Hochschild Regulatory News (HOC)

Hochschild Mining plc

("the Company")

2017 Annual Financial Report and 2018 Annual General Meeting ("AGM")

Following the release of the Company's 2017 full year results announcement on 21 February 2018 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for the year ended 31 December 2017 (the "2017 Annual Report").

In accordance with LR 9.6.1, the following documents have been submitted to the National Storage Mechanism and will be available for inspection at www.Hemscott.com/nsm.do

· 2017 Annual Report

· 2018 AGM circular (incorporating the Notice of 2018 AGM) 

· 2018 AGM proxy card (incorporating the Notice of Availability of the 2017 Annual Report and 2018 AGM circular)

The above documents have been posted or otherwise made available to shareholders and, in accordance with the Disclosure Guidance and Transparency Rules ("DTR"), the 2017 Annual Report and the 2018 AGM circular have been published on the Company's website at www.hochschildmining.com

The 2018 AGM will be held at the offices of Linklaters LLP at One Silk Street, London EC2Y 8HQ on Friday 25 May 2018 at 3pm.

The appendices to this announcement contain the information required to be disclosed under DTR 6.3.5 which has been reproduced from the 2017 Annual Report and should be read in conjunction with the Preliminary Announcement.

All page references and cross-references in the appendices are to the 2017 Annual Report.

APPENDICES

Appendix 1

Risk Management (reproduced from pages 44 to 48 of the 2017 Annual Report)

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

The Risk Committee is responsible for implementing the Group's policy on risk management and monitoring the effectiveness of controls in support of the Group's business objectives. It meets four times a year and more frequently if required. The Risk Committee comprises the CEO, the Vice Presidents and the head of the Internal Audit function. A 'live' risk matrix is reviewed which maps the significant risks faced by the business and updated at each Risk Committee meeting, and the most

significant risks as well as potential actions to mitigate those risks are reported to the Group's Audit Committee, which has oversight of risk management on behalf of the Board.

2017 RISKS

The key business risks affecting the Group set out in this report remain largely unchanged

compared to those disclosed in the 2016 Risk Management report with the exception that:

- in light of events during the year, the discussion on Health & Safety risks also considers the

specific risks associated with the transporting and handling of hazardous materials by both

- employees and contractors; and

- management identified risks associated with the failure of critical processes supported by

information systems during the course of the year and has therefore been identified as a new risk. The commentary also treats the subject of cybersecurity risk.

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

1. FINANCIAL RISKS

a) Commodity Price

Change in risk profile vs 2016: LOWER

Impact

Adverse movements in precious metal prices could materially impact the Group in various ways beyond a reduction in the financial results of operations. These include impacts on the feasibility of projects, the economics of mineral resources and heightened personnel retention and sustainability related risks.

Mitigation

- Constant focus on maintaining a low all-in sustaining cost of production and an efficient level of administrative expense

- Flexible hedging policy that allows the Company to contract hedges to mitigate the effect of price movements taking into account the Group's asset mix and forecast production

- Policy to maintain low levels of leverage to ensure flexibility through price cycles

See the Market Review on pages 10 to 11 for further details

Commentary

The focus on conserving capital and optimising cash flow continued in 2017 through:

- controlling operating and administrative costs;

- optimising sustaining capital expenditure;

- debt reduction and refinancing; and

- maintaining low working capital

In relation to debt reduction and the refinancing of debt, the Company announced in 2017 the early redemption of its bonds, which was subsequently completed in early 2018. By doing so, debt has been reduced by approximately $95 million and the balance replaced with shorter-term debt on significantly better terms, saving the Group approximately $7m in interest expenses in 2018 and approximately $20m per year thereafter.

As reported earlier in this report, the Inmaculada mine had a record year in 2017 in terms of production but also as the lowest cost operation in the Group's portfolio. It has been key in reducing overall average production costs.

Even though currently no part of 2018 production has been hedged, the Group's flexible policy enables the Board to approve hedging contracts to protect cash flow as and when appropriate

2. OPERATIONAL RISKS

a) Operational Performance

Change in risk profile vs 2016: LOWER

Impact

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

Mitigation

- Close monitoring of operational performance, costs and capital expenditure as well as the overall profitability at all stages of the mining value chain

- Management closely monitors the wide range of risks that could affect operational performance to, among other things, ensure the adequacy and safety of key mining components such as tailing dams, waste rock deposits, pipelines to service ongoing operations. Close liaison between relevant departments ensures that procurement, construction and any permitting are undertaken as appropriate

Commentary

In 2017 the Group exceeded its production target by 1m attributable silver equivalent ounces with particularly strong performances at Inmaculada, Pallancata and San Jose.

