Hochschild Regulatory News (HOC)

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19 August 2020

Interim Results for the six months ended 30 June 2020

Covid-19 Response

§ Swift company-wide response to unprecedented circumstances

§ Prioritisation of employee health above business continuity

§ Implementation of more stringent set of health protocols at all mines than mandated by authorities

§ Comprehensive testing programme carried out

§ Full medical teams in place with additional equipment acquired

§ Additional community health and educational support provided

§ Inmaculada restarted production on 28 July and is currently expected to reach full capacity by end of August

Financial highlights

§ Revenue of $232.0 million (H1 2019: $354.5 million)[1]

§ Adjusted EBITDA of $80.6 million (H1 2019: $153.7 million)[2]

§ Profit before income tax (pre-exceptional) of $13.1 million (H1 2019: $41.5 million)

§ Profit before income tax (post-exceptional) of $6.5 million (H1 2019: $29.5 million)

§ Basic loss per share (pre-exceptional) of $(0.01) (H1 2019: $0.04 earnings)

§ Basic loss per share (post-exceptional) of $(0.02) (H1 2019: $0.03 earnings)

§ Cash and cash equivalent balance of $162.1 million as at 30 June 2020 (31 December 2019: $166.4 million)

§ Net debt of $58.4 million as at 30 June 2020 (31 December 2019: $33.2 million)

Exploration & Business Development highlights

§ Full brownfield exploration plan scheduled to be completed by year-end

§ Drilling programmes at all operations and surrounding regional targets

§ Programmes scheduled at Arcata, Corina, Cochaloma, Pablo Sur and Palca targets

§ Drilling at Condor (by project partner) and Crespo early-stage projects also scheduled

§ Maiden resource for Snip project in northwest British Columbia announced by partner, Skeena Resources

§ Further greenfield programmes set for H2 in Peru, Canada and the U.S.

§ Work continuing on BioLantanidos rare earths project with feasibility study on track for completion in Q1 2021

H1 2020 ESG highlights

§ Lost Time Injury Frequency Rate of 0.98 (2019: 1.05)[3]

§ Accident Severity Index of 999 (2019: 54)[4]

§ Water Consumption of 225lt/person/day (2019: 206lt/person/day)

§ Domestic waste generation of 0.98 kg/person/day (2019: 1.04kg/person/day)

§ ECO score of 5.74 out of 6 (2019: 4.82)[5]

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A live conference call and audio webcast will be held at 2.30pm (London time) on Wednesday 19 August 2020 for analysts and investors.

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

https://webcasting.brrmedia.co.uk/broadcast/5f1e81f5864c395ee4bb2991

Conference call dial in details:

UK: +44 (0)330 336 9140

UK Toll Free: 0800 279 7204

US/Canada Toll Free: 888-256-1007

Pin: 3606266

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Enquiries:

Hochschild Mining PLC

Charles Gordon +44 (0)20 3709 3264

Head of Investor Relations

Hudson Sandler

Charlie Jack +44 (0)207 796 4133

Public Relations

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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) (OTCMKTS: $HCHDF) 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.

IGNACIO BUSTAMANTE, CHIEF EXECUTIVE OFFICER SAID:

Covid-19

The story of Hochschild's first half of 2020 is dominated by the global Covid-19 crisis and the challenges it has brought to the countries in which we operate, our communities and our employees. We believe that Hochschild's overall response to the pandemic has balanced the needs of all of our stakeholders, starting with the health and safety of our people, which remains our first priority. We took immediate and decisive action in mid-March as soon as the virus impacted the country and chose to halt our Peruvian operations and exploration programmes and responded quickly again in early July when our Inmaculada mine experienced a number of positive cases of the virus. In Argentina, we immediately complied with the nationwide mandatory quarantine and have been very careful to follow the ongoing restrictions on the movement of people in the country by executing a careful remobilisation and ramp-up at the mine.

Throughout the organisation, we have taken all the necessary actions to work through the uncertainties and challenges facing our company and host countries. This includes a wide range of safety protocols in place at all our locations that go well beyond the official requirements and we have also established a comprehensive virus testing programme, revised community relation strategies and increased the size of the Company's medical team. In addition, employees have received regular updates on safe work practices as we tailor our approach based on the evolving government guidelines.

Our Company entered the crisis with a strong balance sheet and liquidity position, providing us with resilience and the ability to implement our crisis response and protect our business. I am very proud of our Company's resourcefulness and would like to say a heartfelt thank you to all of our employees for their continued dedication and efforts over the past few months in such difficult circumstances.

Safety

We take our responsibilities to our people extremely seriously and their safety and wellbeing is our highest priority. We dedicated significant resources to our internally designed Safety Culture Transformation Plan which, since implementation in 2017, resulted in historic levels of safety performance last year. We have redoubled our focus on this critical area and have therefore relaunched the second iteration of this initiative, known internally as Safety 2.0.

It is with deep regret that despite all the progress we have achieved, we suffered a fatality at our Pallancata mine during H1 2020. A thorough investigation was carried out and the findings were reported to the Board. This tragic event has made us even more determined to continue reinforcing our controls, promoting the right behaviours and creating a culture of safety that is deeply embedded throughout the organisation.

Operations

As mentioned above, Hochschild's output in the first half was impacted by Covid-19 related stoppages at all our mines lasting from the middle of March until the restart was announced towards the end of May. Production was 126,835 gold equivalent ounces (10.9 million silver equivalent ounces) which was understandably substantially lower than the 2019 figure of 239,090 gold equivalent ounces (20.6 million silver equivalent ounces). Inmaculada delivered a solid start to the year in the first quarter but the stoppage resulted in production of only 79,604 gold equivalent ounces (H1 2019: 132,915 ounces). All-in sustaining costs were lower than budgeted at $777 per gold equivalent ounce, principally due to expenditure on the mine's tailings dam being deferred until the second half of the year. Inmaculada is back in production following the second stoppage in July and expected to be operating at full production capacity by the end of August.

Pallancata was similarly affected. Production, was 1.8 million silver equivalent ounces (H1 2019: 5.0 million ounces) with the mine's all-in sustaining cost at $14.0 per silver equivalent ounce (H1 2019: $12.1 per ounce). The increase in costs versus the prior year was due to the mining of lower grade areas and less production resulting from the stoppages.

In Argentina, San Jose experienced a shorter stoppage with production restarting on 27 April. However, the ongoing restrictions on the movement of people in the country resulted in a slow and difficult remobilisation and ramp-up process, which we expect to be complete by the end of the third quarter. Production was 4.4 million silver equivalent ounces in the first half (H1 2019: 7.4 million ounces) with costs at $15.6 per silver equivalent ounce (H1 2019: $13.9 per ounce).

Exploration

Whilst the 2020 brownfield programme has now restarted, almost three months of the schedule were deferred due to the crisis. However, we have now been able to reconfigure the programme and have an ambitious 6 month plan in place which includes a mix of surface and underground drilling in the surrounding areas of all three of our current mines. Our objectives in terms of upgrading our current resource base and discovering new potential resources remain intact and we will report on progress at the end of the final two quarters of the year. Our brownfield team also has plans to drill further afield in Peru: at the Corina zone to the north of Selene; at Palca and Cochaloma near to Pallancata; at Selene itself; and at Ares, Arcata and Crespo on the east side of Hochschild's Southern Peru Cluster.

Our greenfield programme has also been impacted but we have recently seen encouraging progress from Snip in British Columbia where our partner Skeena Resources has achieved a maiden resource for the deposit. We look forward to results from the project's second drilling campaign which has now started. Furthermore, third-party exploration work is also due to begin in the United States at the Illipah and Horsethief projects in Nevada, as well as Adamera in Washington state, both subject to the quarantine being lifted.

