Last checked at 30 Sep 2010 07:00
30 September 2010
Positive scoping study at 100% owned Azuca project in Peru
Moving forward with increased drilling and prefeasibility study
·; Total global resources of 60.8 million silver equivalent ounces
·; Estimated initial silver equivalent production of 3.5 million ounces per year on average, representing more than 13% of Hochschild's 2010 attributable production
·; Estimated total cash operating cost of $71 per tonne
·; Project now at pre-feasibility stage, with targeted completion in H2 2011
·; Significant geological potential and ongoing intensive drilling campaign to develop additional resources
Hochschild Mining plc ("Hochschild") is pleased to announce positive results from a scoping study completed by an independent party at its 100% owned Azuca project, located in the Company's existing operating cluster in southern Peru. Results of the scoping study indicate that at base case gold and silver prices of $1,000/oz and $17/oz respectively, the project could return a cumulative total pre-tax cash flow1 of approximately $107 million and 21% IRR. Using spot prices for gold and silver of $1,300/oz and $21.9/oz respectively, the project could return a cumulative total pre-tax cash flow2 of approximately $247 million and 46% IRR. The study assumes initial plant throughput of 750 tonnes per day with engineering designed to easily accommodate future capacity increases.
Azuca has reached global resources of 60.8 million silver equivalent ounces and is now in pre-feasibility stage with targeted completion in H2 2011. The Company is undertaking an intensive drilling campaign to develop additional resources with a view to continue extending the scale and profitability of the project.
Ignacio Bustamante, CEO of Hochschild Mining plc commented:
"We are pleased to announce positive results from the Azuca scoping study which is an important step towards establishing an additional producing asset in our southern Peru cluster. The results of the study confirm that Azuca has the potential to become a profitable mine and we will now progress the project to pre-feasibility stage which we aim to complete in H2 2011. Today's announcement demonstrates our continued focus on value creation through organic growth by developing our high quality project portfolio. We envision moving forward aggressively to advance this project."
Raymond Jannas, VP of Exploration commented:
"In addition to the results announced today, we are extremely confident about the growth potential of the asset, which remains geologically open in several of its structures and presents other mineralised areas yet to be explored. With nine rigs on site and a highly experienced team of geologists, we are now focused on an intensive drilling campaign to continue extending the scale, size and profitability of the project."
Highlights of scoping study3 (base case using $1,000 per ounce ("/oz") gold and $17/oz silver and a 60:1 silver-to-gold equivalent ratio):
·; Conceptual mine production of 2.3 million tonnes at an average grade of 362 g/t silver and 1.45 g/t gold, focusing on the higher grade zones of the deposit (As detailed in Table 1 below)
·; Recovered ounces: 96,743 ounces gold and 24.1 million ounces silver or approximately 29.9 million ounces of silver equivalent (based on metallurgical recoveries of 89% for both gold and silver)
·; Pre-tax cash flows: $107 million non-discounted, $61 million at a 5% discount rate and $32 million at a 10% discount rate
·; Cumulative total pre-tax internal rate of return ("IRR"): 21%
·; Total cash operating cost: $71 per tonne
·; Initial capital expenditure of $75 million plus life of mine capex of $96 million
·; 750 tonnes per day ("tpd") underground mine
1Non-discounted
2Non-discounted
3Results of scoping study can vary by +/- 30%
Table 1: Azuca resources and mineable resources:
| Resources | Tonnage | Ag g/t | Au g/t | Ag eq g/t | Ag eq moz |
| Total resource | 5,521,841 | 266 | 1.27 | 343 | 60.8 |
| Resource in higher grade zones | 2,564,594 | 393 | 1.82 | 502 | 42.0 |
| Resource used for conceptual mine production* | 2,330,58 | 362 | 1.45 | 449 | 33.2 |
* Includes mine dilution and mine loss
Please click on the link below to view a map of the location and geological footprint of the Azuca project within Hochschild's southern Peru cluster: http://www.rns-pdf.londonstockexchange.com/rns/5780T_-2010-9-30.pdf
Table 2: Azuca project scoping study4 - initial results:
| Item | Units |
|
| Mine life | years | 8.5 |
| Average annual silver production | ounces/year (millions) | 2.7 |
| Average annual gold production | ounces/year (thousands) | 10.8 |
| Average annual silver equivalent production | Au eq ounces/year (millions) | 3.5 |
| Life-of-mine silver production | ounces | 24.1 |
| Life-of-mine silver equivalent production | Ag eq. ounces (millions) | 29.9 |
| Plant processing rate (~750 tonnes per day) | tonnes/year (thousands) | 274 |
| Metallurgical recovery - gold | % | 89.3% |
| Metallurgical recovery - silver | % | 89.0% |
| Total cash operating cost | per tonne processed | $71.4 |
| Total cash operating cost | per ounce Ag eq. | $5.6 |
| Total cash operating cost, inc capital | per ounce Ag eq. | $11.3 |
| Total cash operating cost (by-product) | per ounce Ag (Au credit) | $3.1 |
| Total cash operating cost inc capital (by-product) | per ounce Ag (Au credit) | $10.2 |
Table 3: Azuca project sensitivity analysis (base case in bold and highlighted):
| Gold price/silver price ($/oz) | ||||
| Category | $1,000/ $17.00 | $1,100/ $18.70 | $1,200/ $20.40 | $1,300/ $21.90 |
| IRR (%) | 21 | 30 | 38 | 46 |
| Cash Flow ($ millions) | 107 | 155 | 204 | 247 |
| NPV 5% ($ millions) | 61 | 97 | 133 | 165 |
| NPV 10% ($ millions) | 32 | 60 | 87 | 112 |
Cash flow and NPV's are all shown pre-tax, but do include smelter and transportation charges. Value added tax (generally recoverable in Peru) was not included in the cash flows.
Mining & processing assumptions
The mine design concept for the Azuca project is to utilise cut and fill, which is also used at Hochschild's Arcata mine. The ore is mined in vertical slices and extracted with micro-scoops. Filling activity will be performed using tailings through hydraulic fill.
The base case processing plan for the Azuca project envisages crushing and grinding, followed by flotation to generate a saleable gold-silver concentrate, with a concentration ratio of 42.8.
Mineral resource estimate details
The resource estimate is reported at a cut-off grade of 249 g/t silver equivalent (using a silver to gold ratio of 60:1), which approximates the cut-off grade for the underground mining and flotation process option selected for Azuca, using base-case silver and gold prices of $13.50 and $810 per ounce respectively. The cut-off grade is a factor of operating costs, metallurgical recoveries and prices; it is therefore possible that a lower or higher cut-off grade could be applied in the future.
4 Results of scoping study can vary by +/- 30%
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Enquiries:
Hochschild Mining plc
Isabel Lütgendorf +44 (0)20 7907 2934
Head of Investor Relations
Finsbury
Faeth Birch +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 over forty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru, one in southern Argentina and one open pit mine in northern Mexico. Hochschild also has numerous long-term prospects throughout the Americas.
Forward looking statements:
This announcement may contain forward looking statements. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may, for various reasons, be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.
The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, the Board of Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement.