Hochschild Regulatory News (HOC)

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13 March 2013

Hochschild Mining plc

Preliminary Results for the twelve months ended 31 December 2012

Financial highlights[1]

·; Revenue of $818.0 million (2011: $987.7 million)

·; Adjusted EBITDA of $384.8 million (2011: $563.4 million)

·; EPS of $0.19 (2011: $0.49)

·; Strong financial position with a year-end cash balance of $359 million[2]

·; Minority investments valued at $256 million[3]

·; Proposed final dividend of $0.03 per share, bringing the total dividend for 2012 to $0.06 per share

Operational highlights

·; Full year production of 20.3 million attributable silver equivalent ounces in line with guidance

·; Overall unit cost performance in 2012 in line with guidance

·; Good progress at Inmaculada and Crespo; set to increase production levels by 50% from H2 2014 

o Key steps achieved in both projects' permitting processes including granting of Inmaculada EIS

o Project engineering, procurement and construction progressing according to schedule

o Positive exploration results at Inmaculada

·; Acquisition of Andina Minerals boosts long-term project pipeline with Volcan gold deposit in Chile

·; Exploration programme continues to deliver positive results:

o Excellent results from brownfield exploration programmes

o Core asset resource base optimised

·; 2013 production target maintained at 20.0 million attributable silver equivalent ounces

·; $77 million exploration budget for 2013

Commenting on the results, Ignacio Bustamante, CEO, said:

"I am pleased to report that in the face of a very challenging environment for mining companies we have been able to deliver a very solid performance, meeting our full year production target and delivering a solid set of financial results. We have also received some very promising results from our brownfield and greenfield exploration programmes and have made good progress at our Inmaculada and Crespo Advanced Projects, which will increase our annual production levels by 50%, with the commissioning date for both projects set for the second half of 2014. Finally, the acquisition of Andina Minerals bolstered our project pipeline with its principal asset, the Volcan gold deposit, located in Chile, which is one of our favoured mining jurisdictions. We remain enthusiastic about the significant potential of our current operations and our extensive project pipeline to deliver substantial optionality and shareholder value in the long term."

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A presentation will be held for analysts & investors at 9.30am (UK time) on Wednesday 13 March 2013 at Holborn Bars, 138-142 Holborn, London, EC1N 2NQ.  

For a live webcast of the presentation please visit our website:

www.hochschildmining.com

Conference call dial in details:

UK: +44 (0)20 3364 5381 (Please quote 'Hochschild Mining webcast' or confirmation code 6842507).

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Enquiries:

Hochschild Mining plc

Charles Gordon +44 (0)20 7907 2934

Head of Investor Relations

RLM Finsbury

Charles Chichester +44 (0)20 7251 3801

Public Relations

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About Hochschild Mining plc:

Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has almost fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

CHAIRMAN'S STATEMENT

2012 Overview

2012 has provided the mining industry with a number of challenges to which I believe our team has responded with energy and confidence. The outperformance of the Company's share price over the course of the year was evidence that a growing number of stakeholders agreed that our organic growth pipeline represents the best opportunity to generate long-term sustainable shareholder value. This resilience in the face of continuing global economic uncertainty is testament to our achievements in meeting our production targets once again, making considerable progress with our Advanced Projects despite the delays caused by changes in the Peruvian permitting process and identifying and executing acquisitions such as Andina Minerals with long-term potential for significant value enhancement.

In 2012, we generated revenue of just over $800 million leading to EBITDA in the region of $400 million with earnings per share of $0.19. The Board has decided to maintain the total dividend at 6 cents per share. This balances Hochschild's strong financial position and outstanding near-term potential for significant earnings growth with the Company's short-term capital expenditure commitments as well as current industry-wide pressures.

In November, we announced the purchase of Andina Minerals, our first sizeable acquisition since 2009. I am confident that we have secured an attractive opportunity at a purchase price significantly below recent comparable transactions. The move into large scale gold assets is entirely consistent with our longstanding "Company Maker" exploration strategy. Our Board has already visited the site and whilst there are undeniable potential challenges in bringing the deposit into production, the Volcan project represents a viable option to diversify our asset base by building a strong presence in a very prospective area of Northern Chile in the long term.

Our organic growth strategy continued to unfold during 2012 and during the year we approved two feasibility studies and subsequently made excellent progress at our two Advanced Projects with significant targets met in procurement, engineering and construction and also in both project's social development programmes. We did experience delays in the process of obtaining the final construction permits but I remain excited by the potential of these projects to increase our current production levels by 50% and also the significant exploration upside opportunity at Inmaculada.

Our exploration-led strategy and the current capital constrained industry environment requires that disciplined resource allocation and effective risk management be inherent in all our initiatives across the four countries that we explore. We have ensured that we are not only focusing our exploration capital on the most promising prospects, but also that we retain the discipline to exit or farm-out deposits or prospects that do not clear a defined set of hurdles. The year saw meaningful progress at many of our projects both in the Company Maker and Medium Scale categories, and I am confident that we will begin to witness the benefits of our greenfield investment as well as further success in brownfield exploration. I firmly believe this is the key to creating long-term shareholder value.

Operating Responsibly

Underpinning our strategy is our commitment to operate responsibly. During 2012, Hochschild Mining was granted the 'Socially Responsible Company' accreditation by Peru 2021, an organisation that reviews companies' efforts in this crucial area. As a mining company, we are conscious of the impact our activities have on the environment. To assist us, we seek to rely on leading environmental reporting systems and so I am delighted that an external audit has confirmed that systems at our active operations remain compliant with ISO14001.

We also advanced during the year with the implementation of our Community Relations strategy acknowledging our social commitment to operate in long-term harmony with our communities. A notable initiative for the year was "Digital City" where we dedicated significant financial and human resources to create a digital hub at the town of Chalhuanca located close to our operations at Pallancata. This project sought to improve access to education and to encourage economic sustainability through the installation of free internet access for the whole town. Further details of all of these initiatives will be provided in the Annual Report.

On the issue of safety, we continue to make progress with an 8% reduction in the Group's accident frequency rate. However, there is still a lot more work to be done as most regrettably, there were four fatalities at our operations during 2012. In keeping with Group's practice, all mining activity was suspended immediately after each incident while investigations were carried out. We consider each accident to be avoidable and we therefore took the active decision to re-emphasise management's zero tolerance policy on accidents by designating 14th November 2012 as the Hochschild Safety Day when production across all sites was suspended and we conducted Group-wide safety training sessions.

Outlook

Despite ongoing price volatility, long-term precious metal fundamentals remain robust as inflation fears continue to drive demand and resource scarcity restricts supply. Looking ahead, our consistent performance and our growth opportunities clearly show that we are on the right track and in 2013 we can expect further progress on the development of our Advanced Projects. In addition, there is significant potential and indeed the financial strength to continue to add optionality to our extensive project pipeline through organic development or further value enhancing acquisitions.

Board Composition

I am delighted that we were able to announce during the year the appointment of Enrico Bombieri as an Independent Non-Executive Director. Enrico brings a wealth of global capital markets' experience from his previous roles as a senior member of management at JP Morgan. I would also like to take this opportunity to express my gratitude to Sir Malcolm Field for agreeing to postpone his retirement from the Board until the end of 2013 allowing us to further benefit from his invaluable contribution.

On behalf of the Board, I would like to thank the entire talented Hochschild team for another year of strong performance, and our shareholders for your continued support.

