good position to fund our future capital
requirements following the completion of the Amarillo Gold acquisition on 1
April 2022 ($123.4 million), with cash and cash equivalents of $204.3 million
at the end of June (31 December 2021: $386.8 million) and net debt of $109.3
million (31 December 2021: net cash $86.3 million).
Outlook
Political, social and economic risks in Latin America as a whole remain
elevated. Consequently, we are closely monitoring any new legislative,
regulatory and local initiatives which could impact our exploration and
operational activities. Nonetheless, we look forward to the second half which
will feature further investment in our exciting Mara Rosa project as well as a
pre-feasibility study at the Snip project. In addition, in Peru we can expect
the completion of the modified Environmental Impact Study for Inmaculada and
further brownfield exploration at Pallancata which aims to secure the
medium-term future of the mine whilst we assess the short-term geological
viability of the current mining area.
In such a complex world, our strategic direction remains firm, and we are
sticking to our purpose - responsible and innovative mining committed to a
better world. I am grateful to all our stakeholders for their continued
support. The past year has shown our ability to operate through challenging
times and we are confident that Hochschild has the experience and expertise to
deliver on our ambitious strategic initiatives going forward. The Board is
pleased to declare an interim dividend of 1.95 cents per share ($10.0
million).
OPERATING REVIEW
OPERATIONS
Note: All 2022 and 2021 silver/gold equivalent production figures assume a
gold/silver ratio of 72:1.
Production
In H1 2022, Hochschild delivered attributable production of 166,708 gold
equivalent ounces or 12.0 million silver equivalent ounces (on an attributable
basis) with the decrease versus the same period of 2021 resulting from planned
lower production at Inmaculada and Pallancata, as well as the impact of
stoppages at San Jose in the first quarter.
Total group production
Six months to Six months to
30 June 2022 30 June 2021
Silver production (koz) 6,105 7,021
Gold production (koz) 113.94 125.07
Total silver equivalent (koz) 14,309 16,027
Total gold equivalent (koz) 198.74 222.59
Silver sold (koz) 6,045 7,005
Gold sold (koz) 112.70 124.32
Total production includes 100% of all production, including production
attributable to Hochschild's minority shareholder at San Jose.
Attributable group production
Six months to Six months to
30 June 2022 30 June 2021
Silver production (koz) 5,065 5,922
Gold production (koz) 96.36 106.26
Silver equivalent (koz) 12,003 13,573
Gold equivalent (koz) 166.71 188.51
Attributable production includes 100% of all production from Inmaculada and
Pallancata and 51% from San Jose.
The Company remains on track to meet its overall attributable production
target for 2022 of 360,000-375,000 gold equivalent ounces or 26.0-27.0 million
silver equivalent ounces. Grades at Inmaculada are expected to rise in the
second half of the year, although this will be offset by Pallancata's
lower-than-budgeted grades throughout 2022 and therefore the Company has
modified the full year production split as follows:
Revised attributable 2022 Production forecast split
Operation Oz Au Eq Moz Ag Eq
Inmaculada 233,000-239,000 16.8-17.2
Pallancata 47,000-51,000 3.4-3.6
San Jose 80,000-85,000 5.8-6.2
Total 360,000-375,000 26.0-27.0
Costs
AISC from operations in H1 2022 was $1,371 per gold equivalent ounce or $19.0
per silver equivalent ounce (H1 2021: $1,055 per gold equivalent ounce or
$14.7 per silver equivalent ounce), higher than H1 2021 mainly due to lower
average grades and higher costs and capex. In light of the revised 2022
production split detailed above, the following is a revised AISC split by
operation:
Revised 2022 AISC forecast split
Operation $/oz Au Eq $/oz Ag Eq
Inmaculada 1,070-1,100 14.8-15.3
Pallancata 2,130-2,170 29.6-30.1
San Jose 1,500-1,540 20.8-21.4
Total from operations 1,330-1,370 18.5-19.0
Inmaculada
The 100% owned Inmaculada gold/silver underground operation is located in the
Region of Ayacucho in southern Peru. It commenced operations in 2015.
Inmaculada summary Six months to Six months to % change
30 June 2022 30 June 2021
Ore production (tonnes) 657,202 672,137 (2)
Average silver grade (g/t) 145 160 (9)
Average gold grade (g/t) 3.61 3.92 (8)
Silver produced (koz) 2,815 2,777 1
Gold produced (koz) 72.67 79.40 (8)
Silver equivalent produced (koz) 8,047 8,494 (5)
Gold equivalent produced (koz) 111.77 117.98 (5)
Silver sold (koz) 2,805 2,769 1
Gold sold (koz) 72.72 79.49 (9)
Unit cost ($/t) 111.8 93.6 19
Total cash cost ($/oz Au co-product) 679 547 24
All-in sustaining cost ($/oz Au Eq) 1,015 890 14
Production
In the first half of 2022, Inmaculada produced 111,766 gold equivalent ounces
(H1 2021: 117,975 ounces). As expected, grades were lower than H1 2021
although this was partially offset by higher recoveries. Overall, H1 2022
production was better than expected.
The Company is currently in the final stages of the permitting process of
Inmaculada's modified Environmental Impact Study with completion expected
during H2.
Costs
AISC was $1,015 per gold equivalent ounce (H1 2021: $890 per ounce). The
increase is mainly explained by industry inflation affecting fuel, reagents,
and supplies. In addition, there was a lower proportion of mechanised mining.
Finally, the comparison was affected by capital expenditure deferrals in H1
2021, mainly mine development.
Pallancata
The 100% owned Pallancata silver/gold property is located in the Region of
Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from
Pallancata is transported 22km to the Selene plant for processing.
Pallancata summary Six months to Six months to % change
30 June 2022 30 June 2021
Ore production (tonnes) 259,058 289,002 (10)
Average silver grade (g/t) 159 237 (33)
Average gold grade (g/t) 0.72 0.86 (16)
Silver produced (koz) 1,167 2,000 (42)
Gold produced (koz) 5.39 7.28 (26)
Silver equivalent produced (koz) 1,556 2,525 (38)
Gold equivalent produced (koz) 21.60 35.06 (38)
Silver sold (koz) 1,160 2,000 (42)
Gold sold (koz) 5.36 7.29 (26)
Unit cost ($/t) 137.4 106.0 30
Total cash cost ($/oz Ag co-product) 24.0 15.6 54
All-in sustaining cost ($/oz Ag Eq) 33.1 18.0 84
Production
In H1 2022, Pallancata produced 1.6 million silver equivalent ounces (H1 2021:
2.5 million ounces). Grades have been lower than expected throughout the first
half and consequently, with the rapid fall in the silver price in the period,
the Company has updated the mine plan for 2022 and is considering all
geological options with regards to future ore production from the Pallancata
mining area.
Costs
AISC was $33.1 per silver equivalent ounce (H1 2021: $18.0 per ounce). Costs
were increased versus H1 2021 mainly due to lower grades, inflation, and a
higher proportion of conventional mining resulting in higher personnel
expenses.
San Jose
The San Jose silver/gold mine is located in Argentina, in the province of
Santa Cruz, 1,750km south west of Buenos Aires. San Jose commenced production
in 2007. Hochschild holds a controlling interest of 51% in the mine and is the
mine operator. The remaining 49% is owned by the minority interest, McEwen
Mining Inc.
San Jose summary Six months to Six months to % change
30 June 2022 30 June 2021
Ore production (tonnes) 205,359 246,194 (17)
Average silver grade (g/t) 365 321 14
Average gold grade (g/t) 6.19 5.45 14
Silver produced (koz) 2,123 2,244 (5)
Gold produced (koz) 35.88 38.40 (7)
Silver equivalent produced (koz) 4,706 5,008 (6)
Gold equivalent produced (koz) 65.37 69.56 (6)
Silver sold (koz) 2,080 2,236 (7)
Gold sold (koz) 34.62 37.54 (8)
Unit cost ($/t) 309.6 208.6 48
Total cash cost ($/oz Ag co-product) 13.6 12.6 8
All-in sustaining cost ($/oz Au Eq) 1,649 1,214 36
Production
The first half at San Jose in Argentina is traditionally a shorter operational
period due to the scheduled hourly workers' holiday which was taken during
January this year. However, in the first quarter the operation also continued
to be impacted by Covid-related employee absences and also by a fire in the
crushing area, which temporarily affected operations but without any impact on
full year production forecasts or costs (which are expected to be covered by
insurance). Tonnage was consequently lower than expected although gold grades
were higher than forecast resulting in production of 4.7 million silver
equivalent ounces (H1 2021: 5.0 million ounces).
Costs
AISC was $1,649 per gold equivalent ounce (H1 2021: $1,214 per ounce), higher
versus H1 2021 due to inflation affecting production costs, higher mine
development capital expenditure and lower production. This was partially
offset by local currency devaluation. The company has started a cost
optimisation plan to mitigate inflationary pressures and commodity price
volatility.
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.
The Mara Rosa project is progressing according to schedule with the following
key highlights:
§ Total project progress currently 9%
§ Detailed engineering 80% complete
§ Long lead time equipment (e.g. ball mills and filters) purchased
§ Metso 3-stage crusher being delivered to site
§ Construction earthworks ongoing (B1 Water Reservoir, waste storage
facilities)
§ Mining pre-stripping contracts progressing
§ Project powerline construction ongoing
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 allows all the required site
infrastructure for progressing the project's critical paths. Capital
expenditure for 2022 has been revised from $120 million to a range of between
$90 million and $110 million.
DEVELOPMENT PROJECT: SNIP
Exploration recommenced during the first quarter of 2022, with approximately
2,500m drilled from underground. Work also began this half on the
Pre-Feasibility Study, 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 which were all completed. Processing
plant designs and an updated resources model are expected to conclude in Q3.
The full study remains on track for completion at the end of the year. In
addition, a new 2-year Environmental Baseline program was approved and data
collection began.
A Communications and Engagement Agreement with the Tahltan Central Government
was signed at the beginning of the year with constructive discussions between
the two parties continuing.
The Company issued an updated mineral resource estimate on 1 March 2022.
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.
Assays were received from Skeena Resources for 34 drill holes drilled in 2021,
with potential resource additions from the following intercepts:
Hole From To Length Au
(m) (m) (m) (g/t)
S21-125 46.7 48.8 2.1 14.5
S21-126 25.0 27.0 2.0 41.4
S21-135 155.5 158.0 2.5 15.6
S21-142 13.5 14.8 1.3 24.2
S21-142 19.7 21.8 2.1 12.2
S21-151 25.4 26.6 1.2 12.5
Possible new veins were identified with the following results:
Hole From To Length Au
(m) (m) (m) (g/t)
S21-125 65.8 66.9 1.1 56.3
S21-137 446.0 447.1 1.1 13.5
S21-139 249.0 252.0 3.0 48.8
S21-139 217.4 218.0 0.6 48.9
S21-155 201.5 204.0 2.5 15.1
During the second quarter, approximately 7,300m was drilled by Hochschild from
underground, with all "twin" holes completed by the end of the quarter. Work
in the third quarter will be focused on finishing the "infill" and "potential"
holes in the programme and logging the resultant core. Assay results are
expected through to the end of the year.
