Last checked at 12 Mar 2008 07:01
Hochschild Mining PLC12 March 2008 12 March 2008 Hochschild Mining plc Preliminary Results for the Year Ended 31 December 2007 Financial highlights: - Revenue increased 44% to $305 million - Adjusted EBITDA up 37% to $148 million - Attributable profit for the year after exceptional items more than doubled to $85 million - Pro forma earnings per share after exceptional items up 100% to $0.28 - 100% hedge free at the end of the year allows us to benefit fully from increasing market prices - Contained unit costs (marginal 2.9% increase) at three original operating mines in Peru - Final dividend of 7.2c per share payable on 13 May 2008, totalling $28 million in dividends for 2007 - Strong balance sheet with $301 million cash and cash equivalents and further financial capacity from secured $200 million term loan facility arranged in 2008 Operational highlights: - Achieved production target of approximately 26 million attributable silver equivalent ounces - 16% increase in attributable reserves since 31 December 2006 - Commenced production at three new operations: San Jose (Argentina), Moris (Mexico) and Pallancata (Peru) - Completed capacity expansions at three original operating mines: Arcata, Ares and Selene - Appointment of Miguel Aramburu as Chief Executive Officer - Expansions and project pipeline will compensate lower grades at Ares and Selene - On track to achieve long-term production targets - Strategic investment in Lake Shore Gold Corp. announced in February 2008 Highlights for the year ended 31 December 2007(before exceptional items, unless otherwise indicated)--------------------------------------------------------------------------------US$(000) unless otherwise indicated Year ended 31 Year ended 31 % change Dec 07 Dec 06 (Restated)--------------------------------------------------------------------------------Attributable silverproduction (koz) 13,588 11,604 17%Attributable goldproduction (koz) 201 196 3%Revenue 305,021 211,246 44%Profit fromcontinuing operationsbefore net financeincome/(cost),foreign exchange(loss)/gain andincome tax 103,930 75,975 37%Adjusted EBITDA (1) 147,606 107,549 37%Attributable profit for the yearfrom continuingoperations afterexceptional items 85,073 41,712 104%Pro forma earnings pershare afterexceptional items (2) 0.28 0.14 100%Earnings per shareafter exceptionalitems (statutory) 0.28 0.17 65%-------------------------------------------------------------------------------- (1) Adjusted EBITDA is calculated as profit from continuing operations beforeexceptional items, net finance income/(cost), foreign exchange (loss)/gain andincome tax plus depreciation, amortisation and exploration costs other thanpersonnel and other expenses. 2 In order to present the 2006 EPS figures on a consistent basis with 2007, the2006 figures have been calculated on a pro forma basis. The pro forma earningsper share calculation assumes that the number of Ordinary Shares in issueimmediately after Listing (being 307,350,226) had been in issue from 1 January2006. Eduardo Hochschild, Chairman of Hochschild Mining commented: "The year 2007 was our first full year as a publicly listed company and it was atransformational one. We successfully expanded from three operating mines in onecountry to six operating mines in three countries, while expanding our threeoriginal operating mines and maintaining our focus on responsibility andexcellence. We have met our production and expansion targets, which highlightour ability to execute our growth strategy and create long term profitablegrowth for shareholders." A conference call will be held at 9:00 am (London time) on Wednesday 12 Marchfor the investment market. A copy of the presentation can be found on ourwebsite www.hochschildmining.com under Reports and Presentations. Dial in details as follows:UK +44 (0)20 8515 2301 A recording of the conference call will be available following its conclusion,accessible from the following telephone numbers: UK +44 (0)20 7190 5901 Access code 138609# ___________________________________________________________________________ Enquiries: Hochschild Mining plcWray Barber +44 (0)20 7152 6014Head of Investor Relations Ignacio Rosado +511 437 6007Chief Financial Officer Jose-Augusto Palma +511 317 2026Senior Adviser, Executive Committee FinsburyRobin Walker +44 (0)20 7251 3801Public Relations ___________________________________________________________________________ About Hochschild Mining plc: Hochschild Mining plc (HOCM.L for Reuters / HOC LN for Bloomberg) is a leadingprecious metals company listed on the London Stock Exchange with a primary focuson the exploration, mining, processing and sale of silver and gold. Hochschildcurrently operates five underground epithermal vein mines, four located insouthern Peru and one in southern Argentina and one open pit mine in northernMexico. Hochschild also has one early stage development project in Mexico andfifteen long-term prospects throughout Latin America. Hochschild has over fortyyears experience in the mining of precious metal epithermal vein deposits. For further information please visit www.hochschildmining.com ___________________________________________________________________________ Chairman's statement Strategy for growth We continue to build on our existing operations through exploration andexpansions, and bring into production new profitable projects throughout theAmericas, while maintaining a strong focus on corporate responsibility andexcellence. During 2007, we successfully expanded from three operating mines inone country to six operating mines in three countries. We continue to excel inidentifying value enhancing opportunities consistent with our strategy. Ourentry into Argentina, with the San Jose mine, and Mexico, with the Moris mine,demonstrates our progress towards production growth and diversification intomining friendly jurisdictions. Furthermore, our new Peruvian mine, Pallancata,also creates significant synergies for the Group, leveraging the mill and plantalready in place at the Selene mine only 17 kilometres away. As a result of these important milestones and capacity expansions at ouroriginal operations, we achieved our stated production target for the year ofapproximately 26 million attributable silver equivalent ounces, representing a10% increase on 2006 production. Attributable production for the year amountedto 13.6 million ounces of silver and 201 thousand ounces of gold, a year-on-yearincrease of 17% and 3%, respectively. With the achievements of 2007, our SanFelipe project moving towards feasibility and our strong project pipeline, weare on track to create the operational platform that will allow us to deliverour 2011 production target of 50 million silver equivalent ounces. Our growth strategy remains consistent - we look to continue to strengthen ourinterest in specific geological regions in the Americas by executing a clusterconsolidation strategy and making anchor investments in key mining districts,such as the highlands of Peru, the Argentinean Patagonia and northern Mexico.Our recent strategic investment in Lake Shore Gold Corp., announced in February2008, provides a phased, low-risk entrance into attractive high-grade, long-lifeassets in Canada, another important geological district in the Americas. Delivering strong financial performance Stronger commodity prices, increased production and operational optimisationunderpin our strong set of financial results for the year ended 31 December2007. Revenue from our operations increased 44% in 2007 to $305 million driven by theadditional ounces produced and sustained high commodity prices. Sales of goldand silver increased significantly, up 35% and 51%, respectively. Another significant development in 2007 was the expiry of our forward salescontracts, which means that we are now 100% hedge free and well positioned tobenefit from the continued favourable market environment for precious metals.Had we been hedge free throughout 2007 and 2006, we would have recordedadditional revenue of approximately $16.5 million and $28.7 million,respectively. The high cost inflation associated with inputs into the mining industry impactedour operations during the course of 2007. In particular, demand for contractlabour, fuel, explosives, electricity and cyanide continued to outstrip supply,resulting in escalating prices. Additional industry-wide demand for equipmentalso increased lead times for the delivery of equipment. During 2007 we wereable to mitigate partially these cost increases by capacity expansions andefficiency gains, and we are confident that we will remain one of the lowestcash cost producers in our industry. We continue to enjoy a healthy balance sheet with a current net cash position of$236.8 million which, in conjunction with cash generated from our operations,will allow us to pursue our growth strategy. In the first quarter of 2008 wesecured a $200 million loan facility providing the Group with further financialflexibility. Our continued success in delivering our growth strategy reinforces ourconfidence for the business going forward. With a 100% increase in the pro formaearnings per share (after exceptional items) to $0.28, I am pleased to announcethe declaration of a final dividend of 7.2 cents per share payable on 13 May2008. Exploration success Exploration is a core element of our growth strategy. We have committedsubstantial resources to our exploration and geology programme in order toincrease our reserve and resource base at a low cost per ounce. Further additions to reserves and resources have been achieved at a number ofthe Group's operations and projects, enhancing the life of our operations andsignificantly increasing the net present value of these assets. During 2007, theGroup increased overall attributable reserves net of production by 16%, withsignificant reserve developments at Arcata, Pallancata and San Jose. Life of mine across our operations increased to 3.9 years based on reserves as at 31 December2007, which is a significant achievement given our capacity expansions. Provingup reserves remains a costly exercise in underground mining but we are committedto achieving a 4.0 year minimum reserve life and 4.0 year inferred resource tailat each of our operations except Ares and Moris. By mid-2007 we had confirmed sufficient resources at San Felipe, our keydevelopment project in northern Mexico, to justify advancing this excitingproject towards feasibility stage. We are pleased to report that the feasibilitystudy is progressing according to schedule and we intend to fast track thisproject towards production while undertaking an aggressive exploration campaignto facilitate future expansions and maximise its potential. We are excited about the prospects of the projects in our pipeline and, in orderto enhance the scale and diversity of our asset portfolio, we are committed toremaining the regional partner of choice for junior exploration companies. Management changes With key operational milestones delivered in 2007, and looking beyond our 2011 production target, it is crucial that we have a solid foundation for long-term profitable growth consistent with our strategy. With this in mind, we were delighted to announce, earlier in the year, the appointment of our new Chief Executive Officer, Miguel Aramburu. Miguel brings a wealth of knowledge and experience to his new role and is widely respected by our employees. He leads a professional management team as we continue to implement our growth strategy and prepare for the future. Miguel assumes day-to-day responsibility for the operations of the Group, including exploration projects. In my capacity as Executive Chairman, I shall continue to lead the Board and, in close collaboration with Miguel, shall direct the development of the Group's vision and overall corporate strategy. These changes are indicative of Hochschild's evolution as a public companycommitted to good corporate governance and of its focus on the creation ofshareholder value. Responsible mining We are devoted to maintaining the highest standards of corporate and socialresponsibility. We continue to exert every effort to ensure the safety of allour employees