Eduardo Hochschild

Executive Chairman

13 March 2013

CHIEF EXECUTIVE OFFICER'S STATEMENT

I am pleased to report that Hochschild has delivered a robust set of results in 2012 reflecting the successful achievement of our annual production target, considerable progress with regards to our organic growth pipeline and towards the end of the year, the announcement of the exciting purchase of Andina Minerals. Despite further economic, financial and political difficulties continuing to affect many markets in 2013, Hochschild remains in a strong position to enter a critical delivery phase. We remain committed to the safe and sustainable delivery of optimised production, complementing our value enhancing growth potential.

Strategic progress

The geological conditions at our main operations continue to be extremely promising and during 2012 our brownfield exploration results have been significant with high grade discoveries at all three operations. Having previously exceeded all our original life-of-mine targets, in 2012 we shifted the focus of our brownfield exploration programme to improving the quality of our resource base and the results received have confirmed the potential for continued high quality resource additions in the future. As part of this work, we have also completed a full review of our resource base and have been able to optimise the geological models of our main operations. Furthermore, in an effort to improve our resource to reserve conversion ratios, we have optimised our mine plans by removing resources that although economic at our stringent cut-off threshold, are unlikely to be mined at present. These include: resources that necessitate high capex; inaccessible resources from previous mining campaigns; or those that still require further evaluation before inclusion in the mine plan. As a result we have been able to maintain a life-of-mine that is now supported by a more robust resource base. I remain positive about the exploration potential of these outstanding mines and their ability to continue producing high value resources into the future.

The development of our project pipeline remains a key pillar of our strategy and during the year, our Advanced Projects, which will increase our production levels by 50%, made good progress. Following the Board's approval of both feasibility studies in January, several key procurement, engineering and construction targets were achieved throughout the year with the expected start-up date for both projects now set for the second half of 2014. We have also made significant advances with regards to the projects' social development programmes and environmental aspects, as demonstrated by the approval of Inmaculada's Environmental Impact Study in October.

Our ambitious greenfield programme also continued in 2012 and I am pleased that we have received further positive results from our Company Maker pipeline, in particular at Valeriano in Northern Chile where initial drilling testing encountered evidence of a mineralised porphyry copper system at depth with significant copper and gold mineralisation, capped by a mineralised lithocap. Drilling continues at the property to evaluate grades and the size of a potential resource. We have again reaffirmed our continuing commitment to our exploration strategy with a $77 million budget set for 2013 with almost half assigned to the greenfield programme.

We have always stated that we will look for opportunities to create value not only from our project pipeline but also from acquisitions that meet our disciplined acquisition criteria. In this regard, the announcement in November of the purchase of Andina Minerals was consistent with our strategic model, providing Hochschild with further long-term optionality as well as increased geographical balance within our extensive project pipeline. Its principal asset, the Volcan project, is located in Chile, one of the most attractive, mining-friendly jurisdictions in the Americas. The impressive size of the deposit necessitates careful planning before committing any development capital and therefore we intend to conduct substantial geological and technical evaluation work on the deposit throughout 2013 and are confident that our experienced professionals will develop its strong potential in the long term.

2012 overview

Hochschild has established a reputation for consistently meeting its annual production targets and in 2012 our operations once again delivered, producing 20.3 million silver equivalent ounces. The San Jose mine in Argentina enjoyed another robust year, with full year production up by 3% and can look forward to an even stronger 2013 following a cost effective 10% plant capacity expansion. Our Peruvian operations continued their policy of mining close to their average reserve grades whilst pursuing opportunities to optimise their performance. For example, the Arcata mine further capitalised on high silver prices to process low grade previously mined material, as well as completing the value enhancing Dore project.

In 2012, Hochschild experienced ongoing cost increases in Peru that were consistent with industry-wide inflation. This trend is set to continue in 2013 with further labour cost increases and currency appreciation currently forecast. In Argentina, we were encouraged by the Company's ability to mitigate the ongoing effects of high local inflation with increased year-on-year tonnages, further helped by a degree of local currency devaluation. We expect local cost inflation in Argentina to continue to be high in 2013, but are confident that the combination of increased tonnage from the capacity increase with further currency devaluation will provide a significant offset.

Hochschild reported revenue of $818 million in 2012. This reflected a fall of almost 10% in the average silver price received that more than offset the 6% rise in year-on-year gold prices, as well as the scheduled fall in production versus 2011. EBITDA reached $385 million, in line with the fall in revenue, as well as the above mentioned cost inflation, and pre-exceptional EPS was $0.19 for the full year. We continue to have a strong cash balance of approximately $359 million even after the payment for 86.7% of Andina Minerals, as well as just over $250 million in minority investments. Together with our healthy operating cashflow, Hochschild retains the flexibility to begin full construction at the Inmaculada and Crespo projects in the second half of 2013, execute our $77 million exploration programme and, subject to satisfying the Company's strict criteria, further capitalise on the significant range of acquisition opportunities in the current environment.

Outlook

The Company's production target for 2013 is 20.0 million attributable silver equivalent ounces driven by stable production from our core Peruvian operations and a continued decline in contribution from our two ageing mines, Ares in Peru and Moris in Mexico, offset by the increased output from San Jose following the capacity increase.

2013 promises to be an important year in Hochschild's development, as the expected receipt of construction permits for our two Advanced Projects in the second half will signal the start of a key phase of capital expenditure aiming to take the Company smoothly to the next level of production. Our core strategy is unchanged. We will once again be focused on delivering on our stated operational targets, begin the detailed process of assessment at the exciting Volcan project and continue to develop our comprehensive project pipeline supported by its $77 million budget and further selective acquisitions.

We retain great confidence in our experienced workforce to deliver operational improvements and efficiencies, while balancing increased investment in the drivers of long-term profitable growth with opportunities to enhance returns. I am confident we can continue to deliver significant value for all our stakeholders.

Ignacio Bustamante

Chief Executive Officer

13 March 2013

OPERATING REVIEW

2012 Highlights

·; Full year production of 20.3 million attributable silver equivalent ounces achieved, in line with guidance

·; Good progress at Advanced Projects - Inmaculada plant construction contract awarded and EIS granted by Peruvian government; detailed engineering and construction continued at Inmaculada and Crespo

·; Excellent results from brownfield exploration programmes at core assets

CURRENT OPERATIONS

Production

In 2012, Hochschild once again met its full year production target, producing 20.3 million attributable silver equivalent ounces, comprised of 13.6 million ounces of silver and 111.8 thousand ounces of gold. The Company has announced a production target of 20.0 million attributable silver equivalent ounces for 2013. Production at each of the Company's main operations is expected to be in line with 2012. As anticipated, production at the ageing Ares mine will continue to decline, reflecting lower tonnages and grades. Production at the Moris mine in Mexico is not expected to be material.

Costs[6] 

In 2012, excluding mine royalties and the cost impact of the increased dore production at Arcata, (which is more than compensated for by a reduction in commercial discounts and selling expenses), the Company reported a 17% increase in unit cost per tonne at its main Peruvian operations, to $70.9 per tonne (2011: $60.8). The increase in unit cost per tonne excluding royalties, including the cost impact of the dore project, was 21% (from $60.8 per tonne in 2011, to $73.3 in 2012). In Argentina, unit cost per tonne excluding royalties increased by 12% to $190.4 per tonne (2011: $169.6). The Company expects the increase in overall 2013 unit cost per tonne in Peru to be approximately 15-20% excluding royalties and the increased refining cost due to the effects of the dore project at Arcata. In Argentina, expected continuing local inflation, partially offset by local currency devaluation, is anticipated to result in a unit cost per tonne increase of 10-15%. Please see page 24 of the Financial Review for further details on costs.

