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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hochschild Mining Plc | LSE:HOC | London | Ordinary Share | GB00B1FW5029 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2.80 | 1.79% | 159.60 | 159.40 | 160.20 | 161.00 | 155.60 | 156.40 | 7,001,429 | 16:35:04 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Silver Ores | 693.72M | -55.01M | -0.1069 | -14.91 | 820.05M |
From Apr 2019 to Apr 2024
TIDMHOC
RNS Number : 4606F
Hochschild Mining PLC
21 February 2018
________________________________________________________________________________
21 February 2018
Hochschild Mining plc
Preliminary Results for the year ended 31 December 2017
Financial highlights
-- Revenue of $722.6 million (2016: $688.2 million)([1])
-- Adjusted EBITDA of $300.8 million (2016: $329.0 million)([2])
-- Profit before income tax of $64.1 million (2016: $108.3 million)
-- Basic earnings per share of $0.08 (2016: $0.09)
-- Adjusted basic earnings per share of $0.08 (2016: $0.11)([3])
-- Cash and cash equivalent balance of $257.0 million as at 31 December 2017 (2016: $140.0 million)
-- Net debt of $102.8 million as at 31 December 2016 (2016: $187.4 million)
-- Final proposed dividend of 1.965 cents per share ($10 million) up 42% versus 2016 final dividend (1.38 cents per share)
2017 operational delivery exceeding guidance
-- 2017 AISC per silver equivalent ounce from operations of $12.3 (2016: $11.2) in line with guidance of $12.2-12.7([4])
-- Inmaculada AISC per gold equivalent ounce of $721 (2016: $646)
-- Full year attributable production of 513,598 gold equivalent ounces (38.0 million silver equivalent ounces) exceeding guidance([5])
-- Record production of 239,479 gold equivalent ounces at Inmaculada (2016: 229,033 ounces)
-- First results from surface drilling confirming strong geological potential at Inmaculada
2018 Outlook
-- Production target of 514,000 attributable gold equivalent ounces (38.0 million silver equivalent ounces)
-- AISC expected to be $960-$990 per gold equivalent ounce ($13.0-13.4 per silver equivalent ounce)([6])
o Inmaculada costs expected to be $700-750 per gold equivalent ounce
-- Total sustaining and development capital expenditure expected to be approximately $125-135 million including $14 million for hydraulic backfill project at San Jose
-- $10million budget approved for greenfield exploration programme in 2018
o 4-6 projects across three countries to be drilled in 2018
-- 7.75% Senior Notes repaid on 23 January 2018 financed by cash resources and significantly lower rate short-to-medium term debt
-- Reduction in Argentina corporate tax rates expected to be a significant positive impact on cash generation
$000 unless stated Year ended 31 Dec 2017 Year ended 31 Dec 2016 % change ------------------------------------------------------ ----------------------- ----------------------- --------- Attributable silver production (koz) 19,141 17,284 11 Attributable gold production (koz) 255 246 4 Revenue 722,572 688,242 5 Adjusted EBITDA 300,750 329,014 (9) Profit from continuing operations (pre-exceptional) 53,355 69,306 (23) Profit from continuing operations (post-exceptional) 53,881 62,862 (14) Basic earnings per share (pre-exceptional) $ 0.08 0.11 (27) Basic earnings per share (post-exceptional) $ 0.08 0.09 (11) ------------------------------------------------------ ----------------------- ----------------------- ---------
Commenting on the results, Ignacio Bustamante, CEO, said:
"We have delivered another set of solid results driven by record production and costs in line with expectations. We have completed a very successful refinancing and along with strong operational cashflow, we have consequently been able to reward shareholders for their support with a proposed increase in the final dividend for 2017. In 2018, we can look forward to the ramp up of production from the Pablo vein and continued investment in our brownfield exploration programme."
________________________________________________________________________________
A presentation will be held for analysts and investors at 9.30am (UK time) on Wednesday 21 February 2018 at the offices of JP Morgan, 60 Victoria Embankment, London, EC4Y 0JP (Entrance at 1 John Carpenter Street)
The presentation and a link to the live audio webcast of the presentation can be found at the Hochschild website:
www.hochschildmining.com
To join the event via conference call, please see dial in details below:
UK: +44(0)330 336 9105 (Please quote confirmation code 7595580)
________________________________________________________________________________
Enquiries:
Hochschild Mining plc
Charles Gordon +44 (0)20 3709 3264
Head of Investor Relations
Hudson Sandler
Charlie Jack +44 (0)207 796 4133
Public Relations
________________________________________________________________________________
Non-IFRS Financial Performance Measures
The Company has included certain non-IFRS measures in this news release. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardised meaning prescribed under IFRS, and therefore may not be comparable to other issuers.
About Hochschild Mining plc:
Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.
CHAIRMAN'S STATEMENT
I am delighted with the progress made operationally and geologically in 2017 as well as with our long term goal of balance sheet optimisation. This has been demonstrated with our enviable track record of meeting our production and cost forecasts, as well as the delivery of our ambitious brownfield exploration programme which we believe is now starting to bear fruit. Whilst a complex permitting situation in Peru and unpredictable precious metal prices have at times impacted both the management of our core assets and our ability to execute our drilling campaigns, Hochschild Mining has maintained a consistent strategy over the last few years which places geological expertise at the heart of how we manage our deposits and how we generate further low cost organic growth in the long term. The Board is pleased, therefore, to be able to recommend an increased final dividend of $1.965 cents per share.
Operationally we were able to continue to grow our output reaching another Company record in 2017 with key contributions from Inmaculada and San Jose (both production records) and a vastly improved performance at Pallancata. With a positive gold price performance, we were still able to generate solid cashflow throughout the year despite a fall in profitability due to a rise in overall costs. With regards to our balance sheet, we took a decisive step in January 2018 with the early redemption of the high yield bonds, issued in 2014 to finance the construction of Inmaculada, using existing cash and lower cost local Peruvian debt. We are now in an advantageous financial position with a manageable debt profile and the firepower to meet the requirements of our brownfield and greenfield programmes, consider acquisitions and continue to return capital to shareholders.
Towards the end of the year we started to receive some positive results from our brownfield drilling campaigns. In particular, I would like to mention that geological developments at Inmaculada which have confirmed our long-held confidence in the prospectivity of the district and I look forward to the team continuing to add high quality resources in 2018 and beyond. The majority of our assets are still underexplored and following positive changes to the permitting process in Peru, I believe that our organic growth programme is beginning to gain real momentum. Furthermore, it is pleasing to see an increasing number of greenfield targets come through the pipeline as well as some earn-in joint venture opportunities being evaluated.
Safety and Environment
As mentioned in my statement last year, an accident at the Inmaculada mine early in 2017 resulted in two fatalities. With great regret, we disclosed that a second accident occurred at the Arcata mine in July 2017 which also claimed the lives of two colleagues. On behalf of the Board, I would like to again convey our deepest condolences to the families of the victims involved. Our resolve to make Hochschild Mining a safe place to work is as strong as ever and management has responded by instigating a wide-ranging programme to reinforce our safety culture which: includes senior management reviewing all high-risk activities; involves even more frequent training; focuses on initiatives to motivate and incentivise safe working; and implements the most up-to-date safety risk management information systems. Over the course of a mine's life, geological conditions and mining methods may change but our commitment to safety remains constant and is one of our values which we are not willing to compromise.
Our focus on environmental performance continues to be one of our key priorities. During 2017, we introduced a new environmental corporate objective as part of the Company's overall Performance Objectives Plan (the base for calculating employee bonuses), which has historically been only based on production, safety and financial indicators. We believe that this new objective will help us in further promoting a strong environmental culture, achieve our goal of operating with the least environmental footprint possible and generate long-term value for our stakeholders.
Our People
Our employees are pivotal to the Company's performance and, to them, I wish to express my gratitude for their contribution in making 2017 a record year of profitable production. I also wish to thank my fellow Board colleagues for their support over the year. I am delighted that Dionisio Romero Paoletti joined the Board at the start of the year as a Non-Executive Director, bringing a wealth of business experience in Peru and internationally. Finally, I wish to express the Board's utmost gratitude to Enrico Bombieri who, having served as a Non-Executive Director since 2012 and as Senior Independent Director for four years, retired at the end of 2017.
Outlook
After an encouraging year for metal prices in 2017, particularly for gold, the prospects for precious metals in 2018 remain strong with robust global equity markets and inflation on the rise. We are aiming to continue our long-term growth strategy based around low cost brownfield investment, selective greenfield exploration and a targeted approach to acquisitions. Safety, operational excellence and cost control will remain of paramount importance and we will also continue repaying debt as and when the opportunity arises.
Eduardo Hochschild, Chairman
20 February 2018
CHIEF EXECUTIVE OFFICER'S STATEMENT
Hochschild delivered another record year of production whilst maintaining cost increases within expectations, excellent environmental performance, advancing our brownfield programme and continuing our drive to repay debt and optimise our balance sheet. We have also begun to widen our exploration focus to include selected greenfield projects across the Americas as well as assessing a wide variety of joint ventures and acquisitions that could supplement our long-term growth profile at a low cost.
No less important and in response to the fatalities that occurred during the year, I would like to highlight that the management team has designed and is implementing the "Hochschild Safety Transformation" plan which will reinforce the entire Company's commitment to a safe working environment.
