Hochschild Regulatory News (HOC)

23 February 2022

Hochschild Mining plc

Preliminary Results

Year ended 31 December 2021

HOCHSCHILD MINING PLC RESULTS FOR YEAR ENDED 31 DECEMBER 2021

Hochschild delivers strong results and strategic progress

Significant 2021 financial performance

§ Strong balance sheet and financial performance despite continuing Covid-19 impact

§ Revenue of $811.4 million (2020: $621.8 million)[1]

§ Adjusted EBITDA of $382.8 million (2020: $270.9 million)[2]

§ Profit before income tax (pre-exceptional) of $148.7 million (2020: $85.8 million)

§ Profit before income tax (post-exceptional) of $137.3 million (2020: $62.9 million)

§ Basic earnings per share (pre-exceptional) of $0.14 (2020: $0.06)

§ Basic earnings per share (post-exceptional) of $0.15 (2020: $0.03)

§ Cash and cash equivalent balance of $386.8 million as at 31 December 2021 (2020: $231.9 million)

§ Net cash of $86.3 million as at 31 December 2021 (2020: net cash of $21.6 million)

§ Final proposed dividend of 2.3 cents per share ($12.0 million) bringing the full-year total cash dividend to $22.0 million (2020: $32.6 million)[3]

§ Dividend in specie of $94.9 million from Aclara demerger

2021 Operational strength[4]  

§ All-in sustaining costs (AISC) from operations of $1,241 per gold equivalent ounce (2020: $1,098) or $14.4 per silver equivalent ounce (2020: $12.8) in line with full year cost guidance of $1,210-$1,250 per gold equivalent ounce or $14.1-14.5 per silver equivalent ounce[5]

§ Full year attributable production of 362,972 gold equivalent ounces (31.2 million silver equivalent ounces) in line with attributable production guidance of 360,000-372,000 gold equivalent ounces (31.0-32.0 million silver equivalent ounces)

§ Strong operational performance despite impact from Covid protocols in 2021

2021 Exploration & Business Development highlights

§ Resource additions on a 100% basis:

o 75 million silver equivalent ounces in 2021 using 72x gold silver ratio

o 83 million silver equivalent ounces in 2021 using 86x gold silver ratio

§ 2021 total reserves up 12% with reserve grade up approximately 19% versus 2020

§ Announcement of definitive agreement to acquire Amarillo Gold in Brazil; completion expected in Q1 2022

§ Option exercised to start earning-in 60% interest in Skeena Resources' Snip gold project

§ Completion of demerger and listing of Aclara Resources Inc. on the TSX

§ Volcan gold project CEO appointed; 2022 work programme being developed

2021 ESG KPIs

§ Lost Time Injury Frequency Rate of 1.26 (2020: 1.38)[6]

§ Accident Severity Index of 676 (2020: 474)[7]

§ Safety KPIs exclude impact of June 2021 bus accident in line with parameters adopted by Hochschild in 2018 with reference to guidance from International Council on Mining and Metals

§ Water consumption of 193lt/person/day (2020: 231lt/person/day)

§ Domestic waste generation of 1.00 kg/person/day (2020: 1.18kg/person/day)

§ ECO score of 5.29 out of 6 (2020: 5.74)[8]

2022 outlook

§ Production target:

o 335,000-345,000 gold equivalent ounces (28.8-29.7 million silver equivalent ounces) using 86x gold silver ratio

o 360,000-375,000 gold equivalent ounces (26.0-27.0 million silver equivalent ounces) using 72x gold silver ratio

§ All-in sustaining costs target:

o $1,440-$1,480 per gold equivalent ounce ($16.8-17.2 per silver equivalent ounce) using 86x gold silver ratio

o $1,330-$1,370 per gold equivalent ounce ($18.5-19.0 per silver equivalent ounce) using 72x gold silver ratio

§ Total sustaining and development capital expenditure expected to be approximately $150-160 million

§ Brownfield exploration budget expected to be approximately $34 million

§ Amarillo/Posse gold project capital expenditure in Brazil planned for $120 million

§ Greenfield budget of approximately $11 million; Snip investment expected to be approximately $9 million

________________________________________________________________________________________

A presentation will be held for analysts and investors at 9.30am (UK time) on Wednesday 23 February 2022 at the offices of Hudson Sandler,

25 Charterhouse Square, London, EC1M 6AE

The presentation and a link to the live audio webcast of the presentation can be found at the Hochschild website: 

www.hochschildmining.com 

or:

https://webcasting.brrmedia.co.uk/broadcast/61ee86fe73640b735eff25bb

To join the event via conference call, please see dial in details below:

UK Toll-Free Number: 0800 279 6877

International Dial in: +44 (0)330 336 9601

US/Canada Toll-Free Number: 800-289-0720

Pin: 3326250#

________________________________________________________________________________________

Enquiries:

Hochschild Mining plc

Charles Gordon +44 (0)20 3709 3264

Head of Investor Relations

Hudson Sandler

Charlie Jack +44 (0)20 7796 4133

Public Relations

________________________________________________________________________________________

Non-IFRS Financial Performance Measures

The Company has included certain non-IFRS measures in this news release. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardised meaning prescribed under IFRS, and therefore may not be comparable to other issuers.

About Hochschild Mining plc:

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

CHAIRMAN'S STATEMENT

2021 was a very demanding year for the Company due to the continued effects of Covid-19 and challenges resulting from operating in jurisdictions with increased political, regulatory and social risk. I am very proud of the resilience and dedication demonstrated by all colleagues in successfully delivering on our annual targets and ensuring our commitments to the environment, our stakeholders and communities remain the utmost priority. Hochschild is in a strong position strategically and in 2021 we made a number of changes to our portfolio that lay the foundations for sustainable low-cost growth in the near future.