Main operations

Arcata: Peru

The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.

Production and sales

In 2012, full year silver equivalent production at Arcata was 6.6 million ounces (2011: 7.1 million ounces). There was an increase in tonnage compared to 2011 mainly reflecting a planned fourth quarter increase in volumes processed from the low grade Macarena Waste Dam Deposit. This was achieved following a 500 tonne per day capacity expansion at the Arcata plant, completed in Q3 2012. The decrease in production was also a result of lower grades, in line with the Company's policy of mining close to the average reserve grade at its core assets.

Table Showing Contribution from Macarena Waste Dam Deposit

In addition, production at Arcata included the decrease in ounces recovered as a result of the ramping up of the dore project. This initiative was completed in the fourth quarter with 100% of Arcata's concentrate now being converted into dore, resulting in significant commercial savings which more than offset the decrease in ounces recovered from the process. Excluding the effect of this project, Arcata would have produced an additional 234 thousand silver equivalent ounces in the full year.

In 2012, the silver/gold concentrate from Arcata was sold to Consorcio Minero S.A, Korea Zinc Co and MRI Trading AG. 47% of Arcata's production was processed into dore; all of which was sold to Johnson Matthey in 2012.

Costs

Unit cost per tonne, excluding royalties and the additional cost of increased dore production increased by 9%. Including the additional cost of increased dore production, the unit cost increased by 17% to $82.0 (2011: $70.2). The main drivers were higher mining costs resulting from a higher proportion of production from narrower veins, a 4% appreciation in the Peruvian Sol and higher wage costs, in line with industry inflation. These effects were partly offset by economies of scale resulting from an increase in treated tonnage.

Resource life and Brownfield exploration

The resource life of Arcata stands at 11.7 years as at 31 December 2012. During the year, exploration work at Arcata focused on the definition of new high grade structures and the incorporation of high quality resources from known vein systems, as well as to provide further geological interpretation of the area. Positive results included the discovery of high grade resources in the Tunel 4 area, the discovery of the new Katty vein, and the extension of the Alexia vein with the potential to increase the life of mine and to improve the average grade quality of the resource. In total, 56,269 metres of diamond drilling was completed during 2012 (2011: 94,656 metres) with significant intercepts including[8]:

In 2013, the exploration and drilling programme of 34,000 metres at Arcata will continue in the potential and near mine exploration areas in the northern part of the district surrounding the Socorro, Alexia and Katty vein systems.

Pallancata: Peru

The Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007 and is a joint venture, in which Hochschild holds a controlling interest of 60% and is the mine operator, with International Minerals Corporation ("IMZ"). Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

*The Company has a 60% interest in Pallancata 

Production and sales

Full year production at Pallancata in 2012 was 9.0 million silver equivalent ounces (2011: 10.8 million). The decrease in production compared to 2011 was mainly due to lower grades reflecting the Company's policy of mining close to the average reserve grade at its core assets, as well as the processing of a higher proportion of mineral from narrower structures with higher mine dilution and lower metallurgic recovery. In addition, temporary delays in the mine execution plan in the first half of the year that led to the treatment of a greater proportion of lower grade material from the mine also contributed to the decrease in production.

In 2012, the silver/gold concentrate from Pallancata was sold to Teck Metals ltd., Aurubis AG, LS-Nikko Copper Inc and Consorcio Minero S.A.

Costs

Excluding mine royalties, unit cost per tonne increased by 23%, to $67.2 per tonne (2011: $54.5)9. Including royalties, the increase in 2012 was 11%, to $67.2 per tonne (2011: $60.4). This rise was principally due to an increase in mine costs reflecting the higher proportion of production from narrower veins as well as an increase in mined areas and higher cement consumption following the temporary delays in the mine execution plan in the first half of the year, as mentioned above. In addition, an increase in wage costs resulting from industry inflation and a 4% appreciation of the Peruvian Sol also contributed to the rise.

Resource life and Brownfield exploration

The resource life of the Pallancata operation stands at 7.4 years as at 31 December 2012. During 2012, a total of 50,326 metres of diamond drilling was carried out over the course of the year (2011: 50,748 metres), focused on the identification of wider structures and the incorporation of new resources. Drilling in 2012 mainly focused on the Paola, Luisa, Pallancata West, Huararani, Rina, Yurika and Teresa veins with intercepts including[10]:

In 2013, the exploration programme at Pallancata will focus on the definition of structures with high quality resources from known veins systems. The drilling campaign will also concentrate on identifying new high grade veins, with 39,050 metres of drilling planned in total.

San Jose: Argentina

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires. San Jose commenced production in 2007 and is a joint venture with McEwen Mining Inc (formerly Minera Andes Inc.). Hochschild holds a controlling interest of 51% of the joint venture and is the mine operator.

*The Company has a 51% interest in San Jose

Production and sales

San Jose delivered another strong performance in 2012, with silver equivalent production of 11.1 million ounces (2011: 10.7 million ounces). The 3% rise in production versus 2011 resulted from an increase in overall tonnage due to a greater availability of lower grade economic development material as well as operational efficiencies that allowed for an increase in mill throughput. The decrease in silver grades reflected this higher proportion of development material as well as the Company's policy of mining close to the average reserve grade at each of its core operations.

San Jose experienced a temporary accumulation of concentrate inventory during Q2 2012 due to the impact of industry-wide regulatory changes in Argentina. However, exports resumed at the end of Q2 and sales of this inventory were completed in Q3 2012.

In 2012, the dore produced at San Jose was sold to Argor Heraeus S.A. The concentrate produced at the operation was sold to Teck Metals ltd., Aurubis AG, LS-Nikko Copper Inc and Consorcio Minero S.A.

Costs

Unit cost per tonne at San Jose, excluding royalties, increased by 12% to $190.4 (2011: $169.6). Including royalties, the increase in 2012 was 11%, at $202.2 per tonne (2011: $181.7). The key driver was wage cost increases driven by local inflation in Argentina continuing to run at between 25% and 30% in 2012. In addition, this also impacted energy costs. These effects were partially offset by a 10% devaluation of the Argentinian peso, and economies of scale achieved through an increase in tonnages extracted and treated.

Resource life and Brownfield exploration

The resource life of San Jose stands at 12.2 years as at 31 December 2012. The Company received some excellent results from the exploration programme at San Jose in 2012, including the discovery of the Emilia vein located within the San Jose area, followed by the discovery of two further high grade structures: the Rosario and Kospi extension veins. During the year, a total of 81,099 metres (2011: 55,678 metres) of drilling was carried out to incorporate further resources and new economic areas. Drilling focused on a number of veins and significant intercepts included[11]:

In 2013, the exploration programme at San Jose will include geological mapping and a 32,000 metres drilling campaign to continue exploration in and around the San Jose mine and the Saavedra areas.

Other operations

Ares: Peru

The Ares mine, which commenced production in 1998, is a 100% owned operation located approximately 275 kilometres from the city of Arequipa in southern Peru.

