Hochschild Regulatory News (HOC)

23 August 2011

Hochschild Mining plc

Interim Results for the six months ended 30 June 2011

Financial highlights1

·; Record half year revenue of $496.8 million, up 62%

·; Record adjusted EBITDA of $297.1 million, up 98%*

·; Record attributable profit after tax of $92.0 million, up 137% 

·; Record half year EPS of $0.27, up 145%

·; Strong financial position with a half-year end cash balance of $691 million

·; Proposed interim dividend of $0.03 per share up 50% (H1 2010:$0.02 per share)

·; Minority investments currently valued at $420m**

Operational highlights

·; H1 2011 production of 11.1 million attributable silver equivalent ounces

·; Production target of 22.5 million attributable silver equivalent ounces on track

·; 3 new exploration projects acquired: San Antonio, Coriwasi and Huachoja

·; 2011 $70m exploration programme delivering encouraging results:

o Advanced projects, Inmaculada and Crespo, set to deliver feasibility studies due in Q4 2011

o Azuca feasibility study due for completion in H1 2012

o Brownfield exploration at Arcata, Pallancata and San Jose yielding outstanding intercepts

o Extensive drilling programmes in Chile, Peru, Mexico and Argentina

·; Further exploration results expected in H2 2011

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

**Market value (as of 30 June 2011) of investments accounted under equity method and available for sale financial assets.

Commenting on the results, Eduardo Hochschild, Executive Chairman, said:

"I am pleased to report a very strong set of financial results for the first half of 2011 with large increases in many of our key performance indicators and a continuing robust financial position. The Board is proposing to pay an interim dividend of $0.03 per share which represents a 50% increase versus this time last year.

We are on track to deliver on all our stated production and cost targets despite the prevailing challenging industry environment with continuing strong precious metal prices likely to continue in the second half. Key deliverables for the rest of the year include feasibility studies at our Inmaculada and Crespo projects, ongoing progress on maximising our resource life and further results from this year's exploration programme.

With regards to the Board, Sir Malcolm Field and Dionisio Romero have given advance notice of their decisions to retire as Non-Executive Directors at the 2012 AGM. I would like to express my sincere gratitude to both Malcolm and Dionisio for their support and invaluable contributions to the Group since joining the Hochschild Board back in 2006.

To ensure the continued independent presence on the Board, I am delighted to announce the appointment of Rupert Pennant-Rea as a Non-Executive Director on 1 September 2011. Rupert brings vast experience from his position on the boards of mining and blue-chip London-listed companies." _______________________________________________________________________

A live conference call & audio webcast will be held at 2.00pm (London time) on Tuesday 23 August 2011 for analysts and investors. Details as follows:

For a live webcast of the presentation please click on the link below:

http://www.media-server.com/m/p/76wpe7p5 

Conference call dial in details:

UK: +44 (0)20 7806 1960 (Please quote 'Hochschild Mining webcast' or confirmation code 6498727).

A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone number:

UK: +44 (0)20 7111 1244 (Access code: 6498727#)

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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 projects throughout the Americas.

Chief Executive Officer's Statement

Hochschild's operations have experienced a robust first half, maintaining an emphasis on rigorous cost control and reaping the benefits of the continuing high prices for precious metals. The first six months of the year have seen an increase in our adjusted EBITDA of 98% to $297 million with earnings per share up 145% to $0.27 and a cash balance of $691 million with our minority investments currently valued in the market at $420m.

We remain on course to deliver our stated production target of 22.5 million attributable silver equivalent ounces. The robustness of our asset base is proving to be a key competitive advantage for us in an environment of increasing cost inflation and more challenging labour conditions. During the period we produced 11.1 million silver equivalent ounces comprising 7.3 million ounces of silver and 63.3 thousand ounces of gold. Driven by average realised prices up some 26% and 110% for gold and silver respectively versus this time last year, revenue in H1 rose by 62% to just short of half a billion dollars.