However, I would like to first turn to an event that severely affected us in June 2021. A tragic traffic accident took place in southern Peru involving our transport contractor which claimed the lives of 26 people who worked at our Pallancata operation. The entire organisation has been deeply upset by this unprecedented incident and the management team ensured everything possible was done to investigate its circumstances and provide a wide range of support to everyone affected. We have worked with the local authorities and the contractor with their respective accident investigations and have provided whatever support we can with the aim of avoiding such incidents in the future.

Safety remains our highest priority and in 2021, we continued with the implementation of the second stage of our safety plan, known as Safety 2.0. The plan combines technical and people-focused approaches and, during the year, we saw our risk management systems externally reviewed as well as the development of an all-encompassing safety indicator - the "Seguscore". This will help us to further embed a safety-first culture across our organisation. As reported in the interim results, we regrettably suffered a fatal accident at San Jose towards the end of the first quarter, and, in November a contractor was fatally injured at the Aclara rare earths project. Further details on these accidents will be provided in our 2021 Sustainability report.

I am very proud to report a strong environmental performance in 2021. For the first time ever, four of our assets achieved the highest rating under our internally designed ECO Score. This innovative indicator distils, in one single number, numerous facets of environmental management. Furthermore, in acknowledgement of our responsibilities to our stakeholders, we sought in 2021 to build on our environmental reporting practices. Our first standalone Sustainability Report received external recognition and we look to build on this success with numerous initiatives this year including, most notably, our ambition to achieve Carbon Neutrality, which is well advanced and due to be published later this quarter.

As Covid-19 eased in 2021, our community relations team was able to resume its focus on our key local initiatives. In education, we donated almost 300 tablets to elementary schoolchildren close to our Inmaculada mine to enhance learning. We were also able to continue implementing our strategy of establishing digital centres to service the communities by establishing three more in the Ayacucho region, in southern Peru. With regards to health and nutrition, we co-ordinated home visits to promote early child development and facilitated a Covid-19 vaccination programme for the elderly. We also launched a project in a town close to Inmaculada, which seeks to enhance access to water by installing equipment to collect and store water for domestic use. Finally, among the many programmes promoting economic development, we provided technical support to community-led agricultural activities as part of our "Impulso Productivo" programme. You can find further details on our work in the Sustainability Report.

In November, the Company faced an unprecedented situation when the Peruvian Head of Cabinet published minutes of a meeting held in Ayacucho which arbitrarily provided for the closure and withdrawal of certain mining projects, including the Company's Pallancata and Inmaculada mines. It was further announced that approvals would no longer be granted to authorize additional mining, exploration, or expansion activities in relation to these mines. However, the Government subsequently affirmed its commitment to upholding the rule of law and acknowledged the continued rights of mining companies to request extensions and modifications of existing permits for mining and exploration activities. Whilst we never stopped operating, this crisis exemplifies the country's current heightened political, regulatory and social risk.

2021 was a crucial year for business development. In the second half, we executed three different transactions that have reshaped our company into one that is focused on delivering mid-term growth across a wider range of jurisdictions in the Americas. In September, we exercised our option to start earning-in a 60% interest in Skeena Resources' Snip gold project in British Columbia. In November, we announced the acquisition of Amarillo Gold with its Posse gold project in Brazil, which is due to commence production in 2024. Both projects complement our current portfolio and, with Canada and Brazil, we are entering two jurisdictions that have established and stable mining histories. Finally, we were pleased to complete the demerger and listing on the Toronto Stock Exchange of our Chilean rare earth business, renamed Aclara Resources. With almost $100 million of capital raised concurrently, Aclara is in a strong position to advance the Penco project and our confidence is confirmed by our decision to retain a 20% stake.

Turning to our operations, we were once again able to deliver on our annual production and cost targets despite our stringent Covid protocols remaining in place throughout the year. In addition, precious metal prices remained strong, and with our business continuing to generate robust free cashflow and the additional liquidity provided by our increased loan, we are in a comfortable position to finance the construction of the Posse project over the next two years and advance Snip through the development phase.

Our brownfield programme also made excellent progress this year. The team made significant discoveries at Inmaculada in the north west of the deposit which they expect will add further high grade resources to the mine plan. At San Jose, we have also added resources near to the current mine whilst at Pallancata, we have been able to optimise the long term mine plan utilising the existing resource base and have extended the life of the operation for a further two years whilst we look for additional near-mine and regional resource opportunities.

Sanjay Sarma stepped down from the Hochschild Board to join the board of Aclara Resources on completion of the demerger. I would like to thank Sanjay for the valuable and unique perspective he has brought to the Hochschild Board discussions. I am delighted that Tracey Kerr joined the Hochschild Board on 10 December. She brings vast experience in areas of crucial importance to the Company including geology, safety and sustainability. The Board and I look forward to working closely with Tracey.

Outlook

2021 saw precious metal prices in a period of consolidation. Gold fell slightly by 3.5% in the year and silver was much more volatile, down 11.5% although this followed a 47% rise in 2020. However, the ongoing price strength allied to reliable operational performance and good cost control has resulted in high levels of profitability and continued good cashflow. We have maintained a strong capital base and have managed the Company's balance sheet and liquidity to ensure long-term financial stability. The Board is therefore pleased to recommend a final dividend of 2.3 cents per share ($12.0 million).