Operations
Our core operations produced over half a million attributable gold equivalent ounces (38.0 million silver equivalent ounces) for the first time since the IPO - achieving a fifth year of output increases and improving on our original 37.0 million ounce silver equivalent target. This, yet again, demonstrates the value of our long-term organic growth strategy. Inmaculada was a key driver, delivering another record year of almost 240,000 gold equivalent ounces at a competitive all-in sustaining cost of $721 per gold equivalent ounce ($9.7 per silver equivalent ounce). San Jose also achieved a record (7.1 million attributable silver equivalent ounces) and Pallancata moved strongly into a new phase with 7.7 million silver equivalent ounces at a cost of $10.7 per silver equivalent ounce. At our Arcata mine, the effects of a lengthy permit delay to brownfield exploration in 2016 began to be fully felt with the accessing of increasingly narrower veins and a reduced number of stopes lowering production to 5.5 million silver equivalent ounces. We remain optimistic that, despite the impairment recognised in 2017, there is still geological potential in the Arcata deposit area and expect that our current drilling programme will enable an improvement in resource quality and quantity in the future. Finally, I am pleased to report that, during 2017, we achieved an excellent score in our newly implemented environmental corporate objective at all our operations. We will continue to work to maintain and improve our environmental culture and performance based on a strong belief that responsible mining is fully compatible with respect for the environment.
Exploration
Our ambitious brownfield exploration programme in Peru started to gain momentum in the second half of 2017 when, with all requisite permits in place, we were able to commence our surface drilling programmes at Inmaculada and Arcata. Early results from the first campaign in six years at Inmaculada are very encouraging and confirmed the presence of the Millet vein as well as eight other structures close to our mining infrastructure at the Angela vein. In Argentina, we had some success in discovering new structures close to the San Jose mine and we also continued to drill in the Aguas Vivas area to the north-west where we are currently assessing the nature of this polymetallic orebody which has significant quantities of zinc and lead as well as precious metals. At Pallancata, the focus was on developing the Pablo vein in preparation for mining in 2018 whilst the discovery of the Marco vein nearby has added further resources and prompted a new regional geological hypothesis which we will be testing in 2018. Finally, at Arcata we were able to discover additional inferred resources and throughout 2018, an intensive campaign will continue to explore for resources with the goal of utilising the plant's significant spare capacity.
Financial position
Strong cashflow from our operations combined with some balance sheet management opportunities has left us in a healthy financial position. On 23 January 2018, we were able to redeem the remaining $295 million of our 7.75% Senior Notes. We replaced a portion of these bonds with short to medium term debt from local banks in Peru with an average rate of 2.2% and approximately $100 million was repaid from existing cash resources. Consequently, our cash balance after this transaction remains a healthy $85m and we expect our interest costs to fall by approximately $20 million per year from 2019 onwards.
Financial results
Whilst an increased average gold price received was offset by a moderate fall in the silver price received, record production once again ensured a rise in revenue of 5% to $723 million (2016: $688 million). The operational all-in sustaining cost of $12.3 per silver equivalent ounce (2016: $11.2 per ounce) was in line with forecasts although the increase reflected an increased investment in brownfield exploration as well as one-off project costs at Inmaculada and consequently this resulted in Adjusted EBITDA of $300 million (2016: $329 million). Finally, with finance costs reduced despite the high yield bonds (now repaid), basic earnings per share and adjusted earnings per share was $0.08 per share (2016: $0.11 and $0.09 per share respectively).
Outlook
We expect attributable production in 2018 to be 514,000 gold equivalent ounces (38 million silver equivalent ounces driven by another 240,000 gold equivalent ounces from Inmaculada, an increased contribution of 9.5 million silver equivalent ounces from the revitalised Pallancata mine and another 7.1 million silver equivalent ounces from the dependable San Jose mine. At Arcata, where we expect production of 4 million silver equivalent ounces, management will continue to closely monitor performance to ensure production is optimised whilst maintaining the asset's optionality with regards to prices, exploration results and cost efficiencies. All in sustaining costs for operations are expected at between $960 to $990 per gold equivalent ounce ($13.0 to $13.4 per silver equivalent ounce) with the slight increase versus the $12.3 per ounce in 2017 resulting from further development costs of the Pablo vein and a one-off highly profitable investment in a hydraulic backfill project at San Jose. We are also pleased to note that the corporate tax rate in Argentina has been reduced from 35% to 30% from 2018 (and to 25% from 2020) and, hence we can look forward to a significant positive impact on San Jose's net profitability although taxes on dividends have also been reinstated to 7% through to 2020 and then to 13% thereafter.
A further $17 million is expected to be invested in our brownfield exploration in 2018 as we look to maintain the current momentum and an additional budget of $10 million is assigned to greenfield projects with some exciting prospects to be drilled in Peru, Chile, Canada and the United States. Low cost, early stage acquisition opportunities will continue to be pursued across the Americas and, in particular, earn-in joint ventures where operations can benefit from Hochschild's technical expertise. We are confident that our exploration-led growth strategy will continue to add high quality ounces to our existing assets, generate new early-stage projects and deliver long-term shareholder value.
Ignacio Bustamante, Chief Executive Officer
20 February 2018
OPERATING REVIEW
OPERATIONS
Note: silver/gold equivalent production and cost figures assume a gold/silver ratio of 74:1. Hochschild has increased the use of gold equivalent figures throughout the release to provide comparability to the gold industry peer group and due to the Company's Inmaculada mine being a majority gold producer.
Production
In 2017, Hochschild once again exceeded its full year production target, a record 513,598 gold equivalent ounces or 38.0 million silver equivalent ounces, comprising 254,932 ounces of gold and 19.1 million ounces of silver. The overall production target for 2018 is 514,000 gold equivalent ounces (38.0 million silver equivalent ounces).
Total group production
Hot Features
Premium
Year ended 31 Dec Year ended 31 Dec
2017 2016
----------------------- ------------------ ------------------
Silver production
(koz) 22,301 20,562
Gold production
(koz) 304.16 292.63
Total silver
equivalent (koz) 44,809 42,217
Total gold equivalent
(koz) 605.52 570.50
Silver sold (koz) 22,295 21,088
Gold sold (koz) 300.21 298.96
----------------------- ------------------ ------------------
Total production includes 100% of all production, including production attributable to Hochschild's joint venture partner at San Jose.
Attributable group production
Year ended 31 Dec Year ended 31 Dec
2017 2016
------------------- ------------------ ------------------
Silver production
(koz) 19,141 17,284
Gold production
(koz) 254.93 246.08
Silver equivalent
(koz) 38,006 35,493
Gold equivalent
(koz) 513.60 479.64
------------------- ------------------ ------------------
Attributable production includes 100% of all production from Arcata, Inmaculada, Pallancata and 51% from San Jose.
2018 Production forecast split
Operation Gold production Silver production
(oz approx) (m oz approx)
----------------- ---------------- ------------------
Inmaculada 160,000 5.6
Arcata 10,000 3.3
Pallancata 27,000 7.5
San Jose (100%) 100,000 6.5
Total 297,000 22.9
----------------- ---------------- ------------------
Costs
All-in sustaining costs from operations in 2017 was $910 per gold equivalent ounce or $12.3 per silver equivalent ounce (2016: $829 per gold equivalent ounce or $11.2 per silver equivalent ounce) driven by Inmaculada's very competitive $721 per gold equivalent ounce (2016: $644 per ounce) and Pallancata's low costs ($10.7 per silver equivalent ounce) driven by better than forecast tonnage and silver grades. Please see page 13 of the Financial Review for further details on costs.
The all-in sustaining cost from operations in 2018 is expected to be between $960 and $990 per gold equivalent ounce (or $13.0 and $13.4 per silver equivalent ounce) which includes a full year of the new detoxification process at Inmaculada, further development costs at the Pablo vein and an investment of $14 million in a highly value accretive hydraulic backfill project at San Jose. Arcata's costs are expected to be higher in line with its resource base and despite the implementation of significant cost control measures. An intense drilling campaign is expected to add higher quality resources during the year in order to provide continuity to the operation
2018 AISC forecast split
Operation AISC ($/oz) ----------- ----------------- Inmaculada 700-750 Au Eq[7] Arcata 18.0-18.5 Ag Eq Pallancata 13.0-13.5 Ag Eq San Jose 14.5-15.0 Ag Eq ----------- -----------------
Inmaculada (Peru)
The 100% owned Inmaculada gold/silver underground operation is located in the Department of Ayacucho in southern Peru. It commenced commissioning in June 2015.
Inmaculada summary Year ended Year ended % change
31 Dec 2017 31 Dec 2016
-------------------------- ------------- ------------- ---------
Ore production (tonnes) 1,295,701 1,306,606 (1)
Average silver grade
(g/t) 145 133 9
Average gold grade
(g/t) 4.15 4.21 (1)
Silver produced (koz) 5,506 4,908 12
Gold produced (koz) 165.07 162.71 1
Silver equivalent
produced (koz) 17,721 16,948 5
Gold equivalent produced
(koz) 239.48 229.03 5
Silver sold (koz) 5,498 5,004 10
Gold sold (koz) 162.32 164.75 (1)
Unit cost ($/t) 85.4 64.4 33
Total cash cost ($/oz
Au co-product) 486 370 31
All-in sustaining
cost ($/oz Au Eq) 721 646 12
-------------------------- ------------- ------------- ---------
Production
In 2017, Inmaculada delivered record gold equivalent production of 239,479 ounces, a 5% improvement on 2016 (2016: 229,033 ounces) and represents a very successful result following the unexpected stoppage at the operation in the first quarter of the year.