and so it is with deep regret that I report four onsite fatalitiesin 2007. The Board has taken steps to support the families of those involved andhas addressed the underlying safety deficiencies that led to the occurrence ofthese tragic events. A team of industry consultants has been commissioned to undertake acomprehensive review of the Group's health, safety and environmental proceduresto ensure that all sites are operating to the highest standards. The Group ismaking progress in implementing the recommendations made as we strive to achieveour goal of zero fatalities. Outlook Thus far in 2008 we have seen a strong increase in gold and silver prices upapproximately 17% and 37%, respectively. We remain positive on the fundamentalsfor silver and gold given continued U.S. dollar weakness, heightenedgeopolitical tensions, depleted above ground stocks and increasing investmentdemand. In addition to macroeconomic drivers, we believe that industrial demandfor silver will remain strong in 2008 and will reflect positively on its price. As outlined in January, our 2008 attributable production target is 26 millionsilver equivalent ounces, comprising approximately 16.9 million ounces of silverand 153 thousand ounces of gold. This plateau in 2008 production is principallydriven by lower grades at Ares and Selene. While we expect industry cost inflation to continue in general and foreignexchange to be a potentially negative factor in a weak U.S. dollar environment,we anticipate that our average cash cost per tonne in 2008 for our fiveunderground operations will be at or below 2007 levels. This is primarily aresult of an increase in tonnage treated at Arcata, San Jose and Pallancata andcontinued cost reduction efforts. With the achievements of 2007, our San Felipe project moving towards feasibilityand our strong project pipeline, we are on track to create the operationalplatform that will allow us to deliver our 2011 production target of 50 millionsilver equivalent ounces with incremental growth in 2009 and a major step up in2010 when San Felipe is expected to begin operations. On behalf of the Board, I would like to take this opportunity to thank ouremployees for their hard work, enthusiasm and commitment to the business overthe past year. Eduardo HochschildExecutive Chairman Operational & Exploration Review Summary In-line with initial guidance, attributable production for the year amounted to13.6 million ounces of silver and 201 thousand ounces of gold, a year-on-yearincrease of 17% and 3%, respectively. We were able to achieve our productiontarget by expanding our three original mines, Ares, Arcata and Selene and bybringing into production three new mines, San Jose (Argentina), Moris (Mexico)and Pallancata (Peru). Notwithstanding certain setbacks at Selene we remainconfident of achieving our long-term production targets. Exploration remains at the core of our business as we seek to expand ourexisting operations and develop our project pipeline through the discovery ofnew deposits. During 2007 we successfully expanded our attributable reserves andresources ounces net of production by 16% and 12%, respectively on a silverequivalent basis, which allows us to expand further capacity during 2008. Inaddition, as a result of higher commodity prices we have increased our cut-offprices for calculating reserves and resources. We continue exploring and seeking new opportunities in various countries(Argentina, Canada, Chile, Mexico and Peru) to increase our project pipeline.Highlights from this programme are the incorporation of resources from the SanFelipe project in Mexico and the positive drilling results through interceptswith mineable widths during the last quarter of 2007 at the Azuca project inPeru, where we expect to develop new resources in 2008. Peru Arcata Production and sales (total): Year ended 31 Year ended 31 % change December 2007 December 2006 -------------------------------------------------------------------------------- Ore production(tonnes) 415,400 313,688 32%Average headgrade silver(g/t) 560.04 536.62 4%Average headgrade gold(g/t) 1.43 1.39 3%Concentrateproduced(tonnes) 16,665 12,407 34%Silver gradein concentrate(kg/t) 12.12 11.90 2%Gold grade inconcentrate(kg/t) 0.03 0.03 0%Silverproduced (oz) 6,553 4,754 38%Gold produced(oz) 16.48 11.89 39%Silver sold(oz) 6,544 4,046 62%Gold sold (oz) 15.50 9.80 58%-------------------------------------------------------------------------------- Arcata, our flagship mine, enjoyed another successful year underpinned by recordproduction growth. In 2007 we realised a 38% and 39% increase in silver and goldproduction, respectively. This increase was the result of increased productionand throughput at the plant coupled with consistent grades and recoveries. In the second quarter of 2007, we installed a high efficiency separating systemwhich increased the plant capacity from 350 ktpa to 420 ktpa. Due to favourableexploration results and our ability to grow reserves, we decided to bringforward the capacity expansion (from 420 ktpa to 618 ktpa), which was initiallycontemplated for 2009 to the third quarter of 2008. The ball mill has beensecured, key materials have all been ordered and civil engineering work isunderway. This expansion is expected to be completed by the third quarter of2008. During 2008 we will continue to advance the underground workings around the newMariana Ramp in order to sustain further plant expansions. Our intention is todevelop approximately 18,841 metres of underground workings in and around thisarea. Historically we have sold all the Arcata concentrate to Met-Mex Penoles S.A. deC.V. ("Penoles"), the contract with whom expires in 2008. Given the additionalconcentrate produced at Arcata in 2007, we entered into new contracts withConsorcio Minero S.A. ("Cormin") and Traxis North America LLC ("Traxis") for theexcess concentrate. For 2008, we have secured contracts with Penoles, Doe RunPeru SRL, Traxis and Cormin for a majority of the production budgeted for 2008,albeit on less favourable terms due to increased competition in the concentratemarket. We are working on securing additional contracts to offtake the remainingproduction. Exploration: --------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 -------------------------------------------------------------------------------- Resources 3.58 mt @ 526 2.76 mt @ 590 g/t Ag & 1.41 g/t Ag & 1.55 gt/ Au gt/ Au--------------------------------------------------------------------------------Resource (moz Ag eq) 70.3 60.6 16%---------------------------------------------------------------------------------Reserves 1.84 mt @ 476 1.23 mt @ 442 g/t Ag & 1.19 g/t Ag & 1.22 gt/ Au gt/ Au--------------------------------------------------------------------------------Reserve (mozAg eq) 32.4 20.4 59%-------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag We continue to increase reserves and resources in the Mariana, Julia, Michelle,Soledad and Ramal Marion veins with 37,505 metres drilled in 144 drill holes in2007. During 2007 exploration and development focused mainly on the Mariana Veinand on the Michelle, Soledad and Marion-branch secondary structures. Explorationpotential is open at depth and along strike for these veins. The Mariana, Julia, Ramal 2 and Ramal Marion Veins together comprise 70% of allmeasured and indicated reserves for the Arcata unit. Resources also have beenidentified in a considerable number of smaller secondary ore bodies, inparticular those located in the NW-SE trending structure between Ramal Marionand Ramal 2. The 2008 exploration programme contemplates adding new reserves and resources inthese veins as well as exploring new targets north of the Alexia structurethrough underground workings and drilling. Ares Production and sales (total): Year ended 31 Year ended 31 % change December 2007 December 2006 --------------------------------------------------------------------------------Ore production(tonnes) 333,800 289,138 15%Average headgrade silver(g/t) 279.25 310.61 (10%)Average headgrade gold(g/t) 14.57 17.37 (16%)Dore producedtotal (Koz) 2,593 2,850 (9%)Silverproduced (koz) 2,701 2,688 0%Gold produced(koz) 149.98 155.50 (4%)Net silversold (koz) 2,880 2,651 9%Net gold sold(koz) 157.77 152.9 3%-------------------------------------------------------------------------------- In January 2007 we finalised the capacity increase which took the plant from 280ktpa to 333 ktpa. As a result of lower grades mined, silver production was flatand gold production decreased 4% during the year. As anticipated, the average grade at the Ares mine is declining due to the agingand geological nature of the deposit. In addition, as a result of highercommodity prices we have increased our cut-off prices for silver and goldreserves. This has allowed us to lengthen the reserve life by including marginalore which would have been uneconomical to mine in a lower price environment, buthas the effect of lowering the average reserve grade. In our 2007 Q4 ProductionReport we stated that during 2008 we intend to mine at a grade of 6.4 g/t goldand 165 g/t silver, which is generally consistent with our policy and industrystrategy of mining average reserves grades. At Ares, we produce a gold/silver dore all of which will be sold to JohnsonMatthey in 2008. Exploration: --------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 --------------------------------------------------------------------------------Resources 0.96 mt @ 191 0.91 mt @ 248 g/t Ag & 5.89 g/t Ag & 9.99 gt/ Au gt/ Au--------------------------------------------------------------------------------Resource (mozAg eq) 16.8 24.9 (32%)--------------------------------------------------------------------------------Reserves 0.84 mt @ 183 0.85 mt @ 235 g/t Ag & 5.94 g/t Ag & 9.77 gt/ Au gt/ Au--------------------------------------------------------------------------------Reserve (mozAg eq) 14.6 22.3 (34%)--------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag Replacement of high ore grade in splays and tensionals of the Victoria VeinSystem continues. During 2007 we drilled 2,855 metres in 7 drill holes inVictoria Noreste and Paola Veins. Additionally, at the Victoria Vein System,which hosts 33% of all measured and indicated resources for the Ares mine 1,246metres of underground workings were developed for conversion to reserves. Theremainder of the resource base has been estimated in 53 separate minor orebodies, none of which individually contains more than 11% of the measured andindicated resources. The largest resource component after the main Victoria Veinore body comprises 39 small ore bodies which form part of the overall VictoriaVein structure. They are generally parallel or sub-parallel to the main vein andin many cases these are very close to, or in contact with, sectors of the mainvein. We have been able to replace tonnes mined at Ares, albeit at lower grades, butin the absence of a significant discovery, management believe that beyond 2011,under current conditions, the ore may no longer be economical for extraction. During the latter part of 2007, a comprehensive compilation of all the regionalgeological data was conducted for the Ares district with the assistance ofexternal consultants. During the first half of 2008, we will be evaluating thepotential for additional targets that will be drilled during the second half ofthe year. Selene Production and sales (total): Year ended 31 Year ended 31 % change December 2007 December 2006 --------------------------------------------------------------------------------Ore production(tonnes) 413,622 359,686 15%Average headgrade silver(g/t) 295.79 397.76 (26%)Average headgrade gold(g/t) 2.01 2.85 (29%)Concentrateproduced(tonnes) 4,010 3,842 4%Silver gradein concentrate(kg/t) 26.83 33.70 (20%)Gold grade inconcentrate(kg/t) 0.17 0.23 (28%)Silverproduced (koz) 3,414 4,162 (18%)Gold produced(koz) 21.62 28.34 (24%)Net silversold (koz) 3,644 3,705 (2%)Net gold sold(koz) 22.03 26.9 (18%)-------------------------------------------------------------------------------- During 2007, production was primarily (97%) from the Explorador and Ramal Surore bodies which form part of the same Explorador Vein System. Minor productionwas sourced