Assay results were received during the period, with the following highlights:
Vein Results (Twin hole)
215 UG22-297: 2.3m @ 9.5g/t Au & 11g/t Ag
215 UG22-289: 8.0m @ 20.2g/t Au & 10g/t Ag
221 UG22-291: 3.8m @ 11.8g/t Au & 13g/t Ag
226 UG22-289: 8.7m @ 5.8g/t Au & 6g/t Ag
233 UG22-297: 4.6m @ 35.0g/t Au & 11g/t Ag
246 UG22-293: 2.3m @ 18.8g/t Au & 8g/t Ag
The Company has increased the 2022 budget from $9 million to $19 million with
the increase mostly reflecting the addition of work on the baseline study.
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. The Company is currently evaluating strategic alternatives for Tiernan.
During the half, work continued to advance the Volcan 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 expects
to advance several trade-off studies aimed at creating additional project
value. The results of the engineering work are expected to be outlined in a
new technical report for Volcan.
BROWNFIELD EXPLORATION
Inmaculada
In the first half, most of the drilling at Inmaculada was in the second
quarter with potential drilling at the Huarmapata area and resource drilling
in the Josefa vein and the Union Shakira vein. Drilling totalled 4,200m with
the best result below from the Josefa vein:
Vein Results (potential/resource drilling)
Josefa IMM22-139: 2.8m @ 1.9g/t Au & 43g/t Ag
During Q3, the plan is to carry out 6,000m of further drilling in the Josefa
vein.
Pallancata
At Pallancata, the year started with 3,139m of potential drilling in the
Ranichico, Pallancata and Pablo zones and also 6,135m of resource drilling in
the Laura-Demian and Miriam structures, with drilling intercepting quartz
sulphide veins and grades of 250-300 silver equivalent grammes per tonne.
Subsequently, 12,500m of resource drilling was executed in the second quarter
at Laura-Demian, Royropata and Miriam. Whilst the results are encouraging, the
structures are outside the current permitted area and will require new permits
before they can be brought into the mine plan. Quartz-sulfide veins were
intercepted with grades of between 250 and 1,600 silver equivalent grams per
tonne. Selected results from H1 are below:
Vein Results (potential/resource drilling)
Miriam DHLMIR-A13: 1.8m @ 1.5g/t Au & 261g/t Ag
DHLMIR-A14: 0.8m @ 1.9g/t Au & 371g/t Ag
DHMIR-A16: 1.3m @ 1.0g/t Au & 155g/t Ag
Rina DHLRI-A187: 0.8m @ 11.6g/t Au & 47g/t Ag
Virgen de Carmen DHLRI-A187: 2.0m @ 1.6g/t Au & 303g/t Ag
Demian DLDE-A02: 2.5m @ 0.9g/t Au & 303g/t Ag
DLDE-A03: 3.8m @ 0.8g/t Au & 184g/t Ag
DLRY-A08: 1.1m @ 4.1g/t Au & 820g/t Ag
Laura DLDE-A04: 6.1m @ 0.8g/t Au & 251g/t Ag
DLLAU-A08: 1.3m @ 0.5g/t Au & 274g/t Ag
DLLAU-A09: 0.9m @ 4.7g/t Au & 286g/t Ag
DLLAU-A11: 1.9m @ 0.9g/t Au & 298g/t Ag
Royropata DLDE-A06: 4.2m @ 0.6g/t Au & 224g/t Ag
DLRY-A08: 1.5m @ 1.1g/t Au & 345g/t Ag
Royropata 2 DLDE-A06: 1.3m @ 3.0g/t Au & 1,039g/t Ag
DLRY-A08: 3.0m @ 1.8g/t Au & 596g/t Ag
Royropata 4 DLDE-A06: 17.8m @ 1.2g/t Au & 384g/t Ag
DLRY-A08: 5.1m @ 2.3g/t Au & 647g/t Ag
Royropata 5 DLDE-A06: 2.3m @ 3.0g/t Au & 1,446g/t Ag
During Q3, there will be 2,000m of further drilling in the vein structures in
the Royropata system.
San Jose
In H1 2022, 5,600 of potential drilling was executed around the mine area and
in the Saavedra area and also 2,000m of resource drilling in the Olivia and
Celina veins, as well starting to explore the Ciclon project (700m of
drilling) further away in the Santa Cruz province. Selected results from H1
are below:
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
Ciclon DCE22-02: 2.9m @ 1.0g/t Au & 615g/t Ag
During Q3, 2,000m of potential drilling will be carried out on the Ayelen SE
to find new resources.
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 periods.
Revenue
Gross revenue 8
Gross revenue from continuing operations decreased by 12% to $354.7 million in
H1 2022 (H1 2021: $404.4 million) due to the lower average realised silver
prices, and lower silver and gold production. Output was mainly impacted by
lower grades in Pallancata, and lower treated tonnage in San Jose due to
Covid-related employee absences and a fire in the crushing area which
temporarily affected operations. These were partially offset by a higher
average realised gold price.
In February 2021, the Company hedged 4 million ounces of 2021 silver
production at $27.10 per ounce and 4 million ounces of 2022 silver production
at $26.86 per ounce. As of June 2022, 2.00 million silver ounces (H1 2021:
1.82 million) were priced at $26.86 (H1 2021: $27.10) per ounce, boosting the
realised price.
Gold
Gross revenue from gold in H1 2022 decreased to $211.3 million (H1 2021:
$220.3 million) due to lower gold produced across all operations. This was
partially offset by a 6% increase in the average realised gold price.
Silver
Gross revenue decreased in H1 2022 to $143.4 million (H1 2021: $184.1 million)
mainly due to a 10% decrease in the average realised silver price and lower
silver production at Pallancata due to lower tonnage treated and grades.
Gross average realised sales prices
The following table provides figures for average realised prices (before the
deduction of commercial discounts) and ounces sold for H1 2022 and H1 2021:
Average realised prices Six months to Six months to
30 June 2022 30 June 2021
Gold ounces sold (koz) 112.70 124.32
Avg. realised gold price ($/oz) 1,875 1,772
Silver ounces sold (koz) 6,045 7,005
Avg. realised silver price ($/oz) 23.7 26.3
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 H1 2022,
the Group recorded commercial discounts of $7.2 million (H1 2021: $9.8
million) with the fall explained by the decrease in production. The ratio of
commercial discounts to gross revenue in H1 2022 was 2.0% (H1 2021: 2.4%).
Net revenue
Net revenue was $347.8 million (H1 2021: $394.8 million), comprising net gold
revenue of $208.7 million (H1 2021: $217.3 million) and net silver revenue of
$138.8 million (H1 2021: $177.3 million). In H1 2022, gold accounted for 60%
and silver for 40% of the Company's consolidated net revenue (H1 2021: gold
55% and silver 45%).
Reconciliation of gross revenue by mine to Group net revenue
$000 Six months to Six months to % change
30 June 2022 30 June 2021
Gold revenue
Inmaculada 135,893 142,512 (5)
Pallancata 10,084 12,562 (20)
San Jose 65,343 65,190 0
Commercial discounts (2,655) (2,959) (10)
Net gold revenue 208,665 217,305 (4)
Silver revenue
Inmaculada 68,303 72,586 (6)
Pallancata 28,920 53,175 (46)
San Jose 46,154 58,386 (21)
Commercial discounts (4,561) (6,890) (34)
Net silver revenue 138,816 177,257 (22)
Other revenue 300 188 60
Net revenue 347,781 394,750 (12)
Costs
Total cost of sales before exceptional items was $240.5 million in H1 2022 (H1
2021: $223.2 million). The direct production cost excluding depreciation was
higher at $174.0 million (H1 2021: $139.9 million) mainly due to inflation,
higher mine development capex and the use of a higher proportion of
conventional mining methods. Depreciation in production cost decreased to
$68.8 million (H1 2021: $73.8 million) due to lower extracted volumes across
all operations. Fixed costs incurred during total or partial production
stoppages were incurred in Argentina and were $3.9 million in H1 2022 (H1
2021: $6.2 million).
$000 Six months to Six months to % change
30 June 2022 30 June 2021
Direct production cost excluding depreciation 174,001 139,939 24
Depreciation in production cost 68,801 73,815 (7)
Other items and workers profit sharing 2,046 2,944 (31)
Fixed costs during operational stoppages and reduced capacity 3,870 6,196 (38)
Change in inventories (8,202) 261 (3,243)
Cost of sales 240,516 223,155 8
Fixed costs during operational stoppages and reduced capacity:
$000 Six months to Six months to % change
30 June 2022 30 June 2021
Personnel 2,292 5,293 (57)
Third party services 1,495 826 81
Supplies 5 - 100
Depreciation and amortisation 2 - 100
Others 76 77 (1)
Cost of sales 3,870 6,196 (38)
Unit cost per tonne
The Company reported unit cost per tonne at its operations of $156.6 per tonne
in H1 2022, a 31% increase versus H1 2021 ($119.5 per tonne). This was due to
the effect of: higher costs resulting from a scheduled higher proportion of
conventional mining methods across all mining units; inflation; and lower
treated tonnage.