Production and sales

Although production at Ares was expected to end in 2011, the Company continues to extract mineral from new veins and production continued in 2012.Full year production at Ares was 2.1 million ounces (compared to 2.3 million ounces in 2011). The Company continues to monitor production closely at Ares to ensure the extraction of profitable ounces during the last stage of its life cycle, with production expected to continue into 2013. The exploration programme is continuing at the property and positive results have already been received.

100% of Ares' production is processed into dore, all of which was sold to Johnson Matthey in 2012.

Brownfield exploration

In 2012, a full geophysical survey was conducted at Ares and as a result new intersections at the Isabel vein were discovered and new structural corridors were detected. During the second half of the year, near mine exploration continued on the Apolo vein in the NW corridor. In addition, several new anomalies were detected and drilling was carried out in the Rosario and Isabel veins to define new resources. During the year, a total of 17,534 metres of drilling was carried out at Ares. Positive intercepts included12:

In 2013, the exploration programme and 2,800 metres drilling campaign at Ares will focus on exploring the potential extensions of known veins systems and in new structures.

Moris: Mexico

The 100% owned Moris mine, is an open pit mine and is located in the district of Chihuahua, Mexico.

Production and sales

Despite mine production at Moris having ceased in September 2011, in 2012, continued leaching of the pads produced a further 570,000 silver equivalent ounces (2011: 1.2 million ounces). The Company expects to continue recovering mineral from the pads in 2013, although this is not expected to be material. Exploration continues at the property.

In 2012, the gold/silver dore produced at Moris was sold to Johnson Matthey.

Brownfield exploration

Exploration work at Moris during 2012 focused on identifying new economic structures. During the year, 13,994 metres of drilling was carried out in the La Nopalera, Creston, Eureka, La Mexicana, Los Alamos and San Luis areas. Positive intercepts included[12]:

During 2013, further mapping and sampling will be carried out in order to better define the new resource areas.

ADVANCED PROJECTS

The Company has four Advanced Projects: Inmaculada, Crespo and Azuca in Peru and the Volcan Gold project in Chile. In January 2012, Hochschild announced the successful completion of the Inmaculada and Crespo feasibility studies which are forecast to contribute 10 million silver equivalent ounces of attributable production on average per annum. In November 2012, the Company announced that following industry-wide delays in the permitting process in Peru, it now expects to receive the final mill construction permits for the Inmaculada and Crespo projects in the second half of 2013 with commissioning for both projects' mills scheduled for the second half of 2014. At Azuca, the Company continued exploration work at the project throughout 2012 in order to consolidate resources and provide a more comprehensive picture of the complex vein structures in the area. The Volcan Gold deposit was acquired following the acquisition of Andina Minerals Inc in November 2012.

Inmaculada

Inmaculada is a 20,000 hectare gold-silver project located in the Company's existing operational cluster in southern Peru and is 60% owned and controlled by Hochschild, following the acquisition of a controlling stake in October 2010. The remaining 40% is held by the Company's joint venture partner at Pallancata, International Minerals Corporation ('IMZ').

Following the substantial progress made by the Company during 2012 with regards to detailed engineering and also procurement and construction contracts for the Inmaculada project, the revised total capital expenditure estimate for the project is now expected to be approximately $370 million for a 3,500 tonne per day ('tpd') underground operation with average annual production of 12 million silver equivalent ounces (7 million attributable ounces). The project is due to be commissioned in the second half of 2014. During the year, the Company also continued to receive positive results from the exploration programme at the property which consists of 40 mining concessions with resources which are currently estimated at a total of 150 million silver equivalent ounces.

In August 2012 the Company awarded the contract for the construction of the plant at Inmaculada, within budget, for $142 million and in September, the Environmental Impact Study ('EIS') for the project was awarded, representing a key step in the project's permitting process. Also during the year, the purchase of the main plant equipment was completed and the Company progressed with the detailed plant engineering, as well as the detailed engineering for the mine. In addition, engineering for the camp facilities and for the workshops, warehouses and offices was completed. Construction of the water treatment plant was also underway and construction of the exploration tunnels continued, with 2,920 metres completed during the year. Finally, the contract for the construction of the main access road to the site was granted, with completion due in H1 2013, and work also continued on the construction of the electricity transmission line during the year.

Exploration at Inmaculada in 2012 focused on the definition and incorporation of potential systems outside of the current resource area. During the year, five drill rigs were in operation and a total of 45,942 metres of drilling was carried out, focused on the Tensional Lourdes, Tensional Lourdes II, Martha and Angela and Juliana veins, as well as the newly discovered Susana and Mirella veins where assay results showed excellent mineralisation. Positive results included[13]:

In 2013, the 13,450 metres drilling campaign will continue with near mine and potential drilling to expand the current resources at Inmaculada.

Crespo

Crespo is 100% owned by Hochschild and is located in the Company's existing operating cluster in southern Peru. This will be a relatively simple open pit project with high gold recovery rates, and as with the Inmaculada project, will benefit from operational synergies due to its proximity to the Company's existing operations. The project has an estimated total capital expenditure of approximately $110 million for a 6,850 tpd operation with an average annual production of 2.7 million silver equivalent ounces from the second half of 2014.

In 2012 the Company made good progress at Crespo, the detailed engineering for the mine and the plant was in progress during the fourth quarter and is expected to be completed in the first half of 2013. In addition, the final engineering for the camp design and construction was completed and work on the access road to the project commenced.

In April 2012, the Company held a successful public hearing in relation to the project's EIS permit, and during the year, the Company continued the process of responding to the relevant observations with regards to the EIS permit, whilst community relations support programmes also continued. Furthermore, on 28 December 2012, the surface water study for the Crespo project was approved and subsequently on 11 January 2013, the surface land agreement for the project was approved by the local community. Both of these are key steps in the project's approval process and the Company is now in a position to submit the project's construction permit application.

The exploration programme at Crespo continued to deliver positive results in 2012. During the year, lithological and alteration models were completed and a surface sampling campaign was concluded. Exploration and infill drilling at the Crespo and Queshca areas started in September with three drill rigs in operation. A total of 2,311 metres of exploration drilling was completed during the year as exploration focused on the transition of inferred resources into measured and indicated resources and to test the extension of gold mineralisation below the current pit. Positive results were received from superficial levels and in addition assay results from the Queshca area confirmed a structural domain mineralisation. Positive intercepts included[14]:

In 2013, a surface exploration programme will be carried out at Crespo.

Azuca

The 100% owned Azuca project is also located in the Company's southern Peru cluster. In January 2012, the Company took the decision to delay the feasibility study at Azuca and continue exploration work throughout 2012 in order to consolidate resources and to provide a more comprehensive picture of the vein structures present in the area.

Moreover, the Company believes that the geological potential of the Azuca property may produce richer structures that could further support the investment required to develop the asset but could alter the design and location of future mine and plant infrastructure, tailings ponds and other key equipment.

The focus of the exploration programme at Azuca in 2012 was on the exploration of new areas at the property with the potential for high grade mineral structures, as opposed to the addition of resources. As of December 2012, the Azuca project has Measured & Indicated resources totalling 7.05 million tonnes at 0.77 g/t of gold and 188 g/t of silver containing 173,500 ounces of gold and 42.7 million ounces of silver.