Costs
All-in sustaining costs were in line with expectations at $721 per gold equivalent ounce or $9.7 per silver equivalent ounce (2016: $646 per ounce). Costs rose versus 2016 due to the previously-disclosed investment in the expansion of the tailings dam and other infrastructure as well as reduced mined tonnage resulting from the stoppage in the first quarter and budgeted lower mined gold grades. These effects were partially offset by the processing of a high grade stockpile as well as operational efficiencies versus plan.
Arcata (Peru)
The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.
Arcata summary Year ended Year ended % change
31 Dec 2017 31 Dec 2016
-------------------------- ------------- ------------- ---------
Ore production (tonnes) 499,385 677,309 (26)
Average silver grade
(g/t) 308 337 (9)
Average gold grade
(g/t) 1.07 1.24 (14)
Silver produced (koz) 4,391 6,343 (31)
Gold produced (koz) 15.15 22.54 (33)
Silver equivalent
produced (koz) 5,512 8,011 (31)
Gold equivalent produced
(koz) 74.49 108.26 (31)
Silver sold (koz) 4,357 6,346 (31)
Gold sold (koz) 14.96 22.03 (32)
Unit cost ($/t) 124.8 101.1 23
Total cash cost ($/oz
Ag co-product) 14.5 11.0 32
All-in sustaining
cost ($/oz Ag Eq) 18.4 13.7 34
-------------------------- ------------- ------------- ---------
Production
Production for the year was 5.5 million silver equivalent ounces (2016: 8.0 million ounces) a result which reflected significantly reduced tonnage and lower grades following a revision of the mine plan to accommodate a lower number of available stopes and narrower veins.
Costs
In 2017, as expected, Arcata's all-in sustaining cost rose substantially versus 2016 to $18.4 per silver equivalent ounce (2016: $13.7 per ounce) reflecting the significantly reduced tonnage (affecting unit costs) and grades resulting from the above mentioned revised mine plan as well as the increased investment in the mine's brownfield exploration programme.
Pallancata (Peru)
The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.
Pallancata summary Year ended Year ended % change
31 Dec 2017 31 Dec 2016
-------------------------- ------------- ------------- ---------
Ore production (tonnes) 470,903 244,765 92
Average silver grade
(g/t) 442 381 16
Average gold grade
(g/t) 1.78 1.86 (4)
Silver produced (koz) 5,956 2,620 127
Gold produced (koz) 23.47 12.37 90
Silver equivalent
produced (koz) 7,693 3,536 118
Gold equivalent produced
(koz) 103.95 47.78 118
Silver sold (koz) 5,940 2,660 123
Gold sold (koz) 23.29 12.41 88
Unit cost ($/t) 101.5 131.0 (23)
Total cash cost ($/oz
Ag co-product) 7.8 12.4 (37)
All-in sustaining
cost ($/oz) 10.7 16.3 (34)
-------------------------- ------------- ------------- ---------
Production
The full year result was 7.7 million silver equivalent ounces, a 118% improvement on 2016 (2016: 3.5 million ounces) driven by better than forecast tonnage and silver grades.
Costs
All-in sustaining costs at Pallancata in 2017 fell by 34% versus the same period of 2016 to $10.7 per silver equivalent ounce (2016: $16.3 per ounce). The reduction was due to higher than expected tonnage and silver grades resulting from the accessing of high grade ancillary veins with the wider but lower grade Pablo vein forecast to provide the majority of the ore in 2018. Cost were also reduced due Pablo development capex being delayed into 2018 which is expected to increase all-in sustaining costs to be between $13.0 to $13.5 per silver equivalent ounce.
San Jose (Argentina)
The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires. San Jose commenced production in 2007 and is a joint venture with McEwen Mining Inc. Hochschild holds a controlling interest of 51% in the mine and is the mine operator.
San Jose summary(*) Year ended Year ended % change
31 31
Dec 2017 Dec 2016
-------------------------- ----------- ----------- ---------
Ore production (tonnes) 532,676 536,024 (1)
Average silver grade
(g/t) 436 444 (2)
Average gold grade
(g/t) 6.71 6.28 7
Silver produced (koz) 6,448 6,691 (4)
Gold produced (koz) 100.47 95.01 6
Silver equivalent
produced (koz) 13,883 13,721 1
Gold equivalent produced
(koz) 187.60 185.42 1
Silver sold (koz) 6,501 7,081 (8)
Gold sold (koz) 99.63 99.76 -
Unit cost ($/t) 240.1 202.4 19
Total cash cost ($/oz
Ag co-product) 10.5 9.7 8
All-in sustaining
cost ($/oz) 14.0 11.5 22
-------------------------- ----------- ----------- ---------
(*) The Company has a 51% interest in San Jose
Production
The overall production results for 2017 were 6.4 million ounces of silver and 100,474 ounces of gold which is 13.9 million silver equivalent ounces, a slight improvement on 2016.
Costs
At San Jose, all-in sustaining costs increased to $14.0 per silver equivalent ounce (2016: $11.5 per ounce) mainly due to the Q4 2016 elimination of the Patagonian port rebate which had lowered costs significantly. In addition, lower than expected currency devaluation in Argentina in 2017 only partially offset ongoing high local inflation.
In December 2017, the Argentine government sanctioned a series of fiscal measures that include a reduction in the 35% rate of corporate income tax, taking it to 30% for the years 2018 and 2019, and then to 25% for 2020 onwards. In addition, a withholding tax was imposed on dividends at a rate of 7% for 2018 and 2019, increasing to 13% from 2020. It is expected that the overall net effect on profitability will be positive.
EXPLORATION
Brownfield exploration
Arcata
27,662m of resource drilling and 11,200m of potential drilling was carried out at Arcata in 2017 and centred on the Tunel 3, Tunel 4, Paralela 3, Paralela Sur, Ramal Marion, Michele, Soledad, Baja, Ramal 4, Ruby 2 and Ruby 3 veins. In addition, long horizontal drilling for potential resources was also executed in the Pamela and Paralelas vein systems.
Selected results are provided in the table below:
Vein Results
--------------- -------------------------------
Ramal Marion DDH-018-GE-17: 1.0m @ 1.0g/t
Au & 326g/t Ag
DDH-023-GE-17: 0.8m @ 0.6g/t
Au & 154g/t Ag
DDH-049-EX-17: 0.8m @ 0.6g/t
Au & 146g/t Ag
DDH-054-EX-17: 0.8m @ 0.4g/t
Au & 201g/t Ag
DDH-023-GE-17: 0.8m @ 0.9g/t
Au & 246g/t Ag
DDH-043-EX-17: 1.2m @ 0.3g/t
Au & 159g/t Ag
DDH-058-EX-17: 1.0m @ 2.1g/t
Au & 712g/t Ag
DDH-066-EX-17: 1.3m @ 0.4g/t
Au & 167g/t Ag
DDH-018-GE-17: 1.2m @ 2.6g/t
Au & 1,229g/t Ag
DDH-023-GE-17: 0.8m @ 1.0g/t
Au & 227g/t Ag
DDH-043-EX-17: 0.8m @ 0.2g/t
Au & 477g/t Ag
DDH-058-EX-17: 0.9m @ 0.5g/t
Au & 309/t Ag
DDH-043-EX-17: 0.8m @ 0.2g/t
Au & 132g/t Ag
DDH-052-EX-17: 0.8m @ 0.4g/t
Au & 106g/t Ag
DDH-066-EX-17: 1.2m @ 1.1g/t
Au & 408g/t Ag
DDH-018-GE-17: 0.8m @ 0.9g/t
Au & 303g/t Ag
DDH-023-GE-17: 1.1m @ 3.8g/t
Au & 1,025g/t Ag
--------------- -------------------------------
Paralela DDH-036-GE-17: 0.8m @ 4.9g/t
Au & 605g/t Ag
DDH-038-GE-17: 0.8m @ 1.5g/t
Au & 198g/t Ag
DDH-048-DI-17: 0.4m @ 3.9g/t
Au & 389g/t Ag
DDH-074-DI-17: 1.2m @ 1.8g/t
Au & 176g/t Ag
DDH-056-DI-17: 0.8m @ 1.5g/t
Au & 177g/t Ag
--------------- -------------------------------
Paralela 1 DDH-036-GE-17: 0.8m @ 5.2g/t
Au & 692g/t Ag
DDH-038-GE-17: 0.8m @ 1.4g/t
Au & 240g/t Ag
DDH-048-DI-17: 0.8m @ 6.6g/t
Au & 765g/t Ag
--------------- -------------------------------
Paralela 2 DDH-057-DI-17: 1.1m @ 3.0g/t
Au & 244g/t Ag
DDH-028-GE-17: 0.9m @ 2.6g/t
Au & 226g/t Ag
--------------- -------------------------------
Paralela 3 DDH-056-DI-17: 1.1m @ 2.1g/t
Au & 331g/t Ag
DDH-074-DI-17: 1.8m @ 12.2g/t
Au & 1,339g/t Ag
DDH-041-DI-17: 1.3m @ 1.4g/t
Au & 173g/t Ag
DDH-038-GE-17: 0.8m @ 1.7g/t
Au & 117g/t Ag
DDH-107-DI-17: 1.3m @ 1.9g/t
Au & 192g/t Ag
--------------- -------------------------------
Socorro+800 DDH-074-DI-17: 2.5m @ 12.2g/t
Au & 399g/t Ag
--------------- -------------------------------
Tunel 4 DDH-087-GE-17: 0.8m @ 1.6g/t
Au & 850g/t Ag
DDH-097-DI-17: 1.8m @ 0.9g/t
Au & 397g/t Ag
DDH-103-DI-17: 0.8m @ 0.8g/t
Au & 126g/t Ag
DDH-109-DI-17: 1.3m @ 4.2g/t
Au & 636g/t Ag
DDH-555-S-17: 0.4m @ 1.6g/t
Au & 516g/t Ag
DDH-557-S-17: 1.9m @ 1.5g/t
Au & 205g/t Ag
DDH-576-S-17: 0.6m @ 1.0g/t
Au & 268g/t Ag
DDH-579-S-17: 2.8m @ 1.1g/t
Au & 276g/t Ag
--------------- -------------------------------
Alexia Techo 2 DDH-094-ST-17: 1.0m @ 1.4g/t
Au & 454g/t Ag
--------------- -------------------------------
Ruby 2 DDH-155-DI-17: 1.0m @ 0.4g/t
Au & 241g/t Ag
DDH-190-EX-17: 1.3m @ 1.2g/t
Au & 551g/t Ag
--------------- -------------------------------
Ruby 3 DDH-155-DI-17: 2.0m @ 0.7g/t
Au & 250g/t Ag
DDH-184-DI-17: 1.3m @ 0.3g/t
Au & 207g/t Ag
DDH-198-EX-17: 1.1m @ 0.5g/t
Au & 407g/t Ag
DDH-197-DI-17: 1.7m @ 1.3g/t
Au & 735g/t Ag
--------------- -------------------------------
In 2018, an intensive 32,000m resource drilling campaign is scheduled for all areas surrounding the main mining area.