from the Sofia and Tumiri Veins. In contrast to our other operations, Selene is a mine where the vast majority ofproduction comes from one vein with limited mining alternatives. Over the courseof 2007, we encountered an increasingly impoverished area in the vein whichresulted in declining grades throughout the year. We envisage processingapproximately 300 ktpa of ore from Selene in 2008 and mining grades of 1.6 g/tgold and 230 g/t silver. However, we have drill intercepts at depth indicatinghigher grade ore over mineable thickness at the central and northeast shoots ofthe Explorador Vein. As planned, we completed the plant expansion at Selene during the third quarterof 2007 increasing capacity from 350 ktpa to 700 ktpa to accommodate the orefrom Pallancata. On the back of a successful exploration programme atPallancata, we subsequently decided to increase further the plant capacity atSelene to 1,059 ktpa by the fourth quarter of 2008. As a result of the decline in grades, we will reduce throughput at Selene in2008 in order to develop additional underground workings and access tunnels tothe vein system. Our 2008 development programme involves advancing 2,090 metresof underground workings and building an additional 15 stopes in the mine. Webelieve these efforts coupled with an extensive exploration campaign will allowit to better manage different quality ore to extract the average reserve grade,as well as achieving greater visibility of future grades of the mine. Approximately 63% of the silver-gold concentrate is converted to dore at theAres plant and is sold to Johnson Matthey according to contracts already inplace for 2008. The remaining concentrate from 2008 will be sold to Teck ComincoMetals Ltd ("Teck"). Exploration: --------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 --------------------------------------------------------------------------------Resources 1.79 mt @ 241 1.76 mt @ 329 g/t Ag & 1.34 g/t Ag & 1.93 gt/ Au gt/ Au--------------------------------------------------------------------------------Resource (mozAg eq) 18.5 25.2 (26%)--------------------------------------------------------------------------------Reserves 0.81 mt @ 269 0.87 mt @ 309 g/t Ag & 1.68 g/t Ag & 2.22 gt/ Au gt/ Au--------------------------------------------------------------------------------Reserve (mozAg eq) 9.6 12.3 (22%)-------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag We continue to deepen the Fenix Ramp and further develop the Tumiri Vein. During2007 35,497 metres of diamond drilling were executed in 150 drill holes withsignificant drill intercepts in the Laguna, Explorador and Tumiri veins. TheExplorador Vein system represents 34% of all measured and indicated resourcesfor the Selene unit. Resources also have been identified in generally smallsecondary ore bodies closely associated with the Explorador Vein, within theTumiri-Sofia Vein system which is oblique to and truncates the Explorador Vein,and in a number of outlying veins located at distances up to 700 metres from theprincipal veins. At the Tumiri and Explorador veins, 1,175 metres of underground workings weredeveloped for conversion to reserves. During 2007 we identified potential for high-sulfidation type epithermalmineralisation at Huachuhuilca district located approximately 15 kilometres fromSelene. However, we had to scale back the drill programme for developing newresources at Selene due to ongoing negotiations with the community of Pampamarcain 2007. Consultations with the community are underway and we expect afavourable outcome by the second quarter of 2008. The 2008 exploration programme comprises 2,090 metres of underground workingsand 18,250 metres of drilling at Huachuhuilca, Cuello and Pacapausa. Pallancata Production and sales (total): Year ended 31 December 2007--------------------------------------------------------------------------------Ore production (tonnes) 78,335Average head grade silver (g/t) 310.02Average head grade gold (g/t) 1.49Concentrate produced (tonnes) 638Silver grade in concentrate (kg/t) 34.28Gold grade in concentrate (kg/t) 0.13Silver produced (koz) 704Gold produced (koz) 2.76Net silver sold (koz) 550Net gold sold (koz) 2.03-------------------------------------------------------------------------------- On 18 September 2007 we announced the commencement of production at Pallancata(60% Hochschild, 40% International Minerals) at an initial rate of 180 ktpa.This achievement exemplifies the Group's ability to leverage its existingoperations to bring into production new profitable projects in the region. ThePallancata ore is transported to the Selene plant via a 22 kilometre road andshares the plant's capacity. Production from the Pallancata mine has been from two vein structures only, VetaOeste and Cimoide, the former contributing 82% of the total. Both of these veinstructures and the other ore bodies and veins which presently contribute to thetotal resources, all form part of the major Pallancata Vein System. In order to fully benefit from the increasing resource at Pallancata, the Grouphas decided to increase throughput with the intention of processingapproximately 500 ktpa during 2008, which is dependent on completion of theplanned expansion of the Selene plant. The Pallancata ore will be sold in the form of a silver-gold concentrate whilethe possibility of converting it to dore is being evaluated. We have signed anew one year contract with Teck for nearly all of the forecasted 2008production. Exploration: --------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 --------------------------------------------------------------------------------Resources 3.22 mt @ 397 1.87 mt @ 399 g/t Ag & 1.42 g/t Ag & 1.53 gt/ Au gt/ Au--------------------------------------------------------------------------------Resource (mozAg eq) 49.9 29.5 69%--------------------------------------------------------------------------------Reserves 2.13 mt @ 289 1.31 mt @ 273 g/t Ag & 1.24 g/t Ag & 1.08 gt/ Au gt/ Au--------------------------------------------------------------------------------Reserve (mozAg eq) 24.9 14.3 74%-------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag In 2007 we drilled 20,626 metres in 77 drill holes and developed 368 metres ofunderground workings on the Pallancata Central Vein. We continue to deepen theSanta Angela and Orion ramps and future exploration targets exist around theMariana, Mercedes and San Javier structures. The noticeable increase in reserves and resources has resulted from wider thanexpected mineralised structures intercepted in drill holes and undergroundworkings in Pallancata Central and Oeste, respectively. The Veta Oeste ore body,comprising two ore zones presently, accounts for 99% of the total measured andindicated resources. Resources also have been identified in a number of veinstructures adjacent to the Pallancata Vein System, which occur as sub-parallelor oblique ore bodies. Drilling at the Mariana and Mercedes veins has identified potentialmineralisation that will be the subject of further work in 2008. In 2008, theexploration programme also includes 1,320 metres of tunneling for reservedevelopment at Pallancata central and completion of the district geology. Argentina San Jose Production and sales (total): Year ended 31 December 2007--------------------------------------------------------------------------------Ore production (tonnes) 92,974Average head grade silver (g/t) 538Average head grade gold (g/t) 7.08Silver produced (koz) 958Gold produced (koz) 14.96Net silver sold (koz)(1) 92Net gold sold (koz) (1) 1.49-------------------------------------------------------------------------------- (1) Total ounces of gold and silver sold include 0.86 koz and 42 koz respectively,that were produced during the construction phase of the plant and hence thecorresponding revenue has been recorded as a reduction to the capitalised costof the plant We commenced production at San Jose in the second quarter of 2007 representingthe Group's successful entry into a new country, Argentina. With a workforce ofover 500 people, fully ramped-up operation and a consolidated land package inthe Argentinean Patagonia, we are excited about this new operation and expectstrong operational and financial performance in the future. We continue tobelieve Argentina offers an enabling environment for foreign investment inmining although we will continue to monitor policy changes closely. As disclosed in our 2007 Q3 Production Report, we experienced delays in theinitial ramp up of the San Jose plant due to technical issues with the mill andflotation process, difficulty with the intensive leaching process which is usedto turn the concentrate into dore and the impact of severe weather conditions inAugust. We are pleased to report that during the fourth quarter of 2007 theplant reached full capacity of 265 ktpa and currently operates at that level. While the plant is operating at full capacity, we continue to experience somedifficulty with the intensive leaching process. We are currently undertakingre-engineering work in order to improve the cyanide detoxification process. Weexpect these complications to be resolved during the first half of 2008. We had significant exploration success at San Jose and for this reason we planto expand the San Jose plant during the third quarter of 2008 increasing itscapacity from 265 ktpa to 530 ktpa. The Board has approved doubling capacity atthe plant, and we will produce both dore and concentrate at the San Jose mine,until we resolve difficulties with the intensive leaching process after which wewill produce 100% dore. We have contracts in place to sell the dore to Argor Heraeus S.A., a licensedtrader, smelter and assayer based in Switzerland. We also have contracts withNorddeutsche Affinerie AG for the sale of the concentrate production and are innegotiations with several other refineries. We have already ordered the critical equipment for the expansion, including anew ball mill, flotation cells, pumps, a thickener, a filtering system and acrusher. We are in the process of installing additional generators to power theincremental plant capacity while we work to connect the operation to thenational grid. We have tendered the equipment, electric towers and transformersand have commenced construction of the electric line. We believe that the movefrom the use of generators to the national grid will provide significant costsavings. The preparation and exploitation of the Frea and Huevos Verdes vein continues,as well as the development of the Kospi vein where 173 metres have beendeveloped. Exploration: ---------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 --------------------------------------------------------------------------------Resources 1.59 mt @ 473 1.07 mt @ 530 g/t Ag & 7.09 g/t Ag & 8.50 gt/ Au gt/ Au--------------------------------------------------------------------------------Resource (mozAg eq) 45.9 35.9 28%--------------------------------------------------------------------------------Reserves 1.37 mt @ 403 1.00 mt @ 450 g/t Ag & 6.01 g/t Ag & 7.21 gt/ Au gt/ AuReserve (mozAg eq) 33.7 28.3 19%-------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag In 2007 we drilled approximately 28,585 metres through 112 drill holes anddrifted 641 metres along the Frea Vein, which increased our resources andreserves by 28% and 19%, respectively. During 2007 the increase in reserves was mainly from the Frea and Kospi veinswhile the important resource increment came from the Frea, Odin and Ayelenveins. Significant mineralised potential exists along strike and at depth overall the above structures. During 2008 our exploration efforts will focus on surface work, re-mapping,compiling and integrating the district data (115 km2) to define new drilltargets. We will continue to drill the San Jose property throughout 2008 albeitto a lesser degree with a 4,000 metres drill campaign currently contemplated. Mexico Moris Production and sales (total): Year ended 31 December 2007--------------------------------------------------------------------------------Ore production (tonnes) 338,304Average head grade silver (g/t) 4.69Average head grade gold (g/t) 1.65Silver produced (koz) 13Gold produced (koz) 