Last checked at 24 Mar 2010 07:00
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24 March 2010
Hochschild Mining plc
Preliminary Results for the twelve months ended 31 December 2009
Strategic & Operational Highlights
·; Record full year production, up 8%, achieving target of 28m attributable silver equivalent ounces
·; 11% reduction in unit cost per tonne - exceeding 2009 target of 5%
·; Continued delivery of M&A strategy:
·; $172.9 million invested in Lake Shore Gold, increasing the Group's stake to 38%1
·; $58.5 million invested in Gold Resource Corp, increasing the Group's stake to 29%2
·; Acquisition of Southwestern Resources completed for $19.2 million
·; Resource life of mine for main operations up 20% to 7.1 years3
·; 2010 exploration budget up 75% to $50 million
·; 2010 production target of 29 million silver equivalent ounces, including 2.7 million silver equivalent ounces from Hochschild's interests in Lake Shore Gold and Gold Resource Corp
·; Directorate and management appointments
Financial Highlights
·; 24% increase in revenue to $539.7 million
·; Administrative expenses down by 26% to $51.1 million
·; Record attributable profit after tax of $98.1 million, positively impacted by an exceptional one-off gain of $42.3 million relating to the Lake Shore Gold/West Timmins Mining transaction
·; EPS up from $(0.08) to $0.31
·; Solid financial position with year end cash balance of $77.8 million
·; Proposed dividend of $0.02 per share, bringing the total dividend to $0.04 per share
·; $85.7 million pre-payment of $200 million syndicated loan facility
·; $260 million convertible bond offering and equity placing4
| ($ millions, unless stated) | 12 months to 31 December 2009 | 12 months to 31 December 2008 | % change |
| Attributable silver production (koz) | 18,754 | 16,941 | 11% |
| Attributable gold production (koz) | 156.8 | 152.9 | 3% |
| Revenue | 539,741 | 433,779 | 24% |
| Adjusted EBITDA* | 249,869 | 142,292 | 76% |
| Attributable profit after tax (before exceptionals) | 52,892 | 15,782 | 235% |
| Attributable profit after tax (after exceptionals) | 98,080 | (24,718) | n/a |
| Earnings per share (before exceptionals) 5 | 0.17 | 0.05 | 240% |
| Earnings per share (after exceptionals) 5 | 0.31 | (0.08) | n/a |
*Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation, amortisation and exploration expenses other than personnel and other expenses.
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1 On a fully diluted basis, Hochschild's equity interest at 31 December 2009 was 35.7%. In addition, to date in 2010, $4.9m has been invested increasing Hochschild's stake to 35.9%. On an outstanding basis, Hochschild´s interest increased from 37.4% to 37.7% in 2010.
2 On a fully diluted basis, Hochschild's equity interest at 31 December 2009 was 25.0%. In addition, to date in 2010, $9.5m has been invested, increasing Hochschild's stake to 26.7%. On an outstanding basis, Hochschild´s interest increased from 27.0% to 28.7% in 2010.
3 Main operations are Arcata, Pallancata and San José. Resource life of mine includes the Company's reported reserves
4 Gross proceeds
5 Restated to reflect changes in the depreciation calculation (see note 2)
Eduardo Hochschild, Executive Chairman of Hochschild Mining commented:
"This has been a year of delivery for Hochschild with strong financial results and an excellent operational performance. We have delivered record production, exceeded our cost reduction target with an 11% saving and decreased administrative expenses by 26%. We delivered on our M&A strategy with continued investments in Lake Shore Gold and Gold Resource Corp as well as the acquisition of Southwestern Resources. We have made solid progress on exploration with resource life of mine extending to 7.1 years and Azuca's resources almost doubling to 44.1 million silver equivalent ounces.
It is with regret that the board has accepted the resignation of Miguel Aramburú, CEO, who is leaving Hochschild for personal reasons, and Ignacio Rosado, CFO, who is leaving to further develop his career by pursuing a CEO role. I would like to thank them both for their enormous dedication over a number of years as well as for their contribution in delivering yet another strong set of results.
I would like to welcome Ignacio Bustamante and Ramón Barúa as CEO and CFO, respectively. Both are experienced, well qualified professionals who will continue to develop and deliver our strategy going forward.
With a sound financial position, experienced management team and a positive outlook for precious metals, we are well placed to continue to deliver our long term growth strategy."
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A conference call will be held at 9.30am (London time) on Wednesday 24 March 2010 for analysts and investors.
Dial in details as follows:
UK (& International) +44 (0) 203 003 2666
A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone numbers:
UK +44 (0) 208 198 1996
Access code: 7993057#
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Enquiries:
Hochschild Mining plc
Isabel Lütgendorf +44 (0)20 7907 2934
Head of Investor Relations
Ignacio Rosado +511 437 6007
Chief Financial Officer
Finsbury
Faeth Birch
Robin Walker +44 (0)20 7251 3801
Public Relations
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About Hochschild Mining plc:
Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L for Reuters / HOC LN for Bloomberg) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over forty years' experience in the mining of precious metal epithermal vein deposits and currently operates five underground epithermal vein mines, four located in southern Peru, one in southern Argentina and one open pit mine in northern Mexico. Hochschild also has numerous long-term prospects throughout the Americas. For further details, please visit the Company's website at www.hochschildmining.com.
Chairman's Statement
After implementing a number of measures to deal with challenging market conditions in 2008, we entered 2009 with a firm focus on producing profitable ounces and a clear strategy for growth. Now, 12 months later, I am proud to say that 2009 has been a year of delivery for Hochschild Mining. Our strategy is supported by three pillars - organic, M&A, and exploration growth and we have delivered in each area with record production, continued strategic investments and an expanding portfolio of assets.
Operationally, we are as strong as ever with five mines in three countries, producing a total of 24.6 million ounces of silver and 211.6 thousand ounces of gold. Our results continue to benefit from the plant expansions completed at the end of 2008, which increased capacity by 29%. A continued focus on cost control has resulted in an impressive 11% decrease in unit cost per tonne at our underground mines, demonstrating management's ability to adapt quickly to changes in the price environment.
On the M&A side, we supported the merger between Lake Shore Gold Corporation ("Lake Shore Gold") and West Timmins Mining ("WTM") investing a further $91.1 million in the enlarged company6 and bringing our ownership to 38% on an outstanding basis. We have also delivered on our strategy by continuing to invest in Gold Resource Corporation ("GRC"), which started production in early 2010. The two companies have impressive production targets and, in aggregate, have a market capitalisation of $1,463.3 million, valuing Hochschild's stakes at $504.5 million7.
This has also been a year of delivery for our exploration team, with Azuca doubling resources to 44.1 million silver equivalent ounces and Crespo reporting resources of 44.7 million silver equivalent ounces, following extensive drilling campaigns. Azuca has the potential to be our next mine and an addition to our Peruvian operational cluster. We are in the process of initiating a scoping study at this project.
Resource life of mine (which includes reserves) for our three main operations; Arcata, Pallancata and San José increased by 20% from 5.9 to 7.1 years, whilst reserve life of mine has been maintained at 3.3 years. Our total attributable resource tonnage including all our operations, main projects and investments8, has more than doubled from 20.7 million to 43.6 million whilst contained silver equivalent ounces, on an attributable basis, increased from 313.4 million to 402.8 million.
We have delivered a strong set of financial results with revenue for the year up 24% to $539.7 million. Operating profit more than doubled to $153.6 million and, as a consequence, pre-exceptional EPS has increased from $0.05 to $0.17. Our results were also significantly impacted by $44.7 million of exceptional items, including a one-off gain of $42.3 million relating to the Lake Shore Gold/WTM transaction, bringing our post exceptional EPS to $0.31. Higher realised prices combined with lower costs allowed operating cash flow to more than double to $200.5 million.
In October 2009, we successfully raised $260 million9 through an equity placing and bond offering which provided us with increased financial flexibility and funded some of the investments mentioned above. Our ability to raise capital during a time when financial markets have been relatively unstable reflects investor support for our strategy and confidence in our growth prospects.
We continue to enjoy a healthy balance sheet with a year end cash balance of $77.8 million. This, in conjunction with cash generated from our operations will allow us to pursue our growth strategy going forward.
Organic growth
I am very proud to say that we have continued to deliver on our production targets since the IPO. 2009 was our best year so far, with record attributable production of 28.2 million attributable silver equivalent ounces - consolidating our position as the world's third largest primary silver producer. Results were particularly strong at Pallancata, where both silver and gold production doubled year-on-year and at San José, where silver and gold production increased 14% and 42% respectively.
Whilst we delivered on production, management were also particularly focused on cost control, and as mentioned above, unit cost per tonne decreased by 11% during the year. Including Moris, our only open pit mine, the reduction was even more impressive with a 15% saving. We have also lowered our administrative
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6 Amount invested from December 2009 to March 2010 following completion of the Lake Shore Gold/WTM transaction
7 As at 19 March 2010 on an outstanding basis
8 Arcata, Pallancata, San José, Moris, Ares, Azuca, Crespo, Lake Shore Gold, Inmaculada and San Felipe
9 Gross proceeds
expenses by $17.7 million, including a 28% reduction in personnel expenses and a 34% decrease in professional fees.
M&A growth
In 2009, we continued to execute our cluster consolidation strategy by securing bolt-on acquisitions, joint ventures and strategic investments in a number of key mining districts, investing a total of $239.5 million during the year.
As I mentioned earlier, Lake Shore Gold and GRC are important strategic investments for Hochschild and provide exposure to impressive production potential and long term growth.
We were fully supportive of Lake Shore Gold's merger with WTM which created the new large-scale, wholly-owned Timmins West Gold Mine Complex, an extension of the world class Timmins gold mining trend. Lake Shore Gold has announced an updated production target of 65,000 ounces of gold (3.9 million silver equivalent ounces) in 2010, building production over the following three years with the potential to produce 350,000 ounces (21 million silver equivalent ounces) by 2013.
To date, we have invested $63.5 million in GRC, increasing our ownership to 29%10. Our investment in the company gives us access to high grade, low cost ounces expanding our operational cluster in southern Mexico, a mining friendly country with significant mineral potential. GRC started production in February 2010 with a production target of 70,000 ounces of gold (4.2 million silver equivalent ounces) in the first 12 months of operation.
During the year we have also completed the strategic acquisition of Southwestern Resources Corp ("SWG"), a Canadian mineral exploration company for $19.2 million. The acquisition consolidated our position in southern Peru by adding a number of early stage projects to our pipeline including Crespo and Josnitoro.
Exploration growth
In addition to the exploration success achieved at our existing operations, we are also confident about a number of projects in our pipeline which are delivering positive results.
Azuca is a 3,000 hectare project located in southern Peru, only 50km northwest of Arcata and within Hochschild's operational cluster. During 2009, we undertook 26,240 metres of drilling and doubled resources, with 3.7 million tonnes at 287.7 g/t Ag and 1.3 g/t Au. As mentioned above, Azuca has the potential to be our next mine and in 2010 we have initiated a scoping study, with a feasibility study to follow.
We have also made progress in Crespo, a low grade gold/silver disseminated deposit in our Peruvian cluster. Hochschild's drilling programme, which is focused on increasing resources, has identified significant high grade ore bodies and as at 31 December 2009, Crespo reported resources of 44.7 million silver equivalent ounces, with 17.8 million tonnes at 38.8 g/t Ag and 0.7 g/t Au.
In 2009, we also made progress at Victoria in northern Chile, which is part of a partnership with Iron Creek Capital Corp. During the year, 28 drill holes totalling 7,626 metres were completed and anomalous gold and silver mineralisation was encountered in all drill holes with significant intercepts.
Responsible mining
Efficient operations can only be achieved through good community support and we are dedicated to maintaining the highest standards of corporate and social responsibility. We are committed to the safety of all our employees and have made significant progress over the past year. In 2009, we reduced our accident frequency rate by 9% compared to 2008. Nonetheless, it is with deep regret that I report three mine fatalities in 2009. We have addressed the underlying safety deficiencies that led to the occurrence of these tragic events and we continue to view any fatalities as unacceptable.
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10 On a fully diluted basis, Hochschild's equity interest at 31 December 2009 was 25.0%. In addition, during 2010, $9.5m has been invested, increasing Hochschild's stake to 26.7%. On an outstanding basis, Hochschild´s interest increased from 27.0% to 28.7% in 2010
Board and management changes
During the year we welcomed a new Non Executive Director, Fred Vinton, to the Board. Fred has over 30 years' banking and commercial experience and brings a wide range of knowledge and skills to Hochschild.
It is with sadness that the Board has accepted the resignation of Miguel Aramburú, who wishes to step down as CEO for personal reasons, with effect from 1 April 2010. I would like to thank Miguel for his enormous contribution to the Company over the last fifteen years and particularly his successful tenure as CEO. I also want to thank him for his dedication to the business and, personally speaking, for his friendship over this period. Ignacio Bustamante, COO, will succeed Miguel Aramburú as CEO and as an Executive Director from 1 April 2010. Ernesto Balarezo, currently head of our Peruvian operations will assume the role of VP of Operations with effect from 1 April 2010.
The board also regrettably announces that it has accepted the resignation of Ignacio Rosado, CFO, who is leaving the Company with effect from 31 May 2010 to develop his career further by pursuing a CEO role. During his tenure as CFO, Ignacio has played a key role in the execution of Hochschild's strategy ensuring a strong financial platform and the continued delivery of the Company's objectives. I would also like to thank Ignacio for his significant contribution over the years and I wish him well in his future career. Ignacio will be succeeded by Ramón Barúa, currently CEO of Fosfatos del Pacifico and previously General Manager of Hochschild's Mexican operations.
I would also like to take this opportunity to thank all our employees for the hard work that has enabled Hochschild to progress its strategic goals.
Dividend
The board has declared a final dividend of $0.02per ordinary share resulting in a total dividend for the year of $0.04 per ordinary share. We will keep dividend policy under review in accordance with the capital availability and requirements of the business.
Outlook
We entered 2010 with a solid foundation for continued growth and a positive precious metals outlook. Our production target for 2010 is 29 million silver equivalent ounces. Production from existing operations is expected to be 26.3 million attributable silver equivalent ounces comprising approximately 17.6 million ounces of silver and 145,000 ounces of gold. The target also includes 2.7 million silver equivalent ounces from our interests in Lake Shore Gold and GRC.
In 2010, the Company expects Arcata's silver grades to be at similar levels to Q409 as accessible mine areas will continue to have narrower veins and changing geotechnical conditions. As anticipated, production and grades at the Company's ageing mine Ares will continue to decline, with closure expected in the second half of 2010.
We take an extremely rigorous approach to managing costs that are within our control and we are currently undertaking a number of initiatives which will contribute to cost containment. However, management expects an increase in unit cost per tonne at our underground mines of around 10% in 2010, mostly as a result of inflation related to labour and supply costs. At Ares, given the ageing nature of the deposit, operating costs are expected to increase through to its expected closure in the second half of 2010.
The Company is pleased to announce that it is significantly increasing its exploration spend from $28.6 million in 2009 to $50 million in 2010. The exploration programme will focus on extending the life of Hochschild's existing operations and identifying high-quality, early stage precious metal projects which will provide cost effective growth.
With $77.8 million in cash at the end of 2009, we are in a sound financial position and well placed to deliver our long term growth strategy. Our focus will continue to be on producing profitable ounces and expanding the business through appropriate investment and acquisition.
Eduardo Hochschild
Executive Chairman
23 March 2010
OPERATING REVIEW
Production
Hochschild successfully achieved its full year production target, producing a record 28.2 million attributable silver equivalent ounces in 2009, representing an 8% increase year-on-year. This comprises 18.8 million attributable ounces of silver, up 11% and 156.8 thousand attributable ounces of gold, up 3%.
Attributable silver production was primarily driven by strong performance at our main mines (Arcata, Pallancata and San José), which benefited from the expansions successfully completed in the second half of 2008. The increase in attributable gold production was also primarily a result of the above, partially offset by declining production at Ares.
Life of mine
Hochschild remains committed to maximising the life of its main underground operations with the long term objective of achieving a minimum 8 year total resource life, including a 4 year reserve life. To support this goal, the Company is increasing its investment in brownfield exploration to $20 million in 2010.
As at 31 December 2009, resource life of mine (which includes reserves) increased by 20% from 5.9 to 7.1 years, whilst reserve life of mine has been maintained at 3.3 years11. Our total attributable resource tonnage including all our operations, main projects and investments12, has more than doubled from 20.7 million to 43.6 million whilst contained silver equivalent ounces, on an attributable basis, increased from 313.4 million to 402.8 million.
Main operations
Arcata: Peru
Production and sales
Arcata, Hochschild's flagship silver mine, enjoyed another successful year with silver and gold production up 6% and 19% respectively. These increases were driven primarily by the plant expansion completed in 2008 which increased capacity by 46% to 1,750 tonnes per day.
In 2009, Arcata's concentrate production was sold to Cormin, Louis Dreyfus, Teck, Korea Zinc, MRI Trading AG and a small fraction to Doe Run.
| Total production | 12 mths 2009 | 12 mths 2008 | % change |
| Ore production (tonnes) | 643,059 | 557,870 | 15 |
| Average head grade silver (g/t) | 503 | 571 | -12 |
| Average head grade gold (g/t) | 1.56 | 1.53 | 2 |
| Concentrate produced (tonnes) | 22,352 | 20,639 | 8 |
| Silver grade in concentrate (kg/t) | 13.36 | 13.94 | -4 |
| Gold grade in concentrate (kg/t) | 0.04 | 0.04 | - |
| Silver produced (koz) | 9,542 | 9,032 | 6 |
| Gold produced (koz) | 28.64 | 24.04 | 19 |
| Silver sold (koz) | 8,748 | 8,564 | 2 |
| Gold sold (koz) | 26.02 | 22.36 | 16 |
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11 Reserve life of mine relates to Hochschild's three main underground operations: Arcata, Pallancata and San José. 2008 numbers have been restated to reflect 2009 capacity.
12 Arcata, Pallancata, San José, Moris, Ares, Azuca, Crespo, Lake Shore Gold, Inmaculada and San Felipe
Exploration
The drilling programme at Arcata delivered positive results in 2009 with the discovery of three new mineralised structures in close proximity to the property's existing Mariana vein. The Company continues to increase resources at the Ramal, Julia and Soledad veins through diamond drilling.
The focus for the 2010 brownfield programme will be to evaluate new targets and develop resources in areas where potential mineralisation was identified in 2009.
| Stated on an attributable basis | As at 31 December 2009 | As at 31 December 2008 | % change |
| Resources | 4.56 mt @ 456 g/t Ag & 1.42 g/t Au | 3.94 mt @ 583 g/t Ag & 1.75 g/t Au |
|
| Resource (moz Ag eq) | 79.4 | 87.2 | (9%) |
| Reserves | 1.87 mt @ 417 g/t Ag & 1.31 g/t Au | 1.61 mt @ 541 g/t Ag & 1.62 g/t Au |
|
| Reserve (moz Ag eq) | 29.8 | 33.1 | (10%) |
Pallancata: Peru
Production and sales
Pallancata, which commenced production in 2007, is a joint venture with International Minerals Corporation ("IMC") in which Hochschild controls 60% and is the mine operator. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing, demonstrating the Company's cluster consolidation strategy.
Pallancata recorded strong results in 2009 with silver and gold production doubling year-on-year to 8,420 koz of silver and 31.97 koz of gold. This was mainly a result of the plant expansion completed in 2008 which increased Selene's processing capacity from 2,000 to 3,000 tonnes per day, as well as the use of Selene's full capacity to process the ore from Pallancata.
In 2009 the silver/gold concentrate from Pallancata was sold to Teck and Aurubis.
| Total production[1] | 12 mths 2009 | 12 mths 2008 | % change |
| Ore production (tonnes) | 922,521 | 468,125 | 97 |
| Average head grade silver (g/t) | 327 | 312 | 5 |
| Average head grade gold (g/t) | 1.43 | 1.49 | -4 |
| Concentrate produced (tonnes) | 7,684 | 4,265 | 80 |
| Silver grade in concentrate (kg/t) | 34.09 | 30.54 | 12 |
| Gold grade in concentrate (kg/t) | 0.13 | 0.12 | 8 |
| Silver produced (koz) | 8,420 | 4,188 | 101 |
| Gold produced (koz) | 31.97 | 16.16 | 98 |
| Silver sold (koz) | 8,147 | 3,852 | 112 |
| Gold sold (koz) | 29.77 | 14.81 | 101 |
1 The Company has a 60% interest in Pallancata.
Exploration
At Pallancata in Peru, the Company is mainly focused on the newly discovered eastern extension of the main Pallacata vein and on the Virgen del Carmen vein. Wide spaced drilling at the Pallancata east vein defined mineralisation with intercepts including 3 metres at 829 g/t of silver and 2.5 g/t of gold. Underground mine preparation is progressing well with the Santa Angela ramp scheduled for completion in June 2010.
The focus for the 2010 brownfield programme will be to define resources along the Pallancata east vein and to explore new targets.
| Stated on an attributable basis | As at 31 December 2009 | As at 31 December 2008 | % change |
| Resources | 3.97 mt @ 409 g/t Ag & 1.73 g/t Au | 3.32 mt @ 411 g/t Ag & 1.68 g/t Au |
|
| Resource (moz Ag eq) | 65.3 | 54.6 | 20% |
| Reserves | 2.35 mt @ 354 g/t Ag & 1.52 g/t Au | 2.58 mt @ 366 g/t Ag & 1.51 g/t Au |
|
| Reserve (moz Ag eq) | 33.5 | 37.8 | (11%) |
San José: Argentina
Production and sales
The Group's operation in Argentina, San José, commenced production in 2007 and is a joint venture with Minera Andes in which Hochschild controls 51% and acts as the mine operator.