Unit cost per tonne by operation (including royalties) 9 :
Operating unit ($/tonne) Six months to Six months to % change
30 June 2022 30 June 2021
Peru 119.4 97.4 23
Inmaculada 111.8 93.6 19
Pallancata 137.4 106.0 30
Argentina
San Jose 309.6 208.6 48
Total 156.6 119.5 31
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
Six months to 30 June 2022
$000 unless otherwise indicated Inmaculada Pallancata San Jose Total
Group cash cost 74,152 37,802 70,021 181,975
(+) Cost of sales 11 112,680 43,848 77,710 234,238
(-) Depreciation and amortisation in cost of sales (40,193) (8,754) (18,786) (67,733)
(+) Selling expenses 322 242 6,163 6,727
(+) Commercial deductions 12 1,343 2,466 4,934 8,743
Gold 1,007 490 2,272 3,769
Silver 336 1,976 2,662 4,974
Revenue 204,196 36,538 106,747 347,781
Gold 135,893 9,594 63,178 208,665
Silver 68,303 26,944 43,569 138,816
Others - - - 300
Ounces sold
Gold 72.7 5.4 34.6 112.7
Silver 2,805 1,160 2,080 6,045
Group cash cost ($/oz)
Co product Au 679 1,853 1,197 970
Co product Ag 8.8 24.0 13.7 12.0
By product Au 76 1,658 687 395
By product Ag (22.4) 23.9 2.2 (5)
Six months to 30 June 2021
$000 unless otherwise indicated Inmaculada Pallancata San Jose Total
Group cash cost 65,645 38,643 60,446 164,734
(+) Cost of sales 13 102,416 44,318 70,225 216,959
(-) Depreciation and amortisation in cost of sales (38,591) (9,912) (22,376) (70,879)
(+) Selling expenses 328 272 6,534 7,134
(+) Commercial deductions 14 1,492 3,965 6,063 11,520
Gold 997 523 2,535 4,055
Silver 495 3,442 3,528 7,465
Revenue 215,098 61,772 117,692 394,750
Gold 142,512 12,039 62,754 217,305
Silver 72,586 49,733 54,938 177,257
Others - - - 188
Ounces sold
Gold 79.5 7.3 37.5 124.3
Silver 2,769 2,000 2,236 7,005
Group cash cost ($/oz)
Co product Au 547 1,034 859 730
Co product Ag 8.0 15.6 12.6 10.6
By product Au (94) (1,994) 53 (161)
By product Ag (28.1) 13.0 (2.2) (8.1)
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
Six months to 30 June 2022
$000 unless otherwise indicated Inmaculada Pallancata San José Main operations Corporate & others Total
(+) Direct production cost excluding depreciation 16 70,771 35,108 65,704 171,583 - 171,583
(+) Other items and workers profit sharing in cost of sales 1,095 951 - 2,046 - 2,046
(+) Operating and exploration capex for units 34,013 8,236 23,324 65,573 356 65,929
(+) Brownfield exploration expenses 1,618 3,713 4,324 9,655 1,794 11,449
(+) Administrative expenses (excl. depreciation) 2,151 385 3,012 5,548 18,502 24,050
(+) Royalties and special mining tax 17 2,099 376 - 2,475 1,533 4,008
Sub-total 111,747 48,769 96,364 256,880 22,185 279,065
Au ounces produced 72,666 5,393 35,883 113,942 - 113,942
Ag ounces produced (000s) 2,815 1,167 2,123 6,105 - 6,105
Ounces produced (Ag Eq 000s oz) 8,047 1,556 4,706 14,309 - 14,309
Sub-total ($/oz Ag Eq) 13.9 31.4 20.5 18.0 1.6 19.6
(+) Commercial deductions 1,343 2,466 4,934 8,743 - 8,743
(+) Selling expenses 322 242 6,163 6,727 - 6,727
Sub-total 1,665 2,708 11,097 15,470 - 15,470
Au ounces sold 72,718 5,357 34,622 112,697 - 112,697
Ag ounces sold (000s) 2,805 1,160 2,080 6,045 - 6,045
Ounces sold (Ag Eq 000s oz) 8,040 1,546 4,573 14,159 - 14,159
Sub-total ($/oz Ag Eq) 0.2 1.8 2.4 1.0 - 1.0
All-in sustaining costs ($/oz Ag Eq) 14.1 33.1 22.9 19.0 1.6 20.6
All-in sustaining costs ($/oz Au Eq) 18 1,015 2,383 1,649 1,371 112 1,483
Six months to 30 June 2021
$000 unless otherwise indicated Inmaculada Pallancata San Jose Main operations Corporate & others Total
(+) Direct production cost excluding depreciation 62,571 30,338 47,030 139,939 - 139,939
(+) Other items and workers profit sharing in cost of sales 1,585 1,359 - 2,944 - 2,944
(+) Operating and exploration capex for units 19 32,834 5,970 17,149 55,953 498 56,451
(+) Brownfield exploration expenses 726 1,957 4,701 7,384 1,639 9,023
(+) Administrative expenses (excl. depreciation) 20 2,726 783 2,786 6,295 16,803 23,098
(+) Royalties and special mining tax 21 2,725 782 - 3,507 3,518 7,025
Sub-total 103,167 41,189 71,666 216,022 22,458 238,480
Au ounces produced 79,402 7,277 38,396 125,075 - 125,075
Ag ounces produced (000s) 2,777 2,000 2,244 7,021 - 7,021
Ounces produced (Ag Eq 000s oz) 8,494 2,525 5,008 16,027 - 16,027
Sub-total ($/oz Ag Eq) 12.1 16.3 14.3 13.5 1.4 14.9
(+) Commercial deductions 1,492 3,965 6,063 11,520 - 11,520
(+) Selling expenses 328 272 6,534 7,134 - 7,134
Sub-total 1,820 4,237 12,597 18,654 - 18,654
Au ounces sold 79,491 7,286 37,540 124,317 - 124,317
Ag ounces sold (000s) 2,769 2,000 2,236 7,005 - 7,005
Ounces sold (Ag Eq 000s oz) 8,493 2,524 4,938 15,955 - 15,955
Sub-total ($/oz Ag Eq) 0.2 1.7 2.6 1.2 - 1.2
All-in sustaining costs ($/oz Ag Eq) 12.3 18.0 16.9 14.7 1.4 16.1
All-in sustaining costs ($/oz Au Eq) 890 1,296 1,214 1,055 101 1,156
Administrative expenses
Administrative expenses were slightly up by 4% to $24.9 million (H1 2021:
$24.0 million) mainly due to travel expenses and administrative expenses
related to Mara Rosa's operations.
Exploration expenses
In H1 2022, exploration expenses increased to $23.8 million (H1 2021: $17.4
million) mainly due to the Snip project's exploration expenses of $6.9 million
(H1 2021: Nil), and higher exploration expenses at Pallancata of $3.7 million
(H1 2021: $2.0 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 H1 2022, the Company
capitalised $0.2 million relating to brownfield exploration (H1 2021: $4.0
million), bringing the total investment in exploration for H1 2022 to $24.0
million (H1 2021: $21.4 million).
Selling expenses
Selling expenses decreased to $6.7 million (H1 2021: $7.1 million) mainly due
to lower volumes sold.
Other income/expenses
Other income was $2.6 million (H1 2021: $1.9 million) with the increase mainly
explained by the recovery of a previously written off receivable in Mara Rosa
of $0.5 million.
Other expenses before exceptional items were $22.9 million (H1 2021: $13.8
million) with the increase mainly due to: a rise in provisions for mine
closures of $10.8 million - mainly due to the change in estimate at the Ares
unit (H1 2021: $1.5 million); an increase in care and maintenance costs of
$4.2 million (H1 2021: $2.4 million); and higher labour contingencies in
Argentina of $1.7 million (H1 2021: $0.2 million). These effects were
partially offset by a decrease in expenses related to the voluntary redundancy
programme in Argentina of $1.0 million (H1 2021: $4.9 million).
Adjusted EBITDA
Adjusted EBITDA decreased by 34% to $130.5 million (H1 2021: $198.5 million)
mainly due to the decrease in revenue explained by the lower average realised
silver price and lower silver and gold production in addition to higher
production costs across all operations.
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 Six months to Six months to % change
30 June 2022 30 June 2021
Profit from continuing operations before exceptional items, net finance 29,413 110,771 (72)
income/(cost), foreign exchange loss and income tax
Depreciation and amortisation in cost of sales 67,735 70,879 (4)
Depreciation and amortisation in administrative and other expenses 915 990 (8)
Exploration expenses 23,826 17,436 37
Personnel and other exploration related fixed expenses (4,227) (3,409) 24
Other non-cash income, net 22 12,863 1,837 505
Adjusted EBITDA 130,525 198,504 (34)
Adjusted EBITDA margin 38% 50% (24)
Finance income
Finance income was $2.2 million (H1 2021: $2.1 million) in line with the total
for H1 2021, with the positive impact from the discount of mine closure
provisions and recovery of interest on tax disputes being offset by lower
interest on cash deposits.
Finance costs
Finance costs decreased from $13.3 million in H1 2021 to $13.1 million in H1
2022, principally due to the net effect of: foreign exchange transaction costs
to acquire $3.3 million dollars in Argentina in H1 2022 of $2.8 million (H1
2021: costs of $6.3 million to acquire $8.8 million dollars); a loss on the
fair value of C3 Metals Inc. shares of $2.3 million (H1 2021: $nil); and
higher interest expenses of $6.3 million (H1 2021: $4.6 million) mainly due to
additional $100 million medium-term loan drawn down in December 2021.
Foreign exchange losses
The Group recognised a foreign exchange loss of $2.6 million (H1 2021: $1.8
million loss) as a result of exposures in currencies other than the functional
currency.
Income tax
The Company's Group's pre-exceptional income tax charge was $5.8 million (H1
2021: $59.7 million). The significant decrease in the charge is mainly
explained by the decrease in profitability versus H1 2021. In addition, there
was an increase in the tax rate in Argentina to 35% during H1 2021, increasing
deferred income tax by $11.5 million in the period.
The effective tax rate (pre-exceptional) for the period was 37.9% (H1 2021:
61.1%), compared to the weighted average statutory income tax rate of 35.0%
(H1 2021: 31.7%). The higher effective tax rate in H1 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 18.8%; the effect of
Royalties and Special Mining Tax increasing the rate by 11.1%; partially
offset by the effect of local currency revaluation decreasing the rate by
25.6%.
Exceptional items
Exceptional items in H1 2022 totalled a $9.9 million loss after tax (H1 2021:
$9.5 million loss after tax) related to the impairment of the investment in
Aclara Resources Inc.
The tax effect of the exceptional items was a $nil (2021: $4.5 million tax
gain). The total effective tax rate was 107.8% (2021: 65.9%).
Cash flow and balance sheet review
Cash flow
$000 Six months to Six months to Change
30 June 2022 30 June 2021
Net cash generated from operating activities 18,658 119,811 (101,153)
Net cash used in investing activities (199,172) (67,021) (132,151)
Cash flows generated (used in)/from financing activities 306 (25,268) 25,574
Foreign exchange adjustment (2,257) (2,476) 219
Net increase/(decrease) in cash and cash equivalents during the period (182,465) 25,046 (207,511)
Net cash generated from operating activities decreased from $119.8 million in
H1 2021 to $18.7 million in H1 2022 mainly due to the lower Adjusted EBITDA of
$130.5 million (H1 2021: $198.5 million), and higher temporary cash outflows
due to working capital changes.