5.58Net silver sold (koz)(1) 6Net gold sold (koz)(1) 3.26-------------------------------------------------------------------------------- (1) Total ounces of gold and silver sold include 2.8 koz and 4.5 koz, respectively,that were produced during the construction phase of the plant and hencecorresponding revenue has been recorded as a reduction to the capitalized costof the plant. On 13 August 2007 we announced the commencement of production at Moris which marked another important milestone and our successful entry into a third country, Mexico. Moris is a relatively small operation; however, it has provided a stepping stone into Mexico, a strategic mining country for the Group's long-term growth strategy. Although Moris is currently operating an open pit mine, we continue to drill and explore the underground potential of the surrounding 9,889 hectares, with our partner EXMIN Resources Inc. Exploration: --------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 --------------------------------------------------------------------------------Resources 2.44 mt @ 5 g/t 3.27 mt @ 4 g/t Ag & 1.33 gt/ Au Ag & 1.3 gt/ Au -------------------------------------------------------------------------------- Resource (mozAg eq.) 6.6 8.6 (23%)--------------------------------------------------------------------------------Reserves 1.77 mt @ 5 g/t 2.04 mt @ 4 g/t Ag & 1.50 gt/ Ag & 1.51 gt/ Au AuReserve (mozAg eq.) 5.4 6.2 (13%)-------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag During 2007 we advanced exploration efforts at Moris, drilling 335 metres todefine a potential on the old leach pad, incorporating 29,178 ounces gold toproduction. San Felipe San Felipe is an underground mine located in northern Sonora, Mexico andconsists of ten mining concessions covering a total of approximately 14,498hectares. The property is currently owned by Grupo Serrana, S.A. de C.V. andHochschild has the option to acquire up to 70% of all mining rights andownership of the property through a joint venture vehicle. To acquire this 70%interest, the Group must invest $33.3 million in the property by 13 May 2011. Todate we have invested $0.7 million. San Felipe is a significant project for the Group and is currently undergoing afeasibility study. We have undertaken an extensive drilling programme in 2008,and remain confident about the upside potential at the property, which isscheduled to commence production in 2010. Verification drilling has indicatedattributable resources of 1.91 million tonnes of resources, primarily at LaVentana, with 7.32% zinc, 71 g/t silver, 3.19% lead, 0.41% copper. The goal isto realize at least four million tonnes of total indicated resources by thethird quarter of 2008. We have hired external consultants MTB Project Management Professionals Inc. asproject managers for the feasibility study of the project. The team ofprofessionals involved in the project includes M3 Engineering & TechnologyCorp., Vector Engineering and Mine Development Associates. Once completed, the feasibility study will be presented to the Board forapproval. In the meantime, we are taking steps to ensure that the necessaryinfrastructure is in place to commence production as planned in 2010, involvingplant and mill design, permitting and construction of the exploration ramp. This joint venture agreement also includes two other nearby projects El Gachiand Moctezuma that consist of fourteen mining concessions covering a total ofapproximately 2,247 hectares. Exploration: --------------------------------------------------------------------------------Stated on an attributable basis As at As at % change 31 December 31 December 2007 2006 --------------------------------------------------------------------------------Resources 1,91 mt @ 7.16% 1.89 mt @ 6.75% Zn & 3.16% Pb & Zn & 3.18% Pb & 0.39% Cu & 68 0.37% Cu & 71 g/t Ag & 0.02 g/t Ag & 0.02 g/t Au g/t Au--------------------------------------------------------------------------------Resource (mozAg eq) 19.3 17.5 11%-------------------------------------------------------------------------------- Notes: contains only the percentage of reserves or resources attributable to ourownership in the mine/project; resources are inclusive of reserves; reserves andresources are reported according to the JORC code developed by the AustralasianJoint Ore Reserves Committee; Gold/Silver equivalency: 1oz Au= 60oz Ag El Gachi Together with the San Felipe joint venture, we have acquired rights on the ElGachi project (1,500 hectares) located 70 kilometres northeast from San Felipe.El Gachi was explored by Anaconda Chile S.A. (now Antofagasta Minerals S.A.) andPenoles in the 1960s and 1970s and under exploration by Serrana during the1990s. Unverified historic information indicates grades of 250 to > 900 g/tsilver and greater than 15% combined lead and zinc. We presently envisage apotential ore body ranging from a minimum of two metres to upwards of eightmetres at similar grades. In 2007 we reviewed the existing information and mapped the area (surface andunderground). Apart from the El Gachi mine target, three new targets wereidentified in the surface mapping, all four aligned in a NNW direction. Aninitial drill programme to fast track this high grade silver and base metalproject has been designed for 2008. Azuca Azuca is a 100% owned early stage development project in southern Peru locatedapproximately 80 kilometres from Selene and Arcata. Diamond drilling during 2007confirmed the lateral and vertical extension of the western ore-shoot and alsorecognized a new mineralised shoot to the east. The 2007 drilling resultsinclude 2.6 metres at 1.46 g/t Au, 336 g/t Ag (west shoot) and 0.7 metres at 5.7g/t Au, 1,420 g/t Ag (east shoot). These intersects, summed to those fromprevious drill campaigns suggest a mineralised potential between 1.0 to 1.5million tonnes with 300 g/t Ag and 1.6 g/t Au. First half of 2008 drilling willfocus on converting this potential into inferred resources, which should then betransformed into measured and indicated categories during the second half of2008. Given the proximity of the Azuca project to our existing operations, weenvisage leveraging the infrastructure already in place at Arcata and Selene inorder to process the Azuca ore, should the project advance to an operationalstage. Financial Review: Key performance indicators: (before exceptional items, unless otherwise indicated)--------------------------------------------------------------------------------US$(000) unless otherwise indicated Year ended 31 Year ended 31 % change December 2007 December 2006 (Restated)--------------------------------------------------------------------------------Attributablesilverproduction(koz) 13,588 11,604 17%Attributablegoldproduction(koz) 201 196 3%Cash costs($/oz Agco-product) (1) 3.94 3.63 9%Cash costs($/oz Auco-product)(1) 190 156 22%AdjustedEBITDA (2) 147,606 107,549 37%Earnings pershare (proforma) (3) $0.27 $0.15 75%Cash flow fromoperatingactivities 21,404 94,023 (77%)of mine(years) 3.9 3.7-------------------------------------------------------------------------------- (1) Cash costs are calculated to include cost of sales, treatment charges, andselling expenses less depreciation included in cost of sales (2) Adjusted EBITDA is calculated as profit from continuing operations beforeexceptional items, net finance income/(cost), foreign exchange (loss)/gain andincome tax plus depreciation, amortisation and exploration costs other thanpersonnel and other expenses. (3) In order to present the 2006 EPS figures on a consistent basis with 2007, the2006 figures have been calculated on pro forma basis. The pro forma earnings pershare calculation assumes that the number of Ordinary Shares in issueimmediately after Listing (being 307,350,226) had been in issue from 1 January2006. The reporting currency of Hochschild Mining plc is U.S. dollars. In ourdiscussion of financial performance we remove the effect of exceptional items,unless otherwise indicated, and in our income statement we show the results bothpre and post such exceptional items. Exceptional items are those items, whichdue to their nature or the expected infrequency of the events giving rise tothem, need to be disclosed separately on the face of the income statement toenable a better understanding of the financial performance of the Group andfacilitate comparison with prior years. Dividends The Directors recommend a final dividend of 7.2c per share amounting to $22.2million. This amounts to a full year dividend of 9.2c per share which representsone third of the Company's attributable profit for the year post exceptionalitems. Dividend dates 2008--------------------------------------------------------------------------------Ex-dividend date 16 AprilRecord date 18 AprilDeadline for return of currency election forms 22 AprilPayment date 13 May-------------------------------------------------------------------------------- As stated at the time of the Listing, the Company's dividend policy takes intoaccount the profitability of the business and underlying growth in earnings ofthe Company, as well as its capital requirements and cash flows, whilemaintaining an appropriate level of dividend cover. Interim and final dividendswill be paid in the approximate proportions of one-third and two-thirds of thetotal annual dividend, respectively. Dividends will be declared in U.S. dollars. Unless a shareholder elects toreceive dividends in U.S. dollars, they will be paid in pounds sterling with theU.S. dollar dividend being converted into pound sterling at exchange ratesprevailing at the time of payment. Revenue The Group's full year revenue from continuing operations increased 44% to $305.0million (2006: $211.2 million) due to an increase in gold and silver ounces soldand higher commodity prices. Silver: Revenue from silver increased 51% in 2007 to $178.8 million (2006:$118.1 million). This change reflects a higher realised silver price (up 15%)and a 32% increase in silver ounces sold. Total net silver ounces sold were13,717 koz in 2007 (2006: 10,403 koz). In 2007 revenue from silver accounted for59% of consolidated revenue compared to 56% in 2006. Gold: Revenue from gold was up 35% in 2007 to $125.2 million (2006: $92.5million). This change in gold revenue was driven by an increase in therealisable gold price (up 30%), coupled with a slight increase of gold ouncessold. Total net ounces of gold sold were 202 koz in 2007 (2006: 190 koz). In2007 revenue derived from the sale of gold accounted for 41% of consolidatedrevenue compared to 44% in 2006. Revenue by mine:US$(000) unless otherwise indicated Year ended 31 Year ended 31 % change December 2007 December 2006 --------------------------------------------------------------------------------Silver revenue--------------------------------------------------------------------------------Arcata 85,005 48,455 75%Ares 38,078 23,168 64%Selene 47,280 46,513 2%Pallancata 7,712 - n.m.San Jose 739 - n.m.Moris 26 - n.m.Total silverrevenue 178,840 118,138 51% --------------------------------------------------------------------------------Gold revenue--------------------------------------------------------------------------------Arcata 10,774 5,975 80%Ares 97,469 69,199 41%Selene 14,471 17,199 (16%)Pallancata 1,658 - n.m.San Jose 530 - n.m.Moris 348 - n.m.Sipan - 77 n.mTotal goldrevenue 125,250 92,451 35%Other (1) 931 657 42%Total revenue 305,021 211,246 44%-------------------------------------------------------------------------------- (1) Other revenue includes revenue from base metal components in the concentratesold from the Arcata mine and services rendered Forward sale contracts We had a number of legacy forward sales contracts in place for both silver andgold which were entered into as part of the security package for a loan facilityin 2003, the last of which expired in June 2007. The ounces covered by theseforward sales contracts, and the sale prices, are outlined in the table below: 2007 2006--------------------------------------------------------------------------------Silver sales hedged (koz) 772 2,240Gold sales hedged (koz) 60 97Silver fixed price ($/oz) $10.7 $11.4Gold fixed price ($/oz) $418 $487-------------------------------------------------------------------------------- We are currently 100% hedge free and the Group's corporate policy is not tohedge exposure to the underlying commodity prices for silver and gold. Average sale prices realised 2007 2006 % change--------------------------------------------------------------------------------Silver ($/oz) $13.08 $11.36 15%Gold ($/oz) $634 $487 30%-------------------------------------------------------------------------------- Costs The high cost inflation associated with inputs into the mining industry impactedour operations during the course of 2007. In particular, demand for contractlabour, fuel, explosives, electricity and cyanide continued to outstrip supply,resulting in escalating prices. Additional industry-wide demand for equipmentalso increased lead times for the delivery of equipment. During 2007 we wereable to mitigate partially these cost increases by capacity expansions andefficiency gains, and we are confident that we will remain one of the lowestcash cost producers in our industry. In 2006 we operated three mines, Arcata, Ares and Selene in southern Peru at aweighted average cost of $59.10 per tonne (excluding depreciation, certainoperating expenditure not directly related to production and workers profitsharing). In 2007 the weighted average cost per tonne for these three mines was$60.81 per tonne, a marginal increase of 2.9%year-on-year. When taking into account the Group's two new underground mines, San Jose andPallancata, the weighted average cost per tonne increased 18% year-on-year to$69.69 per tonne. This increase was the result of higher costs at San Joseduring the initial ramp up phase of the mine. We exclude the cost per tonne from the Moris mine in our weighted average costcalculation as it is an open pit mine with a different operational and costprofile than our underground operations. The weighted average cost per tonne atMoris for 2007 was $18.42, slightly higher than initially anticipated. As explained in our Q4 2007 Production Report, we anticipate that our averagecash cost per tonne in 2008 for our five underground operations will be at orbelow 2007 levels. This is primarily a result of an increase in tonnage treatedat Arcata, San Jose and Pallancata and cost reduction efforts. Administrative expenses Administrative expenses totalled $69.2 million, up 89% in 2007 as compared to2006 (2006: $36.6 million). This increase was mainly due to additional personnelexpenses resulting from personnel hired for our new operations, the Londonoffice and corporate staff to create the platform for future growth, increase inworker's profit sharing due to increase in profits and directors' incrementalremuneration. In addition to personnel expenses, consulting fees increased as aresult of accounting and legal advice and tax consulting services some of whichwill be non-recurring items in the future. We believe this increase represents a step change in overhead expenses and is areflection of the incremental costs associated with being a public company aswell as being the result of having diversified into new countries. We areconfident that the Group now has in place the appropriate infrastructure to meetits medium-term growth objectives. Profit from continuing operations before exceptional items, net finance income/(cost), foreign exchange (loss)/gain and income tax and Adjusted EBITDA Profit from continuing operations before exceptional items, net finance income/(costs), foreign exchange (loss)/gain and income tax increased 37% to $103.9million (2006: $76.0 million). Adjusted EBITDA reconciliation:US$(000) unless otherwise indicated Year ended 31 Year ended 31 % change December 2007 December 2006 --------------------------------------------------------------------------------Profit from continuing operationsbefore exceptional items netfinance income/(cost), foreignexchange (loss)/gain and income tax 103,930 75,975 37%Operating margin 34% 36%Plus:Depreciation and amortisationin Cost of Sales 24,685 17,697 39%Depreciation and amortisationin Administrative Expenses 525 993 (47%)Exploration Expense 26,728 19,026 40%Minus:Personnel and otherExploration Expense (8,262) (6,142) 35%--------------------------------------------------------------------------------Adjusted EBITDA 147,606 107,549 37%Adjusted EBITDA margin 48% 51%-------------------------------------------------------------------------------- Finance income & finance costs Finance income increased 230% in 2007 to $19.8 million (2006: $6.0 million)driven by interest received on liquidity funds. Finance costs for the periodprimarily related to the interest on pre-shipment loans used to finance workingcapital. In addition, finance costs included interest on the loan from MineraAndes Inc., our partner at the San Jose mine, to Minera Santa Cruz S.A. ("MineraSanta Cruz") the legal owner of the mine in which we have a 51% interest. During2007 the Company did not have any long-term debt outstanding. Foreign exchange loss The Group incurred a $4.4 million foreign exchange loss in 2007 (2006: $0.4million gain) resulting from the Argentinean Peso depreciating against U.S.dollar. Minera Santa Cruz, one of the Group's subsidiaries which is the legalowner of the San Jose mine, had $82 million of debt denominated in U.S. dollars.As Minera Santa Cruz's functional currency was the Peso during 2007, thetranslation of this loan into Pesos created a loss, which was recorded in theincome statement. Following the commencement of operations during the year, wehave been required to change the functional currency in Minera Santa Cruz toU.S. dollars from 2008 therefore exchange differences on these loans will notarise. Income tax The weighted average statutory income tax rate was 29.66% for 2007 and 30.18%for 2006. This difference is due to a change in the weighting of profit and lossbefore tax in the various jurisdictions in which the Group operates. The effective tax rate for 2007 is 30.81% reduced from 42.00% in 2006. Thisdecrease was driven primarily by: higher profit at Compania Minera Ares S.A.C.,which is taxed at a lower rate (30%); a decrease in non-deductible expenses;recognition of previously unrecognised deferred tax assets in relation to themine closure provisions; and the recognition of a portion of the doublededuction in calculating corporate income tax in Argentina pursuant to thespecial investment regime in effect in the province of Santa Cruz; which waspartially offset by the impact of introduction of reforms to Mexico's taxlegislation. Minority interest The loss attributable to minority interest in both 2007 and 2006 consistspredominantly of that portion of the costs for the San Jose project, of whichthe Company has a 51% ownership, with Minera Andes S.A. owning the remaining49%. Exceptional items Exceptional items are those significant items which due to the nature or theexpected infrequency of the events giving rise to them need to be disclosedseparately on the face of the income statement. In 2007 we recognized an exceptional gain of $5.5 million recorded in financeincome. This gain principally reflects the change in fair value of warrants theCompany holds over 2,475,355 shares in Fortuna Silver Mine Inc.In addition, the Company had a $1.5 million exceptional loss recorded in other expenses primarilyas a result of the sale of its wholly owned subsidiary, Compania Minera Sipan,to a third party. Correspondingly, we disclosed the tax impact of these itemsamounting to $1.3 million as 'exceptional'. In 2006, exceptional items in other expenses principally comprised $3.0 millionasset impairment at Sipan and a loss on the sale of investments of $2.2 million,which was incurred when the Company disposed of shares in Inversiones Pacasmayoprior to the Listing in November 2006. In addition, there was a $1.0 millionloss on the sale of the Group's wholly owned subsidiary, Mauricio Hochschild &Cia. Ltda. S.A.C. Balance sheet & cash flow review Working capital: --------------------------------------------------------------------------------US$(000) unless otherwise indicated As at As at 31 December 31 December 2007 2006--------------------------------------------------------------------------------Current assets--------------------------------------------------------------------------------Inventories 47,012 16,533Trade and other receivables 134,180 47,592Current liabilities--------------------------------------------------------------------------------Trade and other payables 52,176 64,140Pre-shipment loans 23,750 26,894--------------------------------------------------------------------------------Working capital 105,266 (26,909)-------------------------------------------------------------------------------- The change in the working capital position resulted from a significant increasein trade and other receivables from $47.6 million as at 31 December 2006 to$134.1 million as at 31 December 2007 and to a lesser degree from an increase ininventories from $16.5 million as at 31 December 2006 to $47.0 million as at 31December 2007. Receivables were higher at the end of 2007 because of an increase in tradereceivables, prepaid expenses and VAT, and funds due from a minorityshareholder. As discussed earlier, we produced more concentrate at Arcata than we hadcontracted to sell to Penoles in 2007. Whilst this was sold to various othersmelters, thus diversifying the Group's concentrated customer base, much of thesales were made during December, resulting in a high level of trade receivablesat the year-end. These trade accounts receivable were mainly comprised ofamounts receivable from Cormin, Traxis and Norddeutsche Affinerie. We believethat the high level of sales in December 2007, and the resulting high balancesof accounts receivable, was a one-off situation which will reverse during thefirst half of 2008. The increase in prepaid expenses and VAT mainly comprised value added taxes paidin the development of the San Jose project that will be recovered through futuresales of gold and silver by the Group. The loan due from minority shareholders corresponds to a capital contributionpending collection from the minority shareholder of the San Jose operation. The increase in inventories was the result of the intensive leaching process notworking as planned which led to the production of precipitates from the San Joseoperation, some of which will be processed into Dore and sold in 2008. Net debt: --------------------------------------------------------------------------------US$(000) unless otherwise indicated As at As at 31 December 31 December 2007 2006--------------------------------------------------------------------------------Cash and cash equivalents 301,426 435,543Long term borrowings 55,209 27,114Short term borrowings less pre-shipmentloans 9,419 2,888Net debt/(net cash) (236,798) (405,541)-------------------------------------------------------------------------------- The Group's balance sheet remains robust with $236.8 million of net cash as at31 December 2007. In addition, the Group successfully completed the syndicationphase of its $200 million Secured Term Loan Facility. The facility will be usedfor general corporate purposes such as potential acquisitions. The Companybelieves its existing mines and near term projects are fully funded with currentcash on the balance sheet together with future cash which will be generated fromthese operations. Cash flow: The Group's operations generated $21.4 million of cash flow in 2007 reduced from$94.0 million in 2006. This decrease was principally driven by a temporal shiftin working capital despite a significant increase in the underlying profit fromcontinuing operations. Total capital expenditure (2): --------------------------------------------------------------------------------US$(000) unless otherwise indicated Year ended Year ended 31 December 31 December 2007 2006--------------------------------------------------------------------------------Ares 3,705 2,188Arcata 22,750 13,170Selene 27,497 4,319Pallancata (1) 12,190 12,931San Jose (1) 62,752 36,075Moris (1) 12,099 8,034San Felipe (1) 667 157Other 3,078 1,997Total 144,738 78,870-------------------------------------------------------------------------------- (1) Represents 