San José reported strong results in 2009, with production up 14% and 42% year on year, for silver and gold respectively. This is mainly a result of the plant expansion undertaken in 2008, which doubled capacity from 750 to 1,500 tonnes per day and also due to the high grade Kospi vein, which was brought into production at the end of June 2009. The Kospi vein contributed over 80,000 tonnes of ore to the mine's production and is positively impacting the grade profile of the operation.
In 2009, the doré produced at San José was sold to Argor Heraeus S.A. and Johnson Matthey Inc. The concentrate produced at the operation was sold to Cormin, Aurubis and LS-Nikko.
| Total production1 | 12 mths 2009 | 12 mths 2008 | % change |
| Ore production (tonnes) | 460,971 | 295,963 | 56 |
| Average head grade silver (g/t) | 398 | 559 | -29 |
| Average head grade gold (g/t) | 6.19 | 6.69 | -7 |
| Silver produced (koz) | 4,998 | 4,381 | 14 |
| Gold produced (koz) | 77.08 | 54.26 | 42 |
| Silver sold (koz) | 5,072 | 4,588 | 11 |
| Gold sold (koz) | 77.22 | 57.70 | 34 |
1The Company has a 51% interest in San José.
Exploration
In Argentina, the Company has discovered two new split vein systems of the Kospi and Ayelen structures at San José which are rapidly being drilled to increase the resource and reserve base of the operation. Results included 1.5 metres at 1,376 g/t silver and 60.9 g/t gold and 1 metre at 655 g/t silver and 5.8 g/t gold.
The focus for the 2010 brownfield programme will be to evaluate the new Aguas Vivas target located 10 kilometres from the San José operation, to develop resources at the Saavedra target and to extend knowledge of the vein geology.
| Stated on an attributable basis | As at 31 December 2009 | As at 31 December 2008 | % change |
| Resources | 2.26 mt @ 406 g/t Ag & 6.08 g/t Au | 1.68 mt @ 467 g/t Ag & 7.30 g/t Au |
|
| Resource (moz Ag eq) | 56.1 | 49.0 | 14% |
| Reserves | 0.78 mt @ 454 g/t Ag & 7.32 g/t Au | 0.83 mt @ 522 g/t Ag & 7.90 g/t Au |
|
| Reserve (moz Ag eq) | 22.3 | 26.7 | (16%) |
Other operations
Ares: Peru
Production and sales
As anticipated and previously disclosed, the average reserve grade at Ares is declining due to the geological nature of the deposit and the ageing of the mine and, as a consequence, gold and silver production decreased 34% and 41% respectively year on year. In line with the Company's focus on producing profitable ounces, Ares is expected to close in the second half of 2010.
Ares produces 100% doré, all of which was sold to Johnson Matthey in 2009.
| Total production | 12 mths 2009 | 12 mths 2008 | % change |
| Ore production (tonnes) | 341,273 | 347,910 | -2 |
| Average head grade silver (g/t) | 96 | 157 | -39 |
| Average head grade gold (g/t) | 4.17 | 6.06 | -31 |
| Doré total (koz) | 947 | 1,608 | -41 |
| Silver produced (koz) | 900 | 1,538 | -41 |
| Gold produced (koz) | 42.59 | 64.16 | -34 |
| Silver sold (koz) | 873 | 2,398 | -64 |
| Gold sold (koz) | 41.82 | 77.44 | -46 |
Moris: Mexico
Production and sales
Moris, which is 100% owned, is the Group's only open pit mine and provided a key stepping stone into Mexico, which is of key strategic importance to the Group. Moris produced 97 thousand ounces of silver and 28.34 thousand ounces of gold in 2009 and has an estimated one year mine life, with expected closure in 2011.
In 2009, all of the gold/silver doré produced at Moris was sold to Johnson Matthey.
| Total production | 12 mths 2009 | 12 mths 2008 | % change |
| Ore production (tonnes) | 1,282,461 | 876,148 | 46 |
| Average head grade silver (g/t) | 5.02 | 5.71 | -12 |
| Average head grade gold (g/t) | 1.38 | 1.57 | -12 |
| Silver produced (koz) | 97 | 65 | 49 |
| Gold produced (koz) | 28.34 | 26.85 | 6 |
| Silver sold (koz) | 87 | 68 | 28 |
| Gold sold (koz) | 26.29 | 28.01 | -6 |
Selene: Peru
Production and sales
As previously reported, Selene's mine ceased production at the end of May 2009 due to the high level of capital expenditure required to extract profitable ounces. Selene's plant, which was upgraded during the year, continues to process ore from the Pallancata operation, which is located approximately 22 kilometres from Selene.
In 2009, approximately a quarter of Selene's production was converted into doré at the Ares plant and sold to Johnson Matthey. The remaining production was treated as concentrate and sold on a spot basis primarily to Aurubis and Teck.
| Total production1 | 12 mths 2009 | 12 mths 2008 | % change |
| Ore production (tonnes) | 109,893 | 269,150 | -59 |
| Average head grade silver (g/t) | 217 | 210 | 3 |
| Average head grade gold (g/t) | 1.09 | 1.21 | -10 |
| Concentrate produced (tonnes) | 1,057 | 3,201 | -67 |
| Silver grade in concentrate (kg/t) | 18.55 | 15.04 | 23 |
| Gold grade in concentrate (kg/t) | 0.09 | 0.08 | 13 |
| Silver produced (koz) | 628 | 1,579 | -60 |
| Gold produced (koz) | 3.02 | 8.50 | -64 |
| Silver sold (koz) | 636 | 1,929 | -67 |
| Gold sold (koz) | 2.96 | 9.93 | -70 |
1Selene was closed on 28 May 2009
ACQUISITIONS & INVESTMENTS
Growth through investment and acquisition is a key element of Hochschild's strategy. The Company has maintained its disciplined approach in 2009, focusing on high grade, underground precious metals assets in the Americas, which have the potential to create long term shareholder value. The Company is continually evaluating opportunities with particular interest in existing operational clusters: the highlands of southern Peru, southern Mexico, the Argentine Patagonia, northern Chile and the Timmins region in Canada, as well as in other new mineral rich regions of the Americas.
In October 2009, the Company undertook a successful capital raising to provide the increased financial flexibility to pursue its acquisition strategy and during the year secured a number of strategic investments with a total spend of $239.5 million:
Lake Shore Gold
In August 2009, Lake Shore Gold Corp. ("Lake Shore Gold"), announced a definitive business combination agreement to acquire all of the outstanding common shares of West Timmins Mining Inc. ("WTM"). The transaction created the new large-scale, wholly-owned Timmins West Gold Mine Complex, an extension of the world class Timmins gold mining trend which has supplied approximately 70 million ounces of gold over the last century. As a result of the business combination, Hochschild's 40% stake in Lake Shore Gold was diluted to approximately 27% (on an outstanding basis).
In line with its stated strategy, Hochschild invested a further $172.8 million13 in Lake Shore Gold following the announcement of the WTM transaction, increasing its stake to 38% (36% on a fully diluted basis). This included the purchase of WTM shares totalling $63.8 million.
Lake Shore Gold is progressing towards commercial gold production at its Timmins Mine, expected during the fourth quarter of 2010, and is advancing towards its objective of becoming a mid-tier gold producer. Lake Shore Gold has announced an updated production target of 65,000 ounces of gold (3.9 million silver equivalent ounces) in 2010, building production over the following three years with the potential to produce 350,000 ounces (21 million silver equivalent ounces) by 2013.
Since its initial acquisition in February 2008, Hochschild has invested a total of $336.9 million in Lake Shore Gold reflecting its confidence in the significant production potential and long-term growth of the company. Lake Shore Gold has a current market capitalisation of approximately $936.4 million, valuing Hochschild's investment at $353.0 million.13
Lake Shore Gold is an important strategic investment for Hochschild and it maintains three positions on the company's board.
Gold Resource Corp
In 2009, Hochschild invested $49.0 million in Gold Resource Corporation ("GRC"), increasing its ownership from 5% to 27% (on an outstanding basis). In March 2010, the Company further increased its ownership to 29% bringing its total investment in the Company to $63.5 million. GRC is an underground precious metals mining company with a number of prime development projects in Mexico's southern state of Oaxaca,including a 100% interest in five potential high-grade gold and silver properties. This additional investment increases Hochschild's exposure to GRC's high grade, low cost ounces and expands the Company's southern Mexico operational cluster.
GRC commenced production from its El Aguila operation in February 2010 and has a stated production target of 70,000 ounces of gold (4.2 million silver equivalent ounces) in the first year of operation. In addition, GRC is accelerating the underground mine development at Arista, a gold and silver polymetalic deposit which is one of three high grade deposits discovered to date at the El Aguila project.
GRC has a current market capitalisation of approximately $526.9 million, valuing Hochschild's investment at $151.4 million14. GRC is also an important strategic investment for Hochschild and it maintains one position on the company's board.
Southwestern Resources Corp
_______________________________
13 Amount invested from August 2009 to March 2010 following announcement of the Lake Shore Gold/WTM merger. In 2009, the Company invested $168m. In 2010, the Company invested $4.9 million
14 As at 19 March 2010 on an outstanding basis
In March 2009, Hochschild completed the strategic acquisition of Southwestern Resources Corp ("SWG"), a Canadian mineral exploration company for $19.2 million. The acquisition consolidated the Company's position in southern Peru by adding a number of early stage gold, silver and base metals projects to its pipeline including 100% ownership of the Liam property, of which the Company originally acquired a 50% interest in August 2008. The 282,000 hectare land package is in close proximity to Hochschild's existing operational cluster: Arcata, Ares andPallancata and therefore enables the Group to leverage existing infrastructure and knowledge of the regional geology.
Hochschild's exploration team is currently evaluating numerous exploration targets at Liam as well as other properties included in the acquisition, and is progressing drilling in areas which have reported positive results, including Crespo and Cristo Los Andes.
The SWG land package included an increased stake in the Pacapausa project which comprises 7,933 hectares of exploration concessions and is a potential satellite source of material for Hochschild's Pallancata operation as well as 50% of Millo, a high grade deposit located adjacent to Hochschild's 100% owned Azuca project.
The SWG acquisition also included a 37% stake in Zincore Metals Inc ("Zincore"), a listed mining exploration company with zinc projects in Peru. On 5 March 2010, Hochschild divested its interest in Zincore for total proceeds of C$10.3 million as it did not constitute a core asset for the Company. The purchase of SWG also included minor stakes in Empire Petroleum, Northern Superior and Lara Exploration, which have a combined value of $2.0 million15, as well as in copper projects Jasperoide and Alpacocha.
Other acquisitions & investments
During the year, the Company also undertook a number of smaller investments in early stage exploration companies and joint ventures which provide the potential for cost effective future growth.
In October 2009, Hochschild signed an agreement with Mariana Resources in which it already holds an 11% stake following its $1.5 million investment in December 2008. The agreement builds on the relationship between the two companies and provides Hochschild with additional exposure to a number of Mariana's projects.
Under the terms of the agreement, Hochschild has the right to explore three adjoining prospective gold and silver properties totalling 13,455 hectares, located in the Santa Cruz area in the western sector of the Deseado Massif in southern Argentina. These tenements consist of Mariana's Amigos I and Amigos II license areas and Hochschild's San Augustin joint venture property with Iamgold which are located approximately 110 kilometres south of the Company's San José operation. Hochschild can increase its interest to 70% by committing 60% of the $3 million exploration budget within two years and by taking the project to a pre-feasibility stage.
_______________________________
15 As at February 2010
EXPLORATION REVIEW
Exploration is a vital part of Hochschild's growth strategy and the Company continues to commit significant investment to its geological programme. In 2009, the Company invested $28.6 million in this area and is increasing spend to $50 million in 2010.
Hochschild's exploration is focused in two areas; mine-site exploration & advanced projects (brownfield), which is aimed at increasing reserves and resources at a low cost per ounce, and early stage exploration (greenfield), which focuses on finding new, high-quality deposits.
Brownfield exploration
In addition to Hochschild's mine site exploration programme, which is focused in and around the Company's current mines, the Company also invests in other advanced stage projects, either located in or around one of the Group's existing clusters or in new mining friendly districts. The Company currently has two projects located within its southern Peru operational cluster:
Azuca
Azuca is a 100% owned project located in southern Peru, near the Company's existing operational cluster. Mineralisation is present in intermediate sulfidation silver and gold epithermal quartz veins. The Company is moving the project towards a scoping study and during 2009 undertook 26,240 metres of drilling achieving a significant increase in its resource base to 3.7 million tonnes at 288 g/t silver and 1.3 g/t gold, corresponding to 44.1 million silver equivalent ounces. Azuca's location, 50 kilometres from Hochschild's Arcata operation, could realise economies of scale due to the close proximity of existing plant and transport infrastructure.
Crespo
The Crespo project in southern Peru is 100% owned as a result of the Southwestern acquisition in 2009. Crespo is a low grade gold and silver disseminated deposit with 17.8 million tonnes at 38.8 g/t silver and 0.7 g/t gold, corresponding to 44.7 million silver equivalent ounces. Hochschild's drilling program, which is focused on increasing resources, reported the best historical intercept of the project with 76 metres at 1.0 g/t Au and 95 g/t Ag, including 7.4 metres at 11.9 g/t Au and 1,050 g/t Ag. Further drilling will be undertaken in 2010 to increase resources along strike of this high-grade intercept. Underground workings will help delineate the ore geometry, evaluate the high grade irregular ore bodies identified in the drilling and complete metallurgical testing towards a scoping study.
Greenfield exploration
The Company is continually evaluating new opportunities throughout Argentina, Chile, Mexico and Peru and has an extremely active project pipeline.
Projects enter the Company's pipeline either by way of internal discovery or through joint venture and are subject to a strict evaluation process to ensure that investment is targeted towards quality assets that will ultimately be brought to production. All opportunities are ranked and prioritised based on specific criteria and any project that does not meet the Company's requirements is farmed out or dropped. Projects are either 100% owned or allow Hochschild to earn into majority ownership over time.
Victoria
In Q409, Hochschild reported positive drilling results at the Vaquillas target in northern Chile, which is part of the Victoria project with Iron Creek Capital Corpwhere Hochschild has the right to earn-in 60% by completing $6 million of work on the property. The project lies along the prolific Domeyko fault zone in Region II, 120 kilometres east of the costal town of Taltal. During 2009, 28 drill holes totalling 7,626 metres were completed which, together with previous drilling results, suggest that the Vaquillas project has potential for high-grade gold and silver veins, as well as bulk-tonnage low-grade gold and silver mineralisation. In December 2009, the Victoria project, which covers 29,050 hectares,was expanded to include Iron Creek's remaining properties in their adjoining porphyry copper project, representing an additional 17,000 hectares.
In addition, Hochschild will advance various early stage projects in southern Peru, such as Josnitoro, Astana Farallón and Cerro Blanco. In Argentina, the Company is focused in the Patagonia region and commenced drilling at the La Flora project in late 2009 with the Mosquito and Los Pinos vein systems following in 2010. In central Mexico, Hochschild is undertaking work in early exploration projects and is expecting to complete a first pass drilling programme at Mercurio.
FINANCIAL REVIEW
Key performance indicators:
(before exceptional items, unless otherwise indicated)
| US$(000) unless otherwise indicated | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Net Revenue | 539,741 | 433,779 | 24% |
| Attributable silver production (koz) | 18,754 | 16,941 | 11% |
| Attributable gold production (koz) | 157 | 153 | 3% |
| Cash costs ($/oz Ag co-product)1 | 7.11 | 7.05 | 1% |
| Cash costs ($/oz Au co-product)1 | 476 | 469 | 1% |
| Adjusted EBITDA2 | 249,869 | 142,292 | 76% |
| Earnings per share3 | $0.17 | $0.05 | 240% |
| Earnings per share (after exceptionals)3 | $ 0.31 | $(0.08) | n/a |
| Cash flow from operating activities | 200,524 | 78,641 | 155% |
| Reserve life of mine (years)4 | 3.3 | 3.3 | - |
1 Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales.
2 Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax plus depreciation, amortisation and exploration costs other than personnel and other expenses.
3 2008 EPS figures have been restated to reflect changes in the depreciation calculation (see note 2).
4 Reserve life of mine relates to our three main underground operations: Arcata, Pallancata and San Jose.2008 figure was restated to reflect the Pallancata´s 2009 capacity.
The reporting currency of Hochschild Mining plc is U.S. dollars. In our discussion of financial performance we remove the effect of exceptional items, unless otherwise indicated, and in our income statement we show the results both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years.
Revenue
Gross revenue: Gross revenue from continuing operations increased 27% to $589.9 million in 2009 (2008: $463.4 million) as a result of higher production and higher metal prices during the year.
Silver: Gross revenue from silver increased 32% in 2009 to $382.4 million (2008: $288.8 million) as a result of increased production following the H208 capacity expansions at Arcata, Pallancata and San José, as well as higher prices. The total amount of silver ounces sold in 2009 was 23,563 koz (2008: 20,593 koz).
Gold: Gross revenue from gold increased 19% in 2009 to $207.5 million (2008: $174.6 million) also as a result of increased production following capacity expansions at Arcata, Pallancata and San José as well as higher prices. The total amount of gold ounces sold in 2009 was 204.1 koz (2008: 198.3 koz).
Commercial discounts: Commercial discounts primarily refer to refinery charges for processing mineral ore and are discounted from revenue on a per tonne or per ounce basis. In 2009, the Group recorded commercial discounts of $50.4 million, up $20.3 million on 2008. This was as a result of the capacity expansions completed in 2008 which led to higher volumes and, consequently, higher commercial discounts at Pallancata and San José. In addition, the Company experienced higher treatment charges at Arcata. Consequently, the ratio of commercial discounts to gross revenue in 2009 increased to 8.5% (2008: 6.5%). For 2010, the company has secured improved commercial terms relating to concentrate sales.
Net revenue: Revenue from continuing operations, net of commercial discounts, increased by 24% to $539.7 million, comprising silver revenue of $341.5 million and gold revenue of $198.0 million. In 2009, silver accounted for 63% and gold 37% of the Company's consolidated revenue compared to 61% and 39% respectively in 2008.
Revenue by mine
| US$(000) unless otherwise indicated | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Silver revenue |
|
|
|
| Arcata | 141,816 | 119,284 | 19% |
| Ares | 13,038 | 38,196 | (66%) |
| Selene | 8,805 | 29,168 | (70%) |
| Pallancata | 139,125 | 48,207 | 189% |
| San José | 78,352 | 52,942 | 48% |
| Moris | 1,245 | 992 | 26% |
| Commercial discounts | (40,904) | (24,712) | 66% |
| Net silver revenue | 341,477 | 264,077 | 29% |
| Gold revenue |
|
|
|
| Arcata | 27,364 | 20,344 | 35% |
| Ares | 40,278 | 67,899 | (41%) |
| Selene | 2,819 | 8,714 | (68%) |
| Pallancata | 32,443 | 13,214 | 146% |
| San José | 79,430 | 40,095 | 98% |
| Moris | 25,195 | 24,380 | 3% |
| Commercial discounts | (9,492) | (5,423) | 75% |
| Net gold revenue | 198,037 | 169,223 | 17% |
|
|
|
|
|
| Other revenue1 | 227 | 479 | (53%) |
| Net revenue | 539,741 | 433,779 | 24% |
|
|
|
|
|
1Other revenue includes revenue from base metal components in the concentrate sold from the Arcata mine net of commercial discounts and revenue from sale of energy.
Net average realised sale prices1
|
| Twelve months to 31 December 2009 | Twelve months to 31 December 2008 | % change |
| Silver ($/oz) | $14.49 | $12.82 | 13% |
| Gold ($/oz) | $970.33 | $853.28 | 14% |
1Net average realisable prices include commercial discounts.
Costs
Hochschild is committed to producing profitable ounces and diligently controlling costs. The Company committed to reducing unit cost per tonne at its underground operations by 5% in 2009 and has exceeded this target with a full year reduction of 11%, bringing unit cost from $79.7 in 2008 to $71.2 in 2009. Including Moris, the Group's only open pit mine, unit cost per tonne decreased 15% to $51.1.
These savings are mainly a result of the economies of scale achieved by the capacity expansions completed last year and cost control measures implemented during the year as well as external factors such as the devaluation of local currencies.
Depreciation and amortisation within production cost increased to $83.4 million (2008: $59.6 million) as a consequence of higher capital expenditure and higher throughput related to the significant expansions completed by the Group in the last three years. During the year the depreciation calculations were amended and the 2008 depreciation charge was restated.
Cash costs
Co-product cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales. Silver/gold cash costs are total cash costs multiplied by the percentage of revenue from silver/gold, divided by the number of silver/ gold ounces sold in the year.
Silver and gold cash costs increased from $7.05 to $7.11 per ounce and $469 to $476 per ounce respectively. The increase was mainly explained by higher commercial discounts and selling expenses and lower extracted grades.
By-product cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales. Silver/gold cash costs are total cash costs less revenue from gold/silver, divided by the number of silver/gold ounces sold in the year. By-product cash costs for the period were $2.43 per silver ounce (2008: $3.08 per ounce) and ($576) per gold ounce (2008: ($256) per gold ounce).
Administrative expenses
Administrative expenses before exceptional items decreased by 26% from $68.8 million to $51.1 million as a result of the measures undertaken by management at the end of 2008 to reduce expenses and preserve cash. These included a 28% reduction in personnel expenses, which decreased from $35.5 to $25.4 million and a 34% reduction in professional fees, decreasing from $10.0 to $6.6 million.
Exploration expenses
Exploration expenses, which primarily relate to greenfield exploration, decreased to $19.9 million in 2009 (2008: $23.8 million) as a result of the Group's decision to reduce expenditure and preserve cash following the deterioration in market conditions at the end of 2008.
In addition to exploration expenses, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the inferred or measured and indicated category. In 2009, the Group capitalised $8.6 million relating to brownfield exploration compared to $6.7 million in 2008.