Exploration at the site continued in 2012 with promising intercepts indicating the presence of new higher grade veins. Surface geology and detailed mapping was conducted at Azuca and drilling continued during the year with four drill rigs in operation. A total of 29,488 metres of drilling was carried out focused on the Azuca West, Paralela, Colombiana, Yanamayo, Esperanza and Prometida veins. Assay results from the Azuca West vein confirmed the continuity of a high grade mineral structure to the southwest. Furthermore, the North-West Colombiana vein intercepts also yielded excellent results that indicate a new possible orientation or new structures towards the north. Positive results included[15]:

The 2013 drilling programme at Azuca will focus on identifying new high grade potential mineral structures, with a programme of 17,100 metres planned.

Volcan gold deposit

On 8 November 2012, the Company announced that it had made a recommended cash offer of C$0.80 per share for all of the issued and outstanding common shares of Andina Minerals Inc. ("Andina"). Andina owns the Volcan gold project located in the prolific Maricunga gold belt in Chile. Full details can be found in the announcement.

On 20 February 2013, the Company announced that it had completed the acquisition of all of the outstanding Andina Minerals Inc shares and therefore indirectly owned 100% of the issued and outstanding Andina Minerals Inc shares. Andina Minerals Inc was delisted from the TSX Venture Exchange on 22 February 2013.

This acquisition adds to the Company's extensive project pipeline, doubling the current resource base and is located in Chile, one of the Company's key targeted mining jurisdictions. In addition, it is in line with the Company's long standing criteria of acquiring highly value accretive, early stage opportunities with strong geological conditions and with full control. During 2013, the Company will commence an extensive technical and geological evaluation of the Volcan deposit and continue with the relevant permitting processes and applications.

In February 2011, Andina published details of a Pre-Feasibility Study carried out on the Volcan deposit disclosing initial Proven and Probable mineral reserves of 6.6 million ounces of gold. During the process of evaluation mentioned above Hochschild will re-classify the reported reserves as resources.

The exploration programme at the Volcan gold deposit in 2013 will focus on a re-logging campaign to characterise resource data and improve the geological model of the property.

According to Andina's February 2011 Pre-Feasibility Study, the project has the following mineral resources:

a. All quantities are rounded to the appropriate number of significant figures, consequently sums may not add due to rounding.

b. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant issues.

c. The quantity and grade of reported Inferred Resources in this estimation are conceptual in nature and there has been insufficient exploration to define these Inferred Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in the upgrading of the Inferred Resources into an Indicated or Measured Mineral Resource category.

d. The Volcan mineral resource estimate is effective as of 16 September 2010.

EXPLORATION REVIEW

2012 Highlights

·; $97.5 million invested in exploration in 2012; 33% brownfield,17% Advanced Projects and 38% greenfield[16]

·; Resource life of 9.8 years

·; Total resources of 527 million silver equivalent ounces[17]

·; Increase in 'Company Maker' pipeline from 13 to 16 projects

·; 2013 exploration budget of $77 million; 26% brownfield at current operations, 14% Advanced Projects, 44% greenfield, others and support 16%

In 2012, investment in exploration totalled $97.5 million and 350,150 metres of drilling was completed at the Company's brownfield, Advanced Projects, greenfield and copper projects. The 2013 budget, representing 154,700 metres, will be split between exploration work at the Company's existing operations, the Advanced Projects and greenfield opportunities in Peru, Argentina, Mexico and Chile.

The Company's exploration programme in 2012 delivered some excellent results, especially in the brownfield exploration at its current operations. The Company's greenfield exploration programme also produced positive results and its project pipeline was further expanded, to include 16 'Company Makers' and 20 'Medium Scale' projects.

In 2013, exploration work at the Company's core operations will be mainly focused on identifying new potential and near mine high grade areas to further improve the resource quality. At the Inmaculada and Crespo Advanced Projects, exploration efforts will be focused on identifying new potential high grade areas whilst at Azuca, Hochschild will concentrate on the exploration of high quality resources that better support a significant investment. At the Volcan gold deposit in Chile, the Company will commence an extensive technical and geological evaluation of the deposit.

Exploration at the Company Maker projects will include continued drilling and further analysis and at the Company's Medium Scale projects, work will continue to develop those high-quality, early stage projects that have the potential to move through the pipeline to production. Work will also continue on the Company's generative programme to conduct further exploration on the Company's extensive land package of premium properties. In 2012, the number of geologists employed by the Company was 120.

Brownfield exploration

Approximately 33% of the exploration budget was invested in brownfield exploration in 2012.

The geological conditions at the Company's main operations continue to be extremely promising and during 2012, brownfield exploration results have been significant, with high grade discoveries at all three operations. Having previously exceeded all of Hochschild's original life-of-mine targets, in 2012 the focus was shifted to improving the quality of the Company's resource base and the results received have confirmed the potential for continued high quality resource additions in the future. As part of this work, a full review of the resource base was also completed and the Company has been able to optimise the geological models of the main operations. Furthermore, in an effort to improve the resource to reserve conversion ratios, the Company's mine plans have been optimised by removing resources that although economic at Hochschild's stringent cut-off threshold, are unlikely to be mined. These include: resources that necessitate high capex; inaccessible resources from previous mining campaigns; or those that still require further evaluation before inclusion in the mine plan. As a result, life-of-mine has been maintained and is now supported by a more robust resource base.

For full reserve and resource tables, please see page 64.

Greenfield exploration

In 2012 approximately 38% of the 2012 exploration budget was invested in the Company's greenfield programme, and in 2013, the proportion will increase to 44%. In 2012, a total of 53,188 metres was drilled at the Company's greenfield projects.

The Company conducted minimum exploration work at its greenfield projects in Argentina in 2012. Although exploration and business development teams did remain active in the country throughout the year, a decision has been made to suspend all exploration activities in Argentina for the foreseeable future.

Company Makers

The Company currently has 16 potential "Company Makers". These are projects with the potential to achieve production of 20-30 million silver equivalent ounces per year. They are typically high sulphidation, disseminated or gold/copper porphyry deposits. In 2012, $20.0 million was invested in finding and developing such deposits and the 2013 budget is $17.9 million.

Valeriano

The Valeriano property in Chile is located 27 kilometres north of Barrick Gold Corporation's Pascua Lama project, in close proximity to the border with Argentina, and covers an area of 3,750 hectares. The property hosts both high-sulphidation as well as porphyry style disseminated copper and gold mineralisation. The property has been explored by a number of mining companies in the past, including Phelps Dodge (1989-1991) and Barrick (1995-1997), which completed drill campaigns totalling 12,575 metres. Hochschild's initial programme in 2012 was the first significant exploration programme since 1997 and the Company has an option to earn in 100% of the Valeriano property through a mix of cash payments and work commitments.  

In 2012 a total of 5,294 metres of drilling was carried out at Valeriano. Initial drill testing at the property in early 2012 encountered evidence of a mineralised porphyry copper system at depth with significant copper and gold mineralisation, capped by a mineralised lithocap. During 2012, drilling was conducted to test the upper epithermal and lower porphyry levels. Near surface epithermal mineralisation was encountered at the property and positive intercepts reported included[18]:

*results contain Au, Ag, Cu and Mo at current rates.

The current exploration programme at Valeriano has been extended into the first half of 2013 to further test the porphyry copper and gold mineralisation at depth.

Victoria

The Victoria project is located in northern Chile and is 66% owned by Hochschild, with the remaining 34% held by Iron Creek Capital. The exploration programme is delivering positive results at the property which covers 46,100 hectares of continuous strike length at the highly productive Domeyko Fault Zone. A total of 7,586 metres of drilling was completed at the deposit in 2012 in the Picaron Exotic, Victoria II and Incahuasi areas. During the year, a surface exploration programme was carried out over the entire property and geological interpretation of historical exploration data was also completed, with new drill targets being identified in the Victoria II and Incahuasi areas. In addition, a detailed mapping programme commenced, in order to define targets for the 2013 exploration season.