In Chile, work on our BioLantanidos rare earths project has progressed well notwithstanding a few minor delays resulting from the impact of the Covid-19 crisis in the country. We now have key management personnel in place and are advancing the various work streams including: updating the resource model; progressing the project's permitting; carrying out metallurgical tests and equipment piloting; and completing the plan to engage with the surrounding communities. We remain on track to deliver a feasibility study in the first quarter of 2021.

Financial results

For the reasons discussed above, total Group production was significantly lower versus H1 2019 and consequently, despite a 28% rise in the average gold price achieved and an 8% rise in the silver price, revenue was reduced to $232.0 million (H1 2019: $354.5 million). All-in sustaining costs do not include approximately $22.5 million of fixed costs at the operations incurred during the stoppages and ramp up (presented within Other Expenses) and are also affected by the deferral of sustaining and development capital expenditure to the second half. Therefore the H1 2020 figure of $11.9 per silver equivalent ounce (H1 2019: $11.0 per ounce) is lower than the original guidance. Adjusted EBITDA of $80.6 million (H1 2019: $153.7 million) mostly reflects the reduced production levels whilst pre-exceptional loss per share of $(0.01) (H1 2019: $0.04 earnings per share) also includes the impact of an increase in the income tax arising from the impact of local currency devaluation in Peru and Argentina. Post-exceptional earnings per share was lower at $(0.02) (H1 2019: $0.03 earnings per share) mainly due to the exceptional after tax cost of $4.6 million of Covid-19 response initiatives which are deemed to be exceptional as they are incremental to the Group's regular business, are material impacts and are not expected to be recurring.

Financial position

Our balance sheet remains in a strong position despite the significant impact of the Covid-19 crisis with cash and cash equivalents of $162.1 million at the end of June (31 December 2019: $166.4 million) and net debt of $58.4 million (31 December 2019: $33.2 million).

Outlook

This year has seen precious metal prices continuing the strong rise which started in mid-2019 with fresh impetus coming from the significant fiscal and monetary stimulus initiated by governments and central banks in response to the Covid-19 crisis. Gold has recorded an all-time high recently and silver has reached its highest price level in seven years and we are therefore hopeful of delivering a strong rebound in profitability in the second half of the year provided our people are able to operate safely and experience less disruption. We intend to provide updated guidance when we have assessed the full impact of the suspensions.

We have a very busy second half of brownfield and greenfield activity planned with the aim of adding reserves and resources and identifying new projects for our pipeline. We continue to assess value accretive acquisitions throughout the Americas and are also carrying out development work on our suite of early-stage projects such as Azuca, Volcan and BioLantanidos.

In April, owing to the uncertainty caused by the crisis, the Board decided to withdraw the proposal to pay the 2019 final dividend. With Inmaculada currently still in a ramp-up phase and the Covid-19 crisis continuing to cause uncertainty in the countries where Hochschild operates, the Board has concluded that it would be inappropriate to pay a distribution to shareholders at this time.

OPERATING REVIEW

OPERATIONS

Note: All 2020 and 2019 (restated) silver/gold equivalent production figures assume a gold/silver ratio of 86:1.

Production

In H1 2020, Hochschild delivered attributable production of 126,835 gold equivalent ounces or 10.9 million silver equivalent ounces (on an attributable basis) with the half year impacted by effects of the Covid-19 crisis and the consequent operational stoppage at all three of the Company's mines. The Inmaculada and Pallancata mines were stopped for 11 weeks from 16 March 2020 with operations resuming on 31 May and 1 June respectively whilst the San Jose operation in Argentina stopped for six weeks and resumed on 27 April with a phased ramp-up process which reached 70% capacity during June.

Total group production

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

Attributable group production

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

Costs

All-in sustaining cost from operations in H1 2020 was $1,026 per gold equivalent ounce or $11.9 per silver equivalent ounce (H1 2019: $945 per gold equivalent ounce or $11.0 per silver equivalent ounce), higher than H1 2019 mainly due to the effect of less production resulting from the stoppages impacting administrative expenses and capex in all units and also due to lower grades in Pallancata and San Jose. This was partially offset by local currency devaluation in both Peru and Argentina. These figures do not include fixed costs incurred at the operations during the stoppages as well as abnormal costs during the phases of reduced production capacity. Costs are expected to rise in the second half due to timing in the execution of sustaining and development capital expenditure much of which was deferred due to the stoppages.

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

Inmaculada's first half production was 79,604 gold equivalent ounces (H1 2019: 132,915 ounces) with the reduction due to the cessation of operations for 11 weeks starting in mid-March. Operations were halted again on 6 July 2020 due to a number of cases of Covid-19. In both cases, a reduced workforce performed care and maintenance activities. The Inmaculada team was subsequently retested for the virus and remobilised with production restarting on 28 July although full production will only be reached by the end of August due to ongoing virus-related logistical challenges.

Costs

All-in sustaining costs were at $777 per gold equivalent ounce (H1 2019: $738 per ounce) with fixed costs incurred during the stoppage and ramp-up ($5.7 million) not included in the figure and with key capex items including the tailings dam expansion deferred until the second half of the year. Costs were increased versus H1 2019 due to lower production resulting from the stoppages and lower gold grades partially offset by lower exploration expenses and local currency devaluation.

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 22km to the Selene plant for processing.

Production

In H1 2020, Pallancata's output was 1.8 million silver equivalent ounces (H1 2019: 5.0 million ounces). In addition to the production days lost due to the stoppage, grades, as expected, dropped moderately.

Costs

All-in sustaining costs were at $14.0 per silver equivalent ounce (H1 2019: $12.1 per ounce) with fixed costs incurred during the stoppage and ramp-up not included in the figure ($4.4 million) and with some development and exploration expenditure deferred until the second half of the year. The mining of lower grade areas and less production resulting from the stoppages led to increased costs versus H1 2019, partially offset by local currency devaluation.

San Jose

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

Production

The San Jose operation in Argentina restarted concentrate production on 27 April, although the ongoing countrywide restrictions on the movement of people resulted in the ramp-up being phased over a significant period of time with full production expected to be reached towards the end of the third quarter. The total for the first half of the year was 4.4 million silver equivalent ounces (H1 2019: 7.4 million ounces). In addition, grades were on average lower than H1 2019 due to the logistic restrictions forcing a change in the mining method.

Costs

All-in sustaining costs were at $15.6 per silver equivalent ounce (H1 2019: $13.9 per ounce) with the operation impacted by the effect of lower ounces produced versus H1 2019 despite fixed costs incurred during the stoppage and phased ramp-up not being included in the figure ($11.8 million). In addition, the mining of lower grade areas and higher inflation in the country led to increased costs versus H1 2019, partially offset by local currency devaluation.

EXPLORATION

Inmaculada

In Q1 2020, 4,690m of potential drilling was carried out in the Bety, Lady, Pilar East, Shakira and South veins before the programme was halted in mid-March. Also, 1,204m of resource drilling was executed at the Angela and Ramal 4 veins. After the resumption of operations in the second quarter, a further 1,677m of potential drilling was carried out.

During Q3 2020, the plan is to drill 25,000m to incorporate new resources from the Juliana and Shakira veins.

Pallancata

At Pallancata, 5,145m of potential drilling was executed before the programme was also halted in the first quarter. This included just over 3,000m of long hole drilling from underground towards the Anomalia NE, Royropata, Veta 1, Mercedes, Luisa and Erika veins and 1,880m of drilling tracing the continuity of the Pallancata Vein. In the second quarter, 2,734m of potential drilling was executed targeting the Erika and Luciano veins and again the continuation of the Pallancata vein.  

4,213m of infill drilling was also carried out in the Huararani and Marco areas in the first quarter with results likely to lead to a redefinition of the geology of these structures.

In Q3 2020, the plan is to carry out 6,300m of resource drilling in the Pallancata vein extension and 2,500m of potential drilling towards the Marco vein and the Pablo West zone.