The results from the first half reflect that, as highlighted previously, our core Peruvian assets are experiencing a managed grade reduction to ensure more stable long term production levels and a consistent resource life. A further effect on the grade figure reported was the prudent decision to take advantage of the continuing high precious metal prices and process low grade material extracted from the borders of the main vein structures at Arcata and Pallancata, utilising extra capacity at both plants. In Argentina, despite labour disruptions in the first half, the San Jose mine continued to deliver on its promise and we remain excited about the geological potential at this relatively unexplored deposit.

Our key aims for 2011 in cost control were to manage unit cost increases in Peru at the 10% level and to keep unit cost inflation at the San Jose mine to the local inflation rate of between 25-30%. I am pleased to report that, excluding mine royalties (impacted by higher prices), there has been only a small rise in unit cost per tonne at the main operations in Peru of 6% in aggregate versus the first half of last year. At San Jose, local price inflation has been higher than expected with unit costs excluding royalties increasing by 33% versus the first half of 2010. With wage negotiations in both Peru and Argentina concluded, Hochschild is maintaining its current cost guidance for 2011.

We have made solid progress already this year on the feasibility studies for our three advanced projects, Inmaculada, Crespo and Azuca. There is real excitement growing about the potential at Inmaculada, and, in February, we announced a major increase in resources and grade at the project further bolstering our belief that this will be a mine to rival or even exceed Pallancata in scale and position on the cost curve whilst also potentially contributing to the Hochschild's production growth for many years to come. Early on in the period, we also announced a positive scoping study at Crespo which we currently expect to be an attractive open cut operation whilst at Azuca work still remains to convert requisite Inferred resources into Measured & Indicated. We look forward to delivery of feasibility studies for Inmaculada and Crespo in the fourth quarter of 2011 and Azuca in the first half of 2012.

Over the last 18 months, Hochschild has consistently emphasised the key role played by our exploration programme in the achievement of our long term strategy. In line with this, we signalled our intentions at the outset of 2011 by committing to a significant increase in the exploration budget for the year to $70 million (representing a 140% increase from 2009) and we have made a good start to the annual drilling campaign in the first half. Although the bulk of the work and its results will be completed in the second half, we have seen good progress in our Medium Scale projects at Mosquito and La Flora in Argentina as well with our Company Makers at Mercurio in Mexico and Victoria in Chile. At the Valeriano project, also in Chile, Hochschild is due to commence an intensive drilling campaign in the third quarter. In addition we have continued to see exciting intercepts in our brownfield drilling programme at Arcata and particularly San Jose, with further resources also being added at Inmaculada. We expect to report to the market in full during the second half as and when the key results are collated and analysed.

Looking forward to the rest of the year, Hochschild expects the current uncertainty to continue in the global financial markets and consequently the resulting volatility in precious metals markets is set to remain. The key operational aims for the second half will be meeting our production targets across all our mines and focusing on mitigating against the effects of considerable cost inflation in all our key countries and ongoing additional input cost pressures. We look forward to the delivery of the Inmaculada and Crespo feasibility studies towards the end of the year and in particular progress on our brownfield and greenfield exploration programme. With such a strong financial position, we also have the flexibility to capitalise on any acquisition opportunities that arise and assess any new capital investment opportunities generated from our extensive project pipeline.

Ignacio Bustamante

Chief Executive Officer

22 August 2011

OPERATING REVIEW

CURRENT OPERATIONS

Production

In the first half of 2011, the Group has delivered 7.3 million attributable ounces of silver and 63.3 thousand attributable ounces of gold (11.1 million silver equivalent ounces) placing it on track to achieve its full year production target of 22.5 million attributable silver equivalent ounces in 2011.

Compared to H1 2010, attributable silver equivalent production decreased by 13% in line with expectations due to declines in grade at the Company's two main Peruvian operations, in line with its previously mentioned long term goal of mining close to the average reserve grade at each of its core operations. In addition, the contribution from the Company's two ageing mines, Ares and Moris also showed an expected decline versus the first half of 2010although the forecast closure dates for both these mines have been delayed in the light of continued high precious metal prices. At the San Jose mine, production was lower in the second quarter versus the first due to industrial action at the mine leading to the loss of 18 days of production (including five days of ramping up).