100% of capital expenditure(2) The amounts shown above exclude increases in the mine rehabilitation assetamounting to $1,056,000 (2006: $1,810,000). Consolidated Income Statement (Restated) Year ended 31 December 2007 Year ended 31 December 2006 Notes (unaudited) (unaudited) ------------------------------------------------------------------------------------------------------------------------ Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total------------------------------------------------------------------------------------------------------------------------ US$(000)Continuingoperations Revenue 305,021 - 305,021 211,246 - 211,246Cost of sales (106,084) - (106,084) (77,829) - (77,829)------------------------------------------------------------------------------------------------------------------------Gross profit 198,937 - 198,937 133,417 - 133,417Administrativeexpenses (69,167) - (69,167) (36,633) - (36,633)Exploration expenses (26,728) - (26,728) 9,026) - (19,026)Sellingexpenses (2,780) - (2,780) (3,187) - (3,187)Other income 6,067 932 6,999 5,274 94 5,368Other expenses (2,399) (1,501) (3,900) (3,870) (6,495) (10,365)------------------------------------------------------------------------------------------------------------------------Profit from continuingoperations before netfinance income/(cost),foreign exchangeloss)/gainand income tax 103,930 (569) 103,361 75,975 (6,401) 69,574Finance income 19,783 5,474 25,257 5,988 918 6,906Finance costs (7,517) (71) (7,588) (12,037) - (12,037)Foreignexchange(loss) / gain (4,363) - (4,363) 353 - 353------------------------------------------------------------------------------------------------------------------------Profit fromcontinuingoperationsbefore incometax 111,833 4,834 116,667 70,279 (5,483) 64,796UK corporationtax (2,506) - (2,506) (747) - (747)Foreign taxes (31,947) (1,299) (33,246) (28,769) 623 (28,146)------------------------------------------------------------------------------------------------------------------------Income tax expense 3 (34,453) (1,299) (35,752) (29,516) 623 (28,893)------------------------------------------------------------------------------------------------------------------------Profit for theyear fromcontinuingoperations 77,380 3,535 80,915 40,763 (4,860) 35,903------------------------------------------------------------------------------------------------------------------------Attributableto:Equityshareholdersof theCompany 81,538 3,535 85,073 46,572 (4,860) 41,712 Minorityshareholders (4,158) - (4,158) (5,809) - (5,809)------------------------------------------------------------------------------------------------------------------------ 77,380 3,535 80,915 40,763 (4,860) 35,903------------------------------------------------------------------------------------------------------------------------ Basic anddilutedearnings perordinary sharefromcontinuingoperations andfor the year(expressed inU.S. dollarsper share) 0.27 0.01 0.28 0.19 (0.02) 0.17------------------------------------------------------------------------------------------------------------------------ Dividends- declared and paid/payable 6,173 (i) 73,142 - proposed 22,185 2,275Dividend pershare (USc)- declared and paid/payable 2.0 32.0 - proposed 7.2 0.74 (i) Corresponds to dividends paid or provided to former shareholder, Dona Limited. Consolidated Balance Sheet Notes As at 31 December-------------------------------------------------------------------------------- 2007 (Restated) (unaudited) 2006 (unaudited)-------------------------------------------------------------------------------- US$(000)ASSETSNon-current assetsProperty, plant and equipment 263,062 141,387Intangibles 2,896 2,091Available-for-sale financial assets 15,100 6,285Trade and other receivables 26,134 17,427Deferred income tax assets 22,400 7,920-------------------------------------------------------------------------------- 329,592 175,110--------------------------------------------------------------------------------Current assetsInventories 47,012 16,533Trade and other receivables 134,180 47,592Income tax receivable 1,003 2,134Derivative financial instruments 8,039 6,022Cash and cash equivalents 301,426 435,543-------------------------------------------------------------------------------- 491,660 507,824--------------------------------------------------------------------------------Assets classified as held for sale - 345--------------------------------------------------------------------------------Total assets 821,252 683,279-------------------------------------------------------------------------------- EQUITY AND LIABILITIESCapital and reserves attributable toshareholders of the ParentEquity share capital 146,466 146,466Share premium 395,928 396,156Other reserves (205,556) (205,039)Retained earnings 229,202 152,577-------------------------------------------------------------------------------- 566,040 490,160 ------- -------Minority interest 50,008 14,489 ------- -------Total equity 616,048 504,649 ------- -------Non-current liabilitiesTrade and other payables 859 1,064Borrowings 55,209 27,114Provisions 30,821 28,690Deferred income tax liabilities 9,091 4,026 ------- ------- 95,980 60,894 ------- -------Current liabilitiesTrade and other payables 52,176 64,140Borrowings 33,169 29,782Provisions 13,029 11,385Income tax payable 10,850 12,429 ------- ------- 109,224 117,736 ------- -------Total liabilities 205,204 178,630 ------- -------Total equity and liabilities 821,252 683,279 ======= ======= Consolidated Cash Flow Statement Notes Year ended 31 December ------ -------------- 2007 (Restated) (unaudited) 2006 (unaudited) ------- ------- US$(000)Cash flows from operating activitiesCash generated from operations 34,338 132,046Interest received 18,390 2,576Interest paid (1,217) (9,163)Payments of mine closure costs (2,023) (5,426)Tax paid (28,084) (26,010) ------- -------Net cash generated from operatingactivities 21,404 94,023 ------- -------Cash flows from investing activitiesPurchase of property, plant and (134,119) (65,704)equipmentPurchase of available-for-salefinancial assets (4,669) (2,770)Purchase of shares of Minera Colorada S.A.C - (240)Purchase of software licenses (876) -Purchase of other financial assetsat fair value through profit or loss - (5,867)Purchase of assets and liabilitiesof Mina Moris - (4,983)Loan to Exmin, S.A. de C.V. (746) (754)Loan to Minera Andes Inc. (22,036) (9,800)Proceeds from other financial assetsat fair value through profit or loss - 5,591Proceeds from sale ofavailable-for-sale financial assets - 6,550Proceeds from sale of Mauricio Hochschild & Cia. Ltda. S.A.C. (subsidiary) - 3,801Proceeds from sale of Cayllomamining unit - 4,500Proceeds from sale of property,plant and equipment 167 991Dividends received - 147 ------- -------Net cash used in investing activities (162,279) (68,538) ------- -------Cash flows from financing activities Proceeds of borrowings 177,168 77,014Repayment of borrowings (150,194) (95,977)Dividends paid (24,729) (58,375)Capital contribution - 93Proceeds from issue of ordinaryshare under Global offer - 515,245Transaction costs associated withissue of shares (11,722) (33,989)Purchase of shares from minorityshareholders - (2)Capital contribution from minorityshareholders 16,175 4,215Repayment of capital to minorityshareholders - (671) ------- -------Cash flows generated from financingactivities 6,698 407,553 ------- -------Net (decrease)/increase in cash andcash equivalents during the year (134,177) 433,038Exchange difference 60 38Cash and cash equivalents atbeginning of year 435,543 2,467 ------- -------Cash and cash equivalents at end of year 301,426 435,543 ======= ======= Consolidated Statement of Changes in Equity Other reserves Unrealised Capital and gain/(loss) reserves on attributable available- to Equity for-sale Cumulative Total shareholders share Share financial translation Merger Other Retained of the Minority Total capital premium assets adjustment reserve reserves earnings Parent interest Equity US$(000)Balance at 1January 2006as reported 219,233 - 11,265 726 (210,046) (198,055) 28,198 49,376 (2,533) 46,843Adjustmentsdue to changein accountingpolicy - - - 73 - 73 9,343 9,416 5,440 14,856 Balance at 1January 2006,restated 219,233 - 11,265 799 (210,046) (197,982) 37,541 58,792 2,907 61,699Fair valuegains onavailable-for-sale financialassets - - 13,351 - - 13,351 - 13,351 20 13,371Deferredincome tax onavailable-for-sale financialassets - - (398) - - (398) - (398) - (398)Fair value changestransferred toincomestatement ondisposal - - (22,844) - - (22,844) - (22,844) - (22,844)Translationadjustment forthe year - - - 2,834 - 2,834 - 2,834 142 2,976 Net incomerecogniseddirectly inequity - - (9,891) 2,834 - (7,057) - (7,057) 162 (6,895)Profit for theyear - - - - - - 41,712 41,712 (5,809) 35,903 Totalrecognisedincome for2006 - - (9,891) 2,834 - (7,057) 41,712 34,655 (5,647) 29,008Shares issued 93 - - - - - - 93 - 93Shares issuedunder Globaloffer 73,606 441,639 - - - - - 515,245 - 515,245Transactioncostsassociatedwith issue ofshares - (45,483) - - - - - (45,483) - (45,483)Capitalreduction (146,466) - - - - - 146,466 - - -Dividends - - - - - - (73,142) (73,142) (298) (73,440)Capitalcontributionfrom minorityshareholders - - - - - - - - 18,200 18,200Purchase ofshares fromminorityshareholders - - - - - - - - (2) (2)Repayment ofcapital tominority shareholders - - - - - - - - (671) (671) Balance at 31December 2006,restated 146,466 396,156 1,374 3,633 (210,046) (205,039) 152,577 490,160 14,489 504,649Fair valuegains onavailable-for-sale financialassets - - 1,415 - - 1,415 - 1,415 87 1,502Deferredincome tax onavailable-for-sale financialassets - - (927) - - (927) - (927) - (927)Translationadjustment forthe year - - - (1,005) - (1,005) - (1,005) 882 (123) Net incomerecogniseddirectly inequity - - 488 (1,005) - (517) - (517) 969 452Profit for theyear - - - - - - 85,073 85,073 (4,158) 80,915 Totalrecognisedincome for2007 - - 488 (1,005) - (517) 85,073 84,556 (3,189) 81,367Transactioncostsassociatedwith issue ofshares - (228) - - - - - (228) - (228)Dividends - - - - - - (8,448) (8,448) - (8,448)Adjustment todeferredconsideration(i) - - - - - - - - 5,627 5,627Capitalcontributionfrom minorityshareholders - - - - - - - - 33,081 33,081 Balance at 31December 2007(unaudited) 146,466 395,928 1,862 2,628 (210,046) (205,556) 229,202 566,040 50,008 616,048 (i) This amount represents the increase in the minority interest'sshare of the assets of Pallancata, following the Group's investment during theperiod in accordance with the agreement. Notes to the financial statements The unaudited financial information for the year ended 31 December 2007 and 2006contained in this document does not constitute statutory accounts as defined insection 240 of the Companies Act 1985. The financial information for the yearsended 31 December 2007 and 2006 (as restated) have been extracted from thefinancial statements of Hochschild Mining plc which will be approved by thedirectors and delivered to the Registrar of Companies in due course. Theauditors have issued an unqualified opinion on the Group's statutory financialstatements for the year ended 31 December 2006, which have been filed with theRegistrar of Companies. 