2017 budgets across the Group continued to focus on maintaining controlled levels of administrative expenses and sustaining capital expenditure. As reported in the Financial review, the all-in sustaining cost from operations was kept within guidance issued at the beginning of the year at $12.3 per silver

equivalent ounce.

Management has been closely monitoring performance of the high cost Arcata mine to ensure that production is optimised while at the same time maintaining the asset´s optionality with regards to prices, exploration results and cost efficiencies.

b) Business Interruption

Change in risk profile vs 2016: LOWER

Impact

Assets used in the Group's operations may break down and cause stoppages with material effects (in

particular, at Inmaculada).

Mitigation

- Insurance coverage to protect against major risks

- Management reporting systems to support appropriate levels of inventory

- Annual inspections by insurance brokers and insurers assist management's efforts to understand and mitigate operational risks

Commentary

Mitigating actions during the year include the following:

- Insurance advisers conducted site visits and completed a full review of operational risks to ensure that adequate property damage and business interruption risk management processes and insurance policies are in place at our operations

- Management reporting systems ensured that an appropriate level of inventory of critical parts is maintained

- Adequate preventative maintenance programmes, supported by the SAP Maintenance Module, are in place at the operating units

c) Information security and cybersecurity

Change in risk profile vs 2016: NEW

Impact

Failure of any of the Group's business critical information systems, whether as a result of design/maintenance or unauthorised access by third parties, may affect the Group's ability to operate.

Mitigation

- Currently compliant with ISO 27001, an internationally recognised certification to evaluate information security management systems

- Dedicated team within the IT department focused on preventing cyber-attacks

- Audits performed by the internal audit department and third parties to test systems and issue

Recommendations

Commentary

During the year management identified vulnerabilities in certain automated processes. This prompted a wide-ranging review of the procedures deployed in the testing of system updates which also incorporated mitigating steps to counter the risk from external unauthorised access.

This review included:

- the engagement of external and internal Auditors to identify improvements to the Group's procedures;

- additional manual controls introduced to supplement automated processes;

In addition, the Audit Committee has set objectives for 2018 to:

- further explore information vulnerabilities, benchmarking of our protection systems and recommend mitigation procedures; and

- improve the Group´s protocols in case of a crisis.

d) Exploration & Reserve and Resource Replacement

(d)(i) Impact

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

resources and to replenish reserves.

Change in risk profile vs 2016: HIGHER

Mitigation

- Implementing and maintaining an annual exploration drilling plan

- Ongoing evaluation of acquisition and joint venture opportunities to acquire additional ounces

- High-end technology implemented to improve the estimate of mineral resources

Commentary

The progress of the 2017 brownfield exploration programme in Peru was subjected to delays due to extended timelines in obtaining the requisite governmental permits.

As a direct result, a Permitting Committee was established during the year comprising personnel from the Legal, Environmental and Community Relations teams as well as members of senior management to plan and execute a co-ordinated effort to address the administrative delays.

All permits required for the 2018 brownfield exploration programme at our operating units have been secured.

Following the drilling campaign in the vicinity of the Inmaculada mine, significant potential was discovered at the Millet vein system. For further details, refer to page 29.

Greenfield exploration and the appraisal of acquisition/joint venture opportunities restarted in 2017 in light of the Group's improved financial position. These have resulted in:

- the Group securing geographically diverse greenfield optionality; and

- arrangements to partner with other mining companies to bolster exploration efforts at projects considered to have geological potential.

(d)(ii) Impact

Reserves stated in this Annual Report are estimates.

Change in risk profile vs 2016: UNCHANGED

Mitigation

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

• Adherence to the JORC Code and guidelines therein

Commentary

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

See page 153 for further details

(a) Personnel: Recruitment and Retention

Change in risk profile vs 2016: UNCHANGED

Impact

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

Mitigation

• The Group's approach to recruitment and retention provides for the payment of competitive compensation packages, well defined career plans and training and development opportunities

Commentary

Due to increased investment in the sector, turnover in 2017 was slightly higher than in previous years but not to a material extent.