The Company is pleased to announce that it is significantly increasing its total exploration planned expenditure (including greenfield and brownfield investment) by 75% to $50 million in 2010. The exploration programme will focus on identifying high-quality, early stage precious metal projects which will provide cost effective growth and also on extending the life of Hochschild's existing operations.
Selling expenses
Selling expenses increased to $21.0 million (2008: $11.3 million) mainly as a result of the higher volume of concentrate sold at San José and Pallancata. The increase was also a result of higher export duties relating to higher production and metal prices in San José (export duties in Argentina are levied at 10% of revenue for concentrate and 5% of revenue for doré).
Other income/expenses
Other income before exceptional items decreased marginally from $5.0 million in 2008 to $4.5 million in 2009.
Other expenses before exceptional items increased to $19.3 million (2008: $8.2 million) and are mainly comprised of a non cash $11.8 million increase in the provision for mine closure relating to Selene and Sipan and other expenses such as a labour contingency ($1.8 million), a loss on sale of other assets ($1.6 million) and provision for obsolescence of supplies ($1.1 million).
Profit from continuing operations
Profit from continuing operations before exceptional items, net finance costs and income tax increased to $153.6 million (2008: $70.1 million) as a result of the effects detailed above.
Impact of the Group's investments in joint ventures and associates
An associate is an entity in which Hochschild has significant influence but not control. The Group accounts for the following entities as associates: Lake Shore Gold (35.7%)16, GRC (25.0%)1, Zincore (36.8%), Cabo Sur (51%) and Minas Pacapausa (80%). The Group's investments in associates are accounted for using the equity method of accounting.
Hochschild's share of the profit after tax of the associate totalled $7.6 million in 2009 compared to an $8.2 million loss in 2008. The 2009 profit included a $9.2 million gain in Lake Shore Gold mainly due to a progressive decrease in the statutory income tax rate in Canada and the subsequent impact on the deferred tax liability recognised on Hochschild's acquisitions of Lake Shore Gold and Lake Shore Gold's acquisition of WTM. This gain was partially offset by the share of net losses in GRC ($1 million) and Zincore ($0.4 million).
Adjusted EBITDA
Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax excluding depreciation, amortisation and exploration costs other than personnel and other expenses. Adjusted EBITDA increased by 76% over the period to $249.9 million (2008: $142.3 million) primarily driven by higher sales, lower costs and lower administrative expenses, which were partially offset by higher selling and other expenses.
| US$(000) unless otherwise indicated | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax |
153,600 |
70,101 |
119% |
| Operating margin | 28% | 16% |
|
| Depreciation and amortisation in cost of sales |
85,789 |
57,540 |
49% |
| Depreciation and amortisation in administrative expenses |
796 |
1,125 |
(29%) |
| Exploration expenses | 19,941 | 23,841 | (16%) |
| Personnel and other exploration expenses |
10,257 |
10,315 | (1%) |
| Adjusted EBITDA | 249,869 | 142,292 | 76% |
| Adjusted EBITDA margin | 46% | 33% |
|
Finance income
Finance income before exceptional items decreased by 32% to $6.4 million (2008: $9.4 million) mainly as a result of the lower rate of interest on the Company's liquidity funds. In 2009, the Company reported a weighted average annual effective interest rate of 0.71% on these funds compared to 3.98% in 2008.
Finance costs
Finance costs before exceptional items of $46.0 million (2008: $18.8 million) include a realised loss of $26.0 million relating to the Group's 2009 forward sales contracts. It also includes an unrealised loss of $2.5 million
_______________________________
16 On a fully diluted basis.
relating to the Company's 2010 'zero cost collar' which was secured in mid 2009 to ensure an ongoing level of cash flow stability. The collar relates to 5.2 million ounces of the Company's 2010 silver production with an average 'floor' at $12.7/oz and an average 'cap' at $19.7/oz.
The company recorded an interest expense of $15.6 million related mainly to the outstanding syndicated loan ($114.3 million) and the convertible bond issued in August 2009 ($115 million). In July 2009, the Group fixed the interest rate on the syndicated loan at 2.75%.
Foreign exchange losses
The Group recognised a foreign exchange loss of $0.3 million (2008: $7.2 million loss) as a result of transactions in currencies other than the functional currency.
Income tax
The Company's pre-exceptional effective tax rate decreased to 36.8% in 2009 (2008: 54.7%) mainly as a result of:
(i) A lower proportion of non-deductible expenses and non-recognised tax losses to profit before income tax
(ii) A lower negative tax effect from the conversion of the tax bases of local currencies to US dollars
(iii) A non taxable gain of $6.8 million in Hochschild´s share on results of associates
(iv) A gain of $4.2 million as a result of tax restructuring in Mexico
These effects were partially offset by
(v) A $2.4 million provision related to tax credits in the Project Finance loan in Santa Cruz. (See note 7, (8) for further details).
(vi) A negative tax effect of $5.5 million due to lower expenses allowed for double deductions in Argentina. (See note 7, (i) for further details).
(vii) A negative impact of $3.5 million related to the increase in mine closure provision.
In addition, the post-exceptional effective tax rate decreased to 21.6% (2008: 847.6%) primarily driven by a non-taxable income of $74.4 million in 2009 including a $42.3 million gain from the merger between Lake Shore Gold and WTM, a $12.1 million gain on the exchange of WTM shares for Lake Shore Gold shares, a $7.7 million gain on the Southwestern acquisition and finance income of $7.4 million relating to GRC.
Exceptional items
Exceptional items totalled $44.7 million after tax (2008: ($42.0 million). This mainly includes:
Positive exceptional items principally include:
|
| $ | Description of main ítems |
| Impact of the Group's investments in joint ventures and associates
| 39.6 million | In November 2009, Lake Shore Gold acquired all of the outstanding common shares of WTM creating a new large-scale, wholly-owned Timmins West Gold Mine Complex. As a consequence of this all-share transaction, Hochschild's 40.0% stake in Lake Shore Gold was diluted to approximately 26.1%. Upon completion of the business combination between Lake Shore Gold and WTM, Lake Shore Gold´s equity value increased by $386 million. As a result, Hochschild recognised an exceptional gain of $42.3 million in 2009, reflecting its share of the increased equity value of Lake Shore Gold, net of the loss on the dilution of Hochschild's interest in Lake Shore Gold.
In December, after the Group acquired an additional interest in Lake Shore Gold of 3.9%, Lake Shore Gold issued a package of shares, options and warrants. As a result, Hochschild´s stake of 36.1% was diluted to 35.7% and the Group recognised an exceptional loss of $4.5 million. |
| Finance Income | 22.3 million | The Company reported finance income of $28.7 million (2008: $13.3 million) due to the $12.1 million gain generated from the exchange of shares held in West Timmins Mining for shares in Lake Shore Gold and the $7.4 million gain realised from the exercise of options held in GRC. (See note 6 for further details). |
| Other income | 8.8 million | Other income increased to $13.3 million (2008: $5.3 million). This was mainly generated due to a gain of $7.7 million arising from the acquisition of Southwestern Resources as a result of the difference between the total acquisition cost of $19.3 million and the fair value of the net assets of $26.9 million on the acquisition date. |
Negative exceptional items principally include:
|
| $ | Description of main ítems |
| Impairment of fixed assets1
| 26.7 million |
In 2009, Hochschild has recorded a total impairment charge before tax of $26.7 million, mainly as a result of:
Ares - The Group has impaired the carrying amount of the assets related to the Ares mine by $15.3 million, due to the mine's expected closure in the second half of 2010 and the resulting revision to the remaining recoverable reserves and resources.
Liam - In the first half of 2009, the Liam property was written down by $10.0 million following a reassessment of the value of the property which was acquired in August 2008 for a total consideration of $33.3 million.
Selene - As a result of the closure of the Selene mine in June 2009, the Company has written down the remaining net book value of assets of $4.8 million.
Reversal of impairment - In June 2009, the Company reported an impairment charge of $5.7 million for Moris due to the small reserve and resource base at the operation. However, following the positive price environment during the year, this impairment has been reversed and the Company is therefore reporting an exceptional gain of $3.4 million.
After tax, the total impairment charge was $17.7 million representing an impact of $0.06 on EPS.
|
| Cost of sales | $6.9 million | One-off bonus paid to workers at the Peruvian mines as a result of the negotiations with workers which were successfully resolved in March 2009 |
1 Impairment testing should be performed at an individual asset or cash-generating unit level. As required by IFRS, the Group conducts an impairment review on an annual basis every time any goodwill was allocated to an asset and every time indicators of impairment exist. Impairment indicators include: declines in metal prices; increases in costs, royalties or taxes; falling grades; lower reserves; production cut backs and significant project development over-runs. The presence of one or more indicators does not necessarily mean that the asset would be impaired but that it must be tested for impairment. See notes 9 & 10 for further details.
Cash flow & balance sheet review:
Cash flow:
| $ thousands | 12 months ended 31 December 2009 | 12 months ended 31 December 2008 | Change |
| Net cash generated from operating activities | 200,524 | 78,641 | 155% |
| Net cash used in investing activities | (373,021) | (475,790) | (22%) |
| Cash flows generated/(used) in financing activities | 134,443 | 212,728 | (37%) |
| Net (decrease)/increase in cash and cash equivalents during the period | (38,054) | (184,421) | (79%) |
Total cash decreased to $38.1 million (2008: $184.4 million) driven by significant M&A activity. This was partially offset by strong operating cashflow as well as the capital raising undertaken in October 2009.
Cash flow from operating activities increased 155% to $200.5 million (2008 $78.6 million) as a consequence of higher production and prices and lower production costs and administrative expenses.
Cash outflows used in investing activities of $373.0 million (2008: $475.8 million) were comprised of investment in M&A, which totalled $239.5 million including $168.0 million in Lake Shore Gold, $49.0 million in Gold Resource Corp and $19.2 million in Southwestern Resources. In addition, the Company invested ($141.0 million) in PP&E.
Cash generated from financing activities increased to $134.4 million (2008: $212.7 million) as a result of the capital raising completed in October 2009 which included gross proceeds of $145 million from the equity placing and $115 million from the convertible bond offering. This was partially offset by Hochschild's repayment of $85.7 million of its $200 million syndicated loan.
Working capital:
| $ millions | 12 months ended 31 December 2009 | 12 months ended 31 December 2008 |
|
| Trade and other receivables | 168.0 | 162.0 |
|
| Inventories | 45.8 | 51.9 |
|
| Derivative financial instruments | (1.9) | 5.6 |
|
| Income tax | (10.8) | 14.3 |
|
| Trade and other payables | (135.2) | (124.9) |
|
| Working capital | 66.0 | 108.8 |
|
The Company's working capital position decreased to $66.0 million (2008: $108.8 million), primarily as a result of higher trade and income tax payables.
Net debt:
| US$(000) unless otherwise indicated | As at 31 December 2009 | As at 31 December 2008 |
| Cash and cash equivalents | 77,844 | 116,147 |
| Long term borrowings | 219,681 | 231,692 |
| Short term borrowings less pre-shipment loans | 84,158 | 48,410 |
| Net debt/(net cash) | 225,995 | 163,955 |
Net debt increased to $226.0 million (2008: $164.0 million) as a result of the issuance of the $115 million convertible bond, partially offset by the $85.7 million repayment of the Company's $200 million syndicated loan and lower cash balance as a consequence of a strong M&A activity.
Capital expenditure1
| US$(000) unless otherwise indicated | Year ended 31 December 2009 | Year ended 31 December 2008 |
| Arcata | 29,688 | 43,977 |
| Ares | 3,484 | 10,438 |
| Selene | 16,579 | 47,226 |
| Pallancata1 | 24,117 | 14,619 |
| San José1 | 26,113 | 80,398 |
| Moris1 | 480 | 2,234 |
| San Felipe1 | 150 | 63,318 |
| Other | 7,924 | 49,061 |
| Total | 108,535 | 311,271 |
1 Includes additions in property, plant and equipment and evaluation and exploration assets and excludes increases in closure of mine assets.
2009 capital expenditure of $108.5 million (2008: $311.3 million) includes mine developments of $51.0 million, equipment of $48.9 million and exploration of $8.6 million. The year-on-year decrease is mainly explained by the completion of capacity expansions at the Company's Arcata, Pallancata and San José operations in 2008.
Mine closure provision
The Group has updated its mine closure provision from $39.0 million to $61.3 million, partly as a result of the plant expansions completed in 2008 and also to ensure that it continues to fully comply with government requirements. From the $22.3 million increase, $11.8 million refers to mines that are already closed and is recorded under other expenses in the income statement, whilst $15.2 million refer to current operations and is recorded under provisions in the statement of financial position. These effects were partially offset by the expenditure in mine rehabilitation during the year and the change in discount rate. (See note 13 for further details).
Dividends:
The directors recommend a final dividend of $0.02 per ordinary share which, subject to shareholder approval at the 2010 AGM, will be paid on 27 May 2010 to those shareholders appearing on the register on 30 April 2010. If approved, this will result in a total dividend for the year of $0.04 per share. Dividends are declared in US dollars. Unless a shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend converted into pound sterling at exchange rates prevailing at the time of payment. Our dividend policy takes into account the profitability of the business and the underlying growth in earnings of the Company, as well as its capital requirements and cash flow.
| Dividend dates | 2010 |
| Ex-dividend date | 28 April |
| Record date | 30 April |
| Deadline for return of currency election forms | 4 May |
| Payment date | 27 May |
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A conference call will be held at 9.30am (London time) on Wednesday 24 March 2010 for analysts and investors.
Dial in details as follows:
UK (& International) +44 (0) 203 003 2666
A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone numbers:
UK +44 (0) 208 198 1996
Access code: 7993057#
_____________________________________________________________________
Enquiries:
Hochschild Mining plc
Isabel Lütgendorf +44 (0)20 7907 2934
Head of Investor Relations
Ignacio Rosado +511 437 6007
Chief Financial Officer
Finsbury
Robin Walker +44 (0)20 7251 3801
Public Relations
__________________________________________________________________
About Hochschild Mining plc:
Forward looking Statements
This announcement contains certain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its current goals, assumptions and expectations relating to its future financial condition, performance and results.
Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.
Directors The names and biographical details of the Directors serving at the date of this report are listed in the 2009 Annual Report.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
- the Management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Consolidated income statement
For the year ended 31 December 2009
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| Year ended 31 December 2009 | Year ended 31 December 2008 |
| ||||||
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| Notes | Before exceptional items US$000 | Exceptional items US$000 | Total US$000 | (Restated)1 Before exceptional items US$000 | (Restated)1 Exceptional items US$000 | (Restated)1 Total US$000 | |||
| Continuing operations |
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|
|
|
|
|
| |||
| Revenue |
| 539,741 | - | 539,741 | 433,779 | - | 433,779 | |||
| Cost of sales |
| (279,298) | (6,918) | (286,216) | (256,608) | (234) | (256,842) | |||
| Gross profit |
| 260,443 | (6,918) | 253,525 | 177,171 | (234) | 176,937 | |||
| Administrative expenses |
| (51,068) | - | (51,068) | (68,751) | (1,127) | (69,878) | |||
| Exploration expenses |
| (19,941) | (1,049) | (20,990) | (23,841) | (69) | (23,910) | |||
| Selling expenses |
| (21,005) | - | (21,005) | (11,257) | - | (11,257) | |||
| Other income | 5 | 4,501 | 8,782 | 13,283 | 5,025 | 252 | 5,277 | |||
| Other expenses | 5 | (19,330) | (1,247) | (20,577) | (8,246) | (1,984) | (10,230) | |||
| Impairment and write-off of assets (net) | 9 | - | (26,713) | (26,713) | - | (30,212) | (30,212) | |||
| Profit from continuing operations before net finance income/(cost), foreign exchange loss and income tax |
| 153,600 | (27,145) | 126,455 | 70,101 | (33,374) | 36,727 | |||
| Share of post tax losses of associates and joint ventures accounted under equity method | 4,11 | 7,617 | 39,606 | 47,223 | (8,214) | - | (8,214) | |||
| Finance income | 6 | 6,384 | 22,300 | 28,684 | 9,382 | 3,914 | 13,296 | |||
| Finance costs | 6,12 | (46,040) | (1,256) | (47,296) | (18,833) | (18,088) | (36,921) | |||
| Foreign exchange loss |
| (256) | - | (256) | (7,161) | - | (7,161) | |||
| Profit/(loss) from continuing operations before income tax |
| 121,305 | 33,505 | 154,810 | 45,275 | (47,548) | (2,273) | |||
| Income tax expense | 7 | (44,688) | 11,218 | (33,470) | (24,767) | 5,500 | (19,267) | |||
| Profit/(loss) for the year from continuing operations |
| 76,617 | 44,723 | 121,340 | 20,508 | (42,048) | (21,540) | |||
| Attributable to: |
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|
|
|
|
| |||
| Equity shareholders of the Company |
| 52,892 | 45,188 | 98,080 | 15,782 | (40,500) | (24,718) | |||
| Minority shareholders |
| 23,725 | (465) | 23,260 | 4,726 | (1,548) | 3,178 | |||
|
|
| 76,617 | 44,723 | 121,340 | 20,508 | (42,048) | (21,540) | |||
| Basic earnings per Ordinary Share from continuing operations and for the year (expressed in US dollars per share) | 8 | 0.17 | 0.14 | 0.31 | 0.05 | (0.13) | (0.08) | |||
| Diluted earnings per Ordinary Share from continuing operations and for the year (expressed in US dollars per share) | 8 | 0.17 | 0.14 | 0.31 | 0.05 | (0.13) | (0.08) | |||
1 Certain numbers shown here do not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 2.
Consolidated statement of comprehensive income
For the year ended 31 December 2009
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| Year ended 31 December | ||
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| Notes | 2009 US$000 | 2008 US$000 |
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| Profit for the year |
| 121,340 | (21,540)1 |
|
| Other comprehensive income |
|
|
|
|
| Exchange differences on translating foreign operations |
| 25,707 | (43,079) |
|
| Change in fair value of available-for-sale financial assets |
| 4,313 | (1,454) |
|
| Recycling of the gain on Fortuna Silver Mines |
| (623) | (1,613) |
|
| Change in fair value of cash flow hedges taken to equity |
| (13) | - |
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| Share in gains directly recognised in equity by associates |
| - | 620 |
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| Income tax relating to components of other comprehensive income |
| 71 | 664 |
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| Other comprehensive income for the period, net of tax |
| 29,455 | (44,862) |
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| Total comprehensive income for the year |
| 150,795 | (66,402) |
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| Total comprehensive income attributable to |
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|
|
|
| Equity shareholders of the Company |
| 127,558 | (69,373) |
|
| Minority interests |
| 23,237 | 2,971 |
|
|
|
| 150,795 | (66,402) |
|
1 This number shownhere does not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 2.
Consolidated statement of FINANCIAL POSITION
As at 31 December 2009
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| Notes | As at 31 December 2009 US$000 | (Restated)1 As at 31 December 2008 US$000 | (Restated)1 As at 1 January 2008 US$000 |
| ASSETS |
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| Non-current assets |
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|
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| Property, plant and equipment | 9 | 438,958 | 416,565 | 243,027 |
| Evaluation and exploration assets | 10 | 55,828 | 44,726 | 6,034 |
| Intangible assets |
| 22,425 | 2,668 | 2,896 |
| Investments accounted under equity method | 11 | 450,665 | 136,019 | - |
| Available-for-sale financial assets |
| 19,181 | 17,794 | 15,100 |
| Trade and other receivables |
| 3,150 | 38,304 | 25,518 |
| Income tax receivable |
| 1,302 | 802 | 616 |
| Deferred income tax assets |
| 15,852 | 21,811 | 26,162 |
|
|
| 1,007,361 | 678,689 | 319,353 |
| Current assets |
|
|
|
|
| Inventories |
| 45,813 | 51,855 | 47,628 |
| Trade and other receivables |
| 164,864 | 123,726 | 134,180 |
| Income tax receivable |
| 9,280 | 14,470 | 1,003 |
| Financial assets at fair value through profit and loss |
| 695 | 5,569 | 8,039 |
| Cash and cash equivalents |
| 77,844 | 116,147 | 301,426 |
|
|
| 298,496 | 311,767 | 492,276 |
| Total assets |
| 1,305,857 | 990,456 | 811,629 |
| EQUITY AND LIABILITIES |
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| Capital and reserves attributable to shareholders of the Parent |
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| Equity share capital |
| 158,637 | 146,466 | 146,466 |
| Share premium |
| 395,928 | 395,928 | 395,928 |
| Other reserves |
| (212,921) | (250,831) | (205,556) |
| Retained earnings |
| 385,700 | 167,767 | 220,072 |
|
|
| 727,344 | 459,330 | 556,910 |
| Minority interest |
| 76,126 | 66,293 | 49,769 |
| Total equity |
| 803,470 | 525,623 | 606,679 |
| Non-current liabilities |
|
|
|
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| Trade and other payables |
| 81 | 627 | 859 |
| Borrowings | 12 | 219,681 | 231,692 | 55,209 |
| Provisions | 13 | 55,176 | 37,687 | 30,821 |
| Deferred income tax liabilities |
| 10,662 | 9,192 | 8,837 |
|
|
| 285,600 | 279,198 | 95,726 |
| Current liabilities |
|
|
|
|
| Trade and other payables |
| 68,501 | 82,291 | 52,176 |
| Financial liabilities at fair value through profit and loss |
| 2,640 | - | - |
| Borrowings | 12 | 112,908 | 98,070 | 33,169 |
| Provisions | 13 | 11,405 | 4,277 | 13,029 |
| Income tax payable |
| 21,333 | 997 | 10,850 |
|
|
| 216,787 | 185,635 | 109,224 |
| Total liabilities |
| 502,387 | 464,833 | 204,950 |
| Total equity and liabilities |
| 1,305,857 | 990,456 | 811,629 |
1 Certain numbers shown here do not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 2.
These financial statements were approved by the Board of Directors on 23 March 2010 and signed on its behalf by:
Ignacio RosadoChief Financial Officer
23 March 2010
Consolidated statement of cash flows
For the year ended 31 December 2009
|
|
| Year ended 31 December | |
|
| Notes | 2009 US$000 | (Restated)1 2008 US$000 |
| Cash flows from operating activities |
|
|
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| Cash generated from operations |
| 215,698 | 102,167 |
| Interest received |
| 1,041 | 7,512 |
| Interest paid |
| (12,902) | (4,302) |
| Payments of mine closure costs |
| (2,831) | (1,476) |
| Tax paid |
| (482) | (25,260) |
| Net cash generated from operating activities |
| 200,524 | 78,641 |
| Cash flows from investing activities |
|
|
|
| Purchase of property, plant and equipment |
| (116,009) | (296,027) |
| Purchase of evaluation and exploration assets |
| (8,636) | - |
| Acquisition of subsidiary | 4 | (19,246) | - |
| Investment in an associate | 4 | (216,943) | (164,211) |
| Purchase of available-for-sale financial assets |
| (1,857) | (19,240) |
| Purchase of intangibles |
| (16,330) | (37) |
| Proceeds from sale of available-for-sale financial assets |
| 3,861 | 3,321 |
| Proceeds from sale of property, plant and equipment |
| 2,139 | 392 |
| Other |
| - | 12 |
| Net cash used in investing activities |
| (373,021) | (475,790) |
| Cash flows from financing activities |
|
|
|
| Proceeds of borrowings | 12 | 285,461 | 484,041 |
| Repayment of borrowings | 12 | (277,185) | (257,300) |
| Transaction costs associated with borrowing |
| (3,568) | (2,408) |
| Acquisition of minority interest | 4 | (1,500) | - |
| Dividends paid |
| (20,048) | (28,531) |
| Proceeds from issue of ordinary shares under Global offer |
| 143,621 | - |
| Transaction costs associated with issue of shares |
| (3,453) | - |
| Capital contribution from minority shareholders |
| 11,115 | 16,926 |
| Cash flows generated from financing activities |
| 134,443 | 212,728 |
| Net decrease in cash and cash equivalents during the year |
| (38,054) | (184,421) |
| Exchange difference |
| (249) | (858) |
| Cash and cash equivalents at beginning of year |
| 116,147 | 301,426 |
| Cash and cash equivalents at end of year |
| 77,844 | 116,147 |
1 Certain numbers shown here do not correspond to the 2008 financial statements and reflect adjustments made as detailed in note 2.