1 Significant accounting policies a) Basis of preparation The accounting policies adopted in the preparation of the financial informationare consistent with those applied to the year ended 31 December 2006 except forthe following: - Change in accounting policy for exploration expenses - Adoption of new and amended standards Change in accounting policy for exploration expenses During the year, management changed the Group's accounting policy relating toexploration and evaluation expenses as outlined below: - Projects in the development phase - Exploration and evaluation costsare capitalised as tangible assets from the date that the Board authorisesmanagement to conduct a feasibility study. Previously, the Group would commencecapitalisation of these costs only from the date the project's feasibility studywas approved and completed. - Identification of resources - Costs incurred in converting inferredresources to indicated and measured resources (of which reserves are acomponent) are capitalised as incurred. Previously, these costs were expensed.Costs incurred in identifying inferred resources continue to be expensed asincurred. Management believes that this change in accounting policy will enable improvedmatching of revenue and costs in the relevant period and thereby better reflectthe Group's economic performance. In addition, management believes that thischange will ensure consistency with its main peers, thereby enabling morerelevant comparisons to be made. According to IAS 8 'Accounting Policies, Changes in Accounting Estimates andErrors', the Group has retrospectively applied this new policy from 1 January2002, the earliest date on which objective and reliable information existed inrelation to the nature of the exploration expenditure incurred, to enable themto calculate this adjustment. The comparative amounts presented in this report have been restated inaccordance with the new accounting policy as follows: --------- ---------- ----------Income Statement (Reported) (Restated) Effect of Year ended 31 Year ended change in December 2006 31 December accounting policy 2006 increase/(decrease) --------- ---------- ---------- US$(000)ContinuingoperationsCost of sales 76,649 77,829 1,180Gross profit 134,597 133,417 1,180Explorationexpenses 20,866 19,026 1,840Profit fromcontinuingoperationsbefore netfinance costsand income tax 68,914 69,574 660Profit fromcontinuingoperationsbefore incometax 64,136 64,796 660Income taxexpense 28,695 28,893 198Profit for theyear fromcontinuingoperations 35,441 35,903 462Profit for theyear 35,441 35,903 462Attributable to:Equityshareholdersof the Company 41,288 41,712 424Minorityshareholders 5,847 5,809 38Basic anddilutedearnings perordinary sharefromcontinuingoperations(expressed inUS dollars pershare 0.17 0.17 - --------- ---------- ---------- (Reported (Restated Effect of As at As at change in 31 31 December accounting policy December 2006 increase/(decrease) 2006Balance Sheet --------- ---------- ---------- US$(000 ASSETSNon-current assetsProperty,plant andequipment 118,413 141,387 22,974Deferredincome taxassets 15,704 7,920 (7,784)Totalnon-currentassets 159,920 175,110 15,190Current assetsInventories 16,405 16,533 128Total currentassets 507,696 507,824 128Total assets 667,961 683,279 15,318 EQUITY AND LIABILITIESCapital and reservesattributable to shareholdersof the ParentOther reserves (205,112) (205,039) (73)Retainedearnings 142,810 152,577 9,767Minorityinterest 9,011 14,489 5,478Total equity 489,331 504,649 15,318Total equityandliabilities 667,961 683,279 15,318 Adoption of new and amended standards The Group has adopted the following new and amended IFRS and IFRICinterpretations during the year. Adoption of these revised standards andinterpretations did not have any effect on the financial performance or positionof the Group. They did however give rise to additional disclosures, including insome cases, revisions to accounting policies. -IFRS 7 Financial Instruments: Disclosures -IAS 1 Amendment - Presentation of Financial Statements -IFRIC 9 Reassessment of Embedded Derivatives b) Exceptional items Exceptional items are those significant items which due to their nature or theexpected infrequency of the events giving rise to them, need to be disclosedseparately on the face of the income statement to enable a better understandingof the financial performance of the Group and facilitate comparison with prioryears. Exceptional items mainly include: -Impairments of assets, including goodwill assets held for sale, andproperty, plant & equipment; -Gains or losses arising on the disposal of subsidiaries, investmentsor property, plant & equipment; -Fair value gains or losses arising on financial instruments not heldin the normal course of trading; -Any gain or loss resulting from any restructuring within the Group,and -The related tax impacts of these items. c) Comparatives Where applicable, certain comparatives have been reclassified to present them ina comparable manner to the current period figures. For the restatement of comparative figures in relation to the change inaccounting policy for exploration expenditure, refer to note a) above. 2 Segmental Reporting The Group's activities principally relate to mining operations which involveexploration, production and sale of gold and silver. Products are subject to thesame risks and returns and are sold through the same distribution channels. TheGroup has a number of activities that exist solely to support mining operationsincluding power generation and services. As such, the Group has only onebusiness segment as its primary reporting segment. The Group operates in variouscountries including Peru, Argentina, Mexico, Chile and the United States ofAmerica. Therefore, the geographical segment is the Group's secondary reportingformat. 2.1 Revenue Revenue for the year is allocated based on the country in which the customer islocated. There are no inter-segment revenues. Year ended 31 December --------------- -------- 2007 2006 (unaudited) (unaudited) -------- -------- US$(000)USA 158,092 58,719Peru 48,147 68Mexico 47,919 116,034Belgium 22,415 -Canada 9,606 717Germany 9,370 -United Kingdom 8,202 35,708Chile 1,270 - -------- -------- 305,021 211,246 ======== ======== The allocation of revenue based on the country in which the asset is located isas follows: Year ended 31 December --------------- -------- 2007 2006 (unaudited) (unaudited) -------- -------- US$(000)Peru 303,377 211,246Argentina 1,270 -Mexico 374 - -------- -------- 305,021 211,246 ======== ======== 2.2 Profit for the year The Group has significant no inter-segment transactions. Profit for year isbased on country of operation as follows: Year ended 31 December 2007 (Restated) (unaudited) Year ended 31 December 2006 (unaudited) Before exceptional Exceptional Before Exceptional items items Total exceptional items items Total US$(000) Peru 94,415 2,454 96,869 58,808 (3,827) 54,981Cayman Islands 68 393 461 (2,756) (1,033) (3,789)Argentina (5,689) - (5,689) (10,745) - (10,745)Mexico (11,403) - (11,403) (3,920) - (3,920)Chile (2,718) - (2,718) (1,613) - (1,613)USA (1,212) 8 (1,204) (778) - (778)United Kingdom 3,919 680 4,599 1,767 - 1,767 77,380 3,535 80,915 40,763 (4,860) 35,903 3 Income Tax Expense Year ended 31 December 2007 (Restated) (unaudited) Year ended 31 December 2006 (unaudited) Before exceptional Exceptional Before Exceptional items items (i) Total exceptional items items Total US$(000)Currenttax:Current taxcharge fromcontinuingoperations 44,933 - 44,933 31,912 28 31,940 44,933 - 44,933 31,912 28 31,940 Deferredtaxation:Originationandreversaloftemporarydifferencesfrom continuing operations (11,641) 1,299 (10,342) (4,371) (651) (5,022) (11,641) 1,299 (10,342) (4,371) (651) (5,022) Withholdingtaxes 1,161 - 1,161 1,975 - 1,975 Totaltaxationcharge inthe Incomestatement 34,453 1,299 35,752 29,516 (623) 28,893 (i)This amount corresponds to the related tax impacts of exceptional items. The weighted average statutory income tax rate was 29.7% for 2007 and 30.2% for2006. This is calculated as the average of the statutory tax rates applicable inthe countries in which the Group operates, weighted by the profit/(loss) beforetax of the subsidiaries in the respective countries as included in theconsolidated financial statements. The change in the weighted average statutory income tax rate is due to a changein the weighting of profit/(loss) before tax in the various jurisdictions inwhich the Group operates. The tax on the Group's profit before tax differs from the theoretical amountthat would arise using the weighted average tax rate applicable to profits ofthe consolidated companies as follows: Year ended 31 December --------------- --- -------- 2007 (Restated) (unaudited) 2006 (unaudited) -------- -------- US$(000)Profit before taxation from continuing 116,667 64,796operations ======== ========Profit before tax 116,667 64,796 At average statutory income tax rate of 29.7%(2006: 30.2%) 34,598 19,553 Expenses not deductible for tax purposes 2,381 4,124Non-taxable income (505) (170)Deferred tax recognised on special investmentregime(i) (4,479) -Recognition of previously unrecogniseddeferred tax (2,917) -assets(ii)Net deferred tax assets generated in the yearnot 4,672 2,552recognised(iii)Change in tax regime(iv) 3,403 -Deferred tax on unremitted earnings - 397Withholding taxes 1,161 1,975Recognition of deferred tax assets on (767) -restructuringOther (1,795) 462 -------- --------At average effective income tax rate of 30.6%(2006: 35,752 28,89344.6%) ======== ======== Taxation charge attributable to continuing 35,752 28,893operations -------- --------Total taxation charge in the income statement 35,752 28,893 ======== ======== (i) Corresponds to the deferred tax income asset recognised onadditional tax losses generated during the year due to 50% of the doublededuction in Santa Cruz claimed during the year for tax purposes. (ii) Mainly corresponds to tax effect of certain mine closure expensesas they are now expected to be deducted from taxable income, when paid. (iii) Mainly corresponds to the tax losses arising in explorationcompanies for which deferred income tax assets are not recognised due to theuncertainty of generating taxable income in the future. (iv) Corresponds to the effect of the change in the Mexican tax regime. 3.1 Special investment regime Minera Santa Cruz benefits from a special investment regime that allows for adouble deduction in calculating its corporate income tax liability, in respectof all costs relating to prospecting, exploration and metallurgical analysis,pilot plants and other expenses incurred for feasibility studies of projects. Inthis regard, the total investment eligible for additional deduction amounts toapproximately 79,680,000 Argentinean Pesos ($26,367,000 and $25,595,000 as at 31December 2006 and 2007, respectively). As this additional deduction did notaffect either taxable profit or accounting profit on initial recognition, nodeferred tax was recognised in accordance with the requirements of IAS 12'Income Taxes'. However, under the relevant rules in Argentina, followingcommencement of operations, this amount can now be claimed in equal amounts over1 to 5 years. The Group has decided to make this claim over 2 years and hence50% of the available deduction has been included in the tax losses for the yearwhich are expected to be recovered based on future taxable profits that will begenerated in this company. Accordingly, as at 31 December 2007 the net deferredincome tax asset of the company increased by $4,479,000. 