Our Company is managed with a conviction that acting responsibly and with integrity is the only way to build and manage a business over the long term. We have a clear sense of our social purpose and a strong belief in our duty to respect the dignity of everyone who works for us. In, addition, we have always been committed to operating under the highest standards of corporate citizenship, environmental and industry best practice whilst acting as a good and supportive neighbour to the communities around us and recognising our wider obligations to society as a whole. The Board and I would like to thank all of our stakeholders for their contributions and continued support during such a momentous period.

Eduardo Hochschild, Chairman

22 February 2022

CHIEF EXECUTIVE OFFICER'S STATEMENT

2021 has been an important year for our Company. We have taken decisive strategic action to shape Hochschild's future and delivered strong operational and financial results whilst continuing to operate responsibly and focus on the implementation of our ESG strategy. I continue to be very proud of all our people and their response to numerous challenges again posed by the pandemic and also by a volatile political, economic and social environment in Peru.

Such solid operational delivery provides the foundation upon which, in the second half of the year, we announced the acquisition of Amarillo Gold Corp. in Brazil, exercised our option to start earning-in a 60% interest in the Snip gold project in Canada and demerged our rare earths business, Aclara Resources, and listed it on the Toronto Stock Exchange. We believe that these strategic steps will underpin Hochschild's ability to grow shareholder value over the next decade.

ESG

The tragic traffic accident of our transport contractor which the Chairman has discussed in his statement was a shock for everyone in our Company. However, our commitment to a broad suite of ESG initiatives remains absolute as part of our focus on safety and responsibility towards the environment and our stakeholders. Given the partially reduced dominance of Covid-19 in 2021, we were able to resume our focus on the key pillars of our work with the local communities with numerous and wide-ranging initiatives in education, digital strategy, health and nutrition, access to safe sources of water, local employment and procurement of local goods and services. On the environmental front, we again achieved an excellent ECO score, enhanced our reporting by participating in the Carbon Disclosure Project ('CDP') and early-adopting the Task Force on Climate-Related Financial Disclosures ('TCFD') reporting requirements, and we are currently working hard to complete our first corporate strategy to become net zero carbon. During the year, we also continued to invest in our safety risk-management system which will support and complement the various programmes in our safety plan.

Operations

Hochschild's output in 2021 continued our good record in meeting annual guidance. Overall production was 362,972 gold equivalent ounces (31.2 million silver equivalent ounces) which was understandably substantially higher than the Covid-impacted 2020 figure of 289,293 gold equivalent ounces (24.9 million silver equivalent ounces). This was produced at an all-in sustaining cost of $1,241 per gold equivalent ounce ($14.4 per silver equivalent ounce) which was slightly higher than 2020 reflecting increased development capital expenditure. Hochschild's flagship mine, Inmaculada had another strong year producing 238,238 gold equivalent ounces (2020: 176,086 ounces) at $971 per gold equivalent ounce.

At Pallancata, production in 2021 reflected the current focus on mine development and brownfield exploration to extend the mine life but still had a steady year delivering 4.4 million silver equivalent ounces (2020: 4.8 million ounces) at a cost of $22.8 per silver equivalent ounce. In Argentina, San Jose operated throughout the year but continued to experience Covid-related restrictions on labour availability in the country limiting the Company's ability to access certain planned mining zones and impacting grades. Production was 12.4 million silver equivalent ounces (2020: 9.7 million ounces) with costs at $16.7 per silver equivalent ounce.

Business Development

In October, we decided to exercise our option to start earning-in a 60% interest in Skeena Resources' Snip project in Tahltan Territory of British Columbia. This represented the first step in our strategy to add another high-grade project with strong upside potential into our pipeline. Since October, we have established a positive dialogue with the Tahltan Nation and provincial authorities, designed an ambitious drill program for 2022, and built a team to take over operations management at the project. It is an exciting time for Hochschild as we build out our Canadian presence.

Also in October, we announced the demerger of our rare earths business, Aclara Resources and its listing on the Toronto Stock Exchange. We believe that it was the logical next step forward and that, as two standalone businesses, both Hochschild and Aclara will have the greatest potential for delivering long-term value creation. Each will have their own strategic focus on their respective products, their own dedicated management teams, separated access to capital and an independent valuation whilst maintaining a strategic relationship that will allow Aclara to benefit from Hochschild's track record on project execution and ESG. Furthermore, we felt that current and future Hochschild shareholders will also benefit from retaining a meaningful stake in a business that offers an exciting proposition in a high growth market. We were pleased that the demerger and IPO was completed in December with almost $100 million raised.

In November, we announced a definitive agreement to acquire Amarillo Gold for a net acquisition cost of C$135 million ($106 million) with the key asset being the flagship Posse gold project located in Goiás State, Brazil. The acquisition enhances our project pipeline and is the result of a long-term Company review process of a wide range of growth opportunities. Posse is an attractive low-cost project with relatively near-term production and strong exploration upside potential. With our significant experience in developing precious metal deposits in the Americas, Hochschild is ideally placed to take Posse to its next stage and generate strong sustainable value for the Company and the project's local stakeholders as well as widening our focus in stable mining jurisdictions in the Americas.