Consolidated statement of changes in equity
For the year ended 31 December 2009
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| Other reserves |
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| Notes |
| Equity share capital US$000 |
| Share premium US$000 |
| Unrealised gain/(loss) on available-for-sale financial assets and initial valuation of hedging US$000 |
| Bond equity component US$000 |
| Cumulative translation adjustment US$000 |
| Merger reserve US$000 |
| Total Other reserves US$000 |
| Retained earnings US$000 |
| Capital and reserves attributable to shareholders of the Parent US$000 |
| Minority interest US$000 |
| Total equity US$000 |
| Balance at 1 January 2008 as reported |
|
| 146,466 |
| 395,928 |
| 1,862 |
| - |
| 2,628 |
| (210,046) |
| (205,556) |
| 229,202 |
| 566,040 |
| 50,008 |
| 616,048 |
| Adjustments due to restatement of financial statements |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (9,130) |
| (9,130) |
| (239) |
| (9,369) |
| Balance at 1 January 2008, restated |
|
| 146,466 |
| 395,928 |
| 1,862 |
| - |
| 2,628 |
| (210,046) |
| (205,556) |
| 220,072 |
| 556,910 |
| 49,769 |
| 606,679 |
| Other comprehensive loss/income |
|
| - |
| - |
| (2,272) |
| - |
| (43,003) |
| - |
| (45,275) |
| 620 |
| (44,655) |
| (207) |
| (44,862) |
| Profit for the year |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (24,718) |
| (24,718) |
| 3,178 |
| (21,540) |
| Total comprehensive loss for 2008 |
|
| - |
| - |
| (2,272) |
| - |
| (43,003) |
| - |
| (45,275) |
| (24,098) |
| (69,373) |
| 2,971 |
| (66,402) |
| Dividends |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (28,331) |
| (28,331) |
|
|
| (28,331) |
| Adjustment to deferred consideration1 |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 1,220 |
| 1,220 |
| Expiration of dividends payable |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 124 |
| 124 |
| 4 |
| 128 |
| Capital contribution from minority shareholders |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 12,329 |
| 12,329 |
| Balance at 31 December 2008, restated |
|
| 146,466 |
| 395,928 |
| (410) |
| - |
| (40,375) |
| (210,046) |
| (250,831) |
| 167,767 |
| 459,330 |
| 66,293 |
| 525,623 |
| Other comprehensive loss/income |
|
| - |
| - |
| 3,736 |
| - |
| 25,742 |
| - |
| 29,478 |
| - |
| 29,478 |
| (23) |
| 29,455 |
| Profit for the year |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 98,080 |
| 98,080 |
| 23,260 |
| 121,340 |
| Total comprehensive loss/income for 2009 |
|
| - |
| - |
| 3,736 |
| - |
| 25,742 |
| - |
| 29,478 |
| 98,080 |
| 127,558 |
| 23,237 |
| 150,795 |
| Issuance of shares |
|
| 12,171 |
| - |
| - |
| - |
| - |
| 127,997 |
| 127,997 |
| - |
| 140,168 |
| - |
| 140,168 |
| Transfer to retained earnings |
|
| - |
| - |
| - |
| - |
| - |
| (127,997) |
| (127,997) |
| 127,997 |
| - |
| - |
| - |
| Issuance of convertible bond |
|
| - |
| - |
| - |
| 8,432 |
| - |
| - |
| 8,432 |
| - |
| 8,432 |
| - |
| 8,432 |
| Purchase of shares from minority interest | 4 |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 4,150 |
| 4,150 |
| (5,650) |
| (1,500) |
| Dividends declared during the year |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (12,294) |
| (12,294) |
|
|
| (12,294) |
| Dividends paid to minority interest |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (7,754) |
| (7,754) |
| Balance at 31 December 2009 |
|
| 158,637 |
| 395,928 |
| 3,326 |
| 8,432 |
| (14,633) |
| (210,046) |
| (212,921) |
| 385,700 |
| 727,344 |
| 76,126 |
| 803,470 |
1. This amount represents the increase in the minority interests share of the assets of Pallancata, following the Group's investment during the year 2008 in accordance with the agreement signed with Minera Oro Vega S.A.C.
Notes to the consolidated financial statements
For the year ended 31 December 2009
The financial information for the year ended 31 December 2009 and 2008 contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the years ended 31 December 2009 and 2008 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2009 which have been approved by the directors on 23 March 2009 and will be delivered to the Registrar of Companies in due course. The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006.
1. Significant accounting policies
The accounting policies adopted in the preparation of the financial information are consistent with those applied to the year ended 31 December 2008 except for the adoption of new and amended standards and the retrospective restatement for change to the depreciation calculation (see note 2).
(a) Adoption of new and amended standards
The accounting policies adopted are consistent with those of the previous financial year except for the adoption of new and amended standards.
The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group.
- IFRS 8 'Operating Segments' applicable for annual periods beginning on or after 1 January 2009.
The Group concluded that the operating segments determined in accordance with IFRS 8 were different in comparison with 2008 segments reported.
- IAS 23 Amendment, 'Borrowing Costs', applicable for annual periods beginning on or after 1 January 2009.
The Group has adopted the standard on a prospective basis. It did not have an impact on the financial position or performance of the Group.
- IAS 1 'Presentation of Financial Statements', applicable for annual periods beginning on or after 1 January 2009.
The most important change was the obligation to include the statement of comprehensive income.
- IFRS 2 'Amendment to IFRS 2 - Vesting Conditions and Cancellations', applicable for annual periods beginning on or after 1 January 2009.
It did not have an impact on the financial position or performance of the Group.
- IAS 32 and IAS 1 Amendment 'Puttable Financial Instruments and Obligations Arising on Liquidation', applicable for annual periods beginning on or after 1 January 2009.
It did not have an impact on the financial position or performance of the Group.
- IFRS 1 and IAS 27 Amendment 'Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate', applicable for annual periods beginning on or after 1 January 2009.
It did not have an impact on the financial position or performance of the Group.
- 2008 Annual Improvements to IFRS, applicable for annual periods beginning on or after 1 January 2009.
These amendments had no impact on the financial performance of the Group as they only affected the disclosure of financial information.
- IFRIC 16 'Hedges of a Net Investment in a Foreign Operation', applicable for annual periods beginning on or after 1 October 2008.
It did not have an impact on the financial position or performance of the Group.
- IFRS 7 'Financial Instruments: Disclosures', applicable for annual periods beginning on or after 1 January 2009.
The main change was related to the disclosure of hierarchy of financial instruments at fair value.
- IFRIC 13 'Customer Loyalty Programmes', applicable for periods beginning on or after 1 July 2008.
It did not have an impact on the financial position or performance of the Group.
- IFRIC 15 'Agreements for the Construction of Real Estate', applicable for periods beginning on or after 1 January 2009.
It did not have an impact on the financial position or performance of the Group.
- IFRIC 18 'Transfer of Assets from Customers', applicable to assets transferred on or after 1 July 2009.
It did not have an impact on the financial position or performance of the Group.
- IAS 39 & IFRS 7 Amendments 'Reclassification of Financial Instruments', applicable for periods beginning on or after 1 July 2008.
It did not have an impact on the financial position or performance of the Group.
- IAS 39 Amendment 'Reclassification of Financial Assets: Effective Date and Transition', applicable for periods beginning on or after 1 July 2008.
It did not have an impact on the financial position or performance of the Group.
- IFRIC 9 & IAS 39 Amendments 'Embedded Derivatives', applicable for periods ending on or after 30 June 2009.
It did not have an impact on the financial position or performance of the Group.
2. retrospective restatement for change to DEPRECIATION calculation
The Group applies the unit of production depreciation methodology in the calculation of depreciation of its mine assets. When this approach was adopted in connection with the Group's listing during 2006, as the future capital expenditure associated with developing the undeveloped reserves and resources was not significant to the calculation, these depreciation calculations included only the future costs of converting resource to reserve. Since the listing, the Group has extended both the life, and throughput, of certain mines, and has opened, and subsequently expanded, two new mines. These actions, which were completed in 2009, have led to an increase in the amount of undeveloped resources, and a disproportionate increase to the associated future capital expenditure required to develop and access these reserves and resources.
As a result of these changed circumstances, during the year management identified that the existing depreciation calculations were no longer effectively matching costs to production in the manner in which the unit of production approach is designed. Consequently the depreciation calculations were revised to include all the future capital expenditure associated with developing these reserves and resources. Management believes that this revision will enable improved matching of costs to production in the relevant period, and thereby will better reflect the Group's economic performance.
As required by IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', the Group has retrospectively applied this revised depreciation methodology by adjusting the comparative financial information contained in these financial statements. The effect of this prior year, non-cash restatement on each of the primary financial statements is as follows:
| Pre exceptional consolidated income statement | (Reported) Year ended 31 December 2008 US$000 | (Restated) Year ended 31 December 2008 US$000 | Effect of restatement US$000 |
| Continuing operations |
|
|
|
| Cost of sales | (240,441) | (256,608) | (16,167) |
| Gross profit | 193,338 | 177,171 | (16,167) |
| Profit from continuing operations before net finance income/(cost), foreign exchange (loss)/gain and income tax | 86,268 | 70,101 | (16,167) |
| Profit from continuing operations before income tax | 61,442 | 45,275 | (16,167) |
| Income tax expense | (29,762) | (24,767) | 4,995 |
| Profit/(Loss) for the year from continuing operations | 31,680 | 20,508 | (11,172) |
| Attributable to: |
|
|
|
| Equity shareholders of the Company | 24,643 | 15,782 | (8,861) |
| Minority shareholders | 7,037 | 4,726 | (2,311) |
| Basic and diluted earnings per ordinary share from continuing operations and for the year (expressed in US dollars per share) | 0.08 | 0.05 | (0.03) |
| Consolidated income statement | (Reported) Year ended 31 December 2008 US$000 | (Restated) Year ended 31 December 2008 US$000 | Effect of restatement US$000 |
| Continuing operations |
|
|
|
| Cost of sales | (240,675) | (256,842) | (16,167) |
| Gross profit | 193,104 | 176,937 | (16,167) |
| Impairment of property, plant and equipment | (34,706) | (30,212) | 4,494 |
| Profit from continuing operations before net finance income/(cost), foreign exchange (loss)/gain and income tax | 48,400 | 36,727 | (11,673) |
| Profit from continuing operations before income tax | 9,400 | (2,273) | (11,673) |
| Income tax expense | (22,914) | (19,267) | 3,647 |
| Loss for the year from continuing operations | (13,514) | (21,540) | (8,026) |
| Attributable to: |
|
|
|
| Equity shareholders of the Company | (19,003) | (24,718) | (5,715) |
| Minority shareholders | 5,489 | 3,178 | (2,311) |
| Basic and diluted earnings per ordinary share from continuing operations and for the year (expressed in US dollars per share) | (0.06) | (0.08) | (0.02) |
| Consolidated statement of financial position | (Reported) As at 31 December 2008 US$000 | (Restated) As at 31 December 2008 US$000 | Effect of restatement US$000 |
| ASSETS |
|
|
|
| Non-current assets |
|
|
|
| Property, plant and equipment (including evaluation and exploration assets) | 488,984 | 461,291 | (27,693) |
| Deferred income tax assets | 20,795 | 21,811 | 1,016 |
| Total non-current assets | 705,366 | 678,689 | (26,677) |
| Current assets |
|
|
|
| Inventories | 49,220 | 51,855 | 2,635 |
| Total current assets | 309,132 | 311,767 | 2,635 |
| Total assets | 1,014,498 | 990,456 | (24,042) |
| EQUITY AND LIABILITIES |
|
|
|
| Capital and reserves attributable to shareholders of the Parent |
|
|
|
| Retained earnings | 182,612 | 167,767 | (14,845) |
| Minority interest | 68,843 | 66,293 | (2,550) |
| Total equity | 543,018 | 525,623 | (17,395) |
| Non-current liabilities |
|
|
|
| Deferred income tax liabilities | 15,839 | 9,192 | (6,647) |
| Total equity and liabilities | 1,014,498 | 990,456 | (24,042) |
| Consolidated statement of financial position | (Reported) As at 1 January 2008 US$000 | (Restated) As at 1 January 2008 US$000 | Effect of restatement US$000 |
| ASSETS |
|
|
|
| Non-current assets |
|
|
|
| Property, plant and equipment (including evaluation and exploration assets) | 263,062 | 249,061 | (14,001) |
| Deferred income tax assets | 22,400 | 26,162 | 3,762 |
| Total non-current assets | 329,592 | 319,353 | (10,239) |
| Current assets |
|
|
|
| Inventories | 47,012 | 47,628 | 616 |
| Total current assets | 491,660 | 492,276 | 616 |
| Total assets | 821,252 | 811,629 | (9,623) |
| EQUITY AND LIABILITIES |
|
|
|
| Capital and reserves attributable to shareholders of the Parent |
|
|
|
| Retained earnings | 229,202 | 220,072 | (9,130) |
| Minority interest | 50,008 | 49,769 | (239) |
| Total equity | 616,048 | 606,679 | (9,369) |
| Non-current liabilities |
|
|
|
| Deferred income tax liabilities | 9,091 | 8,837 | (254) |
| Total equity and liabilities | 821,252 | 811,629 | (9,623) |
| Consolidated statement of comprehensive income | (Reported) Year ended 31 December 2008 US$000 | (Restated) Year ended 31 December 2008 US$000 | Effect of restatement US$000 |
| Profit for the year | (13,514) | (21,540) | (8,026) |
| Total comprehensive income for the year | (58,376) | (66,402) | (8,026) |
| Total comprehensive income attributable to |
|
|
|
| Equity shareholders of the Company | (63,658) | (69,373) | (5,715) |
| Minority interest | 5,282 | 2,971 | (2,311) |
This restatement was non-cash in nature, and therefore had no impact on the Consolidated cash flow statement.
The impact on the Consolidated statement of changes in equity is set out in that statement.
3. SEGMENT REPORTING
The Group's activities are principally related to mining operations which involve the exploration, production and sale of gold and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The Group has a number of activities that exist solely to support mining operations including power generation and services. Transfer prices between segments are set on an arm´s length basis in a manner similar to that used for third parties. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation.
(a) Reportable segment information
|
| Ares US$000 | Arcata US$000 | Selene US$000 | Pallancata US$000 | San José US$000 | Moris US$000 | Exploration US$000 | Other US$000 | Adjustment and eliminations US$000 | Total US$000 |
| Year ended 31 December 2009 |
|
|
|
|
|
|
|
|
|
|
| Revenue for external costumers | 53,312 | 141,574 | 10,757 | 160,416 | 147,102 | 26,440 | - | 140 | - | 539,741 |
| Inter segment revenue | - | - | - | - | - | - | - | 3,027 | (3,027) | - |
| Total revenue | 53,312 | 141,574 | 10,757 | 160,416 | 147,102 | 26,440 | - | 3,167 | (3,027) | 539,741 |
|
|
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) from continuing operations before impairment and income tax1, 2 | 18,907 | 74,922 | (2,874) | 84,810 | 41,767 | 7,674 | (24,558) | (54,560) | 8,722 | 154,810 |
|
|
|
|
|
|
|
|
|
|
|
|
| Other segment information |
|
|
|
|
|
|
|
|
|
|
| Depreciation3 | (5,362) | (19,292) | (8,235) | (15,324) | (29,510) | (4,868) | (202) | (1,129) | - | (83,922) |
| Non-cash expenses | - | - | - | - | - | - | - | (6,185) | - | (6,185) |
| Impairment of assets | (15,263) | - | (4,805) | - | - | 3,446 | (10,091) | - | - | (26,713) |
|
|
|
|
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
|
|
|
|
| Current assets | 5,239 | 21,004 | 2,708 | 51,228 | 33,190 | 8,307 | - | 1,118 | - | 122,794 |
| Capital expenditure | 3,484 | 29,688 | 16,579 | 24,117 | 26,113 | 480 | 5,778 | 2,296 | - | 108,535 |
| Other non-current assets4 | 3,630 | 43,291 | 43,995 | 31,765 | 174,057 | 9,009 | 91,322 | 11,265 | - | 408,334 |
| Total segment assets | 12,353 | 93,983 | 63,282 | 107,110 | 233,360 | 17,796 | 97,100 | 14,679 | - | 639,663 |
| Not reportable assets |
|
|
|
|
|
|
| 666,194 |
| 666,194 |
| Total assets | 12,353 | 93,983 | 63,282 | 107,110 | 233,360 | 17,796 | 97,100 | 680,873 |
| 1,305,857 |
1. The profit for each operating segment does not include administrative expenses of US$51,068,000, other income of US$13,283,000, other expenses of US$20,577,000, impairment of property, plant and equipment of US$26,713,000, share of gains of associates and joint ventures of US$47,223,000, finance income of US$28,684,000, finance cost of US$47,296,000, foreign exchange loss of US$256,000 and the positive effect of others of US$2,160,000.
2. The profit for the operating segments Ares, Arcata, Selene and Pallancata includes an exceptional item in cost of sales of US$6,918,000.
3. Includes US$11,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
4. Includes the goodwill of San José unit amounting to US$2,091,000.
(a) Reportable segment information
|
| Ares US$000 | Arcata US$000 | Selene US$000 | Pallancata US$000 | San José US$000 | Moris US$000 | Exploration US$000 | Other US$000 | Adjustments and eliminations US$000 | Total US$000 |
| Year ended 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
| Revenue for external costumers | 105,998 | 119,945 | 37,142 | 56,307 | 88,891 | 25,372 | - | 124 | - | 433,779 |
| Inter segment revenue | - | - | 163 | 1,381 | 22,805 | - | - | 5,270 | (29,619) | - |
| Total revenue | 105,998 | 119,945 | 37,305 | 57,688 | 111,696 | 25,372 | - | 5,394 | (29,619) | 433,779 |
|
|
|
|
|
|
|
|
|
|
|
|
| Profit/(loss from continuing operations before impairment and income tax1, 2,3 | 44,936 | 60,045 | 4,358 | 18,544 | 31,751 | 2,314 | (24,077) | (139,308) | (836) | (2,273) |
|
|
|
|
|
|
|
|
|
|
|
|
| Other segment information |
|
|
|
|
|
|
|
|
|
|
| Depreciation3,4 | (5,381) | (16,842) | (6,837) | (9,428) | (15,763) | (5,013) | (111) | (1,154) | - | (60,529) |
| Non-cash expenses | - | - | - | - | - | - | - | (23,975) | - | (23,975) |
| Impairment of assets3 | - | - | (9,157) | - | - | (5,652) | (15,403) | - | - | (30,212) |
|
|
|
|
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
|
|
|
|
| Current assets | 9,149 | 22,944 | 6,859 | 27,671 | 26,580 | 4,867 | - | 1,133 | - | 99,203 |
| Capital expenditure | 10,438 | 43,977 | 47,226 | 14,619 | 80,398 | 2,234 | 63,386 | 48,993 | - | 311,271 |
| Other non-current assets3,5 | 9,271 | 15,010 | 12,681 | 22,745 | 106,102 | 7,354 | 11,714 | (32,766) | - | 152,111 |
| Total segment assets | 28,858 | 81,931 | 66,766 | 65,035 | 213,080 | 14,455 | 75,100 | 17,360 | - | 562,585 |
| Not reportable assets | - | - | - | - | - | - | - | 427,871 | - | 427,871 |
| Total assets | 28,858 | 81,931 | 66,766 | 65,035 | 213,080 | 14,455 | 75,100 | 445,231 | - | 990,456 |
1. The profit for each operating segment does not include administrative expenses of US$69,878,000, other income of US$5,277,000, other expenses of US$10,230,000, impairment of assets of US$30,212,000, share of losses of associates and joint ventures of US$8,214,000, finance income of US$13,296,000, finance cost of US$36,921,000, foreign exchange loss of US$7,161,000 and the positive effect of others of US$4,735,000.