3.2 Change in Mexican tax regime On 28 September 2007, the Mexican Government enacted a bill for tax reform thatsignificantly changed the current income tax structure in Mexico. Effective 1January 2008 the tax reform requires companies to pay the greater of a businessflat tax ("IETU") as abbreviated in Spanish or the current income tax structure("ISR") as abbreviated in Spanish. The Group has analysed the future impact of this tax reform on its Mexicancompanies and has determined that Santa Maria de Moris S.A. de C.V. (theoperator of the Moris mine) will be required to pay IETU in each period untilthe end of the mine's life. Therefore, as at 31 December 2007 the Grouprecognised a deferred tax liability in connection with IETU of $3,403,000 due tothe resulting reduction in the amount of capital allowances arising on theinvestment in the mine to date. 4 Subsequent events - On 28 January 2008 ("Execution Date"), the Group entered into asecured term loan facility with a syndicate of lenders with JP Morgan Chase BankN.A. acting as the Administrative Agent. Under the arrangements, the Group has atotal secured term loan facility up to $200 million with an effective interestrate of LIBOR + 1% and a maturity date of five years beginning on the ExecutionDate. The loans may be incurred in up to five draw-downs available during 180days since the Execution Date and the Group has the option to increase thefacility by $150 million before the fifth anniversary of the Execution Date.In relation to this secured term loan facility, the Group has granteda first-priority security interest over all of the equity share capital, freeand clear of any liens, of Compania Minera Ares S.A.C. - On 31 January 2008 the option and joint venture agreement with AndinaMinerals Chile Limitada ('Andina Minerals') was signed and in accordance withthe agreement, a payment of $0.5 million was made to Andina Minerals uponsigning of the agreement. - On 15 February 2008 the Group received 200,000 shares of Ventura GoldCorp in connection with the option and joint venture agreement signed with thisentity. - On 19 February 2008, the Group acquired 19.99% interest in Lake ShoreGold Corp. ("LSG"), a gold company listed on the Toronto Stock Exchange, withprime exploration and development projects in the Abitibi belt of the Timminsregion in Ontario, Canada. The consideration paid for the acquisition amountedto CAD$64.6 million (approximately $64.6 million). The contract allows the Groupto purchase additional shares from existing shareholders of LSG or from the openmarket to increase its interest up to 40% by the end of 2008. This increase issubject to the approval of LSG's shareholders who will be asked to vote on thismatter by no later than 19 April 2008. - On 4 March 2008, the Group entered into an option agreement withSantos Bahamondes Latorre Compania Minera in order to acquire the mining rightsof three groups of properties (Juana I, Juana II and Casualidad) located inChile. Under these arrangements, the Group will have the right to acquire themining rights by making payments of $1 million, $1 million and $1.5 million forJuana I, Juana II and Casualidad, respectively. If the Group exercises theoption it shall pay a 1.5% Net Smelter Return once commercial production begins. Reserves and resources Table 01 - Metal resources at 31 December 2007 Resource Measured Indicated Measured & Inferred Ag Au Ag Au Zn Pb Cucategory ------- ------- Indicated ------- ----- ------ ------ ------ ------ ------ ------------- ------- (t) (t) (t) (t) (g/t) (g/t) (moz) (koz) (kt) (kt) (kt)ArcataMeasured 1,193,648 521 1.36 20.0 52.2 -.- -.- -.-Indicated 511,258 630 1.44 10.4 23.7 -.- -.- -.- Total 1,704,905 554 1.38 30.4 75.6 -.- -.- -.-Inferred 1,873,220 501 1.44 30.2 86.7 -.- -.- -.-AresMeasured 581,496 214 6.37 4.0 119.1 -.- -.- -.-Indicated 286,511 149 5.86 1.4 54.0 -.- -.- -.- Total 868,006 192 6.20 5.4 173.0 -.- -.- -.-Inferred 93,193 179 3.01 0.5 9.0 -.- -.- -.-SeleneMeasured 607,662 269 1.79 5.3 35.0 -.- -.- -.-Indicated 204,728 340 1.74 2.2 11.5 -.- -.- -.- Total 812,391 287 1.78 7.5 46.5 -.- -.- -.-Inferred 979,451 202 0.98 6.4 30.9 -.- -.- -.-PallancataMeasured 1,385,395 321 1.40 14.3 62.4 -.- -.- -.-Indicated 543,097 394 1.60 6.9 27.9 -.- -.- -.- Total 1,928,492 342 1.46 21.2 90.5 -.- -.- -.-Inferred 1,292,442 479 1.35 19.9 56.1 -.- -.- -.-San JoseMeasured 408,835 467 8.45 6.1 111.1 -.- -.- -.-Indicated 860,854 505 6.92 14.0 191.5 -.- -.- -.- Total 1,269,689 493 7.41 20.1 302.5 -.- -.- -.-Inferred 320,735 395 5.81 4.1 59.9 -.- -.- -.-MorisMeasured 2,276,681 4.6 1.34 0.3 98.3 -.- -.- -.-Indicated 145,381 5.0 1.22 0.0 5.7 -.- -.- -.- Total 2,422,062 4.6 1.34 0.4 104.0 -.- -.- -.-Inferred 20,133 3.6 0.84 0.0 0.5 -.- -.- -.-San FelipeMeasured 1,149,902 72 10.98* 2.7 0.7 85.3 36.1 4.8Indicated 476,135 68 10.80* 1.0 0.3 33.7 15.8 2.0 Total 1,626,037 71 10.93* 3.7 0.9 119.0 51.9 6.7Inferred 282,072 49 9.50* 0.4 0.1 17.6 8.4 0.8 TotalMeasured 7,603,619 216 1.96 52.7 478.6 85.3 36.1 4.8Indicated 3,027,964 369 3.23 33.5 314.6 33.7 15.8 2.0 Total 10,631,583 259 2.32 88.6 793.1 119.0 51.9 6.7Inferred 4,861,246 393 1.56 61.5 243.3 17.6 8.4 0.8------- ------- ------- ------- ------- ----- ------ ------ ------ ------ ------ ----------- * A combined metal content of 7.16% zinc, 3.1% lead and 0.39% copper which arenot included in totals and these metals represent 15.2 million ounces ofequivalent silver. Note: Resources include undiscounted reserves, where reserves are attributableto JV partner, reserve figures reflect the Company's ownership only, no ore lossor dilution has been included, and stockpiled ore excluded. Table 02 - Metal reserves at 31 December 2007 Operation Reserve Proved Probable Proved And Ag Au Ag Au category Probable (t) (t) (t) (g/t) (g/t) (moz) (koz) Arcata Proved 1,283,099 449 1.17 18.5 48.3100% Probable 555,353 538 1.23 9.6 22.0 Total 1,838,452 476 1.19 28.1 70.3Ares Proved 560,318 205 6.15 3.7 110.8100% Probable 283,828 140 5.52 1.3 50.4 Total 844,146 183 5.94 5.0 161.2Selene Proved 611,153 250 1.68 4.9 33.0100% Probable 197,774 327 1.67 2.1 10.6 Total 808,926 269 1.68 7.0 43.7Pallancata Proved 2,572,562 279 1.22 23.1 100.960% Probable 973,709 315 1.31 9.9 41.0 Total 3,546,271 289 1.24 33.0 141.4San Jose Proved 805,011 418 5.59 10.8 144.751% Probable 1,890,140 396 6.19 24.1 376.2 Total 2,695,151 403 6.01 34.9 520.8Moris Proved 2,369,519 4.7 1.51 0.4 115.370% Probable 164,311 5.3 1.37 0.0 7.2 Total 2,533,830 4.8 1.50 0.4 122.5Total Proved 8,201,662 233 2.10 61.4 553.0Mines andProjects Probable 4,065,115 359 3.88 46.9 507.4 Total 12,266,776 275 2.69 108.4 1,059.9 Note: Includes discounts for ore loss and dilution. Reserves = Resources - OreLoss + Dilution. Where reserves are attributable to joint venture partner,reserve figures reflect the Company's ownership only. Table 03 - Change in reserves and resources from December 2006 to December 2007 Ag Eq. Content (Million Ounces) --------------------------------------------------- ------- -------- -------- -------- -------- -------- --------Operation Category Dec 2006 Depletion(1) Addition Dec 2007 Net Difference %-------- ------- -------- -------- -------- -------- -------- --------Peru-------- ------- -------- -------- -------- -------- -------- --------Arcata Resource 60.6 9.7 70.3 9.7 16% Reserve 20.4 -8.6 20.6 32.4 12.0 59% -------- ------- -------- -------- -------- -------- -------- --------Ares Resource 24.9 -8.0 16.8 -8.0 -32% Reserve 22.3 -12.4 4.7 14.6 -7.7 -34% -------- ------- -------- -------- -------- -------- -------- --------Selene Resource 25.2 -6.7 18.5 -6.7 -26% Reserve 12.3 -5.5 2.9 9.6 -2.7 -22% -------- ------- -------- -------- -------- -------- -------- --------Pallancata Resource 49.2 33.9 83.2 33.9 69% Reserve 23.8 -1.0 18.6 41.4 17.6 74% -------- ------- -------- -------- -------- -------- -------- --------Peru Totals: Resource 159.8 28.9 188.8 28.9 18% Reserve 78.8 -27.6 46.8 98.0 19.2 24% -------- ------- -------- -------- -------- -------- -------- --------Argentina-------- ------- -------- -------- -------- -------- -------- --------San Jose Resource 70.4 19.7 90.1 19.7 28% Reserve 55.6 -2.9 13.5 66.2 10.6 19% -------- ------- -------- -------- -------- -------- -------- --------ArgentinaTotals: Resource 70.4 19.7 90.1 19.7 28% Reserve 55.6 -2.9 13.5 66.2 10.6 19% -------- ------- -------- -------- -------- -------- -------- --------Mexico-------- ------- -------- -------- -------- -------- -------- --------Moris Resource 12.3 -2.8 9.5 -2.8 -23% Reserve 8.9 -1.1 0.0 7.7 -1.2 -13% -------- ------- -------- -------- -------- -------- -------- --------San Felipe Resource 25.0 2.6 27.6 2.6 11% Reserve 0.0 0.0 0.0 0.0 0% -------- ------- -------- -------- -------- -------- -------- --------Mexico Totals: Resource 37.3 -0.2 37.1 -0.2 -1% Reserve 8.9 -1.1 0.0 7.7 -1.2 -13% -------- ------- -------- -------- -------- -------- -------- --------Totals: Resource 267.5 48.4 316.0 48.4 18% Reserve 143.3 -31.6 60.2 172.0 28.7 20% -------- ------- -------- -------- -------- -------- -------- -------- (1) Depletion: reduction in reserves based on ore delivered to the mine plant Table 04 - Change in attributable reserves and resources from December 2006 toDecember 2007 Ag Eq. Content (Million Ounces) --------------------------------------------------- ------- -------- ---------- ---------- ---------- ----------Operation Category % attributable Dec 2006 Att.(1) Dec 2007 Att(1) Net difference % change-------- ------- -------- ---------- ---------- ---------- ----------Peru-------- ------- -------- ---------- ---------- ---------- ----------Arcata Resource 100% 60.6 70.3 9.7 16% Reserve 20.4 32.4 12.0 59% -------- ------- -------- ---------- ---------- ---------- ----------Ares Resource 100% 24.9 16.8 -8.0 -32% Reserve 22.3 14.6 -7.7 -34% -------- ------- -------- ---------- ---------- ---------- ----------Selene Resource 100% 25.2 18.5 -6.7 -26% Reserve 12.3 9.6 -2.7 -22% -------- ------- -------- ---------- ---------- ---------- ----------Pallancata Resource 60% 29.5 49.9 20.4 69% Reserve 14.3 24.9 10.6 74% -------- ------- -------- ---------- ---------- ---------- ----------Peru Totals: Resource 140.2 155.5 15.4 11% Reserve 69.3 81.5 12.2 18% -------- ------- -------- ---------- ---------- ---------- ----------Argentina-------- ------- -------- ---------- ---------- ---------- ----------San Jose Resource 51% 35.9 45.9 10.0 28% Reserve 28.3 33.7 5.4 19% -------- ------- -------- ---------- ---------- ---------- ----------ArgentinaTotals: Resource 35.9 45.9 10.0 28% Reserve 28.3 33.7 5.4 19% -------- ------- -------- ---------- ---------- ---------- ----------Mexico-------- ------- -------- ---------- ---------- ---------- ----------Moris Resource 70% 8.6 6.6 -2.0 -23% Reserve 6.2 5.4 -0.8 -13% -------- ------- -------- ---------- ---------- ---------- ----------San Felipe Resource 70% 17.5 19.3 1.8 11% Reserve 0.0 0.0 0.0 0% -------- ------- -------- ---------- ---------- ---------- ----------Mexico Totals: Resource 26.1 26.0 -0.1 -1% Reserve 6.2 5.4 -0.8 -13% -------- ------- -------- ---------- ---------- ---------- ----------Totals: Resource 202.2 227.4 25.3 12% Reserve 103.9 120.6 16.8 16% -------- ------- -------- ---------- ---------- ---------- ---------- (1) Attributable reserves and resources based on the Group's percentageownership at its joint venture projects Glossary Adjusted EBITDA - Adjusted EBITDA is calculated as profit from continuingoperations before exceptional items, net finance income/(cost), foreign exchange (loss)/gain and income tax plus depreciation, amortisation and exploration costs other than personnel and other expenses; Board - the board of directors of the Company; Company - Hochschild Mining plc; Group - Hochschild Mining plc and its subsidiary undertakings; g/t - Grammes per metric tonne; kg/t - Kilogrammes per metric tonne; ktpa - Thousand metric tonnes per annum; Listing - the global offer of Ordinary Shares and the associated admission tothe Official List and to trading on the London Stock Exchange on 8 November2006; Mt - Million tonnes; NW-SE - North-West to South-East; Ordinary Shares - ordinary shares of 25p each in the capital of HochschildMining plc; Q3 Production Report - the quarterly production report, released by HochschildMining plc on 17 October 2007, in respect of the three months to 30 September2007; Q4 Production Report - the 2007 production report (incorporating the outlook for 2008) released by Hochschild Mining plc on 8 January 2008; Secured Term Loan Facility - a secured term loan facility for up to $200 millionpursuant to an agreement dated 28 January 2008 between Hochschild Mining plc andvarious lenders. This information is provided by RNS The company news service from the London Stock Exchange
- Home
- Share Prices
- AQSE Share Prices
- Euronext
- Stock Screeners
- Share Chat
- FX
- News & RNS
- Events
- Media
- Trading Brokers
- Finance Tools
- Members
Latest Share Chat
Hochschild Regulatory News (HOC)
HOC Share
Price
HOC Share
News2
HOC Share
Chat3
HOC Share
Trades1,149
HOC
Live RNS1
HOC Share
Charts
HOC Level 2
Console
HOC Live
Share Price
HOC Broker
Ratings
HOC Directors
Deals
HOC Financial
Diary
HOC
Fundamentals
HOC Short
Positions
HOC
Media
Hochschild Information
Share Price Information for Hochschild (HOC)
Share Price is delayed by 15 minutes
Get Live Data
Share Price:
168.00
Bid:
165.40
Ask:
165.80
Change:
9.00 (5.66%)
Spread:
0.40 (0.242%)
Open:
158.80
High:
168.00
Low:
156.80
Prev. Close:
159.00
Last checked at -
Watchlists are a member only feature
Login to your account
Don't have an account? Click here to register.Preliminary Results
Due to London Stock Exchange licensing terms, we stipulate that you must be a private investor. We apologise for the inconvenience.
To access our Live RNS you must confirm you are a private investor by using the button below.