Exploration

Once again the brownfield programme focused on the surrounding areas of all three of our mines and I am pleased to report that our team have had a successful campaign and delivered resource increases at both Inmaculada and San Jose. At Inmaculada, drilling in the Angela North and surrounding veins yielded just over 850,000 gold equivalent ounces at higher grades than current reserve grade whilst at San Jose we have added almost 13 million silver equivalent ounces close to current operations.[9] At Pallancata, the team completed a revised mine plan that incorporates the existing resource base and therefore have been able to guarantee the mine's future for the next two years at least. There remain some promising brownfield drill targets close to the current mine and in the district as a whole which could secure the long-term supply for the nearby Selene plant.

Financial position

A reliable production performance and strong price environment has resulted in our balance sheet remaining in an enviable position with cash and cash equivalents of $386.8 million at the end of December (2020: $231.9 million). This is before the estimated net payment of C$135 million for Amarillo Gold (due by the end of Q1 2022) and includes an additional $100 million medium-term loan (drawn down in December 2021) and a $20 million investment in the Aclara Resources Inc IPO. This has led to a net cash position of $86.3 million (31 December 2020: $21.6 million net cash).

Financial results

Total Group production was significantly higher versus 2020, which was impacted by the Covid related stoppages, and consequently, combined with a 12% rise in the silver price received, revenue increased to $811.4 million (2020: $621.8 million). All-in sustaining costs were in line with guidance at $14.4 per silver equivalent ounce (2020: $12.8 per ounce). Adjusted EBITDA of $382.8 million (2020: $270.9 million) mostly reflects the increased production levels and partially offset by increased cost of sales and administrative costs. Pre-exceptional earnings per share of $0.14 (2020: $0.06 per share) includes the impact of an increase in finance costs in Argentina and also of income tax arising from the impact of local currency devaluation in Peru and Argentina and the increased income tax rate in Argentina. Post-exceptional earnings per share was higher at $0.15 (2020: $0.03 earnings per share) mainly due to the exceptional gain on Aclara demerger of $37.5 million, partially offset by a $24.9 million impairment of Pallancata and $24.1 million of Covid-19 response initiatives which are also deemed to be exceptional as they were incremental to the Group's regular business. The net after-tax effect of exceptional items is $3.7 million.

Outlook

We expect attributable production in 2022 of between 360,000-375,000 gold equivalent ounces (26.0 to 27.0.0 million silver equivalent ounces) assuming the silver to gold ratio of 72:1 (the average ratio for 2021). This will be driven by: 218,000-222,000 gold equivalent ounces from Inmaculada; an attributable contribution of 5.7 to 6.1 million silver equivalent ounces from San Jose; and 4.6-4.9 million ounces from Pallancata. All-in sustaining costs for operations are expected at between $1,330 and $1,370 per gold equivalent ounce ($18.5 to $18.9 per silver equivalent ounce). This forecast includes lower grades at Inmaculada due to the inclusion into the mine plan of veins discovered between 2018 and 2020. It also includes a rise in mine development costs at Inmaculada and San Jose to access veins discovered in 2021 and increase reserves at San Jose.

The budget for brownfield exploration is at approximately $34 million with the greenfield and advanced project budget set at approximately $11 million. In addition, a budget of approximately $9 million has been allocated to advancing the Snip project in Canada with a project capex budget of $120 million assigned to the Posse project in Brazil.

We have also recently begun to re-establish operations in Chile at our 100%-owned Volcan gold project. In 2022, we expect to complete a work programme to optimise the business case for this substantial gold asset. In parallel, the project is expected to be restructured into a newly established Canadian company, named Tiernan Gold. Tiernan will be run by newly appointed CEO, Greg McCunn and during the year, we will be evaluating different strategic alternatives.

2022 promises to be another year of volatility and the world is not free from the pandemic yet. However, throughout our history, Hochschild has shown an ability to withstand operational, political and social challenges and we believe that we have the correct long-term strategy to generate value for our shareholders today while we transition the company for the future. Finally, our commitment to a broad suite of ESG initiatives remains absolute as part of our focus on safety and responsibility.

Ignacio Bustamante, Chief Executive Officer

22 February 2022

OPERATING REVIEW

OPERATIONS

Note: 2021 and 2020 equivalent figures calculated using the previous Company gold/silver ratio of 86x. All 2022 forecasts assume the average gold/silver ratio for 2021 of 72x.

Production

In 2021, Hochschild delivered attributable production of 362,972 gold equivalent ounces or 31.2 million silver equivalent ounces, in line with the Company's forecasts but with the increase versus 2020 reflecting the impact in 2020 from Covid-related disruptions throughout the year.

The overall attributable production target for 2022 is 360,000-375,000 gold equivalent ounces or 26.0-27.0 million silver equivalent ounces.

Total 2021 group production

Total production includes 100% of all production, including production attributable to Hochschild's minority shareholder at San Jose.

Attributable 2021 group production

Attributable production includes 100% of all production from Inmaculada, Pallancata and 51% from San Jose.

Attributable 2022 Production forecast split

Costs

All-in sustaining cost from operations in 2021 was $1,241 per gold equivalent ounce or $14.4 per silver equivalent ounce (2020: $1,098 per gold equivalent ounce or $12.8 per silver equivalent ounce), higher than 2020 mainly as a result of lower grades at Pallancata and San Jose and higher costs and capital expenditure. Additional capital expenditure was also allocated to Pallancata and Inmaculada to develop resources for increasing life-of-mine. These figures do not include unabsorbed fixed costs from workers that were unable to work during the Covid 19 crisis of $8.7 million (2020: $44.7 million; includes fixed costs without depreciation from stoppages and operating at reduced capacity), as well as $22.5 million (2020: $27.6 million) of exceptional Covid-19 response initiatives.