In 2013, additional compilation of geophysical studies will be carried out at Victoria and further mapping of the northern area of the property will be conducted to define drill targets for the year's exploration programme.

Encrucijada 

Following the acquisition of Andina Minerals the Encrucijada property in Chile is now 100% owned by Hochschild. As a result of positive exploration results, Encrucijada was re-categorised as a Company Maker project in Q1 2012. During the year, historical geological data was compiled and integrated and a total of 1,674 metres was drilled at Encrucijada. In addition, further geophysical interpretation and targeting of the porphyry style mineralisation below the San Bernardo tourmaline breccias and dome complex, and in the surrounding area, was carried out. At the end of the year, mapping of target areas to the east and north east of the project commenced and initial results identified similar vein mineralisation to the San Bernardo dome, with strongly anomalous copper porphyry style mineralisation. Results indicate that this controlling structure is part of a major caldera ring structure. Positive drilling results included the following intercepts[19]:

*results contain Au, Ag and Cu at current rates.

In 2013, a mapping programme will be completed at Encrucijada to define further drill targets in the east and north east, as well as throughout the south east extension of the property.

Mercurio

Mercurio is a 100% owned 36,388 hectare property in Mexico, located between two high grade mines, Sombrerete and Fresnillo. In 2012, a total of 12,292 metres of drilling was completed at the property with results to date indicating strong base metal, as well as moderate silver mineralisation, associated with a large vein system similar to Fresnillo.

The exploration programme at Mercurio in 2012 focused on expanding the known mineralisation and identifying new mineralised structures. Geochemical sampling continued at the property and drilling was carried out on the Santa Rosa and Virginia vein systems and along the large north east structural zone which hosts a barite vein, to define the extension and continuity of mineralisation in these silver-based vein corridors. Positive intercepts included19:

*results contain Ag, Zn and Cu at current rates.

In 2013, drilling will continue at Mercurio and will concentrate on the barite structure zone.  

Apacheta

At the 100% owned Apacheta project in Peru, a total of 2,524 thousand metres of drilling was completed 2012. The initial exploration programme at Apacheta 1 was completed with no positive results. Work continued on the process to obtain the necessary social permits for Apacheta 2 in order to initiate the planned drilling programme there.

Soranpampa

At the 100% owned Soranpampa project in Peru, a total of 3,040 metres of drilling was carried out in 2012. Drilling was carried out on a geophysical anomaly area in order to identify economic near-surface gold mineralisation. In addition, further detailed geophysical work carried out during the year identified targets in and adjacent to the primary target and exploration work was carried out on these targets. No further exploration work is planned for the Soranpampa project in 2013.

La Falda

The La Falda property in northern Chile is located close to the Company's other projects in the area and was acquired in December 2011 as an earn-in project. The target is a porphyry gold-copper system, similar to other deposits in the Maricunga belt. The drilling programme at La Falda commenced in Q4 2012 and totaled 3,009 metres, testing both lithocap high sulphidation type mineralisation as well as porphyry style gold mineralisation. Drilling results indicated that gold mineralisation does exist and is related to the porphyry gold setting. Additional targets were identified following continued mapping and sampling programmes and will be developed for drill testing in the north west of the property. The target is characterized by porphyry with banded quartz veins. Positive intercepts from the drilling programme at La Falda included[20]:

*results contain Au, Ag and Cu at current rates.

Potrero

The Potrero property is located in northern Chile, close to the La Falda property. Potrero was added to the Company's exploration pipeline in Q1 2012. Following the completion of geochemical, geological and geophysical mapping programmes early in the year, a NE-SW trend to mineralisation was confirmed. In addition, results of a geochemical sampling programme returned anomalies associated with the central anomaly and related to NE trending structures and an increase in sheeted veining. The magnetic survey also completed at the property defined lineaments trending NE and NW, with the intersection of these lineaments defining the central area of the property where the porphyry crops out. In conjunction with this programme, a surface mapping programme was completed and identified mineralised porphyries extending to the NE. In 2013, a drill programme has been designed, to test the porphyry target along the NE trend.

Baborigame

The 51% owned Baborigame project is located in Mexico, in the Chihuahua district. The project was added to the project pipeline in Q3 2012 and is a series of low sulphidation veins with disseminated mineralisation. A detailed mapping and sampling programme was completed on the Cebollas target which is considered to be the most prospective area within the property, a mining district with more than 20 kilometres of quartz veins. Two gold anomalies were identified during the initial exploration works, and in 2013, a drilling programme will be carried out to test the Cebolla target as well as classic epithermal veins located elsewhere on the property.

Other Company Maker projects

Coriwasi

This is a 9,800 hectare high sulphidation epithermal and porphyry copper-gold type target in northern Peru optioned from a private party. During 2012, the Company continued the process of completing the relevant permits and approvals process for the project and conducted an airborne magnetic survey of the property which identified a number of magnetic lineaments that correspond with surface gold anomalies.

Corazon de Tinieblas

The Corazon de Tinieblas property is located in Southern Mexico. The Company is in the process of completing the relevant permits and approvals process for the property.

Huachoja

This is a 3,000 hectare, high sulphidation epithermal target in southern Peru optioned from Teck Peru SA. In 2012, a total of 2,278 metres of drilling was carried out at Huachoja to test four targets. No significant mineralisation was reported in 2012.

Josnitoro

The Josnitoro project is located in Southern Peru. The Company continued the process of obtaining the relevant permit and approvals for the project during 2012.

Julieta

The Julieta property is located in Northern Peru. During 2012, the Company conducted a geological survey of the property and subsequent target definition and commenced the relevant permit and approval processes for the drilling campaign.

Medium Scale projects

The Company's project pipeline also contains various Medium Scale properties in the target delineation and drill testing categories. These are projects that each have the potential to contribute 5-10 million silver equivalent ounces of production per year and tend to be low sulphidation epithermal gold/silver type deposits with varying base metal content and are typically mined underground.

In 2012, the Company assigned $7.8 million to finding and developing Medium Scale projects, and in 2013 plans to invest $5.4 million in this category. The Company continued to receive positive results from the exploration programmes at its Medium Scale projects in 2012 and in addition, added the El Tanque property in Mexico to the pipeline.

Cuello Cuello

At the Cuello Cuello project in Peru, the relevant government and community permits were received in December 2011 and at the end of H1 2012 the drilling programme commenced with a total of 2,407 metres drilled during the year. Four silica structures with high sulphide content were identified, and near surface gold and silver structures were intersected in the drilling campaign. The Company plans to continue drilling at the property in 2013. Positive intercepts from the 2012 drilling campaign included[21]:

Astana/Farallon

Astana is a 100% owned project located in the Company's southern Peru cluster, with high sulphidation of disseminated gold/silver mineralisation. Historical drilling at superficial levels reported anomalous results in gold and silver associated to pyrite with values of 200 to 390 g/t Ag eq. Farallon is a 100% owned low sulphidation silver veins system, located 1.5 km to the east of Astana. Previous drilling at superficial levels reported anomalous results in gold, silver, lead and zinc.