Costs

The Company reported an increase in unit cost per tonne at its main operations in Peru (Arcata and Pallancata) of 12% in H1 2011 to $66.5 (H1 2010: $59.6). Excluding mine royalties, which are directly linked to higher metal prices, the unit cost of main operations in Peru increased by only 6%. At San Jose in Argentina, unit costs increased by 37% whilst excluding mine royalties unit costs increased by 33%. Ares and Moris, Hochschild´s two high cost ageing mines, experienced increases of 17% and 16% respectively. Both units have a longer than anticipated mine life and continue to be profitable units. Further details on costs are provided on page 11 of the financial review.

Main operations

Arcata: Peru

Production

As expected, Arcata's production in the first half was 3.6 million silver equivalent ounces with the Company reducing the extraction grade towards the average reserve grade level in order to ensure a consistent and sustainable level of production. Q2 production was in line with the Q1 rate of 1.8 million ounces. The Company continues to mine at reserve grade levels in the lower grade border areas with associated narrower veins and increased dilution but is confident that the Arcata system continues to display strong long term geological potential. In addition, Hochschild took advantage of the strong first half precious metal prices by deciding to process developmental low grade material (with an average silver grade of 114g/t) which, although increasing the half-on-half tonnage produced by 7%, further reduced the average treated grade.

Costs

Unit cost per tonne increased by 5% in the first half of 2011 versus the same period last year with the strong precious metal price increases leading to significant rises in royalties. Excluding royalties, unit cost rose 3%. In addition to wage increases, material costs also rose principally due to the rise in diesel and steel prices. Higher costs were partly offset by economies of scale derived from increasing treated tonnage with material of lower grade, at a lower cost.

The 2011 drill programme is underway at Arcata and aims to incorporate new resources at the Marion, Blanca and Baja veins. A magnetometry geophysical survey was completed which will help to delineate favourable corridors in the northern and western areas of the mine. Positive results from the drill programme include the following:

Pallancata: Peru

Production

At Pallancata, the Company's other main Peruvian operation, first half silver equivalent production was reduced to 5.2 million silver equivalent ounces, mainly driven by lower silver and gold grades, which decreased 12% and 6% respectively year-on-year. In the first half the mine plan focused on deeper and narrower veins compared to H1 2010 with mined grades in line with the reserve grade but experiencing the normal volatility associated with this type of deposit. In addition, the Company took the opportunity afforded by the prevailing high precious metals price environment to process some lower grade economic material (not from the mine's resources) extracted from the borders of the main vein structures.

Costs

Unit cost per tonne at Pallancata rose by 15% in the period to $60.3 principally due to the strong rise in royalties paid by the operation. Excluding royalties, unit costs increased by 7%. In addition, a significant portion of the rise was also due to inflation in materials and supplies as well as salaries, all indirectly associated to higher precious metal prices. Pallancata has been increasing recruitment from local communities as part of an initiative to improve community engagement in the area and consequently this has also increased the operation's overall wage costs.

1The Company has a 60% interest in Pallancata

Underground development continues at the Pallancata, San Javier and Virgen del Carmen veins. 13,397 metres of drilling was executed as of June 2011 at the Rina, Thalia and Yanina veins. A total drill programme of 55,292 metres is planned for the full year.

Drill results in Q2 2011 include:

San José: Argentina

Production

San Jose delivered a very strong performance in the first half of 2011, in line with plan, despite the effects of the strike. Silver equivalent production rose by 23% versus the first half of 2010 with improved silver grades (up 38%) resulting from a scheduled shift to the higher reserve grade zones, as well as an increase in gold recovery rates to 90% and silver to 87%. An agreement has now been reached with the AOMA union (Argentine Mining Labour Association) in line with expectations as well as a parallel satisfactory conclusion to the annual wage negotiations.

Costs

Unit cost per tonne in the first half of 2011 rose by 37% versus H1 2010 to $191.3 with the strong local price inflation in Argentina (of between 25-30%) causing large increases in wage costs. Excluding royalties, unit costs increased by 33%. In addition, the difficult operating environment saw strong material price inflation with the major components being increases in fuel, steel and reagent prices.

1The Company holds a 51% interest in San Jose.

A total drilling programme of 50,606m is planned for 2011.