The all-in sustaining cost from operations in 2022 is expected to be between $1,330 and $1,370 per gold equivalent ounce (or $18.5 and $19.0 per silver equivalent ounce). Grades at Inmaculada are expected to be lower due to the inclusion into the mine plan of veins discovered between 2018 and 2020. It also includes a rise in mine development costs at Inmaculada and San Jose to access veins discovered in 2021 and increase reserves at San Jose.

2022 AISC forecast split

Inmaculada

The 100% owned Inmaculada gold/silver underground operation is located in the Department of Ayacucho in southern Peru. It commenced operations in June 2015.

Production

The Inmaculada mine delivered gold equivalent production of 238,238 ounces (2020: 176,086 ounces) in 2021, with the increase versus 2020 due to the impact of two Covid-19 related stoppages during 2020. Grades and gold recoveries have proved to be higher than originally budgeted.

Costs

All-in sustaining costs were $971 per gold equivalent ounce (2020: $922 per ounce) with the increase versus 2020 due to a considerable portion of capital expenditure being deferred, including the tailings dam expansion, due to the stoppages and also due to lower scheduled gold grades partially offset by higher silver grades.

Pallancata

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

Production

In 2021, Pallancata produced 4.4 million silver equivalent ounces (2020: 4.8 million ounces) with the reduction versus the original forecast (5.4 -5.6 million ounces) due to the effects of lower-than-budgeted grades in line with the current declining production profile.

Costs

All-in sustaining costs were at $22.8 per silver equivalent ounce (2020: $15.6 per ounce). Costs were increased versus 2020 mainly due to the use of more conventional mining methods in 2021 and lower grades. The figure also included new capital expenditure for development work to access newly economic resources.

San Jose

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south west of Buenos Aires. San Jose commenced production in 2007. Hochschild holds a controlling interest of 51% and is the mine operator. The remaining 49% is owned by McEwen Mining Inc.

Production

San Jose's 2021 total production was 12.4 million silver equivalent ounces (2020: 9.7 million ounces) with the increase versus 2020 reflecting Covid-related stoppages, which impacted the 2020 result. Grades were lower than budgeted for the year but practically offset by higher than expected tonnage.

Costs

All-in sustaining costs were at $16.7 per silver equivalent ounce (2020: $14.6 per ounce) with the rise driven by higher production costs, increased mine development capex, higher exploration expenses and the purchase of new mining equipment.

EXPLORATION

Inmaculada

In 2021, the exploration team carried out 9,169m of potential drilling and 39,424m of resource drilling mostly testing the newly discovered Angela North, Juliana North East and Josefa structures. The key results are below:

In 2021, 852,000 gold equivalent ounces have been added to the Inmaculada inferred resource base at a gold equivalent grade of 7.5 grams per tonne.

During the first quarter of 2022, the programme will focus on 2,100m of potential drilling in the west of the Angela North vein and in the north of the Eduardo vein zone. Other key targets for 2022 are Josefa, Juliana NE, Minascucho, Anomalia III and Anomalia IV.

Pallancata

At Pallancata, 19,390m of potential drilling was carried at the Pallancata vein, the Falla NW, Pablo, Pablo Piso and Marco veins vein structures and then later in the year at the Mirian, San Javier and the continuation of the Pallancata vein to the north west. In addition, there was drilling at the Pablo II target which intercepted quartz veins with grade and in the final quarter there were intercepts in quartz-sulphide veins, Laura and Demian. Key results are below:

In Q1 2022, the schedule consists of 5,000m of potential drilling in the Laura-Demian veins as well as the Paola, Rina 4, Stockwork Veta Juliet, Stockwork Pallancata Central and the Gracia veins. Other main targets for the year are expected to be Pablo West, Escarpa and Luisa.

San Jose

During 2021, the team carried out 11,455 m of potential drilling around the Saavedra area in several veins the Escondida, Betania, Isabel, Jimena, Agostina and Lucy veins as well as the North Telken area close to Cerro Negro. 6.673m of resource drilling was also executed targeting Escondida, and also in the area close to the current mine in the Amelia, Huevos Verdes, Olivia and Karina veins

In 2021 as a whole 12.7 million silver equivalent ounces have been added to the San Jose resource base at a silver equivalent grade of 881 grams per tonne.

The drilling plan for the first quarter of 2022 will focus on the western zone of the mine in the Olivia NW and Olivia NS structures. At Saavedra, an environmental permit is due before the programme can resume.

GREENFIELD

Hochschild's strategy with regards to its greenfield exploration programme is to maintain and drill a balanced portfolio of early-stage to advanced opportunities using a combination of earn-in joint ventures, private placements with junior exploration companies and the staking of properties.

Drilling in 2021 was carried out at: the Sarape project owned by Orogen in Mexico; the Cooke Mountain gold project owned by Adamera Minerals Corp in Washington, United States; the Condor project owned by a private company in Peru; and the Currant project owned by Da Venda Gold in Nevada, United States. Sarape was subsequently discarded. In addition, permitting work to drill in the near future is also being completed at the SW Pipe project owned by NV Gold Corp also in Nevada with drilling set to begin before the end of H1 2022. Permitting work has also continued at the Corvinon and Pampamali projects in Peru.

Given the increased political risk in Peru and Chile, the greenfield team has focused its exploration strategy primarily in North America to diversify geographic risk. Four new projects have been optioned during the year from EMX Royalties in Idaho and Nevada as well as the Red Rock prospect in Nevada from a private owner.