Pallancata
At Pallancata, 1,000m of resource drilling was carried out in the Marco vein, a structure identified close to the Pablo vein with just over 1 million ounces of silver equivalent resources identified. Selected results are below:
Vein Results
------ ------------------------------
Marco DLYU-A92A: 1.4m @ 0.7g/t Au
& 235g/t Ag
DLYU-A88: 1.1m @ 2.2g/t Au &
1,108g/t Ag
DLNE-A05: 0.6m @ 1.1g/t Au &
470g/t Ag
DLYU-A92A: 2.0m @ 0.7g/t Au
& 169g/t Ag
DLNE-A07: 0.6m @ 1.1g/t Au &
152g/t Ag
------ ------------------------------
During 2018, mapping and geophysics will be carried out at the Pablo South area whilst an 8,400m potential drilling programme will be carried out to test continuity between the Marco and the Farallon veins to the North West of Pablo.
Inmaculada
At Inmaculada, following receipt of the requisite permits from the government in the fourth quarter, a 56,000 metre surface drilling programme began in early November with four drill rigs onsite. Results in the area to the south west of the Angela vein have so far confirmed the presence of nine new veins close to the existing mine infrastructure. The first results from almost 5,000 metres of drilling are detailed below and show, in particular, the potential of the Millet vein. The current campaign will continue throughout 2018 and will include further potential drilling as well as infill drilling and resource conversion. The Company expects to provide further updates on drill results throughout the year.
In addition, mine development during the third quarter allowed a reinterpretation of the geological model at the deposit and identified a further 9.7 million silver equivalent ounces of resources.
Vein Results
-------------- -------------------------------
Millet MIL-17-002: 36.5m @ 3.3g/t Au
& 73g/t Ag
MIL-17-003: 3.8m @ 3.8g/t Au
& 109g/t Ag
MIL-17-004A: 3.0m @ 1.4g/t Au
& 80g/t Ag
MIL-17-005: 38.5m @ 4.4g/t Au
& 96g/t Ag
MIL-17-006: 1.2m @ 1.8g/t Au
& 88g/t Ag
MIL-17-007: 2.5m @ 2.0g/t Au
& 19g/t Ag
MIL-17-009: 13.0m @ 6.8g/t Au
& 68g/t Ag
-------------- -------------------------------
Thalia MIL-17-001: 1.1m @ 3.0g/t Au
& 125g/t Ag
BAR17-017: 1.5m @ 11.0g/t Au
& 67g/t Ag
LIA17-001: 0.7m @ 2.3g/t Au
& 174g/t Ag
LIA17-002: 3.0m @ 5.1g/t Au
& 60g/t Ag
-------------- -------------------------------
Alessandra MIL-17-001: 1.2m @ 2.9g/t Au
& 227g/t Ag
MIL-17-001: 1.5m @ 1.5g/t Au
& 82g/t Ag
MIL-17-002: 2.5m @ 2.2g/t Au
& 122g/t Ag
-------------- -------------------------------
Barbara BAR17-001: 3.9m @ 1.6g/t Au
& 119g/t Ag
BAR17-003: 1.3m @ 2.4g/t Au
& 419g/t Ag
BAR17-004: 3.0m @ 2.6g/t Au
& 175g/t Ag
BAR17-008: 4.3m @ 10.0g/t Au
& 751g/t Ag
BAR17-009: 3.6m @ 1.9g/t Au
& 348g/t Ag
BAR17-010: 6.0m @ 15.2g/t Au
& 3,042g/t Ag
BAR17-011: 2.7m @ 6.6g/t Au
& 780g/t Ag
BAR17-012: 3.8m @ 6.5g/t Au
& 692g/t Ag
BAR17-013: 4.1m @ 11.1g/t Au
& 1,449g/t Ag
BAR17-014: 3.5m @ 16.2g/t Au
& 1,227g/t Ag
BAR17-017: 2.05m @ 1.38g/t Au
& 82g/t Ag
BAR17-018: 3.6m @ 3.5g/t Au
& 132g/t Ag
BAR17-019: 2.25m @ 3.55g/t Au
& 242g/t Ag
BAR17-020: 1.2m @ 7.9g/t Au
& 665g/t Ag
BAR17-021: 0.8m @ 1.1g/t Au
& 92g/t Ag
BAR17-022: 1.2m @ 1.7g/t Au
& 720g/t Ag
-------------- -------------------------------
Ramal Barbara BAR 17-019: 1.0m @ 1.7g/t Au
& 314g/t Ag
-------------- -------------------------------
Xiomara BAR17-017: 1.0m @ 1.0g/t Au
& 45g/t Ag
BAR17-018: 1.5m @ 2.1g/t Au
& 76g/t Ag
BAR17-019: 1.8m @ 3.6g/t Au
& 242g/t Ag
BAR17-020: 2.1m @ 2.5g/t Au
& 123g/t Ag
BAR17-021: 0.7m @ 0.6g/t Au
& 16g/t Ag
BAR17-022: 1.0m @ 5.7g/t Au
& 122g/t Ag
-------------- -------------------------------
During 2018, mapping and geophysics is planned for the Inmaculada East zone whilst a programme of 4,500 metres of drilling for potential as well as 53,000 metres of resource drilling is scheduled in the same area.
San Jose
At San Jose, 8,624 m of drilling for potential resources was carried out during the year at the Aguas Vivas zone with results indicating an intermediate sulphide deposit with associated zinc and lead mineralisation. A further 3,000 metres of drilling at Aguas Vivas is scheduled for Q1 2018. In addition, 5,000 metres of further resource and potential drilling was carried out during the year in the Molle, Odin, Ramal Ayelen and Frea E-W veins with selected results of both campaigns shown below.
Vein Results
---------------- -------------------------------
Aguas Vivas NW SJD-1627: 2.6m @ 0.1g/t Au,
43g/t Ag, 8.2% Pb & 5.5% Zn
SJD-1616: 2.8m @ 0.3g/t Au,
40g/t Ag, 7.0% Pb & 6.0% Zn
SJD-1686: 1.1m @ 3.6g/t Au,
86g/t Ag, 19.0% Pb & 10.3% Zn
SJD-1686: 1.5m @ 1.0g/t Au,
29g/t Ag, 1.1% Pb & 2.9% Zn
SJD-1687: 0.4m @ 0.2g/t Au,
65g/t Ag, 3.1% Pb & 7.2% Zn
SJD-1687: 1.0m @ 6.5g/t Au,
14g/t Ag
---------------- -------------------------------
Molle SJD-1651: 0.8m @ 8.4g/t Au &
141g/t Ag
SJM-320: 2.5m @ 5.2g/t Au &
427g/t Ag
SJM-321: 1.2m @ 46.7g/t Au &
2,256g/t Ag
SJD-1696: 2.9m @ 3.8g/t Au &
913g/t Ag
SJD-1697: 1.3m @ 92.3g/t Au
& 2,429g/t Ag
SJM-340: 0.6m @ 5.5g/t Au &
316g/t Ag
SJM-341: 0.6m @ 0.6g/t Au &
31g/t Ag
SJM-342: 1.1m @ 9.9g/t Au &
496g/t Ag
---------------- -------------------------------
Odin SJM-338: 1.4m @ 1.0g/t Au &
472g/t Ag
---------------- -------------------------------
Ramal Ayelen SJM-339: 0.6m @ 0.7g/t Au &
329g/t Ag
SJM-339: 1.0m @ 0.8g/t Au &
461g/t Ag
---------------- -------------------------------
Ramal Ayelen SE SJD-1689: 0.6m @ 1.2g/t Au &
49g/t Ag
SJD-1690: 0.5m @ 0.8g/t Au &
225g/t Ag
---------------- -------------------------------
Frea (E-W) SJM-331: 0.6m @ 15.9g/t Au &
405g/t Ag
SJM-333: 1.2m @ 3.3g/t Au &
262g/t Ag
SJD-1693: 1.6m @ 13.8g/t Au
& 184g/t Ag
---------------- -------------------------------
In 2018, mapping and geophysics will continue on the Aguas Vivas zone as well as approximately 3,000m of both potential and resource drilling.