During the quarter, diamond drilling was carried out at the Luli and Susana Veins to convert inferred to measured and indicated resources. Selected intercepts include:

Other operations

Ares: Peru

Production

The Company's ageing Ares mine produced 1.1 million silver equivalent ounces in H1 2011 (H1 2010: 1.5 million silver equivalent ounces). Ares continues to be a flexible deposit that is producing not only from ore that was previously uneconomic in a lower price environment but also yielding new marginal areas with economic material that will allow operations to continue into 2012. Management continues to monitor closely the grade and cost profile of the mine to ensure that it is in line with the Company's policy of producing profitable ounces.

Moris: Mexico

Production

Moris, the Company's operation in Mexico, produced 0.7 million silver equivalent ounces in the first half of 2011 (H1 2010: 0.8 million silver equivalent ounces). The ongoing strong precious metal prices have allowed the mine to continue operations beyond the originally intended closure date and have now also led to the Company evaluating further production initiatives despite the current closure date being towards the end of 2011.

ADVANCED PROJECTS

The Company has three advanced projects, Inmaculada, Azuca and Crespo, which have the combined potential to add a minimum of 12 million attributable silver equivalent ounces per annum to the Company's profile with production due to commence at the end of 2013.

Inmaculada

On 25 February 2011, the Company announced an increase in both the total Mineral Resource estimate and Measured and Indicated Resources for the Inmaculada gold-silver project located in Hochschild's existing southern Peru cluster, following the announcement of a positive scoping study published by International Minerals Inc ("IMZ") in September 2010. The project, in which Hochschild now owns a controlling 60% stake (IMZ holds the remaining 40%), is currently at the feasibility stage with completion expected in Q4 2011. The Company expects to commence production in December 2013 at a processing capacity of 3,000 tonnes per day. The highlights of the announcement were:

§ 59% increase in Measured & Indicated Resources to 76.0 million silver equivalent ounces

§ 29% increase in silver equivalent grades to 498 g/t

§ Total resources of 128.3 million silver equivalent ounces

Hochschild expects the results to significantly improve the economics of the project detailed in the 2010 scoping study. An infill drill programme commenced at the property in March 2011 to convert Inferred Resources to Measured and Indicated Resources in the Angela Vein and 8,105 metres of the Brownfield drilling programme was executed as of July 2011, at the Jimena, Martha and Angela SW Veins. A total drill programme of 26,475m is planned for the full year with approximately 31% completed so far.

The feasibility study for the project is due for completion on schedule towards the end of the year with the Environmental Impact Study ("EIS") due to be presented to the relevant authorities also towards the end of 2011.

Azuca

Intensive drilling continues at the 100% owned Azuca property with the aim of expanding the scale of the project. The Company expects to complete feasibility in the first half of 2012 with production targeted for Q4 2013 at an initial estimate of 3.5 million silver equivalent ounces per year. 

Year to date, 73,838 metres of infill drilling have been completed at the Azuca and Azuca Oeste veins which aims to convert Inferred Resources to the Indicated category and advance the project to feasibility stage. Assays are pending from drilling at the Minaspata vein worked in the past by Hochschild. The EIS is also underway and is on track for submission to the relevant authorities at the beginning of 2012.

A total drill programme of 91,891m is planned for the full year.

Crespo

At the start of the year, Hochschild reported positive results from a scoping study completed by an independent company, Ausenco, at the Company's 100% owned Crespo project, located in the Company's existing operating cluster in southern Peru. The scoping study is based on resources of 31.3 million silver equivalent ounces (measured and indicated) and estimates initial production of 2.3 million silver equivalent ounces per annum starting from the end of 2013. Hochschild already has 5.0 million additional ounces of Measured & Indicated resources that will be added for the feasibility study. For further details of the scoping study, please see the press release published on 19 January 2011.

Both the feasibility study and the EIS have made good progress in the first half and remain on track for completion in the fourth quarter of 2011. Drilling for the hydrogeological, geotechnical and geomechanical studies commenced in late June with results due in the second half. In parallel, metallurgic test work is underway and expected to be finished in the third quarter of 2011. This information will be used to complete the feasibility study during Q4.