The Group has continued with its initiatives to improve the retention of employees. These include the use of non-financial benefits (e.g. flexible working arrangements for Head Office staff) and tailored personal development plans. In addition, a programme of new initiatives in the employee value proposition are also scheduled for implementation. These include the launching of initiatives related to causes that are valued by potential employees; providing them with the opportunity to contribute to

innovation, community relations and environmental performance.

Retention plans for senior executives in the form of the Company's Long-Term Incentive Plan and Restricted Share Plan are also in place.

(b) Personnel: Labour Relations

Change in risk profile vs 2016: UNCHANGED

Impact

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

Mitigation

- Development of a tailored labour relations strategy focusing on profit sharing, working conditions, management style, development opportunities, motivation and communication

- Monthly meetings with mineworkers and unions to ensure a complete understanding of expectations and to keep all parties updated on the Group's financial performance

Commentary

Given the level of investment at the Inmaculada mine, the Group´s Peruvian operation does not generate taxable income and therefore there is no entitlement to statutory profit sharing for Peruvian mineworkers. The Company has, however, implemented an additional bonus to compensate for

this situation.

As part of the salary increases agreed with the Peruvian labour unions, a new bonus framework was put in place to promote safety and productivity.

The uncertainty with regards to the ongoing viability of the Arcata mine has adversely impacted morale among workers at the operation. During 2017, regular meetings were therefore scheduled and held with union representatives to understand concerns which continue into the current year.

Early in 2018, approximately 165 workers were made redundant from the Arcata operation following consultation with workers and the labour union.

3. MACRO-ECONOMIC RISKS

Political, Legal and Regulatory

Change in risk profile vs 2016: UNCHANGED

Impact

Changes in the legal, tax and regulatory landscape could result in significant additional expense, restrictions on or suspensions of operations and may lead to delays in the development of current operations and projects.

Mitigation

• Local specialist personnel continually monitor and react, as necessary, to policy changes

• Active dialogue with governmental authorities

• Participation in local industry organisations

Commentary

Despite a pro-business administration in Peru, significant delays were encountered during 2017 in the securing of permits to facilitate exploration activity. These were primarily the result of increased bureaucracy introduced by the previous Administration. Simplification measures were adopted by

the Government towards the end of 2017 and the permitting process timelines are expected to reduce over time.

At the legislative level, the Peruvian Congress, which comprises a majority from the non-governing parties, continues to implement populist measures that could adversely affect the mining industry. Such measures include new laws on the protected nature of headwaters which may oblige mining

companies with operations in the Andes to relocate.

The Peruvian Government's implementation of certain treaty obligations, including the framework for the prior consultation law has been challenged and which, may, lead to a review of the validity of mining concessions.

In terms of social conflicts, the governmental authorities remain sensitive to conflicts between communities and mining companies and are reluctant to intervene with decisiveness.

In Argentina, 2017 was marked by congressional elections where the ruling party did not secure a majority. The Government has sought to promote investment through, most notably, a phased reduction in the corporate tax rate.

The ongoing inflationary environment which exceeds the rate of devaluation of the Argentinian Peso relative to the US dollar has led to an increase in costs for the Group as an exporter.

4. SUSTAINABILITY RISKS

Health and Safety

Change in risk profile vs 2016: HIGHER

Impact

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

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

Mitigation

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

- Use of world-class DNV safety management systems as well as Dupont´s consultancy services

- Dedicated personnel to ensure the safety of employees at the operations via stringent controls,

- training and prevention programmes

- Rolling programme of training, communication campaigns and other initiatives promoting safe

working practices

- Use of reporting and management information systems to monitor the incidence of accidents and enable preventative measures to be implemented

Commentary

Having recorded three consecutive years of compliance with our ongoing Zero Fatalities objective, the Group sadly reported four fatalities during 2017, which resulted from two separate accidents, one at Inmaculada and one at Arcata.

An extensive programme, the HOC Culture Transformation Plan, is being implemented by management in response to these accidents in order to materially reinforce the Group's commitment to safety.

The Plan comprises the following pillars:

- Leadership, with senior management involved in a full review of all high risk activities

- Communications, focusing on initiatives to motivate and incentivise safe working practices

- Training, with all personnel receiving five hours of on-site learning every week

- Technical, with the migration to the latest version of risk information management systems and a review of the Company's procedures

For further details, please refer to the safety section of the Sustainability Report on pages 38 and 39.