SNIP

Project description

Snip was acquired by Skeena from Barrick Gold Corp. in July 2017 and consists of one mining lease and eight mineral claims totalling approximately 4,546 hectares in the Liard Mining Division and is situated in Tahltan Territory. The former Snip mine produced approximately one million ounces of gold from 1991 until 1999 at an average gold grade of 27.5 g/t. Since then, the project has been improved with the recent construction of nearby infrastructure (paved highway, hydro-electric facilities and ocean port facilities) and substantially higher gold prices.

Underground drilling recommenced in late 2017 to explore for additional mineralised shoots in a large shear structure.  A maiden mineral resource was announced in July 2020 including 244,000 ounces of gold in the indicated category at an average grade of 14.0 g/t and 402,000 ounces of gold in the inferred category at an average grade of 13.3 g/t. A Technical Report was issued in September 2020.

Subsequent drill campaigns, totalling approximately 32,000 metres, successfully:

· upgraded areas of existing Inferred resources from the Mineral Resource Estimate to the Measured and Indicated categories;

· expanded the resource; and 

· delineated additional mineralisation in previously unexplored areas of the near-mine environment.

In September 2018, Skeena granted Hochschild an option to earn a 60% interest in Snip over three years by spending twice the amount Skeena had spent since it originally optioned the property from Barrick in March 2016. Up until the exercise of the option, Skeena estimated that it had incurred approximately C$50 million of expenditure on the project.

Terms of the option

The exercise of the HOC Option was also subject to the following terms:

· Hochschild must incur no less than C$7.5 million in exploration or development expenditures on Snip in each year of the Option Period (which, provided that Hochschild has incurred at least C$22.5 million on the project, can be extended by a further year on payment of US$1 million to Skeena);

· On complying with the above, Hochschild must provide 60% of the financial assurance required by governmental authorities for the Snip mining properties; and

· Hochschild can terminate the HOC Option at any time (with no liability to complete the aggregate spending requirement), but must make a cash payment for any shortfall in the minimum annual spend (or pro-rated minimum annual spend if terminated after the first anniversary of the notice exercising the HOC Option).

2022 plans

In 2022, Hochschild plans on continuing the drill campaigns and initiating selected studies and testwork. The Company plans on drilling approximately 10,000 metres from surface and underground during the year. Approximately 70% of planned metres will be for infill and twin holes, and 30% for exploration.

A Pre-Feasibility Study will be undertaken during the year, using existing resources and results from the 2022 programme, to trade-off a series of mining and mineral processing opportunities identified at the project, and assess a potential project development route to move to a Feasibility Study.

AMARILLO GOLD

On 30 November 2021, Hochschild announced that it had entered into a definitive agreement to acquire Amarillo Gold Corporation at a net acquisition cost of an estimated C$135 million.

The Transaction constitutes a Class 1 Transaction under the UK Listing Rules due to the level of Posse's Proven and Probable Reserves relative to those of Hochschild. As such, the Transaction is subject to Hochschild shareholder approval as well as the approvals of Amarillo shareholders, the Canadian court, regulatory authorities and the satisfaction of certain other customary conditions. The Transaction has been unanimously recommended by the board of directors of Amarillo and has the full support of Amarillo's major shareholders, Baccarat Trade Investments Ltd. and Eric Sprott. The Hochschild board believes the Transaction is in the best interests of Hochschild's and unanimously intends to recommend that shareholders vote in favour of the Transaction. Completion is expected to occur towards the end of this quarter.

Posse Overview

Posse is an open pit gold project located in Mara Rosa in the mining friendly jurisdiction of Goiás State, Brazil. The brownfield project benefits from existing infrastructure and attractive costs. Construction of certain infrastructure is underway, with the project having received several of the necessary installation licenses from state authorities in Goias during 2021 and 2022, including the licenses to install the power line and several mine components (e.g. waste piles, low grade deposit). Hochschild has revised the Posse mine plan contained in the August 2020 Definitive Feasibility Study, and will include further details in a mineral expert's report to be incorporated in the shareholder circular to be issued in the next few weeks.

Hochschild's Posse Mine Plan Forecasts

Posse NI 43-101 Proven and Probable Reserves

Posse NI 43-101 Measured, Indicated and Inferred Resources

Exploration Potential Overview

Hochschild has identified compelling near-mine and regional exploration opportunities for Posse and the Mara Rosa property. Posse is open down plunge to the southwest, providing potential to extend the mine life near the existing pit shell. There is also an opportunity to define multiple satellite deposits along the 10km Posse structural trend including the Araras, Speti 24 and Pastinho priority targets. Recent drilling has identified Pastinho as a promising target with similar geological characteristics to Posse and multiple parallel gold structures extending from the surface to approximately 200 m of vertical depth while remaining open. In addition to the 2,500 hectares of mining concessions containing the Posse deposit and the 6,000 hectares of exploration concessions on the Posse structural trend, Hochschild will acquire an additional 59,000 hectares of regional exploration concessions on the Mara Rosa property.

VOLCAN

On 20 January 2002, Hochschild announced the appointment of Greg McCunn as CEO of the Volcan gold project in Chile. Concurrently, the Board has approved a work programme for 2022 which includes reestablishing operations in the Copiapo province, updating the mineral resource estimate and exploring ways of optimising the project development plan which are expected to be outlined in a new technical report.

Hochschild is also expected to restructure the project into a newly incorporated Canadian company (100%-owned by the Company) named 'Tiernan Gold'. In parallel with completion of the technical report, the Company will be evaluating strategic alternatives for Tiernan Gold.