2. The profit for the operating segments Ares, Arcata, Selene and Pallancata includes an exceptional item in cost of sales of US$234,000.
3. The amounts presented have been restated due to the retrospective restatement for change to depreciation calculation disclosed in note 2.
4. Includes US$111,000 of depreciation capitalised in Minera Hochschild Mexico S.A. de C.V. due to the San Felipe project.
5. Includes the goodwill of San José unit amounting to US$2,091,000.
(b) Geographical segment reporting
Based on the entity-wide disclosure stated in IFRS 8, the revenue for the period based on the country in which the customer is located is as follows:
|
| Year ended 31 December | |
|
| 2009 US$000 | 2008 US$000 |
| External customer |
|
|
| USA | 130,126 | 130,631 |
| Peru | 159,339 | 125,171 |
| Mexico | - | 15 |
| Belgium | - | 6,011 |
| Canada | 98,960 | 50,465 |
| Germany | 84,121 | 54,570 |
| Switzerland | 57,549 | 66,883 |
| United Kingdom | 1,925 | - |
| Korea | 7,721 | - |
| Chile | - | 33 |
| Total | 539,741 | 433,779 |
| Inter-segment |
|
|
| Peru | 1,161 | 25,164 |
| Mexico | 1,866 | 4,455 |
| Total | 542,768 | 463,398 |
4. Acquisitions
(a) Acquisition of subsidiaries
Southwestern Resources Corporation
On 21 May 2009, the Group acquired a 100% interest of Southwestern Resources Corp. ("Southwestern), a mineral exploration company with a number of gold, silver and base metals projects adjacent to the Group's operations in southern Peru. The acquisition has been accounted for using the purchase method of accounting.
As at 30 June 2009, net assets were determined on a provisional basis. During the second semester of 2009 the determination of fair value has been finalised and adjustments have been made to the balances previously reported.
The net assets acquired in the transaction and the negative goodwill arising were as follows:
|
| Provisional fair value US$000 | Adjustments to fair value | Updated fair value |
| Cash and cash equivalents | 5,349 | - | 5,349 |
| Available-for-sale financial assets | 949 | - | 949 |
| Investment in associate | 1,669 | (1,308) | 361 |
| Property, plant and equipment | 24,266 | - | 24,266 |
| Other assets | 360 | (160) | 200 |
| Deferred income tax liability | (2,959) | (704) | (3,663) |
| Other current liabilities | (581) | 59 | (522) |
| Net assets | 29,053 | (2,113) | 26,940 |
| Negative goodwill arising on acquisition | (9,807) | 2,113 | (7,694) |
| Total acquisition cost | 19,246 | - | 19,246 |
The total acquisition cost of US$19,246,000 comprised a cash payment of US$19,056,000 and cost of US$190,000 directly attributable to the acquisition.
The revenue of the entity if the acquisition date was the start of the period was nil.
The loss of the entity if the acquisition date was the start of the period was US$75,073.5 Acquisitions (continued)
(b) Acquisition of associates
Lake Shore Gold Corp.
During 2008, the Group acquired a 39.99% interest in Lake Shore Gold Corp. ('Lake Shore Gold'), a gold mining company listed on the Toronto Stock Exchange for a total consideration of US$163,997,000. The acquisition was made in the following tranches:
- 19.99% acquired through a share issue on 19 February 2008 for US$64,806,000.
- 15.00% acquired through a share issue on 13 June 2008 for US$78,029,000.
- 5.00% acquired from a third party on 23 June 2008 for US$21,162,000.
The interest in Lake Shore Gold gives the Group the right to exercise significant influence over that company. In compliance with the Group's policy and IAS 28, the investment has been treated as an associate and accounted for using the equity method.
On 9 March 2009 the Group acquired 14,900,000 shares of Lake Shore for US$18,003,000 as part of its commitment to participate in the bought-deal financing agreement entered into by Lake Shore. After completion of the transaction, the Group's ownership in Lake Shore was maintained at 39.99%.
On 6 November 2009 Lake Shore Gold acquired all of the outstanding common shares of West Timmins Mining Inc. ("West Timmins") by issuing 103,951,125 common shares and 8,550,264 options and warrants. At the date of the transaction the Group held an interest of 18.40% in West Timmins (acquired between August and November of 2009 for a total consideration of US$63,782,000). As a consequence of the transaction the Group's interest in Lake Shore Gold was diluted from 39.99% to 26.10% and a net gain of US$42,279,000 was recognised as an exceptional item in the profit and loss statement within the caption "Share on post tax profit/loss of associates", refer to note 11. On the same day, 28.3 million shares held by the Group on West Timmins were converted into 20.7 million shares in Lake Shore Gold, increasing the Group's interest in Lake Shore Gold to 32.20%.
During December 2009 the Group acquired an additional interest of 3.88% for a total consideration of US$86,168,000. Also, at 31 December 2009 the accumulated interest held by the Group of 36.09% was diluted to 35.69% due to the issuance of a package of shares, options and warrants by Lake Shore Gold. The total loss recognised in connection with the dilution of US$4,493,000 is recognised as an exceptional item in the profit and loss statement within the caption "Share on post tax profit/loss of associates", refer to note 11.
Gold Resource Corporation
In connection with the Strategic Alliance Agreement signed with Gold Resource Corporation, an underground precious metals mining company with a number of development projects in Mexico, the Group purchased 1,670,000 common shares (4.9%) for US$5,010,000 on 5 December 2008. The Group also acquired an option to purchase a further 4,330,000 common shares for US$12,990,000 (US$3 per share).
On 25 February 2009, the Group exercised its option to purchase a further 4,330,000 common shares. As a result of the acquisition of the second tranche, the Group held a 13.6% interest in Gold Resource Corporation and appointed one of the four directors, giving the Group significant influence over that company. In compliance with the Group's policy and IAS 28, the investment has been treated as an associate and accounted for using the equity method since 25 February 2009.
On 30 June 2009, the Group exercised its option to purchase an additional 5,000,000 common shares for a total cash consideration of US$20,000,000.
The purchase was completed in two tranches: US$5,000,000 which closed on 30 June 2009 and a second tranche of US$15,000,000 which closed on 20 July 2009.
On 16 December 2009, the Group purchased 1,954,795 common shares for a total cash consideration of US$16,000,000. As at 31 December 2009 the Group owns a 25.0% interest in Gold Resource Corp.
(c) Acquisition of minority interest
Minas Santa Maria de Moris
On 5 June 2009, the Group acquired the remaining 30% interest in Minas Santa Maria de Moris from its former partner Exmin S.A. de C.V., obtaining full ownership of its subsidiary for a total cash consideration of US$1,500,000.
In compliance with the Group's accounting policy, the difference between the consideration paid of US$1,500,000 and the carrying value of the minority interest at the acquisition date of US$5,650,000 has been recognised as an increase of retained earnings.
The revenue of the entity in the period, if the acquisition date was the start of the period was US$26,440,000.
The profit of the entity in the period, if the acquisition date was the start of the period was US$9,074,000.
5. Other income and other expenses
|
| Year ended 31 December 2009 | Year ended 31 December 2008 |
| ||||||
|
| Before exceptional items US$000 | Exceptional items US$000 | Total US$000 | Before exceptional items US$000 | Exceptional items US$000 | Total US$000 | |||
| Other income: |
|
|
|
|
|
| |||
| Export incentive | 1,921 | - | 1,921 | 2,622 | - | 2,622 | |||
| Gain on recovery of expenses | 472 | - | 472 | 225 | - | 225 | |||
| Gain on sale of property, plant and equipment | - | 153 | 153 | - | 252 | 252 | |||
| Lease rentals | 302 | - | 302 | 217 | - | 217 | |||
| Recovery of impairment of deposits in Kaupthing, Singer and Friedlander Bank1 | - | 584 | 584 | - | - | - | |||
| Negative goodwill on acquisition of subsidiary (refer to note 4) | - | 7,694 | 7,694 | - | - | - | |||
| Reversal of Electroperu contingency2 | - | 351 | 351 |
|
|
| |||
| Other | 1,806 | - | 1,806 | 1,961 | - | 1,961 | |||
| Total | 4,501 | 8,782 | 13,3283 | 5,025 | 252 | 5,277 | |||
| Other expenses: |
|
|
|
|
|
| |||
| Increase in provision for mine closure3 | (11,526) | - | (11,526) | (3,216) | - | (3,216) | |||
| Impairment of deposits in Kaupthing, Singer and Friedlander Bank1 | - | - | - | - | (1,292) | (1,292) | |||
| Electroperu contingency2 | - | - | - | - | (692) | (692) | |||
| Cost of maintenance of equipment | - | - | - | (1,165) | - | (1,165) | |||
| Termination benefits4 | - | (662) | (662) | - | - | - | |||
| Loss on sale of other assets | (1,635) | - | (1,635) | - | - | - | |||
| Compensation claims provision5 | (1,850) | - | (1,850) | (354) | - | (354) | |||
| Provision for obsolescence of supplies6 | (1,128) | (585) | (1,713) | (634) | - | (634) | |||
| Impairment of trade receivables7 | (1,116) |
| (1,116) | (336) | - | (336) | |||
| Other | (2,075) | - | (2,075) | (2,541) | - | (2,541) | |||
| Total | (19,330) | (1,247) | (20,577) | (8,246) | (1,984) | (10,230) | |||
1 Most of those funds were recovered during 2009 and therefore an exceptional gain recognised to reverse part of the impairment recorded during 2008 In 2008, this amount represents the impairment of cash deposits with Kaupthing, Singer and Friedlander Bank which went into administration in October 2008.
2 Compañía Minera Ares has a dispute with Electroperú S.A. regarding the electric power it used during November and December 2002, and January, February and March 2003 which was simultaneously billed by Electroperú and Sociedad Eléctrica del Sur Oeste S.A. (SEAL). Compañía Minera Ares has filed a claim with Osinergim (the Peruvian power regulator) claiming that the billing should be only for the actual power consumed by the company and that Electroperú and SEAL should each have half the billing. Electroperú has filed an administrative court action against the resolution issued by Osinergim and initiated an arbitration process seeking to additionally collect S/.832,135 (US$264,842) plus interest. Management, having consulted legal counsel, considered that there was a reasonable possibility that the outcome of these proceedings would not be favourable for Compañía Minera Ares, and accordingly had provided in full for the claim during 2008. At the end of 2009 the calculation was updated, determining a reversal of US$351,000 to reflect the actual estimation of the claim amount.
3 In 2009 corresponds to changes in the estimated mine closure costs of closed operations in Peru of US$11,800,000 (2008: US$2,288,000), net by the gain generated due to the change in the discount rate of US$274,000 (2008: loss of US$928,000).
4 Represents the termination benefits paid to the employees due to the closing of the Selene mine.
5 Corresponds to compensation claims provisions related to the Peruvian companies.
6 Mainly corresponds to the write-off of supplies at the Sipán mine that could not be sold or used in the other mine units of Perú and the obsolescence of supplies at the Selene mine due to the closure of the mine.
7 Mainly corresponds to the impairment of a trade receivable from a customer in Perú. In 2008 mainly corresponds to the amount accrued for impairment of other receivables.
6. Finance income and finance costs
| | Year ended 31 December 2009 | Year ended 31 December 2008 | ||||
| | Before exceptional items US$000 | Exceptional items US$000 | Total US$000 | Before exceptional items US$000 | Exceptional items US$000 | Total US$000 |
| Finance income: | | | | | | |
| Interest on time deposits1 | 819 | – | 819 | 5,934 | – | 5,934 |
| Gain from changes in the fair value of financial instruments2 | – | 9,045 | 9,045 | 304 | 2,301 | 2,605 |
| Gain on sale of available-for-sale financial assets3 | – | 623 | 623 | – | 1,613 | 1,613 |
| Gain on exchange of available-for-sale financial assets4 | – | 12,632 | 12,632 | – | – | – |
| Interest on loans to minority shareholders (note 12) | 2,609 | – | 2,609 | 2,623 | – | 2,623 |
| Change in discount rate5 | 2,837 | – | 2,837 | – | – | – |
| Interest on loans to third parties | – | – | – | 47 | – | 47 |
| Other | 119 | – | 119 | 474 | – | 474 |
| Total | 6,384 | 22,300 | 28,684 | 9,382 | 3,914 | 13,296 |
| Finance costs: | | | | | | |
| Interest on bank loans and long-term debt | (13,976) | – | (13,976) | (13,387) | – | (13,387) |
| Interest on convertible bond (note 12) | (1,663) | – | (1,663) | – | – | – |
| Unwind of discount rate6 | (278) | – | (278) | (4,590) | – | (4,590) |
| Loss from changes in the fair value of forward contracts7 | (25,962) | – | (25,962) | – | – | – |
| Loss from changes in the fair value of financial instruments8 | (2,452) | (1,256) | (3,708) | – | (6,246) | (6,246) |
| Impairment of available-for-sale financial assets9 | – | – | – | – | (11,421) | (11,421) |
| Premium paid on purchase of available-for-sale financial assets10 | – | – | – | – | (421) | (421) |
| Other | (1,709) | | (1,709) | (856) | – | (856) |
| Total | (46,040) | (1,256) | (47,296) | (18,833) | (18,088) | (36,921) |
1 Mainly corresponds to interest on liquidity funds.
2 In 2009 the amount mainly corresponds to the gain realised upon the exercise of an option over shares in Gold Resource Corp. on 25 February 2009 of US$5,493,000, the gain of the option contract to buy 3,750,000 shares of Gold Resource Corp. of US$1,912,500 and the change in the fair value of Fortuna Silver Mine Inc. warrants of US$1,639,000. In 2008 the amount corresponds to the change in the fair value of the option over 4,330,000 shares of Gold Resource Corp. of US$2,301,000 and a gain of US$304,000 due to changes in the fair value of derivative instruments according to the contracts signed in December 2008 with Citibank and INTL Commodities Inc. with the intention of removing the risk of fluctuations in metal prices.
3 In 2009 corresponds to the sale of 3,287,570 shares in Fortuna Silver Mines Inc. resulting in a realised gain of US$623,000 which has been recycled from equity into the income statement. In 2008 corresponds to the sale of 1,660,150 shares in Fortuna Silver Mines Inc. at a price of CAD$2 per share for a total consideration of CAD$3,320,300 (US$3,321,450) resulting in a realised gain of US$1,613,000 which has been recycled from equity into the income statement.
4 Mainly corresponds to the gain from change in the fair value of West Timmins Mining Inc. shares. Between August and November of 2009 the Group acquired 18.4% interest in West Timmins Mining Inc. for a total consideration of US$63,782,000. These shares were subsequently exchanged for Lake Shore Gold shares on 6 November 2009 realising a gain of US$12,129,000 (includes transaction costs of US$394,000). In addition includes the gain for receiving shares of Dia Bras Exploration due to the merger with EXMIN Resources Inc. of US$391,000 and for receiving shares of Lara Exploration Ltd. due to the merger with Maxy Gold Corp. of US$112,000.
5 Corresponds to the gain arising on the reduction in the discount rate used to the calculation of the recoverable amount of VAT of Minera Santa Cruz of US$2,837,000 (2008:Nil)
6 In 2009 corresponds to the unwind of the discount on the provision for mine closure of US$278,000. In 2008 corresponds to the unwind of the discount on the provision for mine closure of US$669,000 (refer to note 13) and the unwind of discount on VAT of Minera Santa Cruz of US$3,921,000.
7 Corresponds to the realised loss due to changes in the fair value of derivative instruments, being the future contracts of gold and silver signed with Citibank, JP Morgan and INTL Commodities Inc. with the intention to remove the risk of the fluctuations in metal prices.
8 In 2009 corresponds to the loss due to changes in the fair value of the zero cost collar contracts signed by Cia. Minera Ares during the period. These contracts are over 5,200,000 ounces of silver, with a cap of US$17/oz for 1,400,000 ounces, US$19.5/oz for 400,000 ounces and US$19.95/oz for 400,000 ounces, and a floor of US$11.00/oz. and contracts with a cap of US$20.92/oz and floor of US$13.80/oz for 1,500,000 ounces, and a cap of US$21/oz and a floor of US$14/oz for 1,500,000 ounces. The contracts expire between January and December 2010. In addition includes a loss of US$1,256,000 relating to the fair value of the swap contract signed with BBVA and Citibank to fix the interest rate of the JP Morgan led syndicated loan in 1.75% (refer to note 12). In 2008 mainly corresponds to the change in fair value of warrants in Fortuna Silver Mines Inc. of US$6,245,000.
9 Corresponds to the impairment of the investment in the shares of EXMIN (US$8,229,000), Mirasol Resources Inc. (US$323,000), Electrum Capital Inc. (US$2,637,000), Fortuna River (US$157,000) and Ventura Gold Corp. (US$75,000).
10 Corresponds to the premium paid on the acquisition of the shares of Iron Creek Capital Corp. and Mariana Resources Ltd. amounting to US$173,000 and US$248,000 respectively.
Interest income and expense from assets and liabilities that are not at fair value through the profit and loss are as follows:
|
| As at 31 December | |
|
| 2009 US$000 | 2008 US$000 |
| Interest income from financial assets that are not at fair value through the profit and loss | 3,428 | 8,604 |
| Interest expense from financial liabilities that are not at fair value through the profit and loss | (15,639) | (13,387) |
| Total | (12,211) | (4,783) |
7. Income tax expense
|
| Year ended 31 December 2009 | Year ended 31 December 2008 |
| |||||
|
| Before exceptional items US$000 | Exceptional items1 US$000 | Total US$000 | Before exceptional items US$000 | Exceptional items US$000 | Total US$000 | ||
| Current tax: |
|
|
|
|
|
| ||
| Current tax charge from continuing operations | 30,946 | (2,275) | 28,671 | 13,058 | (56) | 13,002 | ||
|
| 30,946 | (2,275) | 28,671 | 13,058 | (56) | 13,002 | ||
| Deferred taxation: |
|
|
|
|
|
| ||
| Origination and reversal of temporary differences from continuing operations | 12,486 | (8,943) | 3,543 | 10,814 | (5,444) | 5,370 | ||
|
| 12,486 | (8,943) | 3,543 | 10,814 | (5,444) | 5,370 | ||
| Withholding taxes | 1,256 | - | 1,256 | 895 | - | 895 | ||
| Total taxation charge in the income statement | 44,688 | (11,218) | 33,470 | 24,767 | (5,500) | 19,267 | ||
1. This amount corresponds to the related tax impact of exceptional items. This principally relates to a current tax credit of US$2,076,000 in connection with the one off bonus paid to the mining workers in Peru (2008: Nil) and US$9,048,000 deferred tax credit in connection with an impairment loss recognised in the period (2008: US$3,736,000).
The weighted average statutory income tax rate was 30.1% for 2009 and 7.5% for 2008. This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group companies in their respective countries as included in the consolidated financial statements.
The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates.
The total taxation charge on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the consolidated profits of the Group companies as follows:
|
| As at 31 December |
| |
|
| 2009 US$000 | (Restated) 2008 US$000 | |
| Profit from continuing operations before income tax | 154,810 | (2,273) | |
| At average statutory income tax rate of 30.1% (2008: (7.5)%) | 46,702 | 171 | |
| Expenses not deductible for tax purposes | 2,049 | 5,315 | |
| Non-taxable income | (6,662) | (2,055) | |
| Non-taxable negative goodwill1 | (2,308) | - | |
| Deferred tax recognised on special investment regime2 | (629) | (6,063) | |
| Recognition of previously unrecognised deferred tax assets3 | (4,222) | (1,102) | |
| Non-taxable share of (gains)/losses of associates | (13,276) | 2,534 | |
| Net deferred tax assets generated in the year not recognised | 11,204 | 13,871 | |
| Change in tax regime4 | (2,002) | (1,544) | |
| Change in statutory Income Tax Rate5 | (786) | 786 | |
| Foreign exchange rate effect6 | 25 | 7,731 | |
| Derecognition of deferred tax assets previously recognised7 | 4,790 | - | |
| Other | (1,415) | (377) | |
| At average effective income tax rate of 21.62% (2008: 847.65%) | 33,470 | 19,267 | |
| Taxation charge attributable to continuing operations | 33,470 | 19,267 | |
| Total taxation charge in the income statement | 33,470 | 19,267 | |
1. Corresponds to non-taxable negative goodwill on acquisition of Southwestern Group.
2. Corresponds to the deferred tax income asset recognised for the additional tax losses generated during the year arising from the double deduction claimed for tax purposes by Minera Santa Cruz during the year (refer to note (i)).
3. Increase in 2009 mainly corresponds to recognised tax losses upon tax restructuring in Mexican companies of US$7,392,000 and the use of previously unrecognised tax losses in 2009 of US$7,687,000. In 2008, mainly corresponds to the tax effect of certain mine closure expenses which are now expected to be deductible against taxable income, when incurred.
4. Corresponds to the effect of the change in the Mexican tax regime (refer to note (ii)).
5. Corresponds to an increase in the statutory corporate income tax rate for the Arcata mining unit from 30% to 32% with effect from 1 January 2009. This increase was reversed during 2009 as the Group opted out of certain clauses of the stability agreement, including the increase of 2% in income tax.
6 Mainly corresponds to the foreign exchange effect from converting tax bases and monetary items from local currency to the functional currency.
7 Relates to the reversal of a deferred tax asset previously recognised as the ability to utilise this potential deferred tax asset against future taxable profits is now uncertain.
(i) Special investment regime
Minera Santa Cruz benefits from a special investment regime that allows for a double deduction in the calculation of its corporate income tax liability for all costs relating to prospecting, exploration and metallurgical analysis, pilot plants and other expenses incurred for the feasibility studies for mining projects. The investment recognised under this regime amounted to US$1,800,000 in 2009 (2008: US$17,300,000). No significant further deduction under this special investment regime is expected in 2010 and subsequent years.