San Jose

At San Jose, 2,889m of potential drilling was executed in before the stoppage in the first quarter in the Micaela Oeste, Emily, Karina and Carlos structures. When exploration restarted in the second quarter, 6,020m of potential drilling was carried out towards the Ayelen, Erika, Mara, Sigmoide Julia, Emilia, Salvador and Micaela Oeste targets. Additionally, during Q2 2020 the Titan geophysics survey was completed.

During Q3 2020, subject to a successful potential drilling programme, 5,000m will be drilled in the Erika vein to add resources.

BIOLANTANIDOS

At the 100% owned Biolantanidos rare earths deposit in Chile, despite minor delays due to Covid-19, progress on the feasibility study has been maintained with key advances made in geology, processing and equipment testing. The project's environmental permitting process has continued to move forward and in addition, further brownfield targets have been identified which are expected to increase the project's resources. Finally, the rare earths dedicated team continues to grow as some key employees have already been added to the Biolantanidos organisation, including Rodrigo Ceballos, the new General Manager.

GREENFIELD AND BUSINESS DEVELOPMENT

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. In H1 2020, there was considerable disruption to the programme from the Covid-19 crisis but exploration work was possible towards the end of the half at: the Cooke Mountain gold project owned by Adamera Minerals Corp in Washington State, United States; the Horsethief project owned by Allianza Minerals Ltd in Nevada; and the Illipah project owned by EMX Royalty Corp also in Nevada.

Snip

At Snip in the Golden Triangle of British Columbia, Hochschild's partner, Skeena Resources Limited, recently achieved a maiden resource at their 100%-owned Snip Gold Project in northwest British Columbia, Canada.

The underground constrained Indicated resources include 244,000 ounces of gold hosted within 539,000 tonnes at an average gold grade of 14.0 g/t Au. Resources within the Inferred category include 402,000 ounces of gold hosted within 942,000 tonnes at an average gold grade of 13.3 g/t Au (Table 1). In the determination of reasonable prospects for economic extraction, long hole stoping is contemplated. Sensitivities to the gold cut-off are presented in Table 2.

Table 1: Snip Indicated and Inferred underground resources reported undiluted at a 2.5 g/t Au cut-off grade within stope optimised mining shapes.

Table 2: Snip Indicated and Inferred Resource sensitivities to block cut-off grade

A technical report will be filed on Skeena's company website within 45 days of the 21 July 2020 press release. Skeena intends to commence drilling at Snip shortly to follow-up on the first campaign from 2019 with the aim of expanding the resource.

In September 2018, Skeena granted Hochschild an option to earn a 60% undivided interest in Snip by spending twice the amount Skeena had spent since it originally optioned Snip from Barrick. Under the Heads of Agreement agreed between Skeena and Hochschild, Hochschild had three years from the closing (by 16 October 2021) to provide notice to Skeena that it wished to exercise its option. Once exercised, Hochschild will have three years to:

· incur expenditures on Snip that are no less than twice the amount of such expenditures incurred by Skeena from 23 March 2016 up until the time of exercise of the Option by Hochschild. As of 30 June 2020, Skeena had incurred C$18.9 million of expenditures at Snip;

· incur no less than C$7.5 million in exploration or development expenditures on Snip in each 12-month period of the Option Period; and

· provide 60% of the financial assurance required by governmental authorities for the Snip mining properties

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 periods. 

Revenue

Gross revenue[6]

Gross revenue from continuing operations decreased by 35% to $238.7 million in H1 2020 (H1 2019: $366.5 million) due to the effects of the production stoppages in the second quarter resulting from the Covid-19 crisis. This was partially offset by a strong rise in the average realised gold price.

Gold

Gross revenue from gold in H1 2020 decreased to $159.2 million (H1 2019: $213.0 million) due to the fall in gold sales of 42% arising from the production stoppages. This was partially offset by a 28% increase in the average realised gold price.

Silver

Gross revenue fell in H1 2020 to $79.5 million (H1 2019: $153.5 million) due to a fall in silver sales of 52% arising from the production stoppages. This was partially offset by an 8% increase 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 H1 2020 and H1 2019:

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 H1 2020, the Group recorded commercial discounts of $6.7 million (H1 2019: $12.1 million) with the decrease explained by the significant reduction in production. The ratio of commercial discounts to gross revenue in H1 2020 was 2.9% (H1 2019: 3.3%).