FINANCIAL REVIEW
The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance the Group removes the effect of exceptional items when indicated. The income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years.
Revenue
Gross revenue
Gross revenue from continuing operations increased by 5% to $759.1 million in 2017 (2016: $722.0 million) driven by an increase in sales resulting from increases in production from the Company's Inmaculada and Pallancata mines as well as a rise in gold prices.[8]
Gold
Gross revenue from gold increased 5% in 2017 to $381.3 million (2016: $363.4 million) mainly as a result of a 4% rise in the average gold price as well as a small increase in the total amount of gold ounces sold in 2017. The increase in gold sales came from the recovery in the Pallancata mine offsetting a fall in gold sales from the Arcata mine.
Silver
Gross revenue from silver increased by 5% in 2017 to $377.8 million (2016: $358.7 million) as a result of a 6% increase in the total amount of silver ounces sold to 22,295 koz (2016: 21,088 koz) driven by a recovery at the primarily silver mine of Pallancata as well as increased sales from Inmaculada . This was partially offset by a 31% decrease in the silver sales from the Arcata operation.
Gross average realised sales prices
The following table provides figures for average realised prices (which are reported before the deduction of commercial discounts and include the effects of the hedging agreements in place during the prior year) and ounces sold for 2017 and 2016:
Average realised prices Year ended Year ended
31 Dec 2017 31 Dec 2016
---------------------------- ------------- -------------
Silver ounces sold (koz) 22,295 21,088
Avg. realised silver price
($/oz) 16.9 17.0
Gold ounces sold (koz) 300.21 298.95
Avg. realised gold price
($/oz) 1,270 1,215
---------------------------- ------------- -------------
Commercial discounts
Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrate, and are deducted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In 2017, the Group recorded commercial discounts of $36.9 million (2016: $34.1 million). The increase is explained by the higher production of concentrate mainly from the Pallancata mine. The ratio of commercial discounts to gross revenue in 2017 was 5% (2016: 5%).
Net revenue
Net revenue increased by 5% to $722.6 million (2016: $688.2 million), comprising net gold revenue of $372.3 million and net silver revenue of $349.8 million. In 2017, gold accounted for 52% and silver 48% of the Company's consolidated net revenue (2016: gold 51% and silver 49%) with the increase in the gold contribution mainly due to the increase in the gold price received.
Revenue by mine[9]
$000 Year ended 31 Dec 2017 Year ended 31 Dec 2016 % change ---------------------- ----------------------- ----------------------- --------- Silver revenue Arcata 74,452 106,206 (30) Inmaculada 91,943 83,642 10 Pallancata 100,285 44,500 125 San Jose 111,088 124,316 (11) Commercial discounts (27,926) (25,139) 11 Net silver revenue 349,842 333,525 5 Gold revenue Arcata 19,183 25,717 (25) Inmaculada 204,651 196,466 4 Pallancata 29,877 14,994 99 San Jose 127,602 126,174 1 Commercial discounts (8,998) (8,993) - Net gold revenue 372,315 354,358 5 ---------------------- ----------------------- ----------------------- --------- Other revenue 415 359 16 ---------------------- ----------------------- ----------------------- --------- Net revenue 722,572 688,242 5 ---------------------- ----------------------- ----------------------- ---------
Costs
Total cost of sales was $549.0 million in 2017 (2016: $487.7 million). The direct production cost excluding depreciation was higher at $345.4 million (2016: $293.8 million) explained by higher backfill and detoxification costs at Inmaculada and the impact of the net inflation in Argentina. Depreciation in 2017 was $195.7 million (2016: $185.7 million) with the increase due to Pallancata's higher tonnage extraction. Other items was higher at $3.2 million in 2017 (2016: $1.8 million) due to costs related to the community stoppage at Pallancata in January. Change in inventories was $4.7 million in 2017 (2016: $6.5 million).
$000 Year ended Year ended % Change
31 Dec 31 Dec
2017 2016
---------------------------- ----------- ----------- ---------
Direct production cost
excluding depreciation 345,436 293,810 18
Depreciation in production
cost 195,699 185,655 5
Other items 3,241 1,750 85
Change in inventories 4,673 6,487 (28)
---------------------------- ----------- ----------- ---------
Cost of sales 549,049 487,702 13
---------------------------- ----------- ----------- ---------
Unit cost per tonne
The Group reported unit cost per tonne at its operations of $125.0 per tonne in 2017, an 18% increase versus 2016 ($106.2 per tonne) mainly as a result of new detoxification and backfill processes at Inmaculada, stoppages at Pallancata and Inmaculada, local inflation in Argentina and higher costs at Arcata, partially offset by reduced costs at Pallancata.
Unit cost per tonne by operation (including royalties)[10]:
Operating unit ($/tonne) Year ended Year ended % change
31 Dec 31 Dec
2017 2016
-------------------------- ----------- ----------- ---------
Peru 97.7 83.2 17
Arcata 124.8 101.1 23
Inmaculada 85.4 64.4 33
Pallancata 101.5 131.0 (23)
-------------------------- ----------- ----------- ---------
Argentina
San Jose 240.1 202.4 19
-------------------------- ----------- ----------- ---------
Total 125.0 106.2 18
-------------------------- ----------- ----------- ---------
Cash costs
Cash cost reconciliation[11]:
$000 unless otherwise indicated Year ended Year ended % change
31 Dec 31 Dec
2017 2016
----------------------------------- ----------- ----------- ---------
Group cash cost 403,552 358,800 12
----------------------------------- ----------- ----------- ---------
(+) Cost of sales 549,049 487,702 13
(-) Depreciation and amortisation
in cost of sales (196,150) (180,317) 9
(+) Selling expenses 11,024 14,175 (22)
(+) Commercial deductions[12] 39,629 37,240 6
Gold 9,256 11,486 (19)
Silver 30,373 25,754 18
----------------------------------- ----------- ----------- ---------
Revenue 722,572 688,242 5
----------------------------------- ----------- ----------- ---------
Gold 372,315 354,358 5
Silver 349,842 333,525 5
Others 415 359 16
----------------------------------- ----------- ----------- ---------
Ounces sold
----------------------------------- ----------- ----------- ---------
Gold 300.2 298.9 -
Silver 22,295 21,088 6
----------------------------------- ----------- ----------- ---------
Group cash cost ($/oz)
----------------------------------- ----------- ----------- ---------
Co product Au 693 618 12
Co product Ag 8.8 8.2 7
By product Au 78 (2) (4,000)
By product Ag 1.0 (0.3) (430)
----------------------------------- ----------- ----------- ---------
Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.
All-in sustaining cost reconciliation
Year ended 31 Dec 2017
$000 unless otherwise indicated Arcata Inmaculada Pallancata San Main Corporate Total
José operations & others
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
(+) Production cost excluding
depreciation 62,340 109,005 46,874 127,217 345,436 - 345,436
(+) Other items in cost of
sales - - 1,461 1,780 3,241 - 3,241
(+) Operating and exploration
capex for units 17,557 52,903 19,186 33,998 123,644 453 124,097
(+) Brownfield exploration
expenses 3,029 1,127 1,279 3,407 8,842 4,041 12,883
(+) Administrative expenses
(excl depreciation) 880 3,351 1,362 8,701 14,294 35,425 49,719
(+) Royalties and special mining
tax(14) - 2,987 1,214 - 4,201 2,229 6,430
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
Sub-total 83,806 169,373 71,376 175,103 499,658 42,148 541,806
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
Au ounces produced 15,146 165,074 23,471 100,474 304,165 - 304,165
Ag ounces produced (000s) 4,391 5,506 5,956 6,448 22,301 - 22,301
Ounces produced (Ag Eq 000s
oz) 5,512 17,721 7,693 13,883 44,809 - 44,809
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
Sub-total ($/oz Ag Eq) 15.2 9.6 9.3 12.6 11.2 - 12.1
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
(+) Commercial deductions 15,695 2,134 9,633 12,167 39,629 - 39,629
(+) Selling expenses 1,931 1,118 1,298 6,677 11,024 - 11,024
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
Sub-total 17,626 3,252 10,931 18,844 50,653 - 50,653
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
Au ounces sold 14,963 162,323 23,287 99,634 300,207 - 300,207
Ag ounces sold (000s) 4,357 5,498 5,940 6,501 22,296 - 22,296
Ounces sold (Ag Eq 000s oz) 5,464 17,510 7,663 13,874 44,511 - 44,511
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- ------- Sub-total ($/oz Ag Eq) 3.2 0.2 1.4 1.4 1.1 1.1 ----------------------------------- ------ ---------- ---------- ---------- ----------- --------- ------- All-in sustaining costs ($/oz Ag Eq) 18.4 9.7 10.7 14.0 12.3 13.2 ----------------------------------- ------ ---------- ---------- ---------- ----------- --------- ------- All-in sustaining costs ($/oz Au Eq)[13] 1,362 721 792 1,036 910 - 977 ----------------------------------- ------ ---------- ---------- ---------- ----------- --------- -------
Year ended 31 Dec 2016
$000 unless otherwise indicated Arcata Inmaculada Pallancata San Main Corporate Total
José operations & others
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
(+) Production cost excluding
depreciation 68,155 83,796 33,650 108,209 293,810 - 293,810
(+) Other items in cost of
sales 462 506 241 541 1,750 - 1,750
(+) Operating and exploration
capex for units 20,819 54,199 16,130 32,670 123,818 255 124,073
(+) Brownfield exploration
expenses 1,305 1 733 1691 3,730 2,806 6,536
(+) Administrative expenses
(excl depreciation ) 1,441 3,420 674 8,180 13,715 32,932 46,647
(+) Royalties and special mining
tax[14] - 3,243 639 - 3,882 3,869 7,751
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Sub-total 92,182 145,165 52,067 151,291 440,705 39,862 480,567
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Au ounces produced 22,541 162,710 12,374 95,006 292,631 - 292,631
Ag ounces produced (000s) 6,343 4,908 2,620 6,691 20,562 - 20,562
Ounces produced (Ag Eq 000s
oz) 8,011 16,948 3,536 13,721 42,216 - 42,216
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Sub-total ($/oz Ag Eq) 11.5 8.6 14.7 11.0 10.4 - 11.4
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
(+) Commercial deductions 15,383 1,650 5,038 15,169 37,240 - 37,240
(+) Selling expenses 1,973 1,130 721 10,351 14,175 - 14,175
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
(-) Export credits - - - (19,029) (19,029) (19,029)
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Sub-total 17,356 2,780 5,759 6,491 32,386 - 32,386
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Au ounces sold 22,043 164,754 12,407 99,761 298,965 - 298,965
Ag ounces sold (000s) 6,343 5,004 2,660 7,081 21,088 - 21,088
Ounces sold (Ag Eq 000s oz) 7,977 17,196 3,578 14,463 43,214 - 43,214
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Sub-total ($/oz Ag Eq) 2.2 0.2 1.6 0.4 0.7 - 0.7
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
All-in sustaining costs ($/oz
Ag Eq) 13.7 8.7 16.3 11.5 11.2 - 12.1
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
All-in sustaining costs ($/oz
Au Eq) 1,014 644 1,206 851 829 - 895
----------------------------------- ------ ---------- ---------- ---------- ----------- --------- --------
Administrative expenses
Administrative expenses increased by 7% to $51.3 million (2016: $48.0 million) primarily due to increased share-based compensation affecting personnel expenses.