EXPLORATION REVIEW

Greenfield exploration

Victoria

The Victoria project in Chile is 60% owned by Hochschild, with the remaining 40% held by Iron Creek Capital. A 5,000m drilling programme is due to recommence in H2 after geological reinterpretation and target validation of the Vida, Cenizas, and Picaron areas are complete. Metallurgical testing of old ore at the Vaquillas target has been completed and data is currently under review.

Valeriano

At the Valeriano property in Chile which is located 27 kilometres north of Barrick Gold Corporation's Pascua Lama project, preliminary results received to date have confirmed the anomalies identified in past drill reports. Results of the geophysical survey have been interpreted with the definition of a porphyry-like anomaly at depth which corresponds with the surface geochemistry studies as well as the historic magnetic survey. Preliminary drill targets have been selected and the Company is planning to commence an intensive drilling campaign in H2 2011.

Mercurio

The 100% owned Mercurio project in Mexico is located within the prolific silver belt of the Fresnillo-Sombrerete deposits. Initial surface mapping and sampling have been completed in the property and drilling is underway. The 8,000m drilling programme for 2011 is focused on deeper areas of the project to evaluate potential similarities to comparable mines in the vicinity.

Mosquito

At the 100% owned Mosquito project in Argentina, strong anomalous mineralisation results have been reported for a number of the drill holes completed in H1 2011. The programme for the second half which includes a geophysical survey and a number of further promising drill targets will be completed by the end of the year.

In addition to the above, Hochschild has incorporated three new property agreements into its exploration pipeline, two in Peru and one in Chile.

Coriwasi (Peru).

Coriwasi is a 9,800 hectare, high sulphidation epithermal and porphyry copper-gold type target in northern Peru optioned from a private party. Under the terms of the agreement, Hochschild will earn in 100% by incurring $4.0m in staged payments over a four year period with the vendor maintaining a 1.4% net smelter return royalty. The project has Company Maker potential.

Huachoja (Peru).

Huachoja is a 3,000 hectare high sulphidation, epithermal target in southern Peru which has been optioned from Teck Peru SA. In order to vest, Hochschild is required to spend $4.0m over a four year period (option to 60%). Teck can back in to 60% if the resource found is base metal dominant, compensating Hochschild for its investment. The project has Company Maker Potential.

San Antonio (Chile).

San Antonio is a 350 hectare gold property in northern Chile optioned from a number of private parties. Hochschild may earn in from 60% to 80% in the San Antonio prospect after a resource has been issued. The project has medium scale potential.

FINANCIAL REVIEW

Key performance indicators:

(before exceptional items, unless otherwise indicated)

1Revenue presented in the financial statements is disclosed as net revenue (in this Financial Review it is calculated as gross revenue less commercial discounts)

2Includes Hochschild's main operations: Arcata, Pallancata and San Jose. Cash costs are based on pre-exceptional figures and are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.

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

4 Cash flow from operations is calculated as profit for the year from continuing operations after exceptional items, plus the add-back of non-cash items within profit for the year (such as depreciation and amortisation, impairments and write-off of assets, gains/losses on sale of assets, amongst others) plus/minus changes in liabilities/assets such as trade and other payables, trade and other receivables, inventories, net tax assets, net deferred income tax liabilities, amongst others.

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: Gross revenue from continuing operations increased 58% to $523.3 million in H1 2011 (H1 2010: $330.2 million) driven by higher metal prices during the period which more than offset lower Group production.

Silver: Gross revenue from silver increased 84% in H1 2011 to $392.2 million (H1 2011: $213.0 million) as a result of higher prices. The total amount of silver ounces sold in H1 2011 decreased to 10,758 koz (H1 2010: 11,575 koz2) mainly due to lower half-on-half production.

Gold: Gross revenue from gold increased 12% in H1 2011 to $131.1 million (H1 2010: $117.2 million) also as a result of higher prices. The total amount of gold ounces sold in H1 2011 decreased to 89.4 koz (H1 2010: 98.9 koz3) again mainly due to lower year-on-year production.

Gross average realised sales prices

As of December 2010, the Company discloses average realised prices calculated as gross revenue divided by gross ounces sold. Previously, the Company disclosed average realised prices calculated as net revenue divided by net ounces sold. Net revenue is calculated as gross revenue minus commercial discounts, see paragraph below.

The following table provides figures for average realised prices and ounces sold for H1 2010 and H1 2011:

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In H1 2011, the Group recorded commercial discounts of $26.6 million (H1 2010: $23.3 million). The ratio of commercial discounts to gross revenue in H1 2011 decreased to 5% (H1 2010: 7%).

Net revenue

Net revenue increased by 62% to $496.8 million, comprising silver revenue of $369.3 million and gold revenue of $127.5 million. In H1 2011, silver accounted for 74% and gold 26% of the Company's consolidated net revenue compared to 63% and 37% respectively in H1 2010.

Net revenue by mine

1Other revenue includes revenue from sale of energy in Peru and revenue from administrative services in Mexico.

Costs

Total pre-exceptional cost of sales in the first half increased 29% to $195.6 million (H1 2010: $152.0 million) mainly as a result of the increase in direct production cost of 35% to $146.8 million (H1 2010: $108.6 million). Direct production cost increased mainly due to inflation with respect to wages, supplies and energy costs, particularly in Argentina. In addition, mining royalties increased as a result of the higher metal prices. Depreciation and amortisation increased 12% in the period to $48.8 million (H1 2010: $43.4 million), also contributing to higher cost of sales.

Unit cost per tonne

The Company reported an overall increase in unit cost per tonne at its main operations of 21% as of June 2011 to $92.0 (June 2010: $76.3). This increase is mainly explained by higher royalties as well as overall input cost inflation in the industry.

Unit cost per tonne by operation*:

*Unit cost per tonne is calculated by dividing mine and geology costs by extracted tonnage and plant and other costs by treated tonnage

** As presented at the Full Year 2010, in order to further increase transparency, the Company has restated its unit cost per tonne figures to include certain indirect operating expenses including health, safety and environmental accreditations.

Cash costs

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

Co-product silver/gold cash costs are total cash costs multiplied by the percentage of revenue from silver/gold, divided by the number of silver/gold ounces sold in the half. Silver cash costs increased from $7.8 to $13.2 per ounce and gold cash costs increased from $531 to $549 per ounce. The increase in silver cash costs was explained by higher production costs at all the mines. In addition, cash costs increased due to higher workers profit share contributions, higher commercial discounts and increased export taxes at San Jose, all resulting from higher precious metal prices. Finally, cash cost was negatively impacted by lower average grades due to the incorporation of lower grade material at Arcata and Pallancata.

By-product silver/gold cash costs are total cash costs less revenue from gold/silver, divided by the number of silver/gold ounces sold in the half. By-product cash costs for the period were $5.6 per silver ounce (H1 2010:$2.2 per silver ounce) and ($2,251) per gold ounce (H1 2010: ($708) per gold ounce).

Cash cost reconciliation*:

* Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.

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

Administrative expenses

Administrative expenses before exceptional items increased by 3% to $30.6 million (June 2010: $29.7 million) primarily explained by inflation in personnel expenses and higher voluntary contributions to the Peruvian Government ($0.9 million) resulting from higher metal prices. In addition, H1 2011 administrative expenses do not include non-recurring items recorded in H1 2010 in relation to senior management termination benefits and professional fees.

Exploration expenses

As a result of the Group's decision to focus on organic growth through exploration, exploration expenses, which primarily relate to greenfield exploration, increased by 33% to $19.0 million in 2011 (June 2010: $14.3 million).

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the inferred or measured and indicated category. As of June 2011, the Group capitalised $4.9 million relating to brownfield exploration compared to $6.1 million as of June 2010 bringing the total investment in exploration for June 2011 to $23.9 million. The previously announced 2011 exploration budget of $70 million constitutes the total investment in exploration (greenfield and brownfield). 

Furthermore, as part of Hochschild´s aim to further develop the production assets, the 2011 budget for advanced projects and operations includes an additional $18 million to convert inferred resources into measured and indicated resources. 

Selling expenses

Selling expenses increased to $17.7 million (June 2010: $11.0 million) mainly in Argentina due to higher revenue driven by the increase in gold and silver prices which triggered higher export duties. Export duties in Argentina are levied at 10% of revenue for concentrate and 5% of revenue for doré.