Net cash used in investing activities increased to $199.2 million in H1 2022
from $67.0 million in H1 2021 mostly due to the consideration paid for the
acquisition of Amarillo Gold on 1 April 2022 of $123.4 million and higher
purchases of property, plant and equipment.
Cash generated (used in)/from financing activities changed to an inflow of
$0.3 million in H1 2022 from an outflow of $25.3 million in H1 2021 mainly due
to: (i) pre-shipment loans raised in H1 2022 of $13.4 million (H1 2021: $1.8
million), (ii) no repayments of debt in H1 2022 (H1 2021: $6.3 million), (iii)
payment of $0.3 million in dividends to shareholders and to Hochschild's
minority shareholder at San Jose (1H 2021: $7.6 million).
Working capital
$000 As at As at
30 June 2022 31 December 2021
Trade and other receivables 84,973 69,749
Inventories 57,678 49,184
Derivative financial assets/(liabilities) 19,236 14,073
Income tax payable, net 987 (22,322)
Trade and other payables (126,136) (133,482)
Provisions (14,305) (32,058)
Working capital 22,433 (54,856)
The Group's working capital position in H1 2022 increased by $77.3 million
from $(54.9) million to $22.4 million. The key drivers of the increase were:
higher trade and other receivables of $15.2 million; higher inventories of
$8.5 million; lower income tax payable of $23.3 million, and lower provisions
of $17.8 million.
Net cash/(debt)
$000 unless otherwise indicated As at As at
30 June 2022 31 December 2021
Cash and cash equivalents 204,324 386,789
Non-current borrowings (300,000) (300,000)
Current borrowings 23 (13,595) (499)
Net cash/(debt) (109,271) 86,290
The Group's reported net debt position was $109.3 million as at 30 June 2022
(31 December 2021: net cash position of $86.3 million). The decrease in cash
and cash equivalents is mainly due to the consideration paid for the Amarillo
Gold acquisition of $123.4 million and lower cash generated from operating
activities.
Capital expenditure(( 24 ))
$000 Six months to Six months to
30 June 2022 30 June 2021
Inmaculada 34,013 32,834
Pallancata 8,236 5,970
San Jose 24,551 18,127
Operations 66,800 56,931
Mara Rosa 133,516 -
Aclara - 6,366
Other 2,134 3,616
Total 202,450 66,913
H1 2022 capital expenditure of $202.5 million (H1 2021: $66.9 million) mainly
comprised the acquisition cost of Mara Rosa and subsequent capex of $133.5
million and operational capex of $66.8 million (H1 2021: $56.9 million).
Operational capex was higher mainly due to higher mine development capital
expenditure in San Jose, and the comparison affected by capital expenditure
deferrals in H1 2021, mainly mine development
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.
Forward looking statements
This announcement contains certain forward looking statements, including such
statements within the meaning of Section 27A of the US Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. In particular, such forward looking statements may relate to matters
such as the business, strategy, investments, production, major projects and
their contribution to expected production and other plans of Hochschild Mining
PLC and its current goals, assumptions and expectations relating to its future
financial condition, performance and results.
Forward-looking statements include, without limitation, statements typically
containing words such as "intends", "expects", "anticipates", "targets",
"plans", "estimates" and words of similar import. By their nature, forward
looking statements involve risks and uncertainties because they relate to
events and depend on circumstances that will or may occur in the future.
Actual results, performance or achievements of Hochschild Mining PLC may be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Factors that could
cause or contribute to differences between the actual results, performance or
achievements of Hochschild Mining PLC and current expectations include, but
are not limited to, legislative, fiscal and regulatory developments,
competitive conditions, technological developments, exchange rate fluctuations
and general economic conditions. The Company cautions against undue reliance
on any forward looking statement or guidance, particularly in light of the
current economic climate and the significant volatility, uncertainty and
disruption caused by Covid-19. Past performance is no guide to future
performance and persons needing advice should consult an independent financial
adviser.
The forward looking statements reflect knowledge and information available at
the date of preparation of this announcement. Except as required by the
Listing Rules and applicable law, Hochschild Mining PLC does not undertake any
obligation to update or change any forward looking statements to reflect
events occurring after the date of this announcement. Nothing in this
announcement should be construed as a profit forecast.
RISKS
The principal risks and uncertainties facing the Company in respect of the
year ended 31 December 2021 are set out in detail in the Risk Management
section of the 2021 Annual Report and in Note 38 to the 2021 Consolidated
Financial Statements.
The key risks disclosed in the 2021 Annual Report (available
at www.hochschildmining.com (http://www.hochschildmining.com/) )
are categorised as:
§ Financial risks comprising commodity price risk and commercial counterparty
risk;
§ Operational risks including the risks associated with operational
performance, business interruption/supply chain, information security and
cybersecurity, exploration & reserve and resource replacement and
personnel risks;
§ Macro-economic risks which include political, legal and regulatory risks;
and
§ Sustainability risks including risks associated with health and safety,
Covid-19, environmental, climate change and community relations.
These risks continue to apply to the Company in respect of the remaining six
months of the financial year.
RELATED PARTY TRANSACTIONS
Related party transactions are disclosed in Note 23 to the interim condensed
consolidated financial statements
GOING CONCERN
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
duration of the Going Concern Period until 30 September 2023. Accordingly,
they continue to adopt the going concern basis in preparing the interim
condensed set of financial statements. For further detail refer to the
detailed discussion of the assumptions outlined in the Going concern
disclosures in Note 2 "Significant Accounting Policies" of the interim
condensed consolidated financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that, to the best of their knowledge, the interim
condensed consolidated financial statements have been prepared in accordance
with UK adopted International Accounting Standard 34 "Interim Financial
Reporting" and that the interim management report includes a fair review of
the information required by Disclosure Guidance and Transparency Rules 4.2.7R
and 4.2.8R.
A list of current Directors and their functions is maintained on the Company's
website.
For and on behalf of the Board
Ignacio Bustamante
Chief Executive Officer
16 August 2022
INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC
Conclusion
We have been engaged by Hochschild Mining PLC (the 'Company') to review the
condensed set of financial statements in the half-yearly financial report for
the six months ended 30 June 2022 which comprises the interim condensed
consolidated income statement, the interim condensed consolidated statement of
comprehensive income, the interim condensed consolidated statement of
financial position, the interim condensed consolidated statement of cash
flows, the interim condensed consolidated statement of changes in equity and
the related notes 1 to 24. We have read the other information contained in the
half yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
17 August 2022
Interim condensed consolidated income statement
Six months ended Six months ended
30 June 2022 (Unaudited) 30 June 2021 (Unaudited)
Notes Before exceptional items US$000 Exceptional items Total US$000 Before exceptional items US$000 Exceptional items Total US$000
(Note 9) (Note 9)
US$000 US$000
Continuing operations
Revenue 5 347,781 - 347,781 394,750 - 394,750
Cost of sales 6 (240,516) - (240,516) (223,155) (13,091) (236,246)
Gross profit 107,265 - 107,265 171,595 (13,091) 158,504
Administrative expenses (24,913) - (24,913) (24,042) - (24,042)
Exploration expenses 7 (23,826) - (23,826) (17,436) - (17,436)
Selling expenses 8 (6,727) - (6,727) (7,134) - (7,134)
Other income 9 2,580 - 2,580 1,857 - 1,857
Other expenses 9 (22,902) - (22,902) (13,770) (865) (14,635)
Impairment and Write-off of non-financial assets 13 (2,064) - (2,064) (299) - (299)
Profit/(loss) from continuing operations before net finance income/(cost), 29,413 - 29,413 110,771 (13,956) 96,815
foreign exchange loss and income tax
Share of loss of an associate 15 (551) (9,923) (10,474) - - -
Finance income 11 2,163 - 2,163 2,061 - 2,061
Finance costs 11 (13,083) - (13,083) (13,252) - (13,252)
Foreign exchange loss (2,649) - (2,649) (1,777) - (1,777)
Profit/(loss) from continuing operations before income tax 15,293 (9,923) 5,370 97,803 (13,956) 83,847
Income tax (expense)/benefit 12 (5,790) - (5,790) (59,738) 4,485 (55,253)
Profit/(loss) for the period from continuing operations 9,503 (9,923) (420) 38,065 (9,471) 28,594
Attributable to:
Equity shareholders of the parent 7,156 (9,923) (2,767 ) 42,063 (7,338) 34,725
Non-controlling interests 2,347 - 2,347 (3,998) (2,133) (6,131)
9,503 (9,923) (420) 38,065 (9,471) 28,594
Basic and diluted earnings/(loss) per ordinary share from continuing 0.01 (0.02) (0.01) 0.08 (0.01) 0.07
operations for the period (expressed in U.S. dollars per share)
Interim condensed consolidated statement of comprehensive income
Six months ended 30 June
Notes 2022 (Unaudited) US$000 2021 (Unaudited) US$000
(Loss)/profit for the period (420) 28,594
Other comprehensive income that might be reclassified to profit or loss in
subsequent periods; net of tax:
Net gain on cash flow hedges 16 6,734 7,151
Deferred tax charge on cash flow hedges (1,987) (2,109)
Exchange differences on translating foreign operations(1) (18,883) (1,660)
Share of other comprehensive loss of an associate (1,541) -
(15,677) 3,382
Other comprehensive income that will not be reclassified to profit or loss in
subsequent periods; net of tax:
Net (loss)/gain on equity instruments at fair value through other (159) 154
comprehensive income ("OCI")
(159) 154
Other comprehensive (loss)/income for the period, net of tax (15,836) 3,536
Total comprehensive (loss)/income for the period (16,256) 32,130
Total comprehensive (loss)/income attributable to:
Equity shareholders of the parent (18,603) 38,261
Non-controlling interests 2,347 (6,131)
(16,256) 32,130
1 Foreign exchange effect generated in the Group´s companies when the
functional currency is the local currency. Increase in 2022 mainly explained
by Amarillo Minaracao do Brasil Ltda., subsidiary of the Amarillo Gold Group,
purchased on 1 April 2022 of US$ 13,451,000.