Exploration expenses
In 2017, exploration expenses increased to $17.2 million (2016: $9.2 million) in line with the overall rise in the Company's investment in brownfield exploration. In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In 2017, the Group capitalised $2.3 million relating to brownfield exploration compared to $1.3 million in 2016, bringing the total investment in exploration for 2017 to $19.5 million (2016: $10.5 million).
Selling expenses
Selling expenses decreased by 22% versus 2016 to $11.0 million (2016: $14.2 million) mainly due to the elimination of export duties at San Jose. Selling expenses in 2017 consisted mainly of logistic costs for the sale of concentrate whilst 2016 expenses also included approximately 1.5 months of export duties on concentrate until their elimination on 12 February 2016. Previously, export duties in Argentina were levied at 10% of revenue for concentrate.
Other income/expenses
Other income before exceptional items was $10.2 million (2016: $33.1 million). The reduction is mainly due to the elimination of the Patagonian port rebate (2016: $16.7 million) in the fourth quarter of 2016.
Other expenses before exceptional items were reduced to $11.5 million (2015: $13.9 million).
Adjusted EBITDA
Adjusted EBITDA decreased by 9% over the period to $300.8 million (2016: $329.0 million) driven primarily by production costs.
Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus non-cash items (depreciation and changes in mine closure provisions) and exploration expenses other than personnel and other exploration related fixed expenses.
$000 unless otherwise indicated Year ended 31 Dec 2017 Year ended 31 Dec 2016 % change --------------------------------------------------------- ----------------------- ----------------------- --------- Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax 92,255 148,188 (38) Depreciation and amortisation in cost of sales 196,150 180,317 9 Depreciation and amortisation in administrative expenses 1,564 1,331 18 Exploration expenses 17,199 9,193 87 Personnel and other exploration related fixed expenses (5,395) (3,947) 37 Other non-cash income[15] (1,023) (6,068) (83) --------------------------------------------------------- ----------------------- ----------------------- --------- Adjusted EBITDA 300,750 329,014 (9) --------------------------------------------------------- ----------------------- ----------------------- --------- Adjusted EBITDA margin 42% 48% --------------------------------------------------------- ----------------------- ----------------------- ---------
Finance income
Finance income before exceptional items of $5.9 million increased from 2016 ($1.1 million) primarily due to the impact of a higher net present value of the Patagonian port rebate ($1.9 million) which was discounted in 2016 but collected in 2017. The remainder consists of interest received on deposits ($1.6 million) and other financial income ($2.4 million) which included a gain on sale of shares ($1.4 million) and a gain on derivative instruments ($0.6 million).
Finance costs
Finance costs decreased from $30.5 million in 2016 to $26.1 million in 2017, principally due to the reduction of interest resulting from the repayment of Scotiabank medium term loan in H1 2016 and from lower average short-term borrowings.
Foreign exchange losses
The Group recognised a foreign exchange loss of $5.3 million (2016: $1.8 million loss) as a result of exposures in currencies other than the functional currency - primarily the Argentinean Peso.
Income tax
The Group's pre-exceptional income tax charge was $13.5 million (2016: $47.6 million). The substantial decrease in the charge is explained by the Group's decrease in profitability in the year in addition to a deferred tax credit recognised as a result of a progressive tax rate reduction in Argentina from 35% to 30%.
The effective tax rate for the period was 20.2% (2016: 40.7%). The reduction in the effective tax rate is mainly due to the positive deferred tax impact of the Argentina tax rate reduction which is non-recurring.
Exceptional items
Exceptional items in 2017 totalled a $0.5 million gain after tax (2016: $6.4 million loss). Exceptional items principally included impairment reversals of $31.9 million for Pallancata and $8.4 million at San Felipe partially offset by a $43.0 million impairment of Arcata.
The tax effect of exceptional items amounted to a $3.3 million tax charge (2016: $2.2 million tax credit) although this did not include the impairment reversal at San Felipe which did not attract a deferred tax liability as no tax asset arose when the impairment was originally carried out.
Cash flow and balance sheet review
Cash flow:
$000 Year ended Year ended Change
31 Dec 31 Dec
2017 2016
------------------------------ ----------- ----------- ---------
Net cash generated from
operating activities 233,919 316,073 (82,154)
Net cash used in investing
activities (121,054) (127,364) 6,310
Cash flows generated/(used
in) in financing activities 4,919 (132,165) 137,084
------------------------------ ----------- ----------- ---------
Net increase in cash
and cash equivalents
during the year 117,784 56,544 61,240
------------------------------ ----------- ----------- ---------
Operating cash flow decreased from $316.1 million in 2016 to $233.9 million in 2017. Lower operating cash flow is mainly due to: (i) income tax payments in 2017 of $26 million in Argentina of which $17 million corresponded to income tax from 2016 and the rest to income tax advances for the 2017 period; (ii) the reduction of working capital achieved in 2016 (excluding the income tax effect) of $37 million and maintained during 2017; (iii) higher production costs and exploration expenses partially offset by stronger revenue.
Net cash used in investing activities decreased to $121.1 million in 2017 from $127.4 million in 2016 mainly due to reduced capital expenditure at Arcata, Inmaculada and care and maintenance expenditure at the Azuca and Crespo projects, partially offset by an increase in Pallancata investment.
Finally, cash flows generated from financing activities resulted in a net inflow of $4.9 million in 2017 from $132.2 million used in 2016. In 2016, the $132.2 million used was due to $107.4 million of debt repayment and the remainder by equity dividends of $7.0 million paid to Hochschild shareholders and also $13.0 million to McEwen Mining. The change in 2017 is primarily due to the net increase in short term credit lines of $31.5 million ($25 million repaid in January 2017 in Peru, $50 million raised in December 2017 in Peru to re-purchase the bonds and $6.5 million raised in Argentina during the year). This was partially offset by dividends paid to Hochschild's shareholders of $14.0 million and to minority shareholders in Argentina of $12.3 million. As a result, total cash flows resulted in a net increase of $117.8 million from $56.5 million in 2015 ($61.2 million improvement).
Working capital
$000 Year ended 31 Dec 2017 Year ended 31 Dec 2016 ----------------------------------------- ----------------------- ----------------------- Trade and other receivables 88,553 93,837 Inventories 56,678 57,056 Other financial assets/(liability) 2,591 (1,726) Income tax receivable/(payable) 15,442 (9,025) Trade and other payables and provisions (228,170) (211,277) ----------------------------------------- ----------------------- ----------------------- Working capital (64,906) (71,135) ----------------------------------------- ----------------------- -----------------------
The Group's working capital position changed by $6.2 million to $64.9 million in 2017 from $71.1 million in 2016. Key drivers were: higher income tax receivable ($24.5 million) resulting from $24.2 million of tax payments in Argentina; a negative movement in other financial assets/(liability) of $4.3 million from a liability position in 2016, to an asset position in 2017 resulting from the embedded derivative associated with provisional pricing and higher trade. These were partially offset by: an increase in trade and other payables and provisions of $(16.9) million mainly due to Pallancata's trade payables in line with its higher production.