In 2012 the Company continued the process of attaining the relevant permits and approvals for both projects and received the necessary social permits. At the Astana property, the testing of anomalies was carried out whilst at Farallon a drilling campaign commenced during the year and a total of 518 metres of drilling were carried out to test the economic potential of the property. Historical drilling has already identified moderate silver and gold mineralisation with the current drilling programme expected to continue in the first half of 2013.

San Martin

Work at the San Martin project in Peru in 2012 was focused on obtaining the relevant government and community permits and approvals. In 2013, the Company will finalise the social permit application process and allow for the exploration work to commence, with the focus on defining potential mineralization. Previous drilling campaigns that intercepted high quality mineralisation.

Huacullo

At the Huacullo project in Peru, in 2012, a surface mapping programme commenced to define the extension of the principal structures at the property where potential economic mineralisation in low to intermediate sulphidation veins were identified in previous drilling campaigns conducted by other companies. In 2013, the Company will finalise the relevant permits application process and continue exploration work at the property.

Other Medium Scale projects

El Tanque

At the El Tanque project in Mexico following a drilling campaign totalling 2,734 metres in 2012, no significant intercepts were reported to support a relevant mineralised body. The Company will not conduct further exploration work at the property in 2013.

Ibel

At the Ibel project in Peru, work in 2012 continued on the completion of the relevant government and community permits and approval process. Geological work and target definition was also carried out in order to test potential economic mineralisation in low to intermediate sulphidation veins and hydrothermal breccias located in sedimentary rocks.

Copper projects

Following the acquisition of Southwestern Resources in 2008, the Company currently holds a number of copper projects located in the southern Andes in Peru, within a highly prospective area for copper deposits.

Jasperoide

In 2012 a total of 1,906 metres of drilling was carried out at Jasperoide, focused on the already identified mineralised zone and surrounding area to locate new skarn blankets and to test for a potential associated porphyritic system. The Company is not planning to conduct further exploration work at the property in 2013.

Alpacocha

At the Alpacocha project an airborne geophysical magnetometer survey was completed and new targets were generated. A total of 3,012 metres of drilling was carried out during the year, concentrated in the Paraiso target, next to a known copper skarn porphyry target. Results have indicated a weak to moderately copper mineralised skarn and porphyry system with the potential for mineralisation to increase at depth. Positive intercepts from the drilling programme at Alpacocha in 2012 included[22]:

*results contain Au, Ag, Cu and Mo at 19.01.2013 rates.

Antay

At the 100% owned Antay copper project, in 2012 the Company continued the process of obtaining the necessary access permits for the project.

Generative

The Company holds over one million hectares of prime land in key geological regions across four countries and continues to commit resources to conduct further exploration in these premium areas.

FINANCIAL REVIEW

Key performance indicators

(before exceptional items, unless otherwise indicated)

The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years. 

Following the revision of the mining royalty regime in Peru in 2011 (as detailed in the Company's 2011 Full Year Results announcement), the mine royalties incurred by the Pallancata and Ares units are now accounted for as Income Tax, whereas previously, royalties for both units were treated as production costs. The effect of this change should be taken into account when comparing the units' production cost per tonne, cash costs and Adjusted EBITDA metrics in 2012 with those of 2011.

Revenue

Gross revenue

Gross revenue from continuing operations decreased 17% to $869.1 million in 2012 (2011: $1,043.7 million) driven by a decrease in production and a fall in the silver price, partially offset by a rise in the gold price.

Silver

Gross revenue from silver decreased 21% in 2012 to $599.4 million (2011: $755.8 million) as a result of lower prices. The total amount of silver ounces sold in 2012 decreased to 18,928 koz (2011: 21,792 koz) mainly due to lower year-on-year production.

Gold

Gross revenue from gold decreased 6% in 2012 to $269.2 million (2011: $287.8 million) also as a result of lower ounces produced although offset to some extent by an increase in the received gold price. The total amount of gold ounces sold in 2012 decreased to 159.8 koz (2011: 182.0 koz) mainly due to lower year-on-year production.

Gross average realised sales prices

The following table provides figures for average realised prices and ounces sold for 2012 and 2011:

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted 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 2012, the Group recorded commercial discounts of $51.2 million (2011: $56.0 million). This decrease resulted from a lower volume of concentrate sold in 2012, mainly due to the Arcata dore project. The ratio of commercial discounts to gross revenue in 2012 increased to 6% (2011: 5%).

Net revenue

Net revenue decreased by 17% to $818.0 million (2011: $987.7 million), comprising silver revenue of $557.8 million and gold revenue of $259.6 million. In 2012 silver accounted for 68% and gold 32% of the Company's consolidated net revenue compared to 72% and 28% respectively in 2011.

Revenue by mine

Costs

Total pre-exceptional cost of sales increased 4% to $420.3 million in 2012 (2011: $404.3 million) resulting from an increase in the direct production cost, an increase in depreciation and from changes in inventory. These factors were partially offset by lower workers' profit sharing reflecting the decrease in production in Peru and a lower silver price in 2012. The direct production cost increased by 15% in 2012, to $301.5 million (2011: $261.2 million) mainly as a result of an increase in the number of stopes, inflation in labour and supplies and rising oil prices in Peru and Argentina. Depreciation in 2012 was $121.2 million (2011: $103.7 million), with the increase mainly due to full depreciation of the Ares operation, depreciation of new tailings dams at Pallancata as well as a higher future capex depreciation resulting from the increasing cost to convert resources into reserves in all operating units and higher depreciation ratios. Other items, which principally includes workers' profit sharing, was $15.4 million in 2012 (2011: $32.4 million) and change in inventories which was $(17.7) million in 2012 (2011: $6.9 million).

Unit cost per tonne

The Company reported an overall increase in unit cost per tonne at its main operations of 13% in 2012 to $103.2 (2011: $91.4). The higher unit cost per tonne reported in 2012 includes the effect of the Arcata dore project which in turn, provides significant savings on commercial expenses. For further explanation on the increase in unit cost per tonne please refer to page 7 of the Operating Review.

Unit cost per tonne by operation (including royalties)[28]:

Unit cost per tonne by operation (excluding royalties)27:

Cash costs

Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales.

Co-product silver/gold cash costs are total cash costs multiplied by the percentage of revenue from silver/gold, divided by the number of silver/gold ounces sold in the year. Silver and gold cash costs increased from $13.0 to $14.2 per ounce and from $613 to $781 per ounce, respectively. Silver and gold cash costs from the Company's main operations (Arcata, Pallancata and San Jose) increased from $12.0 to $13.4 per ounce and from $561 to $735 per ounce, respectively. The increase in silver cash costs resulted from higher production costs and lower average grades, partially offset by lower workers' profit sharing, lower commercial discounts and a lower proportion of costs allocated to silver as a result of lower silver prices.

By-product silver/gold cash costs are total cash costs less revenue from gold/silver, divided by the number of silver/gold ounces sold in the year. By-product cash costs for the period were $6.5 per silver ounce (2011:$ 4.9 per silver ounce) and ($1,293) per gold ounce (2011: ($1,987) per gold ounce).

Cash cost reconciliation[30]:

Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. 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.

As detailed in the introduction to the Financial Review, in calculating 2012 cash costs royalties at Pallancata and Ares are now excluded from the cost of sales figure used. Consequently, for comparison purposes, please see below 2011 Group cash costs adjusting the royalties effect.