Interim condensed consolidated statement of financial position
Notes As at 30 As at 31
June
December
2022
2021
(Unaudited) US$000 US$000
ASSETS
Non-current assets
Property, plant and equipment 13 755,941 738,119
Evaluation and exploration assets 14 221,526 123,304
Intangible assets 16,980 18,094
Investment in an associate 15 31,544 43,559
Financial assets at fair value through OCI 16 502 661
Financial assets at fair value through profit and loss 16 873 3,155
Trade and other receivables 3,835 2,470
Derivative financial assets 16 6,613 5,042
Deferred income tax assets 17 5,757 484
1,043,571 934,888
Current assets
Inventories 57,678 49,184
Trade and other receivables 84,973 69,749
Derivative financial assets 16 19,236 14,073
Income tax receivable 2,757 32
Cash and cash equivalents 18 204,324 386,789
368,968 519,827
Total assets 1,412,539 1,454,715
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital 21 9,061 226,506
Share premium 21 - 438,041
Other reserves (234,192) (217,657)
Retained earnings 891,271 248,664
666,140 695,554
Non-controlling interests 65,951 63,890
Total equity 732,091 759,444
Non-current liabilities
Trade and other payables 3,262 2,815
Borrowings 19 300,000 300,000
Provisions 20 137,825 116,835
Deferred income tax liabilities 17 83,555 87,228
524,642 506,878
Current liabilities
Trade and other payables 126,136 133,482
Borrowings 19 13,595 499
Provisions 20 14,305 32,058
Income tax payable 1,770 22,354
155,806 188,393
Total liabilities 680,448 695,271
Total equity and liabilities 1,412,539 1,454,715
Interim condensed consolidated statement of cash flows
Six months ended 30 June
Notes 2022 (Unaudited) US$000 2021 (Unaudited) US$000
Cash flows from operating activities
Cash generated from operations 24 41,208 140,205
Interest received 1,069 1,121
Interest paid 19 (3,814) (2,354)
Payment of mine closure costs (3,789) (2,638)
Income tax paid (16,016) (16,523)
Net cash generated from operating activities 18,658 119,811
Cash flows from investing activities
Purchase of property, plant and equipment (82,590) (52,956)
Purchase of evaluation and exploration assets (113,625) (12,452)
Purchase of intangibles (354) -
Purchase of Argentinian bonds 11(2) (6,091) (15,161)
Purchase of financial assets at fair value to OCI - (7)
Proceeds from sale of Argentinian bonds 11(2) 3,289 8,815
Proceeds from sale of financial assets at fair value through OCI - 9
Proceeds from sale of financial assets at fair value though profit and - 4,726
loss.........................................................
Proceeds from sale of property, plant and equipment 13 199 5
Net cash used in investing activities (199,172) (67,021)
Cash flows from financing activities
Proceeds from borrowings 19 13,411 1,804
Repayment of borrowings - (6,309)
Payment of lease liabilities (821) (1,200)
Dividends paid to shareholders 22 (11,998) (12,002)
Dividends paid to non-controlling interests 22 (286) (7,561)
Cash flows generated from/(used in) financing activities 306 (25,268)
Net increase/(decrease) in cash and cash equivalents during the period (180,208) 27,522
Impact of foreign exchange (2,257) (2,476)
Cash and cash equivalents at beginning of period 386,789 231,883
Cash and cash equivalents at end of period 18 204,324 256,929
Interim condensed consolidated statement of changes in equity
Other reserves
Notes Equity Share premium US$000 Dividends expired US$000 Share Fair value reserve of financial assets at fair value Cumulative translation adjustment US$000 Merger reserve US$000 Share-based payment reserve US$000 Total Retained earnings US$000 Capital and reserves attributable to shareholders Non-controlling interests US$000 Total equity US$000
through OCI US$000
other
of the Parent US$000
share of other
reserves US$000
capital US$000 Unrealised gain/ compre- hensive
Treasury shares US$000 (loss) on hedges loss of an asso- ciate
US$000
US$000
Balance at 1 January 226,506 438,041 - 99 13,476 (9) 74 (25,163) (210,046) 3,912 (217,657) 248,664 695,554 63,890 759,444
2022
Other comprehensive - - - - 4,747 (1,541) (159) (18,883) - - (15,836) - (15,836) - (15,836)
income/(loss)
Loss for the period - - - - - - - - - - - (2,767) (2,767) 2,347 (420)
Total comprehensive - - - - 4,747 (1,541) (159) (18,883) - - (15,836) (2,767) (18,603) 2,347 (16,256)
income/(loss) for the
period
Dividends 22 - - - - - - - - - - - (11,998) (11,998) - (11,998)
Dividends paid to non 22 - - - - - - - - - - - - - (286) (286)
-controlling interest
Issuance of deferred 21 303,268 - - - - - - - - - - (303,268) - - -
bonus shares
Cancelation of deferred 21 (303,268) - - - - - - - - - - 303,268 - - -
bonus shares
Cancelation of share 21 - (438,041) - - - - - - - - - 438,041 - - -
premium account
Nominal value reduction 21 (217,445) - - - - - - - - - - 217,445 - - -
Share-based payments - - - - - - - - - 1,187 1,187 - 1,187 - 1,187
Forfeiture of share - - - - - - - - - (1,886) (1,886) 1,886 - - -
options
Balance at 30 June 2022 9,061 - - 99 18,223 (1,550) (85) (44,046) (210,046) 3,213 (234,192) 891,271 666,140 65,951 732,091
(unaudited)
Balance at 1 January 226,506 438,041 - 99 (4,169) - (205) (13,876) (210,046) 2,533 (225,664) 287,652 726,535 79,550 806,085
2021
Other comprehensive - - - - 5,042 - 154 (1,660) - - 3,536 - 3,536 - 3,536
income/(loss)
Profit for the period - - - - - - - - - - - 34,725 34,725 (6,131) 28,594
Total comprehensive - - - - 5,042 - 154 (1,660) - - 3,536 34,725 38,261 (6,131) 32,130
income/(loss) for the
period
Sale of financial assets - - - - - - 18 - - - 18 (18) - - -
at fair value through
OCI
Dividends 22 - - - - - - - - - - - (12,002) (12,002) - (12,002)
Dividends paid to non 22 - - - - - - - - - - - - - (7,561) (7,561)
-controlling interest
Treasury shares - - - - - - - - - - - - - - -
Share-based payments - - - - - - - - - 709 709 - 709 - 709
Forfeit of share options - - - - - - - - - (1,063) (1,063) 1,063 - - -
Balance at 30 June 2021 226,506 438,041 - 99 873 - (33) (15,536) (210,046) 2,179 222,464 311,420 753,503 65,858 819,361
(unaudited)
Notes to the interim condensed consolidated financial statements
1 Corporate Information
Hochschild Mining PLC (hereinafter the "Company" and together with its
subsidiaries, the "Group") 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. Its
ordinary shares are traded on the London Stock Exchange.
The Group's principal business is the mining, processing and sale of gold and
silver. 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,
Brazil and Chile at various stages of development.
These interim condensed consolidated financial statements were approved for
issue on behalf of the Board of Directors on 16 August 2022.
2 Significant Accounting Policies
Basis of preparation
These interim condensed consolidated financial statements set out the Group's
financial position as at 30 June 2022 and 31 December 2021 and its financial
performance and cash flows for the six months ended 30 June 2022 and 30 June
2021.
They have been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and UK adopted International
Accounting Standard 34, "Interim Financial Reporting". Accordingly, the
interim condensed consolidated financial statements do not include all the
information required for full annual financial statements and therefore,
should be read in conjunction with the Group's 2021 annual consolidated
financial statements as published in the 2021 Annual Report. The annual
financial statements of the Group will be prepared in accordance with UK
adopted IFRS.
The interim condensed consolidated financial statements do not constitute
statutory accounts as defined in the Companies Act 2006. The financial
information for the full year is based on the statutory accounts for the
financial year ended 31 December 2021. A copy of the statutory accounts for
that year, which were prepared in accordance with International Accounting
Standards in conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards (IFRS) adopted pursuant to
Regulation (EC) No 1606/2002 as it applied in the European Union (EU) has been
delivered to the Registrar of Companies. The auditor's report under section
495 of the Companies Act 2006 in relation to those accounts was unmodified and
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying the report and did not contain a
statement under s498(2) or s498(3) of the Companies Act 2006.
The impact of the seasonality or cyclicality of operations is not regarded as
significant on the interim condensed consolidated financial statements.
The interim condensed consolidated financial statements are presented in US
dollars ($) and all monetary amounts are rounded to the nearest thousand
($000) except when otherwise indicated.
Critical accounting estimates and judgements
The impact of Covid-19 on the Group has been considered in the preparation of
the interim financial statements including our evaluation of critical
accounting estimates and judgements.
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.
The significant accounting judgments, estimates and assumptions remain
consistent with those disclosed in the consolidated financial statements for
the year ended 31 December 2021. The most significative are:
Critical judgements:
· Assessment of impairment indicators for the Group's GCUs
- note 13
· Pandemic expenses - note 10
· Acquiring a subsidiary or a group of assets - note 4.
In identifying a business combination 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 Amarillo Gold Group (note
4). The transaction was accounted as a purchase of assets as no significant
systems, processes or outputs were acquired, with the main asset acquired
being the Posse gold project.
The Group analyses the effect of pandemics on its operations and accounting
treatment, because they generate stoppages, low capacity production, excess
absenteeism and incremental cost. In the case of Covid-19, the fixed 'normal'
production costs during the stoppage are recognised as expenses and are not
considered cost of the inventories produced. In the income statement these
fixed costs are classified as pre-exceptional.
To determine whether the incremental Covid-related costs should be recognised
as exceptional expenses, consideration has been given as to whether they meet
the criteria as set out in the Groups' accounting policy (note 2z) in the 2021
Annual Report, in particular regarding the expected infrequency of the events
that have given rise to them.
As at 30 June 2022, the valuation of certain of the Group's assets and
liabilities reflect the changes to certain assumptions used in the
determination of their value, such as future gold and silver prices, discount
rates, exchange rates, and interest rates (note 16). These assumptions are
subject to greater variability than normal under the current Covid-19
environment.
Significant estimates:
· Mine closure estimates - note 20
Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2021, except for the adoption of new standards and
interpretations effective from 1 January 2022. The Group has not early adopted
any other standard, interpretation or amendment that has been issued but is
not yet effective. Several amendments apply for the first time in 2022, but do
not have an impact on the interim condensed consolidated financial statements
of the Group.
Going concern
The Directors have reviewed Group liquidity and covenant forecasts to assess
whether the Group is able to continue in operation for the period to 30
September 2023 (the "Going Concern Period") which is at least 12 months from
the date of these financial statements. In line with their usual practice,
the Directors also considered the impact of a number of potential downside
scenarios on the Group's future cash flows and liquidity position as well as
debt covenant compliance. The scenarios were further reviewed under varying
precious metal price assumptions.
Within these potential downside scenarios, consideration was given to the
year-on-year reduction in the cost of complying with Covid-19 related
protocols given the relaxation of mandated requirements and the impact of
near-term cost inflation on Life of Mine projections.