(ii) Change in Mexican tax regime
On 28 September 2007, the Mexican Government enacted a bill for tax reform that significantly changed the current income tax structure in Mexico. Effective from 1 January 2008, the tax reform requires companies to pay tax equal to the greater of the tax charge calculated under the new flat rate business tax ('IETU' as abbreviated in Spanish) or the tax charge calculated under the current income corporate tax regime ('ISR' as abbreviated in Spanish).
The Group has performed an analysis of the future impact of this tax reform on its Mexican companies and has determined that Santa Maria de Moris S.A. de C.V. (the operator of the Moris mine) will be required to pay ISR Tax instead of IETU in each period until the end of the mine's life. Therefore, at 31 December 2009 the Group reversed the deferred tax liability of US$2,002,000 recognised at 31 December 2008 in connection with IETU.
8. Basic and diluted earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of the Company by the weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2009 and 2008, EPS has been calculated as follows:
|
| As at 31 December |
| |
|
| 2009 | 2008 | |
| Profit/(loss) for the year and from continuing operations attributable to equity holders of the Company US$000 | 98,080 | (24,718) | |
| Weighted average number of ordinary shares in issue (thousands) | 314,043 | 307,350 | |
| Weighted average number of ordinary shares in issue and dilutive potential ordinary shares (thousands) | 317,607 | 307,350 | |
| Basic and earning/(loss) per share from: |
|
| |
| Before exceptional items US$ | 0.17 | 0.05 | |
| Exceptional items US$ | 0.14 | (0.13) | |
| Total for the year and from continuing operations US$ | 0.31 | (0.08) | |
| Diluted earning/(loss) per share from: |
|
| |
| Before exceptional items US$ | 0.17 | 0.05 | |
| Exceptional items US$ | 0.14 | (0.13) | |
| Total for the year and from continuing operations US$ | 0.31 | (0.08) | |
9. Property, plant and equipment
|
| Mining properties and development costs US$000 | Land and buildings US$000 | Plant and equipment1 US$000 | Vehicles US$000 | Mine closure asset US$000 | Construction in progress and capital advances US$000 | Total US$000 |
| Year ended 31 December 2008 |
|
|
|
|
|
|
|
| Cost |
|
|
|
|
|
|
|
| At 1 January 2008 | 157,711 | 65,435 | 105,946 | 2,824 | 38,288 | 14,021 | 384,225 |
| Additions | 79,496 | 4,253 | 9,375 | 77 | - | 149,759 | 242,960 |
| Change in discount rate |
| - | - | - | 3,113 | - | 3,113 |
| Disposals | - | - | (120) | (158) | - | - | (278) |
| Write-off | - | - | (24) | - | - | - | (24) |
| Change in mine closure estimate | - | - | - | - | 280 | - | 280 |
| Transfers and other movements | (2,192) | 30,748 | 68,535 | 746 | - | (97,837) | - |
| Transfers from Evaluation and exploration assets | 2,960 | - | - | - | - | - | 2,960 |
| Sales during preoperating stage in Minera Santa Cruz | (125) | - | - | - | - | - | (125) |
| Foreign exchange | (32) | (43) | (467) | (69) | - | (10) | (621) |
| At 31 December 2008 | 237,818 | 100,393 | 183,245 | 3,420 | 41,681 | 65,933 | 632,490 |
| Accumulated depreciation and impairment |
|
|
|
|
|
|
|
| At 1 January 2008 | 50,027 | 12,858 | 31,749 | 860 | 31,703 | - | 127,197 |
| Restatement of depreciation | 14,001 | - | - | - | - | - | 14,001 |
| At 1 January 2008, as restated | 64,028 | 12,858 | 31,749 | 860 | 31,703 | - | 141,198 |
| Depreciation for the year | 37,918 | 7,697 | 13,729 | 455 | 730 | - | 60,529 |
| Impairment2 | 5,582 | 754 | 6,286 | 105 | 943 | 788 | 14,458 |
| Disposals | - | - | (54) | (84) | - | - | (138) |
| Write-off | - | - | (4) | - | - | - | (4) |
| Sales during preoperating stage in Minera Santa Cruz | (12) | - | - | - | - | - | (12) |
| Foreign exchange | - | 2 | (78) | (30) | - | - | (106) |
| At 31 December 2008 | 107,516 | 21,311 | 51,628 | 1,306 | 33,376 | 788 | 215,925 |
| Net book amount at 31 December 2008, as restated | 130,302 | 79,082 | 131,617 | 2,114 | 8,305 | 65,145 | 416,565 |
|
| Mining properties and development costs US$000 | Land and buildings US$000 | Plant and equipment1 US$000 | Vehicles US$000 | Mine closure asset US$000 | Construction in progress and capital advances US$000 | Total US$000 |
| Year ended 31 December 2009 |
|
|
|
|
|
|
|
| Cost |
|
|
|
|
|
|
|
| At 1 January 2009 | 237,818 | 100,393 | 183,245 | 3,420 | 41,681 | 65,933 | 632,490 |
| Additions | 50,969 | 381 | 16,032 | 160 | - | 32,357 | 99,899 |
| Acquisition of subsidiary | 23,800 | - | 347 | 119 | - | - | 24,266 |
| Change in discount rate | - | - | - | - | (1,770) | - | (1,770) |
| Disposals | (1,148) | - | (1,639) | (96) | - | (169) | (3,052) |
| Write-off | (27,718) | (1,894) | (5,496) | (162) | - | 62 | (35,208) |
| Change in mine closure estimate | - | - | - | - | 15,220 | - | 15,220 |
| Reclassification to intangibles | - | - | (5,891) | - | - | - | (5,891) |
| Transfers and other movements | - | 10,244 | 28,433 | 255 | - | (38,932) | - |
| Transfer to Evaluation and exploration assets | (1,921) | - | - | - | - | - | (1,921) |
| Foreign exchange | 2,087 | 3 | 546 | 12 | - | 33 | 2,681 |
| At 31 December 2009 | 283,887 | 109,127 | 215,577 | 3,708 | 55,131 | 59,284 | 726,714 |
| Accumulated depreciation and impairment |
|
|
|
|
|
|
|
| At 1 January 2009 | 107,516 | 21,311 | 51,628 | 1,306 | 33,376 | 788 | 215,925 |
| Depreciation for the year | 45,229 | 13,719 | 23,345 | 375 | 1,254 | - | 83,922 |
| Write-off2 | (26,666) | (1,147) | (2,924) | (80) | 130 | - | (30,687) |
| Impairment3 | 9,671 | 4,390 | 5,093 | 50 | 2,172 | 310 | 21,686 |
| Disposals | - | - | (956) | (110) | - | - | (1,066) |
| Reclassification to intangibles | - | (606) | (1,559) | - | - | - | (2,165) |
| Foreign exchange | - | - | 141 | - | - | - | 141 |
| At 31 December 2009 | 135,750 | 37,667 | 74,768 | 1,541 | 36,932 | 1,098 | 287,756 |
| Net book amount at 31 December 2009 | 148,137 | 71,460 | 140,809 | 2,167 | 18,199 | 58,186 | 438,958 |
1 The carrying value of plant and equipment held under finance leases at 31 December 2009 was US$11,177,000 (2008: US$7,482,000). Additions during the year included US$6,058,000 (2008: US$7,872,000) of plant and equipment under finance leases. Leased assets are pledged as security for the related finance lease.
2 As the result of the planned cessation of mining activities at the Selene mine unit, the remaining net book value of assets of US$4,523,000 was written off.
3 The amount of impairment losses recognised in profit and loss during the period was US$21,686,000. As a result of the impairment testing, the Group has impaired the Ares mine unit by US$15,041,000, the Liam property by US$10,091,00 and reversed the impairment loss of Moris unit of US$3,446,000 . The trigger for the impairment was the proximity of the closing of Ares and the resulting revision to the remaining recoverable reserves and resources, In addition the company reassessed the fair value of the Liam properties, following the acquisition of Southwestern (refer to note 4). The Group tested for impairment the following mining units: Ares, San José and Moris. In assessing whether impairment is required to the carrying value of the assets related to each mining unit, its carrying value is compared with its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use. The recoverable amount used in assessing the impairment charges described below is value in use. The Group generally estimates value in use using a discounted cash flow model for each mining unit covering its remaining useful life. During the year ended 31 December 2008, the Group recognised impairments totalling US$14,458,000, related to Selene mine unit (US$8,208,000), Moris mine unit (US$5,652,000) and San Felipe project (US$598,000). These impairments were triggered primarily by the effect of the economic environment at that time, and the significantly reduced gold, silver and zinc prices.
4 There where no borrowing costs capitalised in property, plant and equipment as no significant qualifying assets were constructed during 2009.
The calculation of value in use is most sensitive to the following assumptions:
- Commodity prices - Commodity prices of gold and silver are based on external market consensus forecasts. Gold prices range from $1,015/oz to $837.5/oz (2008: from $750/oz to $879/oz) and silver prices range from $16.0/oz to $13.22/oz (2008: from $11.84/oz to $13/oz).
- Estimation of reserves and resources - Reserves and resources are based on management's estimates using appropriate exploration and evaluation techniques.
- Production volumes and grades - Tonnage produced was estimated at plant capacity with 19 days of maintenance per year (2008: 12 days).
- Capital expenditure - The cash flows for each mining unit include capital expenditures to maintain the mine and to convert resources to reserves.
- Operating costs - Costs are based on historical information from previous years and current mining conditions.
- Discount rates - The cash flows are discounted at real pre-tax rates that reflect the current market assessments of the time value of money and the risks specific to the cash-generating unit. These rates are based on the weighted average cost of capital specific to each cash-generating unit.
| Mining unit | 2009 Real pre-tax discount rate % | 2009 Real post-tax % |
| Ares | 3.21 | 3.21 |
| San José | 14.3 | 8.43 |
| Moris | 5.43 | 3.91 |
| Mining unit | 2008 Real pre-tax discount rate % | 2008 Real post-tax % |
| Ares | 28.5 | 5.1 |
| San José | 17.0 | 9.2 |
| Moris | 5.97 | 4.3 |
Cash flows used for impairment tests were based on the annual 2010 budget presented and approved by the board in December 2009. The starting point in all cases was January 2010. Individual cash flows are based on the annual 2010 budget and an estimated set of reserve and resource as of December 2009 provided by Explorations and Operations. In addition, for the following years, the Group includes any conservative adjustment to reflect the nature of each operation in an accurate manner. In the case of revenue, production figures were estimated considering reserve grade (after extracted tonnage) and full capacity. In the case of operating expenses, all figures are based on the 2010 budget and the main assumption was that any change in the foreign exchange rate would be offset by a change in the inflation rate. Future capital expenditure is based on 2010 budget, excluding one off expenses and considering operation´s view on developments and infrastructure, according the estimated set of reserves and resources.
10. evaluation and exploration ASSETS
|
| 2009 US$000 | 2008 US$000 |
| At 1 January | 44,726 | 6,034 |
| Additions | 8,636 | 68,311 |
| Impairments1 | (222) | (15,754) |
| Write-off | (284) | - |
| Transfers and other movements | 1,921 | (2,960) |
| Foreign exchange | 1,051 | (10,905) |
| At 31 December | 55,828 | 44,726 |
1 The amount of impairment losses recognised in profit and loss during the period was US$222,000. As a result of the impairment testing, the Group has impaired the Ares mine unit by US$222,000. The trigger for the impairment was the proximity of the closing of Ares and the resulting revision to the remaining recoverable reserves and resources. The Group tested for impairment the following mining units: Ares, San José and Moris. In assessing whether impairment is required to the carrying value of the assets related to each mining unit, its carrying value is compared with its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use. The recoverable amount used in assessing the impairment charges is value in use. The Group generally estimates value in use using a discounted cash flow model for each mining unit covering its remaining useful life. During the year ended 31 December 2008, the Group recognised impairments totalling US$15,754,000, related to Selene mine unit (US$949,000) and San Felipe project (US$14,805,000). Refer to note 9 for the assumptions considered in the impairment calculation.
2 There were no borrowing costs capitalised in evaluation and exploration assets.
3 From the net book value at 31 December 2009, US$37,825,000 corresponds to the investment in San Felipe (2008: US$36,552,000) (refer to note 15).
11. Investments accounted under equity method
|
| Year end 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Lake Shore Gold Corp(a) | 386,190 | 136,376 | |
| Minas Pacapausa S.A.C.(b) | - | (170) | |
| Cabo Sur(c) | (57) | (187) | |
| Gold Resource Corp.(d) | 62,467 | - | |
| Zincore Metals Inc.(e) | 2,065 | - | |
| Total | 450,665 | 136,019 | |
(a) Lake Shore Gold Corp
The following table summarises the financial information of the Group's investment in Lake Shore Gold Corp:
|
| Year ended 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Share of the associate's statement of financial position: |
|
| |
| Current assets | 47,520 | 29,217 | |
| Non-current assets | 345,948 | 128,913 | |
| Current liabilities | (7,663) | (5,839) | |
| Non-current liabilities | (50,758) | (28,428) | |
| Net assets | 335,047 | 123,863 | |
| Goodwill on acquisition | 51,143 | 12,513 | |
| Carrying amount of the investment | 386,190 | 136,376 | |
| Share of the associate's revenue and losses: |
|
| |
| Revenue | - | - | |
| Profit/(Losses) 1 | 46,951 | (3,925) | |
| Carrying amount of the investment | 386,190 | 136,376 | |
1 Share of the associate's profit in 2009 includes (1) a gain of US$101,503,000 from the Group's share in Lake Shore Gold's acquisition of 100% of West Timmins' net assets, (2) a gain from the Group's share in the results of the period of Lake Shore Gold of US$9,165,000, (3) a loss from dilution of the Group's interest from 39.99% to 26.1% at 6 November 2009 of US$59,224,000, and (4) a loss from dilution of the Group's interest from 36.09% to 35.69% at 31 December 2009 of US$4,493,000.
(b) Minas Pacapausa S.A.C.
On 21 June 2005, Minera Oro Vega S.A.C. ('Minorva', the partner of the Group's Minera Suyamarca S.A.C. subsidiary) and Minera del Suroeste ('Misosa') entered into an option and joint venture agreement ('Framework Agreement') in respect of the Pacapausa properties located in Peru.
On 16 November 2007, Minera Suyamarca S.A.C. ('Suyamarca') signed an amendment to the Framework Agreement with Misosa and Minorva, incorporating the terms under which Suyamarca would acquire Minorva's contractual position. Under the arrangement, Suyamarca paid US$200,000 to Minorva in exchange for its contractual position in the Framework Agreement. The new joint venture company, Minas Pacapausa S.A.C. ('Pacapausa'), was incorporated on 4 March 2008 and Suyamarca contributed US$1,200,000 (solely funded by the Group) in exchange for a 50% interest in Pacapausa. Subsequently, Minorva transferred to Pacapausa all technical reports and other assets obtained as a result of its exploration activities in the properties in exchange for a cash payment of US$1,200,000.
In compliance with the Group's policy, Pacapausa recognises all expenses related to the project within exploration expenses as the project has not yet reached the inferred mineral resource category.
On 21 May 2009 the Group acquired a 100% interest of Southwestern Resources Corp., the parent company of Misosa and consequently, started to consolidate the financial results of Pacapausa.
The following table summarises the financial information relating to the Group's investment in Pacapausa:
|
| Year ended 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Share of the joint venture's statement of financial position: |
|
| |
| Current assets | - | 10 | |
| Non-current assets | - | - | |
| Current liabilities | - | (180) | |
| Non-current liabilities | - | - | |
| Net assets | - | (170) | |
| Share of the joint venture's revenue and loss: |
|
| |
| Revenue | - | - | |
| Loss | (131) | (2,132) | |
| Carrying amount of the investment | - | (170) | |
(c) Cabo Sur
On 21 February 2007, the Group signed an option and joint venture agreement with Mirasol Resources Ltd. ('Mirasol'). Under the terms of the agreement, the Group has the right to acquire a 51% interest in the Claudia project by investing, over a period of four years, at least US$6,000,000 and making payments to Mirasol of US$650,0000 within four years.
On 13 March 2007 Mirasol incorporated Cabo Sur S.A. ('Cabo Sur') and during 2008 transferred all the rights of the Claudia property into Cabo Sur. Until the exercise of the Claudia's option, Mirasol and the Group will own 99% and 1% of Cabo Sur, respectively. However, the Group exercises joint control over Cabo Sur as the strategic financial and operating decisions require the consent of both parties. Accordingly, in compliance with the Group's policy and IAS 31, the investment has been treated as a jointly controlled entity accounted for using the equity method.
In compliance with the Group's policy, Cabo Sur recognises all expenses related to the project within exploration expenses as the project has not yet reached the inferred mineral resource category.
The following table summarises the financial information of the Group's investment in Cabo Sur:
|
| Year ended 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Share of the joint venture's statement of financial position: |
|
| |
| Current assets | 6 | 32 | |
| Non-current assets | 6 | 2 | |
| Current liabilities | (69) | (221) | |
| Non-current liabilities | - | - | |
| Net assets | (57) | (187) | |
| Share of the joint venture's revenue and loss: |
|
| |
| Revenue | - | - | |
| Loss | (61) | (2,157) | |
| Carrying amount of the investment | (57) | (187) | |
(d) Gold Resource Corp.
The following table summarises the financial information of the Group's investment in Gold Resource Corp:
|
| Year ended 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Share of the joint venture's statement of financial position: |
|
| |
| Current assets | 5,671 | - | |
| Non-current assets | 46,873 | - | |
| Current liabilities | (181) | - | |
| Non-current liabilities | (11,609) | - | |
| Net assets | 40,754 | - | |
| Goodwill on acquisition | 21,713 |
| |
| Share of the joint venture's revenue and loss: |
| - | |
| Revenue | - | - | |
| Loss | (1,240) | - | |
| Carrying amount of the investment | 62,467 | - | |
(e) Zincore Metals Inc.
On 21 May 2009 the Group acquired 100% of Southwestern Resources Corporation. Within the assets of the group was 38,100,000 shares of Zincore Metals Inc. equivalent to a 48.2% of interest. On September 2009 Zincore Metals Inc. issued 24,060,000 shares resulting in a dilution of the Group´s interests to 36.8%. Zincore Metals Inc. raised US$5,596,000 that generated a Group´s gain of US$2,065,000.
The following table summarises the financial information of the Group's investment in Zincore Metals Inc:
|
| Year ended 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Share of the joint venture's statement of financial position: |
|
| |
| Current assets | 2,110 | - | |
| Non-current assets | 67 | - | |
| Current liabilities | (96) | - | |
| Non-current liabilities | (16) | - | |
| Net assets | 2,065 | - | |
| Share of the joint venture's revenue and profit: |
| - | |
| Revenue | - | - | |
| Profit | 1,704 | - | |
| Carrying amount of the investment | 2,065 | - | |
12. Borrowings
|
| As at 31 December | ||||
|
|
| 2009 |
| 2008 |
|
|
| Non- current US$000 | Current US$000 | Non- current US$000 | Current US$000 |
|
| Secured bank loans | 115,854 | 34,773 | 202,094 | 56,625 |
|
| Amount due to minority shareholders | - | 75,570 | 29,598 | 40,409 |
|
| Convertible bond payable | 103,827 | 1,663 | - | - |
|
| Amounts due to related parties | - | 902 | - | 1,036 |
|
| Total | 219,681 | 112,908 | 231,692 | 98,070 |
|
(a) Secured bank loans
As at 31 December 2009, the balance corresponds to:
i. Pre shipment loans for a total amount of US$8,750,000 in Compañía Minera Ares and US$20,000,000 in Minera Santa Cruz S.A. These obligations accrue an effective annual interest rate ranging from 1.05% to 4.75% and are guaranteed by the inventories and the trade receivables of the company. Pre shipments are credit lines given by the Banks to pay obligations related to the exports of the Group.
ii. Leasing agreement with Banco de Credito for an amount of US$5,693,000 in Compañía Minera Ares. This obligation accrues an effective annual interest rate ranging from 6.80% to 7.60%.
iii. Leasing agreement with BIF for an amount of US$3,016,000 in Compañía Minera Ares. This obligation accrues an effective annual interest rate ranging from 7.15% to 8.25%.
iv. Leasing agreement with Interbank for an amount of US$296,000 in Compañía Minera Ares. This obligation accrues an effective annual interest rate of 9.01%.
The following table demonstrates the present value and maturity of future minimum lease payments as at 31 December 2009:
|
| As at 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Not later than one year | 4,406 | 2,705 | |
| Between 1 and 2 years | 3,664 | 2,604 | |
| Between 2 and 5 years | 935 | 1,898 | |
| Total | 9,005 | 7,207 | |
The following table demonstrates the reconciliation between the total minimum lease payments and the present value as at 31 December 2009 and 2008:
|
| As at 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Present value of leases | 9,005 | 7,207 | |
| Future interest | 718 | 728 | |
| Total minimum lease payments | 9,723 | 7,935 | |
The carrying amount of net lease liabilities approximate their fair value.
v. Loan facility with a syndicate of lenders with JP Morgan Chase Bank N.A. acting as the Administrative Agent. Total secured term loan facility of US$200,000,000 that accrues an effective interest rate of LIBOR + 1% and is guaranteed by all the equity share capital, free and clear of any liens, of Compañía Minera Ares S.A.C. The balance as at 31 December 2009 is comprised of the secured term loan facility of US$114,320,000 plus accrued interest of $1,787,000 and net of transaction costs of US$3,235,000. During 2009 the Group signed a swap contract with BBVA and Citibank to fix the interest rate at 1.75%.
The Company has granted the following guarantees on its $114,320,000 bank syndicated loan:
- Pledge of all shares in Compañía Minera Ares (wholly-owned subsidiary).