FINANCIAL REVIEW

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

Revenue

Gross revenue [11]

Gross revenue from continuing operations increased by 29% to $831.0 million in 2021 (2020: $641.5 million) mainly due to the rebound to a normal year of operation following the production stoppages during 2020 resulting from the Covid-19 crisis. In addition, there was a strong rise in the average realised silver price.

In February 2021, the Company hedged 4 million ounces of 2021 silver production at $27.10 per ounce and 4 million ounces of 2022 silver production at $26.86 per ounce. On 10 November 2021, the Company hedged 3.3 million ounces of 2023 silver production at $25.00 per ounce. During the year ended 31 December 2021, 4.0 million silver ounces were hedged at $27.10 per ounce, boosting the realised price.

Gold

Gross revenue from gold in 2021 increased to $464.3 million (2020: $376.9 million) due to the 25% rise in gold sales resulting from the rebound of production versus the Covid-19 impacted 2020. This was partially offset by a 2% fall in the average realised gold price.

Silver

Gross revenue from silver increased in 2021 to $366.2 million (2020: $264.5 million) due to a 24% rise in silver sales resulting from the rebound of production versus the Covid-19 impacted 2020. This was significantly augmented by a 12% rise in the average realised silver price.

Gross average realised sales prices

The following table provides figures for average realised prices (before the deduction of commercial discounts) and ounces sold for 2021 and 2020:

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrate, and are deducted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In 2021, the Group recorded commercial discounts of $19.6 million (2020: $19.7 million) in line with 2020. The ratio of commercial discounts to gross revenue in 2021 was 2% (2020: 3%).

Net revenue

Net revenue was $811.4 million (2020: $621.8 million), comprising net gold revenue of $457.8 million (2020: $370.1 million) and net silver revenue of $353.1 million (2020: $251.6 million). In 2021, gold accounted for 56% and silver 44% of the Company's consolidated net revenue (2020: gold 60% and silver 40%).

Reconciliation of gross revenue by mine to Group net revenue

Cost of sales

Total cost of sales before exceptional items was $487.8 million in 2021 (2020: $397.8 million). The direct production cost excluding depreciation was higher at $323.4 million (2020: $218.2 million) mainly due the Covid-19 related stoppages affecting 2020. Abnormal costs during the phases of reduced production capacity were $8.7 million (2020: $46.5 million). Depreciation in production cost increased to $148.8 million (2020: $113.1 million) due to higher extracted volumes across all operations, again mainly due to the stoppages affecting 2020. Unallocated fixed costs from workers that were unable to work during the Covid-19 crisis were $8.7 million (2020: $46.5 million; includes fixed costs from stoppages and operating at reduced capacity), and are shown separately below.

Fixed costs during operational stoppages and reduced capacity

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $133.5 per tonne in 2021, an 11% increase versus 2020 ($119.9 per tonne) This was due to: higher costs in Inmaculada resulting from using more semi-mechanised mining methods with a higher extraction cost; higher costs at Pallancata due to the use of more conventional mining methods; and higher costs in San Jose from expenditure related to the accessing and mining of incremental resources.

Unit cost per tonne by operation (including royalties)[12]:

Cash costs

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

Cash cost reconciliation[13]

Year ended 31 Dec 2021

Year ended 31 Dec 2020

Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.

All-in sustaining cost reconciliation[18]

All-in sustaining cash costs per silver equivalent ounce

Year ended 31 Dec 2021

Not included in the figure are unabsorbed fixed costs from workers that were unable to work during the Covid 19 crisis of $8.7 million (2020: $44.7 million; includes fixed costs without depreciation from stoppages and operating at reduced capacity), as well as $22.5 million (2020: $27.6 million) of exceptional Covid-19 response initiatives. These effects would have an impact on the AISC from main operations of $0.2/oz Ag Eq and $0.6/oz Ag Eq respectively (2020: $1.5/oz Ag Eq and $0.9/oz Ag Eq respectively).

Year ended 31 Dec 2020

Administrative expenses

Administrative expenses were increased by 20% to $51.9 million (2020: $43.3 million) due to increased professional fees of $3.7 million mainly linked to M&A transactions, tax penalties of $1.5 million and higher legal workers profit sharing provisions in Peru of $1.3 million.

Exploration expenses

In 2021, exploration expenses increased to $39.9 million (2020: $32.8 million) due to the 2020 reduced execution of the greenfield and brownfield programme as a result of the Covid-19 lockdown.

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 categories. In 2021, the Company capitalised $6.1 million relating to brownfield exploration compared to $1.7 million in 2020, bringing the total investment in exploration for 2021 to $46.0 million (2020: $34.5 million). 

Selling expenses

Selling expenses were increased to $15.4 million (2020: $12.8 million) mainly due to higher volume sold and higher prices, principally due to the fact that in Argentina, which levies export taxes, the San Jose operation was affected by production stoppages in 2020.

Other income/expenses

Other income before exceptional items was higher at $8.4 million (2020: $3.6 million) mainly due to increased gains on the sale of equipment ($3.3 million) and $1.0 million of higher income on the recovery of expenses and provisions.

Other expenses before exceptional items were higher at $44.6 million (2020: $28.9 million) with the increase mainly due to: a voluntary redundancy programme in Argentina of $8.3 million; mine provision increases of $22.1 million (2020: $16.1 million), and higher corporate social responsibility contribution in Argentina of $3.9 million (2020: $2.7 million).

Adjusted EBITDA

Adjusted EBITDA increased by 41% to $382.8 million (2020: $270.9 million) mainly due to the increase in revenue resulting from the rebound in production following 2020 operational stoppages due to the Covid-19 crisis. In addition, there was a significant increase in the average realised silver price. These effects were partially offset by higher production costs and lower gold prices.