With regards to Covid-19, the Directors consider the risk of Covid-related
suspensions across all operations to be very low based on trends experienced
in the first half of 2022. While this assessment takes into account the
effectiveness of the Group's health protocols, it is also dependent on:
· the continued progress in Peru and Argentina with regards
to their respective government's vaccination rollout programmes which, at the
time of writing, are proceeding to administer the fourth dose of their
selected vaccine; and
· the effectiveness of these vaccines relative to new
variants of the virus.
The Directors have also considered the ongoing political uncertainty in Peru
which, when combined with records level of inflation, has led to a heightened
risk of social unrest. Accordingly, the analysis reflects (a) the
possibility of future increases in the level of tax and royalties payable
despite the fact that no such measures have been announced and (b) operational
stoppages.
For purposes of the review, the Base Scenario assumed budgeted production for
the year, the most recently approved Life of Mine plan, budgeted capex for the
construction of the Mara Rosa mine and precious metal prices of $1,802/oz for
gold and $23.4/oz for silver (the "Assumed Prices"). The Directors also
considered "Severe" and "Remote" scenarios, which were considered to be
unlikely by the Directors. The former takes into account, a four-week
suspension of all operations during H2 2022 and an increase in royalties and
taxes. The latter analyses the cumulative impact of the Severe scenario and
precious metal prices which are 20% lower than the Assumed Prices. Those
prices would be significantly below current spot and futures prices. In both
of these scenarios, it has been assumed that $50 million of the Company's
approved credit lines have been utilised and furthermore, on the occurrence of
the Remote scenario, costs and capital expenditure would be reduced by 15%.
Under all scenarios and metal price assumptions and sensitivities, the cash
balance remained more than adequate for the Group's forecast expenditure with
sufficient headroom maintained to comply with debt covenants.
The results of a reverse stress test were also considered.
After their thorough review, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational existence during
the Going Concern Period. Accordingly, they continue to adopt the going
concern basis in preparing the condensed set of financial statements.
3 Segment reporting
The following tables present revenue and profit/(loss) information for the
Group's operating segments for the six months ended 30 June 2022 and 2021 and
asset information as at 30 June 2022 and 31 December 2021 respectively:
Six months ended 30 June 2022 Pallancata US$000 San Jose US$000 Inmaculada US$000 Exploration US$000 Other Adjustments and eliminations US$000 Total
(Unaudited) US$000 US$000
Revenue from external customers 39,084 110,804 204,262 - 300 - 354,450
Inter segment revenue - - - - 4,834 (4,834) -
Total revenue from customers 39,084 110,804 204,262 - 5,134 (4,834) 354,450
Provisional pricing adjustments (2,546) (4,057) (66) - - - (6,669)
Total revenue 36,538 106,747 204,196 - 5,134 (4,834) 347,781
Segment profit/(loss) (8,614) 18,436 86,617 (24,286) 4,098 461 76,712
Others((1)) (71,342)
Profit from continuing operations before income tax 5,370
As at 30 June 2022 (Unaudited)
Assets
Capital expenditure 8,225 24,551 34,013 135,067 594 - 202,450
Current assets 14,763 44,367 18,336 - 4,399 - 81,865
Other non-current assets 3,241 166,895 507,924 272,157 44,230 - 994,447
Total segment assets 18,004 211,262 526,260 272,157 48,629 - 1,076,312
Not reportable assets((2)) - - - - 336,227 - 336,227
Total assets 18,004 211,262 526,260 272,157 384,856 - 1,412,539
1 Comprised of administrative expenses of US$24,913,000, other income of
US$2,580,000, other expenses of US$22,902,000, impairment and write off of
non-financial assets of US$2,064,000, share of losses of an associate of
US$10,474,000, finance income of US$2,163,000, finance costs of US$13,083,000
and foreign exchange loss of US$2,649,000.
2 Not reportable assets are comprised of financial assets at fair value
through OCI of US$502,000, financial assets at fair value through profit and
loss of US$873,000, other receivables of US$64,621,000, income tax receivable
of US$2,757,000, deferred income tax asset of US$5,757,000, investment in
associates US$31,544,000, derivative financial assets of US$25,849,000 and
cash and cash equivalents of US$204,324,000.
Six months ended 30 June 2021 (Unaudited) Pallancata US$000 San Jose US$000 Inmaculada US$000 Exploration US$000 Other Adjustments and eliminations US$000 Total
US$000 US$000
Revenue from external customers 62,286 117,497 215,114 - 188 - 395,085
Inter segment revenue - - - - 4,498 (4,498) -
Total revenue from customers 62,286 117,497 215,114 - 4,686 (4,498) 395,085
Provisional pricing adjustments (514) 195 (16) - - - (335)
Total revenue 61,772 117,692 215,098 - 4,686 (4,498) 394,750
Segment profit/(loss) 14,216 28,233 106,344 (17,578) 3,582 (863) 133,934
Others((1)) - - - - - - (50,087)
Profit from continuing operations before income tax 83,847
As at 31 December 2021
Assets
Capital expenditure 14,250 43,666 76,512 15,896 3,537 - 153,861
Current assets 9,072 43,473 20,182 - 4,230 - 76,957
Other non-current assets 3,241 157,749 515,943 155,702 46,882 - 879,517
Total segment assets 12,313 201,222 536,125 155,702 51,112 - 956,474
Not reportable assets((2)) - - - - 498,241 - 498,241
Total assets 12,313 201,222 536,125 155,702 549,353 - 1,454,715
1 Comprised of administrative expenses of US$24,042,000, other income of
US$1,857,000, other expenses of US$14,635,000, write off of non-financial
assets of US$299,000, finance income of US$2,061,000, finance costs of
US$13,252,000 and foreign exchange loss of US$1,777,000.
2 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.
4 Acquisition of assets
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 21
Evaluation and exploration assets 107,362
Property, plant and equipment 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
5 Revenue
Period ended 30 June 2022 (unaudited) Period ended 30 June 2021 (unaudited)
Revenue from customers Revenue from customers
Goods/ services sold US$000 Shipping services US$000 Total US$000 Provisional pricing US$000 Total US$000 Goods/ services sold US$000 Shipping services US$000 Total US$000 Provisional pricing US$000 Total US$000
Gold (from dore bars) 164,011 458 164,469 (34) 164,435 167,912 403 168,315 5 168,320
Silver (from dore bars) 87,531 312 87,843 (74) 87,769 94,986 355 95,341 18 95,359
Gold (from concentrate) 44,215 1,277 45,492 (1,262) 44,230 47,878 966 48,844 141 48,985
Silver (from concentrate) 54,822 1,524 56,346 (5,299) 51,047 81,196 1,201 82,397 (499) 81,898
Services 300 - 300 - 300 188 - 188 - 188
Total 350,879 3,571 354,450 (6,669) 347,781 392,160 2,925 395,085 (335) 394,750
6 Cost of sales before exceptional items
Included in cost of sales are:
Six months ended 30 June
2022 (Unaudited) US$000 2021 (Unaudited) US$000
Depreciation and amortisation in cost of sales1 67,733 70,879
Personnel expenses2 58,052 42,558
Mining royalty 3,020 3,404
Change in products in process and finished goods(3) (8,202) 261
Fixed costs at the operations during stoppages, reduced capacity and excess 3,870 6,196
absenteeism(4)
1 The depreciation and amortisation in production cost is US$68,801,000 (2021:
US$73,815,000).
2 Includes workers' profit sharing of US$2,046,000 (2021: US$2,944,000).
3 Corresponds to the difference between the beginning and ending balance of
the finished products and products in process included in the production cost
during the period.
4 Corresponds to the unallocated fixed costs accumulated during operation
below planned operating capacity and excess absenteeism due to the Covid-19
pandemic of US$2,081,000 (2021: US$6,196,000) , and the unallocated fixed cost
accumulated during operations below planning operating capacity due to the
fire in San Jose of US$1,789,000 (2021: US$nill).
7 Exploration expenses
Six months ended 30 June
2022 2021
(Unaudited) (Unaudited)
US$000
US$000
Mine site exploration1
Arcata 43 1,363
Ares 159 289
Inmaculada 1,618 726
Selene - -
Pallancata 3,714 1,957
San Jose 4,324 4,701
9,858 9,036
Prospects2
Canada 6,903 -
Peru 204 1,726
USA 1,353 371
Chile (20) (21)
8,440 2,076
Generative3
Peru 928 2,170
Mexico 270 734
Chile - (156)
1,198 2,748
Personnel 3,682 3,145
Depreciation right-of-use 102 167
Others 546 264
Total 23,826 17,436
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.
8 Selling expenses
Six months ended 30 June
2022 (Unaudited) US$000 2021 (Unaudited) US$000
Personnel expenses 159 151
Warehouse services 511 592
Taxes1 5,219 5,490
Other 838 901
Total 6,727 7,134
1 Corresponds to the export duties in Argentina calculated as a
fixed amount in pesos per US$ of export.
9 Other income and expenses before exceptional items Six months ended 30 June
2022 (Unaudited) US$000 2021 (Unaudited) US$000
Other income
Logistic services - 7
Gain on recovery of expenses 213 265
Recovery of previously written off account receivable 543 -
Others1 1,824 1,585
Total 2,580 1,857
Other expenses
Increase in provision for mine closure (10,799) (1,538)
Depreciation right-of-use assets (52) (64)
Corporate social responsibility contribution in Argentina (1,615) (1,801)
Care and maintenance expenses of Ares mine unit (1,921) (1,305)
Care and maintenance expenses of Arcata mine unit (2,271) (1,093)
Voluntary retirement program in Argentina2 (938) (4,934)
Damage Inmaculada machine belt (1,831) -
Others(3) (3,475) (3,035)
Total (22,902) (13,770)
1 It mainly includes export credits in Argentina of US$345,000 (2021:
US$89,000), gain on sale of property, plant and equipment of US$199,000 (2021:
US$3,000), gain on sale of supplies US$281,000 (2021: US$131,000).
2 Voluntary retirement programme implemented at Minera Santa Cruz as a result
of the need to comply with the Provincial Employment Law that requires at
least 70% of the workforce to have resided in the province of Santa Cruz for
three years.
3 It mainly includes the remuneration of the employees included in the
voluntary retirement program of US$463,000 (June 2021 US$2,581,000), since
Minera Santa Cruz has to pay them until the employment relationship is
terminated even though they are prevented from attending the mining unit.
10 Exceptional items
Exceptional items relate to:
Six months ended 30 June
2022 (Unaudited) US$000 2021 (Unaudited) US$000
Cost of sales
Incremental cost due to pandemic(1) - (13,091)
Total - (13,091)
Other expense
Incremental cost due to pandemic - (865)
Total - (865)
Share of loss on an associate
Impairment of Aclara Resources Inc. (2) (9,923) -
Total (9,923)
Income tax expense
Income tax credit - 4,485
Total - 4,485
The exceptional items for the period ended 30 June 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 cost of sales and
costs incurred by mine units in care and maintenance and those related to
corporate activities have been presented within other expenses:
30 June 2021
Cost of sales US$000 Other expenses US$000
Third party services 9,145 406
Personnel expenses 1,770 342
Consumption of medical supplies 800 69
Cleaning and food services 1,337 25
Depreciation and amortisation 19 20
Others 20 3
Total 13,091 865
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 30 June
2022.
11 Finance income and finance cost before exceptional items
The Group recognised the following finance income and finance costs before
exceptional items:
Six months ended 30 June
2022 (Unaudited) US$000 2021 (Unaudited) US$000
Finance income:
Interest on deposits and liquidity funds 562 954
Interest on loans 104 96
Unwind of discount on mine rehabilitation 1,098 968
Others 399 43
Total 2,163 2,061
Finance cost:
Interest on bank loans (5,303) (3,749)
Other interest (1,045) (827)
Total interest expense (6,348) (4,576)
Loss on discount of other receivables(1) (957) (1,008)
Loss from changes in the fair value of financial instruments(2) (2,802) (6,346)
Loss from changes in the fair value of financial assets at fair value through (2,282) -
profit and loss
Loss on sale of financial assets at fair value through profit and loss - (681)
Others (694) (641)
Total (13,083) (13,252)
1 Mainly corresponds to the gain/(loss) on discount of tax credits in
Argentina.
2 Represents the foreign exchange transaction costs to acquire US$3,289,000
dollars through the sale of bonds in Argentina (2021: US$8,815,000).
12 Income tax expense
Six months ended 30 June
2022 (Unaudited) US$000 2021 (Unaudited) US$000
Current tax
Current income tax expense/(credit) 9,386 25,577
Withholding tax - 525
Current mining royalty charge 2,475 3,507
Current special mining tax charge 1,533 3,518
Total 13,394 33,127
Deferred tax
Origination and reversal of temporary differences (7,604) 22,126
Total (7,604) 22,126
Total taxation charge in the income statement 5,790 55,253
The pre-exceptional tax charge for the period was US$5,790,000 (2021:
US$59,738,000).
The weighted average statutory income tax rate was 35.0% for 2022 and 31.7%
for 2021. This is calculated as the average of the statutory tax rates
applicable in the countries in which the Group operates, weighted by the
profit/(loss) before tax of the Group companies in their respective countries
as included in the consolidated financial statements. The interim income tax
rate calculation is based on the estimate average annual effective tax rate of
the Group.
The change in the weighted average statutory income tax rate is due to a
change in the weighting of profit/(loss) before tax in the various
jurisdictions in which the Group operates.
The effective tax rate for corporate income tax before foreign exchange effect
for the six months ended 30 June 2022 is 64.8% (2021: 39.3%), compared to the
corporate income tax and mining royalties before foreign exchange effect of
24.9% (2021: 56.4%) and the total taxation charge in the income statement of
107.8% (2021: 65.9%).
The decrease in the charge is mainly explained by the reduction of the 2021
current income tax of Argentina (US$ 2,353,000) and, the non-cash impact of
local currency revaluation in Peru (US$ 2,000,000), the exchange losses of
loans in brazilian Reais (US 1,300,000) and the argentinian tax adjustment
related to inflation (US$ 2,300,000), which increase the tax bases impacting
deferred income tax by US$5,595,000 (2021: credit of US$7,900,000).
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.
13 Property, plant and equipment
During the six months ended 30 June 2022, the Group acquired and developed
assets with a cost of US$88,471,000 (2021: US$54,461,000). The additions for
the six months ended 30 June 2022 relate to:
Mining properties and development (Unaudited) Other property plant and equipment (Unaudited) US$000 Total additions of property plant and equipment (Unaudited) US$000
US$000
San Jose 17,919 6,632 24,551
Pallancata 6,419 1,806 8,225
Inmaculada 25,460 8,305 33,765
Mara Rosa - 21,446 21,446
Others 192 292 484
Total 49,990 38,481 88,471
Assets with a net book value of US$nil were disposed of by the Group during the six month period ended 30 June 2022 (2021: US$1,000) resulting in a net gain on disposal of US$199,000 (2021: gain of US$3,000).
For the six months ended 30 June 2022, the depreciation charge on property, plant and equipment was US$70,020,000 (2021: US$74,445,000).
There were borrowing costs capitalised in property, plant and equipment amounting to US$28,000 (2021: US$10,000).
As at 30 June 2022, all property, plant and equipment additions during the six month period ended 30 June 2022 of Pallancata mine unit have been fully depreciated or impaired.
No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.
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
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
The estimated recoverable values of the Group's CGUs are equal to, or not
materially different than, their carrying values.
14 Evaluation and exploration assets
During the six months ended 30 June 2022, the Group capitalised evaluation and
exploration costs of US$113,625,000 (2021: US$12,452,000). The additions
correspond to the following properties:
Unaudited
US$000
Mara Rosa 112,070
Azuca 479
Inmaculada 248
Crespo 539
Volcan 289
Total 113,625
There were no transfers from evaluation and exploration assets to property,
plant and equipment during the period (2021: US$nil).
At 31 December 2021, the Group has recorded an impairment with respect to
evaluation and exploration assets of the Pallancata mine unit of US$320,000.
The calculation of the recoverable values is detailed in note 13.
15 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 30 June 2022 amounted to US$10,096,000
(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 30 As at 31
June
December
2022
2021
(Unaudited) US$000 US$000
Current assets 78,338 91,320
Non-current assets 74,541 68,126
Current liabilities (1,695) (3,185)
Equity 151,184 156,261
Group's share in equity (20%) 30,237 31,252
Fair value adjustment allocated to the evaluation and exploration assets on 11,230 12,307
initial recognition(1)
Impairment(2) (9,923) -
Group´s carrying amount of the investment 20% 31,544 43,559
Summarised consolidated statement of profit and loss
Revenue - -
Administrative expenses (2,314) (324)
Exploration expenses (473) (510)
Finance income 99 -
Finance cost (9) (17)
Foreign exchange loss (58) (479)
Loss from continuing operations for the period (2,755) (1,330)
Loss from continuing operation for the period (2021: from incorporation) (2,755) (847)
Group's share of loss for the period (551) (169)
Other comprehensive loss that may be reclassified to profit or loss in
subsequent periods, net of tax
Exchange differences on translating foreign operations (7,706) (4,526)
Total comprehensive loss for the period (7,706) (4,526)
Total comprehensive loss (2021: from incorporation) (7,706) (46)
Group´s share of comprehensive loss for the period (1,541) (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$56,150,000 (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)
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 30 June 2022, after recognising the changes in the Group´s share of net
assets of the associate and the impairment charge is US$31,544,000 (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 30
June 2022 and 31 December 2021.
16 Financial instruments
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.
At 30 June 2022 and 31 December 2021, the Group held the following financial
instruments measured at fair value:
As at Level 1 Level 2 Level 3
30
June 2022 (Unaudited) US$000 US$000 US$000
US$000
Assets measured at fair value
Equity shares(1) 1,375 1,375 - -
Derivative financial assets 25,849 - 25,849 -
Trade receivables 24,187 - - 24,187
51,411 1,375 25,849 24,187
1 These investments were classified as financial assets at fair value through
OCI (US$502,000) and financial assets at fair value through profit and loss
(US$ 873,000).
2 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 cash flows
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 30 June 2022 are as follows:
US$000
Current assets 19,236
Non-current assets 6,613
25,849
The effect recorded us as follows:
US$000
Income statement - revenue 7,130
Equity - Unrealised gain on hedges 25,849
The sensitivity to a reasonable movement in the commodity prices, with all
other variables held constant, determined as a +/-10% change in prices
-US$10,677,000 / US$10,425,000 effect on OCI.
As Level 1 Level 2 Level 3
at
December 2021 (Unaudited) US$000 US$000 US$000
US$000
Assets measured at fair value
Equity shares(1) 3,816 3,816 - -
Derivative financial assets 19,115 - 19,115 -
Trade and other receivables 27,773 - - 27,773
50,704 3,816 19,115 27,773
1 These investments were classified as financial assets at fair value through
OCI (US$661,000) and financial assets at fair value through profit and loss
(US$ 3,155,000).
During the six months ended 30 June 2022 and the year ended 31 December 2021
there were no transfers between these levels.
The reconciliation of the financial instruments categorised as Level 3 is as
follows:
Trade receivables subject to 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 (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 2,147
Changes in fair value of price adjustments (6,669)
Realised price adjustments during the period 936
Balance at 30 June 2022 (Unaudited) 24,187
The Group has price adjustments arising from the sale of concentrate and dore
which were provisionally priced at the time the sale was recorded. 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:
Period Increase/ Effect on
decrease in price of
profit before tax
ounces of:
US$000
30 June 2022 Gold +/-10% +/-130
Silver+/-10%
+/-537
31 December 2021 Gold +/-10% +/-95
Silver+/-10%
+/-757
17 Deferred income tax assets and liabilities
The changes in the net deferred income tax assets/(liabilities) are as
follows:
As at 30 June 2022 As at 31 December 2021
(Unaudited) US$000 US$000
Beginning of the period (86,744) (72,307)
Income statement charge 7,604 (7,054)
OCI (charge)/credit (1,987) (7,383)
Retained earnings 3,775 -
Foreign exchange effect (446) -
End of the period (77,798) (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 amounts after offset, as presented on the face of the Statement of
financial position, are as follows:
As at As at
30 June 2022 31 December 2021
(Unaudited) US$000 US$000
Deferred income tax assets(1) 5,757 484
Deferred income tax liabilities (83,555) (87,228)
Net deferred income tax liabilities (77,798) (86,744)
1 Increase mainly explained by the deferred income tax asset in Amarillo
Minaracao do Brasil Ltda., subsidiary of the Amarillo Gold group acquired on 1
April 2022 (note 4) of US$5,076,000.
18 Cash and cash equivalents
As at 30 June 2022 As at
31 December 2021
(Unaudited) US$000
US$000
Cash at bank 1,208 1,065
Current demand deposit accounts(1) 77,066 86,058
Time deposits(2) 126,050 299,666
Cash and cash equivalents 204,324 386,789
1 Relates to bank accounts which are readily accessible to the Group and bear
interest.
2 These deposits have an average maturity of 17 days (as at 31 December 2021:
18 days).