- Subsidiary guarantees by certain wholly-owned subsidiaries whereby these subsidiaries guarantee with their cash flows the repayment of the loan.
The main administrative and financial covenants that the Company and Compañía Minera Ares must comply with during the term of the syndicated loan are as follows:
- Quarterly unaudited and annual audited financial statements for Hochschild Mining plc and Compañía Minera Ares.
- Investments in restricted and unrestricted subsidiaries based on an agreed upon limit (unlimited within restricted subsidiaries).
- It is intended for every wholly-owned subsidiary to participate in the subsidiary guarantee.
- Maintain the following ratios (at a consolidated and Compañía Minera Ares level) beginning on the date of execution of the agreement and during the term of effect of the loan:
- Interest expense coverage ratio greater than 3:1.
- Debt to EBITDA ratio lower than 2.5:1 from 2009 onwards
Compliance with the restrictive covenants described in the preceding paragraph is overseen by Compañía Minera Ares management and the Administrative Agent. The Group and Compañía Minera Ares have complied with the commitments and financial covenants mentioned in the syndicated loan agreement.
As at 31 December 2008, the balance corresponded to:
- Pre-shipment loans for a total amount of US$18,380,000 in Compañía Minera Ares, US$11,280,000 in Compañía Minera Suyamarca S.A.C. and US$20,000,000 in Minera Santa Cruz S.A. These obligations accrue an effective annual interest rate ranging from 5.55% to 8.70% and are guaranteed by the inventories of the company.
ii. Leasing agreement with Banco de Credito for an amount of US$7,207,000 in Compañia Minera Ares. This obligation accrues an effective annual interest rate ranging from 6.80% to 7.45%.
iii. Loan facility with a syndicate of lenders with JP Morgan Chase Bank N.A. acting as the Administrative Agent. Total secured term loan facility of US$200,000,000 that accrues an effective interest rate of LIBOR + 1% and is guaranteed by all the equity share capital, free and clear of any liens, of Compañia Minera Ares S.A.C. The balance as at 31 December 2008 is comprised of the secured term loan facility of US$200,000,000 plus accrued interests of US$4,260,000 and net of transaction costs of US$2,408,000.
(b) Amounts due to minority shareholders
As at 31 December 2009 the balance mainly corresponds to a loan from Minera Andes Inc. to Minera Santa Cruz S.A. for an amount of US$67,124,000 (2008: US$62,105,000) with interests rates between 7.86% and 12%. There is also a loan of US$8,446,000 to Minera Santa Cruz S.A. from Minera Andes S.A. (2008: US$7,902,000) with an interest rate of 12%.
(c) Convertible bond payable
Placement of US$115,000,000 of senior unsecured convertible bonds, due 2014, which are convertible into ordinary shares of Hochschild Mining plc. The bonds have a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of each year. The issuer have the option to call the Bonds on or after 20 October 2012 and until maturity, in the event the trading price of the ordinary shares exceed 130% of the conversion price over a certain period. In addition, the Group has the right to redeem the Bonds if at any time the aggregate principal amount of the Bonds outstanding is equal to or less than 15% of the aggregate principal amount of the Bonds initially issued.
The following information has to be considered for the conversion into ordinary shares:
- Conversion premium: 35% above the Reference Share Price
- Reference Share Price: GBP 2.95
- Initial Conversion Price: GBP 3.9825
- Fixed Exchange Rate: US$ 1.59 / GBP 1.00
The balance as at 31 December 2009 is comprised of the principal of US$115,000,000 plus accrued interest of $1,663,000 and net of transaction costs of US$2,741,000 and the bond equity component of US$8,432,000.
The maturity of non-current borrowings is as follows:
|
| As at 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Between 1 and 2 years | 31,586 | 81,284 | |
| Between 2 and 5 years | 188,095 | 150,408 | |
| Total | 219,681 | 231,692 | |
The carrying amount of short-term borrowings approximates their fair value. The carrying amount and fair value of the non-current borrowings are as follows:
|
| Carrying amount as at 31 December | Fair Values as at 31 December | |||
|
| 2009 US$000 | 2008 US$000 | 2009 US$000 | 2008 US$000 | |
| Bank loans |
|
|
|
| |
| Secured | 115,854 | 202,094 | 116,358 | 213,408 | |
| Amounts due to minority interest and related parties (fixed rates) | - | 29,598 | - | 33,263 | |
| Convertible bond payable | 103,827 | - | 126,331 | - | |
| Total | 219,681 | 231,692 | 242,689 | 246,671 | |
13. Provisions
|
| Provision for mine closure1 US$000 | Workers' profit sharing US$000 | Contributions to Peruvian Government US$000 | Executive long-term incentive plan2 US$000 | Other US$000 | Total US$000 |
| At 1 January 2008 | 32,150 | 9,195 | 1,434 | 799 | 272 | 43,850 |
| Increase to existing provision | 2,105 | 4,273 | 944 | 302 | 962 | 8,586 |
| Accretion resulting from unwinding of discount rate | 669 | - | - | - | - | 669 |
| Change in discount rate | 4,042 | - | - | - | - | 4,042 |
| Change in estimate | 1,409 | - | - | - | - | 1,409 |
| Payments | (1,476) | (13,248) | (1,368) | (1,101) | (21) | (17,214) |
| Foreign exchange | - | 641 | (19) | - | - | 622 |
| At 31 December 2008 | 38,899 | 861 | 991 | - | 1,213 | 41,964 |
| Less current portion | (1,379) | (861) | (991) | - | (1,046) | (4,277) |
| Non-current portion | 37,520 | - | - | - | 167 | 37,687 |
| At 1 January 2009 | 38,899 | 861 | 991 | - | 1,213 | 41,964 |
| Increase to existing provision | - | 2,073 | 870 | - | 1,499 | 4,442 |
| Accretion resulting from unwinding of discount rate | 278 | - | - | - | - | 278 |
| Change in discount rate | (2,045) | - | - | - | - | (2,045) |
| Change in estimate | 27,020 | - | - | - | - | 27,020 |
| Payments | (2,831) | (948) | (956) | - | (371) | (5,106) |
| Foreign exchange | - | (78) | (12) | - | 30 | (60) |
| Other | - | 88 |
| - |
| 88 |
| At 31 December 2009 | 61,321 | 1,996 | 893 | - | 2,371 | 66,581 |
| Less current portion | 6,640 | 1,996 | 893 | - | 1,876 | 11,405 |
| Non-current portion | 54,681 | - | - | - | 495 | 55,176 |
1. The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of depletion of each of the deposits. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure as at 31 December 2009 and 2008 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties in the timing for using this provision includes changes in the future that could impact the time of closing the mines, as new resources and reserves are discovered. During 2009 the Group made an internal review of the provision for mine closure for all its mining units. Consequently, at 31 December 2009 an increase of US$27,020,000 has been recognised in the provision mainly related to changes in the waste dam and tailing dam closure plans, increased contractors costs and the construction of a new water treatment plant in Sipan mining unit. From the total amount, US$15,220,000 has been recognised as an increase in the mine closure asset (refer to note 9) and the remaining US$11,800,000 has been recognised within other expenses (refer to note 5). This increase in estimate relates to Ares unit (US$2,212,000), Selene unit (US$5,864,000), Sipan unit (US$5,976,000), Arcata unit (US$4,903,000), Pallancata unit (US$5,038,000), Moris unit (US$990,000), San José unit (US$2,075,000) and the decrease relates to the San Felipe project (US$38,000).
2 The 2007 Executive Long-Term incentive plan was replaced by a new plan with different variables. To terminate the first plan, the Group paid to the employees under the plan an amount of US$1,101,000, during the first semester of 2008, recognising administrative expenses of US$275,000 and exploration expenses of US$27,000.
3. The new plan reduces the number of variables and only considers Total Shareholder Return ('TSR'). The plan comprises an amount to be paid in cash to participants depending on the achievement of the three-year performance measures during the performance period which ends on 31 December 2010. The cash award will be held for an additional period and delivered 50% on 31 December 2010 and the remaining 50% on 31 December 2011, accumulating notional interest at the prevailing inter-bank interest rate. Only employees who remain with the Company until this date will have right of the benefit, with some exemptions that have to be approved by the Remuneration Committee of the Board. The provision represents the discounted values of the estimated cost of the long-term employee benefit. There is no provision in 2009 and 2008 because TSR over the period did not reach the performance level required under the rules of the plan.
14. Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and transactions during the years ended 31 December 2009 and 2008. The related parties are companies owned or controlled by the main shareholder of the parent company, joint ventures or associates.
|
| Accounts receivable At 31 December | Accounts payable At 31 December | ||||
|
| 2009 US$000 | 2008 US$000 | 2009 US$000 | 2008 US$000 |
| |
| Other |
|
|
|
|
| |
| Fosfatos del Pacífico S.A. | 28 | - | - | - |
| |
| Compañía Minera Corianta S.A. | - | - | - | 1 |
| |
| Cementos Selva S.A. | - | - | - | 43 |
| |
|
| 28 | - | - | 44 |
| |
| Joint ventures |
|
|
|
|
| |
| Cabo Sur | 968 | 1,005 | 902 | 992 |
| |
| Minas Pacapausa S.A.C. | - | 2 | - | - |
| |
|
| 968 | 1,007 | 902 | 992 |
| |
| Loans |
|
|
|
|
| |
| Cementos Pacasmayo S.A.A. | - | 41 | - | - |
| |
|
| - | 41 | - | - |
| |
| Total | 996 | 1,048 | 902 | 1,036 |
| |
| Current related party balances | 996 | 1,048 | 902 | 1,036 |
| |
| Total | 996 | 1,048 | 902 | 1,036 |
| |
As at 31 December 2009 and 2008 all other accounts are, or were, non-interest bearing.
No security has been granted or guarantees given by the Group in respect of these related party balances.
Principal transactions between affiliates are as follows:
|
| As at 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Income |
|
| |
| Recovery of expenses | - | 34 | |
| Expenses |
|
| |
| Purchase of supplies | - | 39 | |
| Services received | - | 2 | |
During 2008, in addition to the normal arrangements the Group has with its related parties, the Group purchased a building from Cementos Pacasmayo, a company under common control to that of the Group, for US$3,622,000 representing an arm's length purchase price.
Transactions between the Group and these companies are on an arm's length basis.
(b) Compensation of key management personnel of the Group
Key management personnel include the members of the senior management team and Directors who receive remuneration.
|
| As at 31 December |
| |
|
| 2009 US$000 | 2008 US$000 | |
| Salaries and bonuses | 8,596 | 8,718 | |
| Total compensation paid to key management personnel | 8,596 | 8,718 | |
This amount includes the remuneration paid to the Directors of the parent company of the Group of US$5,870,520 (2008: US$3,847,865), out of which US$399,117 (2008: US$463,218) relates to pension payments.
The Group made a loan to one of the Directors of US$200,000 with an interest rate of 7.45% until 30 April 2009, 3.50% from 1 May 2009 to 31 July 2009 and 3.00% from 1 August 2009. The balance as at 31 December was US$227,214, composed of principal of US$200,000 and interests of US$27,214. The Group did not collect any amount of this loan.
15 Subsequent events
(a) On 6 May 2006 the Group signed an agreement with Silex Argentina S.A. ("Silex"), a wholly owned subsidiary of Golden Minerals Company ("Golden Minerals") to explore and develop minerals in a group of properties located in Argentina, which comprise the project "El Quevar". The initial interest held by the Group was 35%, which was subsequently reduced to 20% in exchange for Silex funding the feasibility study.
On 30 December 2009 the Group entered into an agreement with Golden Minerals and Silex to sell its interest in the project in exchange for 400,000 common shares and a warrant to purchase 300,000 common shares of Golden Minerals at a price per share of US$15. The agreement was subject to certain conditions precedent that did not take place until 7 January 2010.
(b) On 16 February 2010 the Group acquired 1,273,036 shares of its associate Lake Shore for CAD$5,130,000 (approximately US$4,920,000). After completion of the transaction, the Group's ownership in Lake Shore increased from 35.69% to 35.92%.
(c) Between 26 January 2010 and 5 February 2010 the Group acquired 440,500 shares of its associate Gold Resource Corp. for US$$4,322,000 in the open market. In addition, on 8 March 2010 the Group signed a subscription agreement with Gold Resource Corp. by which the Group acquired 600,000 shares for a total consideration of US$5,172,000. Following completion of this purchases the Group's ownership in its associate increased from 25% to 26.7%.
(d) On 9 February 2010 the Group signed an engagement letter with BMO Capital Markets Limited ("BMO") for the sale of the San Felipe project, the Group's zinc project located in northern Mexico.
(e) On 5 March 2010, Inversiones Pacasmayo S.A., a related party of the Group, purchased Hochschild Mining plc's 36.9% stake in Zincore at a price of C$0.27 per share representing a 11.6% premium over the 20 day average closing price. Inversiones Pacasmayo S.A. paid a a total cash consideration of C$10,287,000. As a result of the transaction, Hochschild Mining plc has no further interest in Zincore.
The disposal was approved on behalf of the Hochschild board by a committee comprising solely independent Non-Executive Directors ("the Independent Committee"). The Independent Committee has been advised by Canaccord Adams Limited that the terms of the disposal are fair and reasonable as far as shareholders are concerned.
(f) On 11 March 2009 the Group has filed suit in the New York State Supreme Court asking that Minera Andes Inc. ("MAI") and its subsidiary Minera Andes SA ("MASA") be required to execute the formal loan agreement documents in respect of the US$65 million project finance loan. This facility was provided by the Group to one of its subsidiaries Minera Santa Cruz S.A. for
the development of the San José operation in Argentina. The law suit lists the following causes of action: (i) a decree by the court requiring MASA and its parent company to execute formal loan agreement documents with the Group consistent with the previous agreements between the two companies, (ii) it asks that MAI and MASA be enjoined from further interference in the repayment of the project finance loan, (iii) asks the court to order payment to the Group of benefits derived by MAI and MASA as a result of the loan, and (iv) requests an order declaring that other shareholder loans are subordinate to the project finance loan. RESERVES AND RESOURCES
Ore reserves and mineral resources estimates
Hochschild Mining plc reports its mineral resources and reserves estimates in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition ('the JORC Code'). This establishes minimum standards, recommendations and guidelines for the public reporting of exploration results and mineral resources and reserves estimates. In doing so it emphasises the importance of principles of transparency, materiality and confidence. The information on ore reserves and mineral resources on pages 126 to 128 were prepared by or under the supervision of Competent Persons (as defined in the JORC Code). Competent Persons are required to have sufficient relevant experience and understanding of the style of mineralisation, types of deposits and mining methods in the area of activity for which they are qualified as a Competent Person under the JORC Code. The Competent Person must sign off their respective estimates of the original mineral resource and ore reserve statements for the various operations and consent to the inclusion of that information in this report, as well as the form and context in which it appears.
Hochschild Mining plc employs its own Competent Person who has audited all the estimates set out in this report. Hochschild Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants. The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and mineral resource, the overall value thereof and the time that has lapsed since the previous independent third party audit.
The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts (which, in the Group's case, are prepared by ex-house specialists largely using estimates of future supply and demand and long-term economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental regulations and any other relevant new information and therefore these can vary from year to year. Mineral resource estimates can also change and tend to be influenced mostly by new information pertaining to the understanding of the deposit and secondly the conversion to ore reserves.
The estimates of ore reserves and mineral resources are shown as at 31 December 2009, unless otherwise stated. Mineral resources that are reported include those mineral resources that have been modified to produce ore reserves. All tonnage and grade information has been rounded to reflect the relative uncertainty in the estimates; there may therefore be small differences. The prices used for the reserves calculation were: Au Price: US$810 per ounce and Ag Price: US$13.50 per ounce.
RESERVES AND RESOURCES (AUDITED BY P&E CONSULTING*)
attributable metal reserves AS AT 31 DECEMBER 2009
| Reserve category | Proved (t) | Probable (t) | Proved and probable (t) | Ag(g/t) | Au (g/t) | Ag (moz) | Au(koz) | Ag Eq. (moz) |
| MAIN OPERATIONS* |
|
|
|
|
|
|
|
|
| Arcata |
|
|
|
|
|
|
|
|
| Proved | 947,644 |
|
| 441 | 1.39 | 13.4 | 42.5 | 16.0 |
| Probable |
| 921,244 |
| 393 | 1.23 | 11.6 | 36.4 | 13.8 |
| Total |
|
| 1,868,888 | 417 | 1.31 | 25.1 | 78.9 | 29.8 |
| Pallancata |
|
|
|
|
|
|
|
|
| Proved | 1,734,541 |
|
| 370 | 1.62 | 20.7 | 90.1 | 26.0 |
| Probable |
| 610,964 |
| 307 | 1.25 | 6.0 | 24.5 | 7.5 |
| Total |
|
| 2,345,505 | 354 | 1.52 | 26.7 | 114.6 | 33.5 |
| San José |
|
|
|
|
|
|
|
|
| Proved | 315,324 |
|
| 457 | 7.66 | 4.6 | 77.7 | 9.3 |
| Probable |
| 460,175 |
| 452 | 7.09 | 6.7 | 104.8 | 13.0 |
| Total |
|
| 775,499 | 454 | 7.32 | 11.3 | 182.5 | 22.3 |
| Total |
|
|
|
|
|
|
|
|
| Proved | 2,997,510 |
|
| 402 | 2.18 | 38.7 | 210.2 | 51.3 |
| Probable |
| 1,992,382 |
| 380 | 2.59 | 24.3 | 165.8 | 34.3 |
| Main operations total |
|
| 4,989,892 | 393 | 2.34 | 63.1 | 376.0 | 85.6 |
| Ares |
|
|
|
|
|
|
|
|
| Proved | 239,102 |
|
| 95 | 5.25 | 0.7 | 40.3 | 3.1 |
| Probable |
| 56,740 |
| 74 | 4.16 | 0.1 | 7.6 | 0.6 |
| Total |
|
| 295,842 | 91 | 5.04 | 0.9 | 47.9 | 3.7 |
| Moris |
|
|
|
|
|
|
|
|
| Proved | 857,646 |
|
| 4 | 1.47 | 0.1 | 40.5 | 2.6 |
| Probable |
| 84,384 |
| 4 | 1.45 | 0.0 | 3.9 | 0.2 |
| Total |
|
| 942,030 | 4 | 1.47 | 0.1 | 44.5 | 2.8 |
| Total |
|
|
|
|
|
|
|
|
| Proved | 1,096,748 |
|
| 24 | 2.29 | 0.9 | 80.9 | 5.7 |
| Probable |
| 141,124 |
| 32 | 2.54 | 0.1 | 11.5 | 0.8 |
| Other operations total |
|
| 1,237,872 | 25 | 2.32 | 1.0 | 92.4 | 6.5 |
| Total |
|
|
|
|
|
|
|
|
| Proved | 4,094,258 |
|
| 301 | 2.21 | 39.6 | 291.1 | 57.0 |
| Probable |
| 2,133,506 |
| 357 | 2.59 | 24.5 | 177.3 | 35.1 |
| Total |
|
| 6,227,764 | 320 | 2.34 | 64.1 | 468.4 | 92.2 |
Note: Where reserves are attributable to joint venture partner, reserve figures reflect the Company's ownership only. Includes discounts for ore loss and dilution.