Net revenue

Net revenue was $232.0 million (H1 2019: $354.5 million), comprising net gold revenue of $156.5 million (H1 2019: $209.5 million) and net silver revenue of $75.5 million (H1 2019: $144.9 million). In H1 2020, gold accounted for 67% and silver for 33% of the Company's consolidated net revenue (H1 2019: gold 59% and silver 41%).

Reconciliation of gross revenue by mine to Group net revenue

Costs

Total cost of sales was $146.9 million in H1 2020 (H1 2019: $252.8 million). The direct production cost excluding depreciation was lower at $89.8 million (H1 2019: $158.4 million) mainly due the stoppages. Also, this does not include $22.5 million of fixed costs at the operations incurred during the stoppages (presented within Other Expenses). Depreciation in production cost decreased to $49.4 million (H1 2019: $90.4 million) due to lower extracted volumes across all operations mainly due to the stoppages and also does not include $1.5 million of depreciation incurred during the stoppages (also presented within Other Expenses). Change in inventories was $7.7 million in H1 2020 (H1 2019: $2.9 million) due to a reduction in products in process.

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $123.0 per tonne in H1 2020, a 7% increase versus H1 2019 ($114.7 per tonne) mainly due to the expected lower tonnage rate at Pallancata.

Unit cost per tonne by operation (including royalties)[7]:

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[9]:

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

All-in sustaining cash costs per silver equivalent ounce

Six months to 30 June 2020

Six months to 30 June 2019

Administrative expenses

Administrative expenses were reduced by 12% to $20.2 million (H1 2019: $23.0 million) primarily due to lower personnel costs and postponed expenses due to the Covid-19 crisis.

Exploration expenses

In H1 2020, exploration expenses decreased to $12.7 million (H1 2019: $18.6 million) mainly due to slower execution of the budgeted greenfield and brownfield programme as a result of the Covid-19 lockdown.

Selling expenses

Selling expenses reduced to $6.0 million (H1 2019: $10.5 million) principally due to the fact that in Argentina, which levies export taxes, the San Jose operation was stopped for a significant period of time.

Other income/expenses

Other income was lower at $1.1 million (H1 2019: $4.5 million) mainly due to a reduction in income from logistics services at the Matarani warehouse.

Other expenses before exceptional items were $27.9 million (H1 2019: $8.8 million) due to fixed costs of $24.0 million at the operations incurred during the stoppages being presented within Other Expenses. In accordance with IAS2 and Hochschild accounting policies, production fixed costs during the stoppage are not directly related to units of production or inventories

Fixed costs at the operations during stoppages and reduced capacity

The increase has been partially offset by the reduction of care and maintenance expenses at Arcata and Ares. In H1 2019, there were more requirements at Arcata due to it being recently placed on temporary care and maintenance. In Ares in H1 2019, similar activity has been reduced in H1 2020.

Adjusted EBITDA

Adjusted EBITDA decreased by 48% to $80.6 million (H1 2019: $153.7 million) primarily due to the fall in revenue due to the operational stoppages necessitated by the Covid-19 crisis and in spite of increased precious metal 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 was $2.1 million (H1 2019: $1.4 million) with the main reason for increase in H1 2020 being increased interest on deposits.

Finance costs

Finance costs increased from $3.5 million in H1 2019 to $5.1 million in H1 2020, principally due to the rise in interest payments resulting from the $50.0 million net increase in debt completed in December 2019 and short term debt taken in Argentina.

Foreign exchange losses

The Group recognised a foreign exchange loss of $1.9 million (H1 2018: $1.1 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 H1 2020.

Income tax

The Company's Group's pre-exceptional income tax charge was $17.4 million (H1 2019: $16.4 million). The slight increase in the charge is explained by the non-cash impact of local currency devaluation in Peru and Argentina in H1 2020 of 7% and 18% respectively, which reduced the tax bases impacting deferred income tax by $9.8 million. The currency devaluation impact on Income tax was partially offset by the decrease in profitability in the period due to Covid-19 related production stoppages.