Net debt
$000 Year ended Year ended
31 Dec 2017 31 Dec 2016
--------------------------- ------------- -------------
Cash and cash equivalents 256,988 139,979
Long term borrowings (291,955) (291,073)
Short term borrowings[16] (67,863) (36,312)
--------------------------- ------------- -------------
Net debt (102,830) (187,406)
--------------------------- ------------- -------------
The Group reported net debt position was $102.8 million as at 31 December 2017 (2016: $187.4 million). The reduction in 2017 is mainly due to the operating cash generated mainly in Inmaculada and Pallancata.
Capital expenditure([17])
$000 Year ended Year ended
31 Dec 2017 31 Dec 2016
------------ ------------- -------------
Arcata 17,557 20,819
Pallancata 19,186 16,130
San Jose 36,288 35,311
Inmaculada 52,903 54,199
------------ ------------- -------------
Operations 125,934 126,459
Other 2,614 5,186
------------ ------------- -------------
Total 128,548 131,645
------------ ------------- -------------
2017 capital expenditure of $128.5 million (2016: $131.6 million) mainly comprised of operational capex of $125.9 million (2016: $126.5 million) with the small decrease versus 2016 comprising decreases at Inmaculada and Arcata partially offset by an increase in capital expenditure at Pallancata.
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.
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 2017
Year ended 31 Year ended 31
December 2017 December 2016
==================================== ====================================
Exceptional Exceptional
Before items Before items
exceptional (note exceptional (note
items 11) Total items 11) Total
Notes US$000 US$000 US$000 US$000 US$000 US$000
==================== ===== ============ =========== ========= ============ =========== =========
Continuing
operations
==================== ===== ============ =========== ========= ============ =========== =========
Revenue 3,5 722,572 - 722,572 688,242 - 688,242
===================== ===== ============ =========== ========= ============ =========== =========
Cost of sales 6 (549,049) - (549,049) (487,702) - (487,702)
===================== ===== ============ =========== ========= ============ =========== =========
Gross profit 173,523 - 173,523 200,540 - 200,540
===================== ===== ============ =========== ========= ============ =========== =========
Administrative
expenses 7 (51,283) - (51,283) (47,979) - (47,979)
===================== ===== ============ =========== ========= ============ =========== =========
Exploration expenses 8 (17,199) - (17,199) (9,193) - (9,193)
===================== ===== ============ =========== ========= ============ =========== =========
Selling expenses 9 (11,024) - (11,024) (14,175) - (14,175)
===================== ===== ============ =========== ========= ============ =========== =========
Other income 12 10,192 - 10,192 33,131 2,667 35,798
===================== ===== ============ =========== ========= ============ =========== =========
Other expenses 12 (11,549) - (11,549) (13,858) (10,675) (24,533)
===================== ===== ============ =========== ========= ============ =========== =========
Impairment and
write-off
of non-current
assets,
net 11 (405) (2,753) (3,158) (278) (1,634) (1,912)
===================== ===== ============ =========== ========= ============ =========== =========
Profit/(loss) from
continuing
operations
before net finance
income/(cost),
foreign
exchange loss and
income tax 92,255 (2,753) 89,502 148,188 (9,642) 138,546
===================== ===== ============ =========== ========= ============ =========== =========
Finance income 13 5,927 - 5,927 1,100 974 2,074
===================== ===== ============ =========== ========= ============ =========== =========
Finance costs 13 (26,095) - (26,095) (30,541) - (30,541)
===================== ===== ============ =========== ========= ============ =========== =========
Foreign exchange loss (5,257) - (5,257) (1,800) - (1,800)
===================== ===== ============ =========== ========= ============ =========== =========
Profit/(loss) from
continuing
operations before
income tax 66,830 (2,753) 64,077 116,947 (8,668) 108,279
===================== ===== ============ =========== ========= ============ =========== =========
Income tax
(expense)/benefit 14 (13,475) 3,279 (10,196) (47,641) 2,224 (45,417)
===================== ===== ============ =========== ========= ============ =========== =========
Profit/(loss) for
the year from
continuing
operations 53,355 526 53,881 69,306 (6,444) 62,862
===================== ===== ============ =========== ========= ============ =========== =========
Attributable to:
==================== ===== ============ =========== ========= ============ =========== =========
Equity shareholders
of the Company 41,035 526 41,561 53,154 (7,604) 45,550
===================== ===== ============ =========== ========= ============ =========== =========
Non-controlling
interests 12,320 - 12,320 16,152 1,160 17,312
===================== ===== ============ =========== ========= ============ =========== =========
53,355 526 53,881 69,306 (6,444) 62,862
===== ============ =========== ========= ============ =========== =========
Basic earnings/(loss)
per ordinary share
from continuing
operations
for the year
(expressed
in US dollars per
share) 15 0.08 - 0.08 0.11 (0.02) 0.09
===================== ===== ============ =========== ========= ============ =========== =========
Diluted
earnings/(loss)
per ordinary share
from continuing
operations
for the year
(expressed
in US dollars per
share) 15 0.08 - 0.08 0.10 (0.01) 0.09
===================== ===== ============ =========== ========= ============ =========== =========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
Year ended
31 December
=================
2017 2016
Notes US$000 US$000
============================================== ===== ======= ========
Profit for the year 53,881 62,862
=============================================== ===== ======= ========
Other comprehensive income to be reclassified
to profit or loss in subsequent periods:
============================================== ===== ======= ========
Exchange differences on translating
foreign operations 139 (249)
=============================================== ===== ======= ========
Change in fair value of available-for-sale
financial assets 19 (323) 774
=============================================== ===== ======= ========
Recycling of the gain on available-for-sale
financial assets (1,354) (66)
=============================================== ===== ======= ========
Change in fair value of cash flow
hedges - (39,989)
=============================================== ===== ======= ========
Recycling of the loss on cash flow
hedges - 18,722
=============================================== ===== ======= ========
Deferred income tax relating to components
of other comprehensive income 14 - 5,955
=============================================== ===== ======= ========
Other comprehensive loss for the year,
net of tax (1,538) (14,853)
=============================================== ===== ======= ========
Total comprehensive income for the
year 52,343 48,009
=============================================== ===== ======= ========
Total comprehensive income attributable
to:
============================================== ===== ======= ========
Equity shareholders of the Company 40,023 30,697
=============================================== ===== ======= ========
Non-controlling interests 12,320 17,312
=============================================== ===== ======= ========
52,343 48,009
===== ======= ========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
As at As at
31 31
December December
2017 2016
Notes US$000 US$000
==================================== ===== ========= =========
ASSETS
==================================== ===== ========= =========
Non-current assets
==================================== ===== ========= =========
Property, plant and equipment 16 895,666 975,483
===================================== ===== ========= =========
Evaluation and exploration assets 17 147,399 138,985
===================================== ===== ========= =========
Intangible assets 18 24,544 26,379
===================================== ===== ========= =========
Available-for-sale financial assets 19 6,264 991
===================================== ===== ========= =========
Trade and other receivables 20 7,487 25,717
===================================== ===== ========= =========
Other financial assets 1,333 -
===================================== ===== ========= =========
Deferred income tax assets 27 2,400 1,027
===================================== ===== ========= =========
1,085,093 1,168,582
===== ========= =========
Current assets
==================================== ===== ========= =========
Inventories 21 56,678 57,056
===================================== ===== ========= =========
Trade and other receivables 20 81,066 68,120
===================================== ===== ========= =========
Income tax receivable 21,241 20,988
===================================== ===== ========= =========
Other financial assets 1,258 -
===================================== ===== ========= =========
Cash and cash equivalents 22 256,988 139,979
===================================== ===== ========= =========
417,231 286,143
===== ========= =========
Total assets 1,502,324 1,454,725
===================================== ===== ========= =========
EQUITY AND LIABILITIES
==================================== ===== ========= =========
Capital and reserves attributable
to shareholders of the Parent
==================================== ===== ========= =========
Equity share capital 224,315 224,315
===================================== ===== ========= =========
Share premium 438,041 438,041
===================================== ===== ========= =========
Treasury shares (140) (426)
===================================== ===== ========= =========
Other reserves (217,061) (217,288)
===================================== ===== ========= =========
Retained earnings 286,356 258,269
===================================== ===== ========= =========
731,511 702,911
===== ========= =========
Non-controlling interests 90,177 90,442
===================================== ===== ========= =========
Total equity 821,688 793,353
===================================== ===== ========= =========
Non-current liabilities
==================================== ===== ========= =========
Trade and other payables 24 1,081 1,266
===================================== ===== ========= =========
Borrowings 25 291,955 291,073
===================================== ===== ========= =========
Provisions 26 104,107 106,121
===================================== ===== ========= =========
Deferred income 23 30,409 25,000
===================================== ===== ========= =========
Deferred income tax liabilities 27 56,040 65,971
===================================== ===== ========= =========
483,592 489,431
===== ========= =========
Current liabilities
==================================== ===== ========= =========
Trade and other payables 24 116,779 98,484
===================================== ===== ========= =========
Other financial liabilities - 1,726
===================================== ===== ========= =========
Borrowings 25 67,863 36,312
===================================== ===== ========= =========
Provisions 26 6,203 5,406
===================================== ===== ========= =========
Deferred income 23 400 -
===================================== ===== ========= =========
Income tax payable 5,799 30,013
===================================== ===== ========= =========
197,044 171,941
===== ========= =========
Total liabilities 680,636 661,372
===================================== ===== ========= =========
Total equity and liabilities 1,502,324 1,454,725
===================================== ===== ========= =========
These financial statements were approved by the Board of Directors on 20 February 2018 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
20 February 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
Year ended
31 December
====================
2017 2016
Notes US$000 US$000
========================================== ===== ========= =========
Cash flows from operating activities
========================================== ===== ========= =========
Cash generated from operations 287,799 345,856
============================================ ===== ========= =========
Interest received 1,445 860