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange losses and income tax plus non-cash items (depreciation and amortisation and changes in mine closure provisions) and exploration expenses other than personnel and other exploration related fixed expenses.

Finance income

Finance income before exceptional items of $3.9 million decreased from 2020 ($4.2 million) mainly due to the net effect of: a decrease of $1.1 million due to change in the fair value of the Group's holding in Americas Gold & Silver Corporation shares received as payment for the San Felipe project; lower interest on deposits of $0.3 million; and lower income on discount of credits of $0.3 million. This was partially offset by higher income due to the unwinding of the discount on mine rehabilitation of $1.6 million.

Finance costs

Finance costs before exceptional items increased from $23.6 million in 2020 to $32.1 million in 2021, principally due to: the cancelation of the Libor rate swap of the refinanced $200 million medium-term loan ($3.8 million); the refinancing cost of the medium-term loan ($1.8 million); and foreign exchange transaction costs to acquire $18.1 million dollars in Argentina, which resulted in a loss of $15.3 million (2020: $12.8 million).

Foreign exchange (losses)/gains

The Group recognised a foreign exchange loss of $2.4 million (2020: $2.6 million loss) as a result of exposures in currencies other than the functional currency - the Peruvian sol and the Argentinean peso which both depreciated in 2021.

Income tax

The Company's pre-exceptional income tax charge was $81.3 million (2020: $49.6 million). The significant rise in the charge is explained by the rebound in profitability versus the Covid-impacted 2020. In addition, there was an increase in the tax rate in Argentina to 35% impacting deferred income tax by $12.5 million.

The effective tax rate (pre-exceptional) for the period was 54.7% (2020: 57.8%), compared to the weighted average statutory income tax rate of 30.9% (2020: 30.8%). The high effective tax rate in 2021 versus the average statutory rate is mainly explained by the impact of a higher income tax rate in Argentina increasing the effective rate by 8.4%, Royalties and the Special Mining Tax which increased the effective rate by 8.2%, local currency devaluation in Peru increasing the rate by 5.0%, and the impact of non-deductible expenses related to buying US dollars in Argentina increasing the rate by 3.4%.

Exceptional items

Exceptional items in 2021 totalled a $3.7 million gain after tax (2020: $15.8 million loss after tax). Exceptional items in 2021 included: a gain on the demerger of Aclara Resources of $37.5 million (non-taxable); impairment of the Pallancata mining unit of $24.9 million; and $24.1 million of Covid-19 response initiatives distributed between cost of sales and other expenses (2020: $31.2 million). Covid-19 response initiatives include: incremental personnel expenses; Covid tests; accommodation whilst testing all workers for active Covid-19 cases prior to travelling to mine units; and additional transportation costs to facilitate social distancing. These items are presented as exceptional as they are incremental to the Group's regular business, resulting from initiatives to respond to the impact from Covid-19. Given the current progress of the pandemic, the response expenses are not expected to be recorded as exceptional items in the future.

Covid-19 response initiatives[25]

The tax effect of these exceptional items was a $15.1 million tax gain (2020: $7.2 million tax gain). The total effective tax rate was 48.2% (2020: 68.0%). The net attributable profit of exceptional items was $7.4 million.

Cash flow and balance sheet review

Cash flow:

Net cash generated from operating activities increased from $195.4 million in 2020 to $282.5 million in 2021 mainly due to higher Adjusted EBITDA of $382.8 million (2020: $270.9 million).

Net cash used in investing activities increased from $112.2 million in 2020 to $183.4 million in 2021 mainly due to higher purchases of property, plant and equipment, and evaluation and exploration assets; and the purchase of Aclara shares for $20.0 million.

Cash from financing activities increased to an inflow of $59.3 million from an outflow of $12.4 million in 2020, primarily due to the additional medium-term loan of $100.0 million, partially offset by higher dividends to non-controlling interest of $9.8 million (2020: $0.3 million) and lower repayment of borrowings of $14.8 million (2020: $37.7 million).

Working capital

The Group's working capital position declined in 2021 from $(41.6) million to $(54.9) million. The key drivers were: higher trade and other payables of $19.1 million; lower trade and other receivables of $8.5 million; and higher provisions of $6.6 million. These effects were partially offset by: higher derivative financial assets of $15.6 million mainly comprised of the position on the Company's silver hedges; and higher inventories of $6.9 million.

Net cash

The Group's reported net cash position was $86.3 million as at 31 December 2021 (31 December 2020: net cash of $21.6 million). The Group benefited from strong cashflow generation resulting from the high precious metal prices. In 2021, the company recorded an increase in borrowings resulting from the drawing down of a further $100 million of the Company's revised medium-term loan.

Capital expenditure[27] 

2021 capital expenditure of $153.9 million (2020: $107.9 million) mainly comprised of operational capex of $134.4 million (2020: $92.8 million) with the increase versus 2020 resulting from deferred capex at all operations in 2020 due to the impact of the Covid-19 pandemic and higher capex for development work at Pallancata to access newly economic resources which have further extended the mine life. 

Forward looking Statements

This announcement contains certain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its current goals, assumptions and expectations relating to its future financial condition, performance and results.

Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. The Company cautions against undue reliance on any forward looking statement or guidance, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption caused by Covid-19. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

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

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

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2021

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2021

These financial statements were approved by the Board of Directors on 22 February 2022 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

22 February 2022

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2021