The effective tax rate (pre-exceptional) for the period was 133.2% (H1 2019: 39.5%), compared to the weighted average statutory income tax rate of 30.7% (H1 2019: 30.5%). The high effective tax rate in H1 2020 versus the average statutory rate is mainly explained by the impact of local currency devaluation increasing the rate by 74.6%, the impact from Royalties and the Special Mining Tax which increased the effective rate by 16.8%, and the impact from lower profit in the period which amplifies the effect of minor non-deductible expenses.

Exceptional items

Exceptional items in H1 2020 totalled a $4.7 million loss after tax (H1 2019: $8.4 million loss after tax). Exceptional items mainly included $6.6 million of Covid-19 response initiatives partially offset by the associated tax effect. These initiatives include: incremental personnel expenses which are mainly one-off bonuses paid to those workers required to oversee critical processes during period of suspension; donations; 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. They are material impacts and are not expected to be recurring. In H1 2019, there was the payment of termination benefits due to the restructuring process generated by the temporary suspension of operations at the Arcata mine unit ($11.9 million), partially offset by its corresponding tax effect.

Covid-19 response initiatives

Cash flow and balance sheet review

Cash flow

Net cash generated from operating activities decreased from $100.5 million in H1 2019 to $16.1 million in H1 2020 mainly due to lower Adjusted EBITDA of $80.6 million (H1 2019: $153.7 million).

Net cash used in investing activities decreased to $37.1 million in H1 2020 from $70.3 million in H1 2019 mainly due to lower operational capex and in particular mine development due to the Covid-19 crisis and resulting stoppages.

Cash generated from/(used in) financing activities increased to an inflow of $18.5 million in H1 2020 from an outflow of $13.8 million in H1 2019. In H1 2020, $19.9 million of short-term loans were raised in Argentina to finance working capital during the stoppage. Also, H1 2019 included $12.2 million in dividends to shareholders and Hochschild's minority shareholder at San Jose.

Working capital

The Group's working capital position in H1 2020 increased by $43.8 million from $(11.6) million to $32.3 million aligned with production stoppages due to Covid-19. The key drivers of the increase were lower trade payables of $42.6 million, lower income tax receivable/(payable) of $12.5 million and lower provisions of $7.4 million. These were partially offset by lower inventories of $10.8 million, lower trade and other receivables of $6.2 million and higher derivative financial liability of $1.6 million resulting from the interest rate swap entered to fix the interest rate of the $200 million medium-term loan. 

Net debt

The Group's reported net debt position was $57.9 million as at 30 June 2020 (31 December 2019: $33.2 million). The increase in net debt is mainly a result of the net increase in current borrowings in Argentina and reduced net cash generation in the period.

Capital expenditure[18]

H1 2020 capital expenditure of $42.8 million (H1 2019: $70.8 million) mainly comprised of operational capex of $38.7 million (H1 2019: $68.1 million) with the decrease versus H1 2019 resulting from deferred capex at all operations due to the Covid-19 crisis.

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.

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.

RISKS

The principal risks and uncertainties facing the Company in respect of the year ended 31 December 2019 are set out in detail in the Risk Management & Viability section of the 2019 Annual Report and in Note 36 to the 2019 Consolidated Financial Statements.

The key risks disclosed in the 2019 Annual Report (available at www.hochschildmining.com) are categorised as:

§ Financial risks comprising commodity price risk and commercial counterparty risk;

§ Operational risks including the risks associated with operational performance, business interruption, information security and cybersecurity, exploration & reserve and resource replacement and personnel risks;

§ Macro-economic risks which include political, legal and regulatory risks; and

§ Sustainability risks including risks associated with health and safety, environmental and community relations.

These risks continue to apply to the Company in respect of the remaining six months of the financial year. 