Following an audit on the transportation and handling of hazardous materials, a plan of action to mitigate the risk of injury was put in place which involved:

- a review of procedures on the routes to be used to transport such substances;

- a review of contracts with transporters to ensure compliance with the Group's safety policy and to manage accident responses; and

- the installation of specialist brigades at the Peruvian operations to attend to accidents involving hazardous substances.

Environmental

Change in risk profile vs 2016:

(a) In relation to those risks arising from the Group's environmental performance/infrastructure: LOWER

(b) In relation to those risks arising from the increased oversight of the environmental regulator: UNCHANGED

Impact

The Group may be liable for losses arising from environmental hazards associated with the Group's

activities and production methods, ageing infrastructure, or may be required to undertake corrective actions or extensive remedial clean-up action or pay for governmental remedial clean-up actions

or be subject to fines and/ or penalties.

Mitigation

- The Group has a dedicated team responsible for environmental management

- The Group has adopted a number of policies and procedures to limit and monitor its environmental impact

Commentary

Environmental permitting and agency oversight in Peru remained rigorous during the year.

In 2017, the Group performed highly in its ECO score, which was developed in-house and which focuses on:

- compliance with discharge limits;

- minimising the number of environmental incidents such as spills;

- minimising the number of findings from the regulator; and

- specific aspects of environmental management including water consumption and waste generation.

For further details, please refer to the environmental section of the Sustainability report on page 43.

In addition, during the year, the Group:

- launched an integrated waste management service in conjunction with specialist contractors;

- focused on improving the water treatment plants at the Peruvian operations;

- supported the business by securing the approval of permits such as with regards to the Pablo vein at Pallancata, new components and plant capacity increases across the Peruvian operations and for exploration at Inmaculada

Community Relations

Change in risk profile vs 2016: UNCHANGED

Impact

Communities living in the areas surrounding Hochschild's operations may oppose the activities

carried out by the Group at existing mines or, with respect to development projects and prospects,

may invoke their rights to be consulted under new laws.

These actions may result loss of productions, increased costs and decreased revenues, longer lead times, additional costs for exploration and have an adverse impact on the Group's ability to obtain

the relevant permits.

Mitigation

- The Group has a dedicated team responsible for Community Relations

- Constructive engagement with local communities

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

- Allocation of budget and personnel for the provision of community support activities

- Policy to actively recruit workers from local communities

Commentary

As previously reported, protests by a community close to the Pallancata mine resulted in a blockade from November 2016 until mid-January 2017. The blockade did not impact the mine's targeted production as the operations were at the time in the permitting process and transitioning to the new Pablo vein. Dialogue and new agreements between the Company and community representatives resulted in the lifting of the blockade.

The Group continues to actively engage with other local communities to understand their needs and to implement action plans in order to anticipate and mitigate potential conflicts.

The risk of additional stoppages or blockades will continue to be present if the working groups do not reach long-term agreements between the parties involved.

Looking ahead to 2018:

- the overall political and social climate may be adversely impacted by the regional elections in Peru in October; and

- at Arcata, the declining production profile of the asset has led to redundancies and lower economic activity in the area, which may also result in social unrest.

Further details on the Group's activities to mitigate sustainability risks can be found in the Sustainability report on pages 38 to 43.

Appendix 2

Related-Party Balances and Transactions, and Compensation of key management personnel of the Group (reproduced from page 133 of the 2017 Annual Report)

 (a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the years ended 31 December 2017 and 2016. The related parties are companies owned or controlled by the main shareholder of the parent company or associates.

1 The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A. The account payable relates to the payment of rentals.

As at 31 December 2017 and 2016, all other accounts are, or were, non-interest bearing.

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

Principal transactions between affiliates are as follows:

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

(b) Compensation of key management personnel of the Group

This amount includes the remuneration paid to the Directors of the parent company of the Group of US$5,438,873 (2016: US$5,487,769).

Appendix 3

Statements of Directors' Responsibilities

A) Reproduced from page 54 of the 2017 Annual Report

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 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. 

On behalf of the Board

Raj Bhasin

Company Secretary

20 February 2018

B) Reproduced from page 86 of the 2017 Annual Report

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the EU.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the parent company and of their profit or loss for that period. In preparing those financial statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently

- make judgements and estimates that are reasonable and prudent;

- state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements; and

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' remuneration report and Corporate governance statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.