Other income/expenses

Other income before exceptional items was $4.1 million (H1 2010: $1.9 million). There were no exceptional items related to other income in H1 2011.

Other expenses before exceptional items reached $2.4 million (H1 2010: $4.0 million). There were no exceptional items related to other expenses in H1 2011.

Profit from continuing operations

Profit from continuing operations before exceptional items, net finance costs and income tax increased to $235.6 million (H1 2010: $97.8 million) as a result of the effects detailed above.

Adjusted EBITDA

Adjusted EBITDA increased by 98% over the period to $297.1 million (H1 2010: $150.1 million) driven primarily by higher silver and gold prices. Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses.

Impact of the Group's investments in joint ventures and associates

Hochschild's pre-exceptional share of the profit/(loss) after tax of associates totaled $ 2.3 million at 30 June 2011 (30 June 2010: $(1.2) million). In 2011, the Company's share in associates was explained by profits relating to its holdings in Gold Resource Corp. In 2010, the Company's share in associates mainly relates to its investments in Lake Shore Gold and Gold Resource Corp.

Finance income and finance cost

Finance income before exceptional items was similar to that of last year (June 2011: $3.3 million / June 2010: $3.1 million). Finance cost before exceptional items equal that of June 2010 ($12.1 million)

Foreign exchange losses

The Group recognised a foreign exchange loss of $2.8 million (June 2010: $0.2 million loss) as a result of transactions in currencies other than the functional currency.

Income tax

The Company's pre-exceptional effective tax rate decreased to 35.1% in H1 2011 (H1 2010: 35.8%). In addition, the post-exceptional effective tax rate decreased to 34.5% (H1 2010: 38.4%).

Exceptional items

Exceptional items in H1 2011 totaled $4.3 million after tax (H1 2010: ($10.1 million). This principally includes:

- The gain on sale of Lake Shore Gold shares amounting to $6.4m net by the loss on sale of Golden Minerals Co shares of $0.1m.

- The loss arising from the fair value adjustment of the Golden Minerals Co and Iron Creek warrants of $1.6m and $0.1m respectively.

- The share of post tax losses of associates of US$0.3m, relating to the dilution of the Gold Resource Corporation investment.

Cash flow & balance sheet review:

Cash flow:

Total cash generated increased from $13.2 million in H1 2010 to $164.7 million in H1 2011 ($151.5 million difference). Operating cashflow increased 111% to $236.9 million from $112.2 million in H1 2010 ($124.7 million difference), mainly due to higher metal prices. Net cash used in investing activities decreased to $(21.5) million in H1 2011 from $(73.9) million in H1 2010, primarily due to the reduction in the Company's holding in Lake Shore Gold and increases in capital expenditure. Finally, cash flows used in financing activities increased to $(50.7) million from $(25.1) million, primarily as a result of the prepayment of syndicated loan ($114.3 million), and incremental dividend payments to Hochschild plc shareholders ($3.4 million) and to joint venture partner in Pallancata ($10.1 million) versus H1 2010. These effects were partially offset by short term debt raised at Cía. Minera Ares ($99.0 million).

Working capital:

The Company's working capital position decreased to $(6.0) million in H1 2011 from $(1.1) million in December 2010. This was primarily explained by a decrease in net other financial assets ($25.8 million) primarily driven by a change in embedded derivatives and higher net income tax payable ($4.3 million). These effects were partially offset by lower trade and other payables ($24.5 million).

Net cash:

The Company reported net cash of $398.1 million as at 30 June 2011 (FY 2010: $207.8 million). This was primarily driven by the significant increase in cash and cash equivalents from operating activities ($236.9 million) although partially offset by cash from investing activities ($21.5 million) and cash used in financing activities ($50.7 million). During H1 2011, the Company paid down its full syndicated loan facility of $114.3 million and drew down $99.0 million from short term financial credit lines.

The Convertible bond currently outstanding has a conversion price of £3.94 and allows the Company to force conversion of the bonds at anytime after 20 October 2012 if, during a 20 day period, the Company's share price exceeds 130% of the conversion price (£5.12).