Covid-19

H1 2020

In response to the Covid-19 pandemic, the Group's Risk Committee compiled a tailored risk matrix which was considered by the Board and identified each critical aspect of the business impacted by the outbreak and which formed the basis of management's mitigation and control plans. A Covid-19 Crisis Committee was established tasked with the day-to-day monitoring of the implementation of these plans.

The table below summarises the framework of the Covid-19 Risk Matrix

Summarised below is how these risks were managed during H1 2020:

§ Workers transported to hometowns for medical examination

§ Remote working facilitated in Peru, Argentina and London before the imposition of formal lockdowns

§ One-off bonuses paid to those workers required to oversee critical processes during period of suspension

§ Health protocols implemented across all operations, co-ordinated by the Covid-19 Crisis Committee. These included:

‒ High-risk employees identified for re-allocation of duties on remote working basis

‒ Testing of all workers for active Covid-19 cases prior to travelling to mine units. Those tested remain in quarantine pending test results. Testing also carried out on the presentation of symptoms and immediate transportation to nearest medical facilities 

‒ Adaptation of physical sites and changes to operational procedures to facilitate social distancing and to treat suspected cases

‒ Reinforced presence of Health teams

§ Installation of increased IT infrastructure with enhanced security

§ Comprehensive communications campaign to ensure all employees were kept informed of developments and to reinforce social distancing measures and good hygiene practices

§ Community Relations strategy refocused on health and education. Initiatives included delivery of over 2,500 hygiene and food packs to employees and local communities

§ Close co-operation with central/provincial governmental authorities which, in both Peru and Argentina, have declared mining as essential for their respective economies.

§ Ongoing dialogue with suppliers and customers

§ Implementation of a Cash Optimisation Plan including the cancellation/postponement of certain operational, administrative and exploration expenditure and the withdrawal of the proposed 2019 final dividend.

§ Ongoing monitoring of counterparty risk with constant communication with customers and evaluating credit ratings of providers of finance.

H2 2020

As the timing of full resumption of the Group's operations remains uncertain due to the ongoing presence of the virus in the countries in which we operate, "Resumption of Operations due to Covid-19" is a new principal risk which has emerged that has been recognised in our Risk Register. The Group has adopted more stringent health protocols in Peru than those mandated by law and, together with the actions described above, has adopted the following measures to mitigate the impact of further disruption to the business.

§ Temporary suspension of Inmaculada

§ The engagement of a specialist contractor to undertake a deep-clean of Inmaculada

§ Change to working shift patterns

§ Development of technology-based systems to (a) report, in real time, suspected cases and to provide daily updates on treatment (b) ensure that working shift changes are undertaken in a Covid-secure manner e.g. by planning hotel room allocations, lab test results and transportation planning

§ The use of a rapid Covid test in conjunction with molecular tests (designed to detect active cases of Covid) for all workers prior to transportation to the mine site; and

§ Establishment of Health brigades to ensure compliance with the Group's Covid protocols.

RELATED PARTY TRANSACTIONS

Related party transactions are disclosed in note 22 to the condensed set of financial statements

GOING CONCERN

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed set of financial statements. For further detail refer to the detailed discussion of the assumptions outlined in the Going concern disclosures in Note 2 "Significant Accounting Policies" of the condensed consolidated financial statements.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The 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 Guidance and Transparency Rules 4.2.7R and 4.2.8R.

A list of current Directors and their functions is maintained on the Company's website.

For and on behalf of the Board

Ignacio BustamanteChief Executive Officer

18 August 2020

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 2020 which comprises the Interim condensed consolidated income statement, the Interim condensed consolidated statement of comprehensive income, the Interim condensed consolidated statement of financial position, the Interim condensed consolidated statement of cash flows, the Interim condensed consolidated statement of changes in equity and the related notes 1 to 24. 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 Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards 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 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLPLondon18 August 2020

Interim condensed consolidated income statement

Interim condensed consolidated statement of comprehensive income

Interim condensed consolidated statement of financial position

Interim condensed consolidated statement of cash flows

Interim condensed consolidated statement of changes in equity