Attributable metal resources AS AT 31 DECEMBER 2009 (audited by P&E Consulting*)
| Resource category |
| Measured (t) |
| Indicated (t) |
| Measured and indicated (t) |
| Inferred (t) |
| Ag (g/t) | Au (g/t) | Zn (%) |
| Pb (%) |
| Cu (%) |
| Ag Eq (g/t) |
| Ag (moz) |
| Au (koz) |
| Zn(kt) |
| Pb (kt) |
| Cu (kt) |
| MAIN OPERATIONS* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Arcata |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 1,310,666 |
|
|
|
|
|
|
| 514 | 1.60 | - |
| - |
| - |
| 610 |
| 21.7 |
| 67.4 |
| - |
| - |
| - |
| Indicated |
|
|
| 1,024,287 |
|
|
|
|
| 464 | 1.42 | - |
| - |
| - |
| 549 |
| 15.3 |
| 46.8 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 2,334,953 |
|
|
| 492 | 1.52 | - |
| - |
| - |
| 584 |
| 37.0 |
| 114.2 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 2,227,956 |
| 417 | 1.32 | - |
| - |
| - |
| 496 |
| 29.9 |
| 94.5 |
| - |
| - |
| - |
| Pallancata |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 2,017,132 |
|
|
|
|
|
|
| 439 | 1.91 | - |
| - |
| - |
| 553 |
| 28.5 |
| 123.6 |
| - |
| - |
| - |
| Indicated |
|
|
| 1,000,005 |
|
|
|
|
| 379 | 1.57 | - |
| - |
| - |
| 473 |
| 12.2 |
| 50.6 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 3,017,137 |
|
|
| 419 | 1.80 | - |
| - |
| - |
| 527 |
| 40.6 |
| 174.2 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 950,743 |
| 376 | 1.51 | - |
| - |
| - |
| 466 |
| 11.5 |
| 46.3 |
| - |
| - |
| - |
| San José |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 378,861 |
|
|
|
|
|
|
| 527 | 8.62 | - |
| - |
| - |
| 1,044 |
| 6.4 |
| 105.0 |
| - |
| - |
| - |
| Indicated |
|
|
| 969,658 |
|
|
|
|
| 445 | 6.58 | - |
| - |
| - |
| 839 |
| 13.9 |
| 205.0 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 1,348,519 |
|
|
| 468 | 7.15 | - |
| - |
| - |
| 897 |
| 20.3 |
| 310.0 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 914,296 |
| 314 | 4.51 | - |
| - |
| - |
| 585 |
| 9.2 |
| 132.6 |
| - |
| - |
| - |
| Main operations total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 3,706,659 |
|
|
|
|
|
|
| 475 | 2.48 | - |
| - |
| - |
| 624 |
| 56.6 |
| 296.0 |
| - |
| - |
| - |
| Indicated |
|
|
| 2,993,950 |
|
|
|
|
| 429 | 3.14 | - |
| - |
| - |
| 618 |
| 41.3 |
| 302.4 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 6,700,609 |
|
|
| 454 | 2.78 | - |
| - |
| - |
| 621 |
| 97.9 |
| 598.4 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 4,092,994 |
| 385 | 2.08 | - |
| - |
| - |
| 509 |
| 50.6 |
| 273.4 |
| - |
| - |
| - |
| OTHER OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 543,826 |
|
|
|
|
|
|
| 144 | 5.45 | - |
| - |
| - |
| 471 |
| 2.5 |
| 95.2 |
| - |
| - |
| - |
| Indicated |
|
|
| 145,638 |
|
|
|
|
| 124 | 4.19 | - |
| - |
| - |
| 376 |
| 0.6 |
| 19.6 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 689,464 |
|
|
| 140 | 5.18 | - |
| - |
| - |
| 451 |
| 3.1 |
| 114.8 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 362,138 |
| 167 | 3.91 | - |
| - |
| - |
| 402 |
| 1.9 |
| 45.6 |
| - |
| - |
| - |
| Moris |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 1,205,895 |
|
|
|
|
|
|
| 4 | 1.30 | - |
| - |
| - |
| 82 |
| 0.2 |
| 50.3 |
| - |
| - |
| - |
| Indicated |
|
|
| 103,265 |
|
|
|
|
| 4 | 1.31 | - |
| - |
| - |
| 82 |
| 0.0 |
| 4.4 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 1,309,160 |
|
|
| 4 | 1.30 | - |
| - |
| - |
| 82 |
| 0.2 |
| 54.7 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 415,689 |
| 5 | 1.22 | - |
| - |
| - |
| 78 |
| 0.1 |
| 16.3 |
| - |
| - |
| - |
| Other operations total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 1,749,721 |
|
|
|
|
|
|
| 48 | 2.59 | - |
| - |
| - |
| 203 |
| 2.7 |
| 145.5 |
| - |
| - |
| - |
| Indicated |
|
|
| 248,903 |
|
|
|
|
| 74 | 3.00 | - |
| - |
| - |
| 254 |
| 0.6 |
| 24.0 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 1,998,624 |
|
|
| 51 | 2.64 | - |
| - |
| - |
| 209 |
| 3.3 |
| 169.5 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 777,826 |
| 80 | 2.47 | - |
| - |
| - |
| 229 |
| 2.0 |
| 61.9 |
| - |
| - |
| - |
| ADVANCED PROJECTS (100%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Azuca |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| - |
|
|
|
|
|
|
| - | - | - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| Indicated |
|
|
| - |
|
|
|
|
| - | - | - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| Total |
|
|
|
|
| - |
|
|
| - | - | - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 3,745,984 |
| 288 | 1.31 | - |
| - |
| - |
| 366 |
| 34.6 |
| 157.4 |
| - |
| - |
| - |
| Crespo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 1,303,461 |
|
|
|
|
|
|
| 53 | 0.69 | - |
| - |
| - |
| 94 |
| 2.2 |
| 28.8 |
| - |
| - |
| - |
| Indicated |
|
|
| 8,224,590 |
|
|
|
|
| 38 | 0.56 | - |
| - |
| - |
| 71 |
| 9.9 |
| 147.5 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 9,528,050 |
|
|
| 40 | 0.58 | - |
| - |
| - |
| 74 |
| 12.1 |
| 176.3 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 8,315,845 |
| 38 | 0.74 | - |
| - |
| - |
| 82 |
| 10.1 |
| 198.4 |
| - |
| - |
| - |
| San Felipe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 1,393,716 |
|
|
|
|
|
|
| 69 | 0.02 | 7.12 |
| 3.10 |
| 0.39 |
| 315 |
| 3.1 |
| 0.9 |
| 99.26 |
| 43.15 |
| 5.50 |
| Indicated |
|
|
| 1,354,261 |
|
|
|
|
| 82 | 0.06 | 6.14 |
| 2.73 |
| 0.31 |
| 295 |
| 3.6 |
| 2.4 |
| 83.18 |
| 36.97 |
| 4.24 |
| Total |
|
|
|
|
| 2,747,977 |
|
|
| 76 | 0.04 | 6.64 |
| 2.92 |
| 0.35 |
| 305 |
| 6.7 |
| 3.3 |
| 182.45 |
| 80.12 |
| 9.74 |
| Inferred |
|
|
|
|
|
|
| 1,257,731 |
| 84 | 0.05 | 6.18 |
| 2.26 |
| 0.19 |
| 283 |
| 3.4 |
| 1.9 |
| 77.76 |
| 28.47 |
| 2.34 |
| Advanced projects total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 2,697,176 |
|
|
|
|
|
|
| 61 | 0.34 | 3.68 |
| 1.60 |
| 0.20 |
| 208 |
| 5.3 |
| 29.7 |
| 99.26 |
| 43.15 |
| 5.50 |
| Indicated |
|
|
| 9,578,851 |
|
|
|
|
| 44 | 0.49 | 0.87 |
| 0.39 |
| 0.04 |
| 103 |
| 13.5 |
| 150.0 |
| 83.18 |
| 36.97 |
| 4.24 |
| Total |
|
|
|
|
| 12,276,027 |
|
|
| 48 | 0.46 | 1.49 |
| 0.65 |
| 0.08 |
| 126 |
| 18.8 |
| 179.7 |
| 182.45 |
| 80.12 |
| 9.74 |
| Inferred |
|
|
|
|
|
|
| 13,319,559 |
| 112 | 0.84 | 0.58 |
| 0.21 |
| 0.02 |
| 181 |
| 48.2 |
| 357.7 |
| 77.76 |
| 28.47 |
| 2.34 |
| OTHER INVESTMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Timmins (Lake Shore)1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 0 |
|
|
|
|
|
|
| 0 | 0.00 | - |
| - |
| - |
| 0 |
| 0.0 |
| 0.0 |
| - |
| - |
| - |
| Indicated |
|
|
| 1,158,465 |
|
|
|
|
| 0 | 8.56 | - |
| - |
| - |
| 513 |
| 0.0 |
| 318.7 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 1,158,465 |
|
|
| 0 | 8.56 | - |
| - |
| - |
| 513 |
| 0.0 |
| 318.7 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 319,158 |
| 0 | 5.74 | - |
| - |
| - |
| 344 |
| 0.0 |
| 58.9 |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Resource category |
| Measured (t) |
| Indicated (t) |
| Measured and indicated (t) |
| Inferred (t) |
| Ag (g/t) | Au (g/t) | Zn (%) |
| Pb (%) |
| Cu (%) |
| Ag Eq (g/t) |
| Ag (moz) |
| Au (koz) |
| Zn(kt) |
| Pb (kt) |
| Cu (kt) |
| Inmaculada (IMZ) 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 0 |
|
|
|
|
|
|
| 0 | 0.00 | - |
| - |
| - |
| 0 |
| 0.0 |
| 0.0 |
| - |
| - |
| - |
| Indicated |
|
|
| 606,620 |
|
|
|
|
| 122 | 3.90 | - |
| - |
| - |
| 354 |
| 2.4 |
| 75.5 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 606,620 |
|
|
| 122 | 3.90 | - |
| - |
| - |
| 354 |
| 2.4 |
| 75.5 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 2,296,140 |
| 147 | 3.40 | - |
| - |
| - |
| 350 |
| 10.8 |
| 250.9 |
| - |
| - |
| - |
| Other investments total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 0 |
|
|
|
|
|
|
| 0 | 0.00 | - |
| - |
| - |
| 0 |
| 0.0 |
| 0.0 |
| - |
| - |
| - |
| Indicated |
|
|
| 1,765,085 |
|
|
|
|
| 42 | 6.96 | - |
| - |
| - |
| 459 |
| 2.4 |
| 394.9 |
| - |
| - |
| - |
| Total |
|
|
|
|
| 1,765,085 |
|
|
| 42 | 6.96 | - |
| - |
| - |
| 459 |
| 2.4 |
| 394.9 |
| - |
| - |
| - |
| Inferred |
|
|
|
|
|
|
| 2,615,298 |
| 129 | 3.69 | - |
| - |
| - |
| 350 |
| 10.9 |
| 309.9 |
| - |
| - |
| - |
| TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Measured |
| 8,153,557 |
|
|
|
|
|
|
| 246 | 1.80 | 1.22 |
| 0.53 |
| 0.07 |
| 396 |
| 64.5 |
| 471.2 |
| 99.26 |
| 43.15 |
| 5.50 |
| Indicated |
|
|
| 14,586,789 |
|
|
|
|
| 123 | 1.86 | 0.57 |
| 0.25 |
| 0.03 |
| 254 |
| 57.8 |
| 871.2 |
| 83.18 |
| 36.97 |
| 4.24 |
| Total |
|
|
|
|
| 22,740,345 |
|
|
| 167 | 1.84 | 0.80 |
| 0.35 |
| 0.04 |
| 305 |
| 122.4 |
| 1342.4 |
| 182.45 |
| 80.12 |
| 9.74 |
| Inferred |
|
|
|
|
|
|
| 20,805,678 |
| 167 | 1.50 | 0.37 |
| 0.14 |
| 0.01 |
| 269 |
| 111.6 |
| 1002.9 |
| 77.76 |
| 28.47 |
| 2.34 |
Note: Resources include undiscounted reserves, where resources are attributable to joint venture partner, resources figures reflect the Company's ownership only. No ore loss or dilution has been included, and stockpiled ore excluded.
1 Hochschild owns a 38% interest in Lake Shore Gold
2 Hochschild owns a 49% interest (IMZ owns the remaining 51%). IMZ can earn a 70% interest (diluting Hochschild to 30%) by completing a feasibility study by September 2013 at its sole cost and issuing to Hochschild 200,000 IMZ shares
CHANGE IN METAL AND RESOURCES FROM DECEMBER 2008 TO DECEMBER 2009
Change in total reserves and resources
| Ag equivalent content (million ounces) | Category | December 2008 | Production1 | Movements2 | December 2009 | Net difference | % change |
| Arcata | Resource | 87.2 |
| -7.8 | 79.4 | -7.8 | -9.0% |
|
| Reserve | 33.1 | 12.3 | 9.0 | 29.8 | -3.3 | -10.0% |
| Pallancata | Resource | 90.9 |
| 18.0 | 108.9 | 18.0 | 19.8% |
|
| Reserve | 63.1 | 12.3 | 5.1 | 55.9 | -7.2 | -11.4% |
| San José | Resource | 96.0 |
| 14.0 | 110.0 | 14.0 | 14.5% |
|
| Reserve | 52.3 | 11.4 | 2.8 | 43.7 | -8.6 | -16.5% |
| Main operations total: | Resource | 274.2 |
| 24.1 | 298.3 | 24.1 | 8.8% |
|
| Reserve | 148.5 | 36.0 | 16.9 | 129.4 | -19.1 | -12.9% |
| Ares | Resource | 17.5 |
| -2.9 | 14.7 | -2.9 | -16.4% |
|
| Reserve | 8.6 | 3.8 | -1.1 | 3.7 | -4.9 | -56.5% |
| Moris | Resource | 7.8 |
| -3.3 | 4.5 | -3.3 | -42.0% |
|
| Reserve | 5.2 | 3.2 | 0.8 | 2.8 | -2.4 | -46.1% |
| Other operations total: | Resource | 25.3 |
| -6.1 | 19.2 | -6.1 | -24.2% |
|
| Reserve | 13.8 | 7.0 | -0.3 | 6.5 | -7.3 | -52.6% |
| Azuca | Resource | 23.3 |
| 20.8 | 44.1 | 20.8 | 89.5% |
|
| Reserve | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -.- |
| Crespo | Resource | 0.0 |
| 44.7 | 44.7 | 44.7 | -.- |
|
| Reserve | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -.- |
| San Felipe | Resource | 38.5 |
| 0.0 | 38.5 | 0.0 | 0.0% |
|
| Reserve | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -.- |
| Advanced projects total | Resource | 61.7 |
| 65.5 | 127.3 | 65.5 | 106.2% |
|
| Reserve | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -.- |
| Timmins (Lake Shore)3 | Resource | 64.8 |
| -1.3 | 63.5 | -1.3 | -2.0% |
|
| Reserve | 49.6 | 0.0 | -0.8 | 48.7 | -0.8 | -1.7% |
| Inmaculada (IMZ)4 | Resource | 45.6 |
| 21.3 | 66.9 | 21.3 | 46.7% |
|
| Reserve | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -.- |
| Other investments total | Resource | 110.4 |
| 20.0 | 130.4 | 20.0 | 18.1% |
|
| Reserve | 49.6 |
| -0.8 | 48.7 | -0.8 | -1.7% |
| Total: | Resource | 471.6 |
| 103.5 | 575.0 | 103.5 | 21.9% |
|
| Reserve | 211.9 | 43.0 | 15.8 | 184.6 | -27.2 | -12.8% |
1 Depletion: reduction in reserves based on ore delivered to the mine plant.
2 Increase in reserves and resources due mainly to mine site exploration but also to price increases.
3 Hochschild owns a 38% interest in Lake Shore Gold
4 Hochschild owns a 49% interest (IMZ owns the remaining 51%). IMZ can earn a 70% interest (diluting Hochschild to 30%) by completing a feasibility study by September 2013 at its sole cost and issuing to Hochschild 200,000 IMZ shares
Change in attributable reserves and resources
| Ag equivalent content (million ounces) | Category | Percentage attributable | December 2008 Att.1 | December 2009 Att.1 | Net difference | % change |
| Arcata | Resource | 100% | 87.2 | 79.4 | -7.8 | -9.0% |
|
| Reserve |
| 33.1 | 29.8 | -3.3 | -10.0% |
| Pallancata | Resource | 60% | 54.6 | 65.3 | 10.8 | 19.8% |
|
| Reserve |
| 37.9 | 33.5 | -4.3 | -11.4% |
| San José | Resource | 51% | 49.0 | 56.1 | 7.1 | 14.5% |
|
| Reserve |
| 26.7 | 22.3 | -4.4 | -16.5% |
| Main operations total | Resource |
| 190.7 | 200.8 | 10.1 | 5.3% |
|
| Reserve |
| 97.6 | 85.6 | -12.0 | -12.3% |
| Ares | Resource | 100% | 17.5 | 14.7 | -2.9 | -16.4% |
|
| Reserve |
| 8.6 | 3.7 | -4.9 | -56.5% |
| Moris | Resource | 100% | 5.4 | 4.5 | -0.9 | -17.1% |
|
| Reserve |
| 3.6 | 2.8 | -0.8 | -23.0% |
| Other operations total | Resource |
| 23.0 | 19.2 | -3.8 | -16.5% |
|
| Reserve |
| 12.2 | 6.5 | -5.7 | -46.6% |
| Azuca | Resource | 100% | 23.3 | 44.1 | 20.8 | 89.5% |
|
| Reserve |
| 0.0 | 0.0 | 0.0 | -.- |
| Crespo | Resource | 100% | 0.0 | 44.7 | 44.7 | -.- |
|
| Reserve |
| 0.0 | 0.0 | 0.0 | -.- |
| San Felipe | Resource | 100% | 38.5 | 38.5 | 0.0 | 0.0% |
|
| Reserve |
| 0.0 | 0.0 | 0.0 | -.- |
| Advanced projects total | Resource |
| 61.7 | 127.3 | 65.5 | 106.2% |
|
| Reserve |
| 0.0 | 0.0 | 0.0 | -.- |
| Timmins (Lake Shore Gold)2 | Resource | 35.7% | 25.2 | 22.7 | -2.6 | -10.2% |
|
| Reserve |
| 19.3 | 17.4 | -1.9 | -9.9% |
| Inmaculada (IMZ)3 | Resource | 49% | 22.3 | 32.8 | 10.4 | 46.7% |
|
| Reserve |
| 0.0 | 0.0 | 0.0 | -.- |
| Other investments total | Resource |
| 47.6 | 55.4 | 7.9 | 16.5% |
|
| Reserve |
| 19.3 | 17.4 | -1.9 | -9.9% |
| Total: | Resource |
| 323.0 | 402.7 | 79.7 | 24.7% |
|
| Reserve | 100% | 129.2 | 109.6 | -19.6 | -15.2% |
1 Attributable reserves and resources based on the Group's percentage ownership of its joint venture projects.
2 Hochschild owns a 38% interest in Lake Shore Gold
3 Hochschild owns a 49% interest (IMZ owns the remaining 51%). IMZ can earn a 70% interest (diluting Hochschild to 30%) by completing a feasibility study by September 2013 at its sole cost and issuing to Hochschild 200,000 IMZ shares
PRODUCTION
Total Group production1
|
| Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Silver production (koz) | 24,585 | 20,782 | 18 |
| Gold production (koz) | 211.64 | 193.97 | 9 |
| Total silver equivalent (koz) | 37,283 | 32,421 | 15 |
| Total gold equivalent (koz) | 621.38 | 540.34 | 15 |
| Silver sold (koz) | 23,563 | 20,593 | 14 |
| Gold sold (koz) | 204.09 | 198.32 | 3 |
1 Total production includes 100% of all production, including production attributable to joint venture partners at San José and Pallancata.
Attributable Group production1
|
| Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Silver production (koz) | 18,754 | 16,941 | 11 |
| Gold production (koz) | 156.77 | 152.86 | 3 |
| Attrib. silver equivalent (koz) | 28,160 | 26,113 | 8 |
| Attrib. gold equivalent (koz) | 469.34 | 435.22 | 8 |
1 Attributable production includes 100% of all production from Arcata, Ares and Moris, 60% from Pallancata and 51% from San José.
2009 production by mine
Arcata
| Product | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Ore production (tonnes) | 643,059 | 557,870 | 15 |
| Average head grade silver (g/t) | 503 | 571 | -12 |
| Average head grade gold (g/t) | 1.56 | 1.53 | 2 |
| Concentrate produced (tonnes) | 22,352 | 20,639 | 8 |
| Silver grade in concentrate (kg/t) | 13.36 | 13.94 | -4 |
| Gold grade in concentrate (kg/t) | 0.04 | 0.04 | - |
| Silver produced (koz) | 9,542 | 9,032 | 6 |
| Gold produced (koz) | 28.64 | 24.04 | 19 |
| Silver sold (koz) | 8,748 | 8,564 | 2 |
| Gold sold (koz) | 26.02 | 22.36 | 16 |
Ares
| Product | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Ore production (tonnes) | 341,273 | 347,910 | -2 |
| Average head grade silver (g/t) | 96 | 157 | -39 |
| Average head grade gold (g/t) | 4.17 | 6.06 | -31 |
| Doré total (koz) | 947 | 1,608 | -41 |
| Silver produced (koz) | 900 | 1,538 | -41 |
| Gold produced (koz) | 42.59 | 64.16 | -34 |
| Silver sold (koz)1 | 873 | 2,398 | -64 |
| Gold sold (koz)2 | 41.82 | 77.44 | -46 |
1 Total sale figures for Ares in 2008 include the sale of 746 koz of silver precipitates from San José.
2 Total sale figures for Ares in 2008 include the sale of 11.14 koz of gold precipitates from San José.
Pallancata1
| Product | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Ore production (tonnes) | 922,521 | 468,125 | 97 |
| Average head grade silver (g/t) | 327 | 312 | 5 |
| Average head grade gold (g/t) | 1.43 | 1.49 | -4 |
| Concentrate produced (tonnes) | 7,684 | 4,265 | 80 |
| Silver grade in concentrate (kg/t) | 34.09 | 30.54 | 12 |
| Gold grade in concentrate (kg/t) | 0.13 | 0.12 | 8 |
| Silver produced (koz) | 8,420 | 4,188 | 101 |
| Gold produced (koz) | 31.97 | 16.16 | 98 |
| Silver sold (koz) | 8,147 | 3,852 | 112 |
| Gold sold (koz) | 29.77 | 14.81 | 101 |
1 The Company has a 60% interest in Pallancata.
Selene1
| Product | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Ore production (tonnes) | 109,893 | 269,150 | -59 |
| Average head grade silver (g/t) | 217 | 210 | 3 |
| Average head grade gold (g/t) | 1.09 | 1.21 | -10 |
| Concentrate produced (tonnes) | 1,057 | 3,201 | -67 |
| Silver grade in concentrate (kg/t) | 18.55 | 15.04 | 23 |
| Gold grade in concentrate (kg/t) | 0.09 | 0.08 | 13 |
| Silver produced (koz) | 628 | 1,579 | -60 |
| Gold produced (koz) | 3.02 | 8.50 | -64 |
| Silver sold (koz) | 636 | 1,929 | -67 |
| Gold sold (koz) | 2.96 | 9.93 | -70 |
1 Selene was closed on 28 May 2009
San José1
| Product | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Ore production (tonnes) | 460,971 | 295,963 | 56 |
| Average head grade silver (g/t) | 398 | 559 | -29 |
| Average head grade gold (g/t) | 6.19 | 6.69 | -7 |
| Silver produced (koz) | 4,998 | 4,381 | 14 |
| Gold produced (koz) | 77.08 | 54.26 | 42 |
| Silver sold (koz) | 5,072 | 4,588 | 11 |
| Gold sold (koz) | 77.22 | 57.70 | 34 |
1 The Company has a 51% interest in San José.
Moris
| Product | Year ended 31 December 2009 | Year ended 31 December 2008 | % change |
| Ore production (tonnes) | 1,282,461 | 876,148 | 46 |
| Average head grade silver (g/t) | 5.02 | 5.71 | -12 |
| Average head grade gold (g/t) | 1.38 | 1.57 | -12 |
| Silver produced (koz) | 97 | 65 | 49 |
| Gold produced (koz) | 28.34 | 26.85 | 6 |
| Silver sold (koz) | 87 | 68 | 28 |
| Gold sold (koz) | 26.29 | 28.01 | -6 |