Capital expenditure¹

1 Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in closure of mine assets. 

2 Other capex includes mainly Azuca ($15.9 million), Inmaculada ($3.8 million), Crespo ($2.4 million)

H1 2011 capital expenditure of $85.4 million (H1 2010: $65.1 million) includes evaluation and exploration of $25.6 million, conversion of resources into reserves of $15.8 million, development costs of $18.7 million and investment in fixed assets of $25.3 million.

Dividends:

The directors recommend an interim dividend of $0.03 per ordinary share which will be paid on 22 September 2011 to those shareholders appearing on the register on 2 September 2011.

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

BOARD COMPOSITION

The Company announces that Sir Malcolm Field and Dionisio Romero have informed the Board of their wish to retire as Non-Executive Directors of the Company at the 2012 AGM after over five years on the Board.

As part of the Group's succession planning and to ensure the continued independent presence on the Board, the Company announces the appointment of Rupert Pennant-Rea as an independent Non-Executive Director of the Company with effect from 1 September 2011.

Mr Pennant-Rea is Chairman of Henderson Group plc and of the Economist Group and is a Non-Executive Director of Go-Ahead Group plc and Gold Fields Limited (South Africa). He was Deputy Governor of the Bank of England from 1993 to 1995, prior to which he spent 16 years with The Economist, where he was editor from 1986 to 1993. Rupert serves on the Board of First Quantum Minerals Limited and has served on the Boards of various companies including British American Tobacco plc. (1998-2007), Rio Narcea Gold Mines Ltd (2003-2007), Sherritt International Corporation (1995-2008), Acuity VCT Plc (2001-2011) and Acuity Growth VCT Plc (2004-2011).

There are no other matters to disclose in respect of Mr Pennant-Rea in accordance with paragraph 9.6.13R of the FSA's Listing Rules.

The Board notes the publication of the Davies Review on Women on Boards earlier in the year and the subsequent consultation of the Financial Reporting Council on changes to the UK Corporate Governance Code, which may result in the Code including a recommendation that companies adopt a policy on boardroom diversity.

The Board acknowledges the benefits of greater diversity of the board, not just limited to gender diversity, and will continue to ensure that candidates for board appointments shall be considered on merit.

Risks

The principal risks and uncertainties facing the Group in respect of the year ended 31 December 2010 were set out in detail in the Risk Management section of the 2010 Annual Report and in Note 37 to the 2010 Consolidated Financial Statements. These risks continue to apply to the Group in respect of the remaining six months of the current financial year.

The key risks disclosed in the 2010 Annual Report were categorised as:

- Financial risks which include commodity price risk and foreign currency risk;

- Operational risks including the risks associated with business interruption, reserve and resource replacement and the retention of key personnel;

- Macro-Economic Risks which include political, legal and regulatory risks; and

- Corporate Social Responsibility related risks including health and safety, environmental and social risks.

The 2010 Annual Report is available at www.hochschildmining.com

GOING CONCERN

The Directors confirm that they are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, adoption of the going concern basis in the preparation of the financial statements contained herein is considered to be appropriate.

RELATED PARTY TRANSACTIONS

Details regarding related party transactions are included in Note 15.

Statement of Directors' ResponsibilitiesThe Directors confirm that, to the best of their knowledge, the interim condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7 and 4.2.8.A list of current Directors is maintained on the Company's website which can be found at www.hochschildmining.com.For and on behalf of the Board

Ignacio BustamanteChief Executive Officer  

22 August 2011

INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC

Introduction

We have been engaged by Hochschild Mining plc (the Company) to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises the Interim consolidated income statement, the Interim consolidated statement of comprehensive income, the Interim consolidated statement of financial position, the Interim consolidated statement of cash flows, the Interim consolidated statement of changes in equity and the related notes 1 to 17. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Ernst & Young LLP

London

22 August 2011

Interim consolidated income statement

Interim consolidated statement of comprehensive income

Interim consolidated statement of financial position

1 31 December 2010 figures are subject to a reclassification as disclosed in note 2 (c)

Interim consolidated statement of cash flows

Interim consolidated statement of changes in equity