Administrative expenses

Administrative expenses before exceptional items increased by 13% to $73.0 million (2011: $64.4 million) primarily due to rises in personnel expenses mainly resulting from local inflation and the appreciation of local currencies. An increase in the Company's Long-term Incentive Plan ('LTIP') provision, reflecting the Company's share price performance in 2012, also contributed to the increase. These increases were partially offset by the absence of voluntary contributions in 2012.

Exploration expenses

As a result of the Group's decision to focus on organic growth through exploration, exploration expenses, which primarily relate to greenfield exploration, increased by 36% to $64.6 million in 2012 (2011: $47.3 million). Further detail on the exploration programme can be found in the exploration section on page 16.

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In 2012, the Group capitalised $15.9 million relating to brownfield exploration compared to $13.2 million in 2011, bringing the total investment in exploration for 2012 to $80.5 million (2011: $60.6 million). In addition, $17.0 million was invested in the Company's Advanced Projects.

Selling expenses

Selling expenses were in line with 2011at $39.5 million (2011: $39.0 million) principally consisting of export duties at San Jose (export duties in Argentina are levied at 10% of revenue for concentrate and 5% of revenue for dore).

Other income/expenses

Other income before exceptional items was $8.7 million (2011: $7.1 million), mainly reflecting a $2.4 million export tax credit in Argentina. Other expenses before exceptional items reached $9.5 million (2011: $15.8 million), which included a provision for obsolescence of supplies of $2.5 million.

Profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax

Profit from continuing operations before exceptional items, net finance costs and income tax decreased to $219.8 million (2011: $424.0 million) as a result of the factors detailed above.

Adjusted EBITDA

Adjusted EBITDA decreased by 32% over the period to $384.8 million (2011: $563.4 million) driven primarily by lower silver prices, lower production and higher costs.

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses.

Impact of investment in associate

An associate is an entity in which Hochschild has significant influence but not control and is accounted for using the equity method.

Hochschild's pre exceptional share of the profit/(loss) after tax of associates totalled $6.5 million in 2012 (2011: $11.7 million), a result of the Group's share of the results of Gold Resource Corporation. After exceptional items, the share of the profit/(loss) after tax of associates totalled $5.1 million.

Finance income

Finance income before exceptional items of $2.0 million was lower than that of 2011 (2011: $4.7 million) mainly due to the absence in 2012 of interest income received from McEwen Mining following the settlement of loans (2011: $1.7 million).

Finance costs

Finance costs before exceptional items decreased by 40% to $12.9 million in 2012 (2011: $21.3 million) reflecting interest costs associated with the prepayment of a shareholder loan at San Jose during 2011 ($3.4 million), total prepayment of short-term debt in Peru during 2011 ($2.1 million) and the prepayment of a Syndicated loan in 2011 ($1.3 million).

The Group has no outstanding positions on currency or commodity hedges.

Foreign exchange losses

The Group recognised a foreign exchange loss of $1.2 million (2011: $1.6 million loss) as a result of exposures in currencies other than the functional currency.

Income tax

The Group's pre-exceptional effective tax rate increased to 40.0% in 2012 (2011: 35.6%). This increase is partly due to the introduction of three new taxes in Peru in Q4 2011 - the New Mining Royalty, the Special Mining Tax and the Special Mining Assessment. Detailed information on these taxes (collectively referred to as the 'New Taxes') is provided in the Company's 2011 Preliminary Results announcement released on 20 March 2012.

In 2012, income tax included $8.1 million from the New Mining Royalty and Special Mining Tax. Excluding these impacts, the effective tax rate was 36.2% compared to 34.3% in 2011. The increase in the tax rate mainly reflects lower profit before income tax in the operating companies (due to lower sales) and higher non-deductible expenses, mainly related to increases in the exploration budget.

Exceptional items

Exceptional items in 2012 totaled ($1.7) million after tax (2011: $3.4 million). This mainly comprises:

Positive exceptional items:

Negative exceptional items:

Cash flow & balance sheet review

Cash flow:

Operating cashflow decreased by 44% to $254.9 million from $464.1 million in 2011, mainly due to lower silver prices and lower production. Net cash from investing activities increased to $(427.9) million in 2012 from $(139.9) million in 2011, primarily due to the acquisition of Andina Minerals Inc ($90.1 million) in 2012, the sale of Lake Shore Gold shares ($80.5 million) in 2011 and higher capex during 2012. Finally, cash used in financing activities decreased to $(94.8) million from $(221.9) million in 2011, primarily as a result of the prepayment of the syndicated loan ($114.3 million), and lower dividend payments to IMZ ($22.0 million in 2012 compared to $54.0 million in 2011), partially offset by higher dividends to McEwen Mining ($19.8 million in 2012 compared to $0.0 million in 2011). As a result, total cash generated decreased from $102.3 million in 2011 to $(267.8) million in 2012 ($(370) million difference).

Working capital

The Company's working capital position increased to $(12.8) million in 2012 from $(67.9) million in 2011. This was primarily explained by higher inventories ($23.4 million), from stockpiles at San Jose and from dore in Peru (due to timing differences), as well as lower income tax payable ($19.4 million) as a result of a lower current tax provision in 2012.

Net cash

The Group reported net cash of $245.1 million as at 31 December 2012 (2011: $476.3 million). This was primarily driven by the net decrease in cash generated in 2012 as well as the acquisition of Andina Minerals Inc, partially offset by the repayment of short-term borrowings, mainly at San Jose.

The Company's long-term borrowings are only its convertible bond that has a current conversion price of £3.90. Under its terms, the Company is entitled to force conversion of the bonds at any time after 20 October 2012 if, for a period of 20 out of 30 consecutive days, the average share price, calculated under the terms of the bonds, exceeds 130% of the conversion price (£5.07). 

Capital expenditure[32] 

2012 capital expenditure of $420.4 million (2011: $217.9 million) includes operating capex of $182.5 million, capitalised exploration costs of $15.9 million in respect of the Group's operating mines, $134.4 million capitalised in respect of the Advanced Projects (Inmaculada, Crespo and Azuca) and administrative capex of $1.0 million. Capital expenditure in 2012 also included $86.6 million relating to the acquisition of Andina Minerals Inc.

Capital expenditure at Arcata rose by $19.8 million in 2012 due to the construction of the Dore project and the plant capacity increase.

Capital expenditure at San Jose increased by $8.2 million in 2012, reflecting local inflation in mine development costs.

Other capex increased by $15.8 million, mainly due to the acquisition of the Conenhua energy transmission line to improve the energy supply to our operations in Peru, and the construction of the energy transmission line for Inmaculada.

Dividends

The directors recommend a final dividend of $0.03 per ordinary share which, subject to shareholder approval at the 2013 AGM, will be paid on 4 June 2013 to those shareholders appearing on the register on 10 May 2013. If approved, this will result in a total dividend for the year of $0.06 per share.

Dividends are declared in US dollars. Unless a shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend converted into pound sterling at exchange rates prevailing at the time of payment. Our dividend policy takes into account the profitability of the business and the underlying growth in earnings of the Company, as well as its capital requirements and cash flow.

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. 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.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

- the Management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Consolidated income statement

For the year ended 31 December 2012

Consolidated statement of comprehensive income

For the year ended 31 December 2012

Consolidated statement of financial position

As at 31 December 2012

These financial statements were approved by the Board of Directors on 12 March 2013 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

12 March 2013

Consolidated statement of cash flows

For the year ended 31 December 2012

Consolidated statement of changes in equity

For the year 31 December 2012