19 Borrowings
As at 30 June 2022 (Unaudited) As at 31 December 2021
Effective Non-current Current Effective Non-current Current
interest rate
US$000
US$000
interest rate
US$000
US$000
Secured bank loans
· Pre-shipment loans in Minera Santa Cruz 35% to 48% - 12,774 - - -
· Mid-term loans in Minera Ares 4.4% 300,000 821 2.17% 300,000 499
Total 300,000 13,595 300,000 499
The movement in borrowings during the six-month period to 30 June 2022 is as
follows:
As at Additions US$000 Repayments US$000 As at
December 2021 30 June 2022 (Unaudited) US$000
US$000 Reclassifications US$000
Current
Bank loans(1) - 13,411 - (1,832) 11,579
Accrued interest 499 5,303 (3,814) 28 2,016
499 18,714 (3,814) (1,804) 13,595
Non-current
Bank loans(1) 300,000 - - - 300,000
300,000 - - - 300,000
1 Relates to pre-shipment loans for a total amount of US$11,579,000 (31
December 2021: US$nil) which are credit lines given by banks to meet payment
obligations arising from the exports of the Group. In addition, the balance at
30 June 2022 and 31 December 2021 includes a five-year credit agreement 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 carrying value including accrued
interests at 30 June 2022 is US$300,821,000 (31 December 2021:
US$300,499,000).
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 30 June 2022 As at 31 As at 30 June 2022 As at
(Unaudited) December 2021 US$000 (Unaudited) 31
US$000
US$000 December 2021 US$000
Bank loans 300,821 300,499 295,930 296,122
Total 300,821 300,499 295,930 296,122
20 Provisions
As at 30 June 2022 (Unaudited) As at 31 December 2021
Non-current Current Non-current Current
US$000
US$000
US$000
US$000
Provision for mine closure1 133,609 8,714 114,365 19,670
Workers' profit sharing2 - 3,354 - 10,892
Provision for contingencies(3) 4,216 1,945 2,003 1,496
Long term incentive plan - 292 467 -
Total 137,825 14,305 116,835 32,058
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 30 June 2022 and
31 December 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
pre-tax real discount rate used was -1.15% (2021: -2.09%). Movement in the
provision relates to an increase due to change in estimate of US$19,436,000
(mainly in the mine units Ares US$9,458,000, San José US$7,812,000 and
Pallancata US$910,000), net of payments of US$4,730,000, a decrease related to
change in discount rate of US$5,320,000 and a decrease related to unwind of
discount on mine rehabilitation of US$1,098,000.
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 14,237
Discount rate (increase by 0.5%) (decrease of provision) (8,112)
2 Corresponds to worker's profit sharing in Compania Minera Ares.
3 Mainly corresponds to the increase due to an income tax contingency in
Compañía Minera Ares of US$2,213,000.
21 Equity
Share capital and share premium
The movement in share capital of the Company from 31 December 2021 to 30 June
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 30 June 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 merger reserve 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:
i. the cancellation of the Bonus Shares with the sum arising on the
cancellation being credited to the Company's retained earnings reserve;
ii. the reduction of the Company's share premium account to nil and crediting
the corresponding amount to the Company's retained earnings reserve; and
iii. the reduction in the nominal value of the Ordinary Shares
from 25 pence per Ordinary Share to 1 pence per Ordinary Share,
(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.
22 Dividends paid and declared
Dividends declared and paid to non-controlling interests in the six months
ended 30 June 2022 were US$286,000 (2021: US$7,561,000).
A final dividend in respect of 2021 was recommended to shareholders of
US$11,998,000 (final dividend for 2020: US$12,002,000). An interim dividend in
respect of the six months ended 30 June 2022 amounting to US$10,000,000 (2021:
US$10,020,000) has been declared by the Directors . Dividends paid to
shareholders of the parent in the six months ended 30 June 2022 were
US$11,998,000 (2021: US$12,002,000).
23 Related party transactions
There were no significant transactions with related parties during the six
months period ended 30 June 2022.
24 Notes to the statement of cash flows
Six months ended 30 June
2022 202
(Unaudited) (Unaudited)
US$000
US$000
Reconciliation of profit for the period to net cash generated from operating
activities
Profit/(loss) for the period (420) 28,594
Adjustments to reconcile Group profit to net cash inflows from operating
activities
Depreciation 69,444 74,459
Amortisation of intangibles 384 563
Impairment of non-financial assets 1,741 -
Write-off of non-financial assets, net 323 299
Impairment of an associate 9,923 -
Share of loss of an associate 551 -
Gain on sale of property, plant and equipment (199) (3)
Increase of provision for mine closure 10,799 1,538
Loss from changes in the fair value of financial assets at fair value through 2,282 -
profit and loss
Finance income (2,163) (2,061)
Finance costs 13,083 13,252
Income tax expense 5,790 55,253
Other 3,639 3,910
Increase/(decrease) of cash flows from operations due to changes in assets and
liabilities
Trade and other receivables (39,469) (24,387)
Income tax receivable (2,725) 10
Other financial assets and liabilities 2,802 1,200
Inventories (9,240) (621)
Trade and other payables (19,345) (13,384)
Provisions (5,992) 1,583
Cash generated from operations 41,208 140,205
25 Subsequent events
In early August 2022, Compania Minera Ares SAC (CMA) received a preliminary
administrative fine from the Peruvian environmental supervisory authority
(OEFA) in connection with an environmental incident at the Arcata mine in
March 2013. The event involved the spillage of between four to six cubic
metres of hydraulic backfill from a pipe which impacted the soil along the
pipeline. CMA took immediate measures to remediate the impacted soil.
In 2017, CMA filed a report with OEFA detailing the remediation work that it
had undertaken. Five years later (in 2022), OEFA requested additional evidence
of the remediation undertaken.
In early August 2022, OEFA issued a fine for alleged non-performance of the
requisite remediation work. However, CMA considers that its technical
information will confirm that it took all appropriate measures and,
accordingly, there are no grounds for the imposition of a fine.
Based on the assessment of its technical team and the advice of external legal
counsel, management believes that it has grounds to robustly defend its
position and, accordingly, further believes that a successful challenge to the
imposition of the fine would be probable. Consequently, no provision has been
made. Management considers that it is possible that a fine may be levied but
confident that the worst-case scenario would result in an amount payable of up
to $1.8m, being less than the preliminary administrative fine issued.
Profit by operation¹
(Segment report reconciliation) as at 30 June 2022:
Group (US$000) Pallancata San Jose Inmaculada Consolidation adjustment and others Total/HOC
Revenue 36,538 106,747 204,196 300 347,781
Cost of sales (pre consolidation) (44,910) (82,148) (117,257) 3,799 (240,516)
Consolidation adjustment 307 - 3,492 (3,799) -
Cost of sales (post consolidation) (44,603) (82,148) (113,765) - (240,516)
Production cost excluding depreciation (35,846) (66,304) (71,851) - (174,001)
Depreciation in production cost (8,083) (20,926) (39,792) - (68,801)
Workers profit sharing (951) - (1,095) - (2,046)
Other items (17) (3,848) (5) - (3,870)
Change in inventories 294 8,930 (1,022) - 8,202
Gross profit (8,065) 24,599 90,431 300 107,265
Administrative expenses - - - (24,913) (24,913)
Exploration expenses - - - (23,826) (23,826)
Selling expenses (242) (6,163) (322) - (6,727)
Other expenses, net - - - (20,322) (20,322)
Operating profit/(loss) before impairment (8,307) 18,436 90,109 (68,761) 31,477
Impairment and write-off of non-financial assets, net - - - (2,064) (2,064)
Share of post-tax losses from associate - - - (10,474) (10,474)
Finance income - 2,163 2,163
Finance costs - - - (13,083) (13,083)
Foreign exchange loss - - - (2,649) (2,649)
Profit/(loss) from continuing operations before (8,307) 18,436 90,109 (94,868) 5,370
income tax
Income tax - - - (5,790) (5,790)
Profit/(loss) for the period from continuing operations (8,307) 18,436 90,109 (100,658) (420)
1 On a post-exceptional basis.
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, dividends and to report changes in personal details:
BY EMAIL
shareholderenquiries@linkgroup.co.uk
POST
Link Group, 10(th) Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL
BY TELEPHONE
(+44 (0)) 371 664 0300 (Calls are charged at the standard geographic rate and
will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 9am - 5:30pm, Monday to
Friday excluding public holidays in England and Wales)
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars should contact
the Company's registrars to request a currency election form. This form should
be completed and returned to the registrars by 9 September 2022 in respect of
the 2022 interim dividend.
The Company's registrars can also arrange for the dividend to be paid directly
into a shareholder's UK bank account. To take advantage of this facility in
respect of the 2022 interim dividend, a dividend mandate form, also available
from the Company's registrars, should be completed and returned to the
registrars by 9 September 2022. This arrangement is only available in respect
of dividends paid in UK pounds sterling. Shareholders who have already
completed one or both of these forms need take no further action.
Financial Calendar
Dividend dates 2022
Ex-dividend date 1 September
Record date 2 September
Deadline for return of currency election forms 9 September
Payment date 23 September
17 Cavendish Square
London
W1G 0PH
Registered in England and Wales with Company Number 5777693
1 Revenue presented in the financial statements is disclosed as net revenue
and is calculated as gross revenue less commercial discounts plus services
revenue
(#_ftnref2) (2)Please see the Financial Review on page 14 for a definition of
Adjusted EBITDA
3 All equivalent figures calculated using the Company's 2022 average
gold/silver ratio of 72:1.
(#_ftnref4) 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. Excludes
non-recurrent COVID-19 expenses of $2.4 million in H1 2022..
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 non-recurrent COVID-19 expenses of $2.4 million,
unallocated fixed costs accumulated during operation below planned operating
capacity and excess absenteeism in Argentina due to the Covid-19 pandemic of
$2.0 million, and unallocated fixed cost accumulated during operations below
planning operating capacity due to the fire in San Jose of $1.7 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 $6.2 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 Excludes non-recurrent COVID expenses of $2.4 million
17 Royalties arising from revised royalty tax schemes introduced in 2011 and
included in income tax line
18 Calculated using a gold silver ratio of 72:1
19 Operating capex from San Jose does not include capitalised depreciation
and amortisation resulting from mine equipment utilised for mine developments
20 Administrative expenses does not include expenses from the Biolantanidos
project ($19,000)
21 Royalties arising from revised royalty tax schemes introduced in 2011 and
included in income tax line
22 Adjusted EBITDA has been presented before the effect of significant
non-cash (income)/expenses related to changes in mine closure provisions and
the write-off of property, plant and equipment
23 Includes pre-shipment loans and short term interest payables
24 Includes additions in property, plant and equipment and evaluation and
exploration assets (confirmation of resources) and excludes increases in the
expected closure costs of mine asset
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