============================================ ===== ========= =========
Interest paid (23,942) (27,074)
============================================ ===== ========= =========
Payment of mine closure costs 26 (4,359) (3,355)
============================================ ===== ========= =========
(27,024
Income tax paid ) (214)
============================================ ===== ========= =========
Net cash generated from operating
activities 233,919 316,073
============================================ ===== ========= =========
Cash flows from investing activities
========================================== ===== ========= =========
Purchase of property, plant and equipment (119,630) (126,495)
============================================ ===== ========= =========
Purchase of evaluation and exploration
assets 17 (4,878) (3,478)
============================================ ===== ========= =========
Purchase of intangibles 18 (16) (14)
============================================ ===== ========= =========
Purchase of available-for-sale financial
assets 19 (4,383) -
============================================ ===== ========= =========
Net proceeds from sale of subsidiary 4 - 807
============================================ ===== ========= =========
Proceeds from sale of available-for-sale
financial assets 19 1,567 149
============================================ ===== ========= =========
Proceeds from sale of other assets 1,570 1,550
============================================ ===== ========= =========
Proceeds from deferred income 23 4,000 -
============================================ ===== ========= =========
Proceeds from sale of property, plant
and equipment 716 117
============================================ ===== ========= =========
Net cash used in investing activities (121,054) (127,364)
============================================ ===== ========= =========
Cash flows from financing activities
========================================== ===== ========= =========
Proceeds of borrowings 25 69,500 70,000
============================================ ===== ========= =========
Repayment of borrowings 25 (38,000) (177,431)
============================================ ===== ========= ========= Dividends paid to non-controlling interests 28 (12,585) (17,736) ============================================ ===== ========= ========= Dividends paid 28 (13,996) (6,998) ============================================ ===== ========= ========= Cash flows generated from/(used in) financing activities 4,919 (132,165) ============================================ ===== ========= ========= Net increase in cash and cash equivalents during the year 117,784 56,544 ============================================ ===== ========= ========= Exchange difference (775) (582) ============================================ ===== ========= ========= Cash and cash equivalents at beginning of year 139,979 84,017 ============================================ ===== ========= ========= Cash and cash equivalents at end of year 22 256,988 139,979 ============================================ ===== ========= =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year 31 December 2017
Other reserves
==========================================================================
Capital
and
reserves
Unrealised attributable
gain Unrealised to
on gain/ Share- shareholders
Equity available-for-sale (loss) Cumulative based Total of
share Share Treasury financial on translation Merger payment other Retained the Non-controlling Total
capital premium shares assets hedges adjustment reserve reserve reserves earnings Parent interests equity
Notes US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Balance at
1 January
2016 223,805 438,041 (898) 32 15,312 (13,602) (210,046) 4,655 (203,649) 218,093 675,392 90,113 765,505
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Other
comprehensive
income/(expense) - - - 708 (15,312) (249) - - (14,853) - (14,853) - (14,853)
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Profit for
the year - - - - - - - - - 45,550 45,550 17,312 62,862
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Total
comprehensive
income/
(expense)
for the year - - - 708 (15,312) (249) - - (14,853) 45,550 30,697 17,312 48,009
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Exercise
of share
options 510 - 472 - - - - (2,223) (2,223) 1,241 - - -
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Dividends 28 - - - - - - - - - (6,998) (6,998) - (6,998)
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Dividends
to non -
controlling
interests 28 - - - - - - - - - - - (16,983) (16,983)
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Share-based
payments - - - - - - 3,437 3,437 383 3,820 - 3,820
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Balance at
31 December
2016 224,315 438,041 (426) 740 - (13,851) (210,046) 5,869 (217,288) 258,269 702,911 90,442 793,353
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Other
comprehensive
income/(expense) - - - (1,677) - 139 - - (1,538) - (1,538) - (1,538)
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Profit for
the year - - - - - - - - - 41,561 41,561 12,320 53,881
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Total
comprehensive
income/
(expense)
for the year - - - (1,677) - 139 - - (1,538) 41,561 40,023 12,320 52,343
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Exercise
of share
options - - 286 - - - - (48) (48) (238) - - -
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Dividends 28 - - - - - - - - - (13,996) (13,996) - (13,996)
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Dividends
to non -
controlling
interests 28 - - - - - - - - - - - (12,585) (12,585)
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Share-based
payments - - - - - - 1,813 1,813 760 2,573 - 2,573
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
Balance at
31 December
2017 224,315 438,041 (140) (937) - (13,712) (210,046) 7,634 (217,061) 286,356 731,511 90,177 821,688
================= ===== ======= ======= ======== ================== ========== =========== ========= ======= ========= ======== ============ =============== ========
1 Notes to the consolidated financial statements
For the year ended 31 December 2017
The financial information for the year ended 31 December 2017 and 2016 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 2017 and 2016 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2017 which have been approved by the directors on 20 February 2018 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.
2 Significant accounting policies
Basis of preparation
Having considered financial forecasts and projections which take into account (i) possible changes in commodity price scenarios; and (ii) the contingency measures that could be taken to alleviate pressure on the balance sheet in the event of a fall in prices, the Directors have a reasonable expectation that the Group have adequate resources, including access to contingent resources, that would see it continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting.
Changes in accounting policy and disclosures
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statement for the year ended 31 December 2016. Amendments to standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements.
Standards, interpretations and amendments to existing standards that are not yet effective and have not been previously adopted by the Group
Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2018 or later periods but which the Group has not previously adopted. Those that are applicable to the Group are as follows:
-- IFRS 15 Revenue from Contracts with Customers, applicable for annual periods beginning on or after 1 January 2018. The IASB has issued a new standard for the recognition of revenue arising from contracts with customers. The new revenue standard will supersede all current revenue recognition requirements under IFRS. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Group has evaluated recognition and measurement of revenue based on the five-step model in IFRS 15 and has not identified significant financial impacts, hence no adjustments will be recorded derived from the adoption of IFRS 15 other than certain reclassifications as explained below. The Group will adopt the new standard from 1 January 2018 applying the simplified transition method and modified retrospective approach. Certain disclosures will change as a result of the requirements of IFRS 15. The key issues identified, and the Group's views and perspective are set below. These are based on the Group's current interpretation of IFRS 15 and may be subject to changes as interpretations evolve more generally. Furthermore, the Group is considering and will continue to monitor any further development.
Embedded derivatives arising from the sales: some of the Group's sales of gold and silver contain provisional pricing features which are currently considered to be embedded derivatives recorded within sales. Under IAS 18, revenue is recognised at the estimated fair value of the total consideration received or receivable when the gold and silver is delivered, which is usually when title has passed to the customer. The fair value is based on the most recent determined estimate of metal content and the estimated forward price that the entity expects to receive at the end of the quotational period stipulated in the contract. The revaluation of provisionally priced contracts is recorded as an adjustment to revenue. IFRS 15 will not change the assessment of the provisional price adjustment, however as they are not considered within the scope of IFRS 15, the Group will account for these in accordance with IFRS 9. Therefore, subsequent changes in fair value will be recognised in the statement of profit or loss and other comprehensive income as part of "other income/other expenses".
Impact of shipping terms: The Group sells a portion of its production on CIF Incoterms and therefore the Group is responsible for shipping services after the date at which control of the gold and silver passes to the customer. Under IAS 18, these shipping services are currently not considered to be part of the revenue transaction and thus the Group has disclosed them as selling expenses. However, under IFRS 15 the group should reclassify the portion of those selling expenses relating to transport of gold and silver from the Group's production plants to the ports and reclassify those costs to cost of sales. The Group estimates that US$4,800,000 would be reclassified from selling expenses to cost of sales, based on 2017 figures. In addition, the Group needs to assess the amount of remaining costs related to shipping services which are considered a separate performance obligation under IFRS 15 and therefore, a portion of the revenue currently recognised when the tittle has passed to the customer will need to be deferred and recognised as the shipping services are subsequently provided. Based on the analysis performed during 2017, the Group determined that the overall impact on the timing of revenue recognition related to these shipping services will not be material and consequently such revenue will not be disclosed separately.
-- IFRS 9 Financial Instruments, applicable for annual periods beginning on or after 1 January 2018. IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. Based on the assessment performed, the group expect the new guidance to have the following impacts on the classification and measurement of its financial instruments:
Classification and measurement of the embedded derivatives arising from sales: The financial assets and liabilities arising from the revaluation provisional priced contracts is currently disclosed separately in the balance sheet as part of "other financial assets/liabilities". Under IFRS 9, the embedded derivative will no longer be separated from the host contract and therefore the revaluation of provisionally priced contracts will be disclosed within the receivable of the host contract in "trade and other receivables".
Available-for sale financial assets: The equity instruments that are currently classified as available-for-sale financial assets satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and therefore there is no impact in classification. However, as opposed to the current IFRSs, under IFRS 9 gains and losses accumulated in other comprehensive income are not recycled to the income statement. Furthermore, under IFRS 9 there is no exception to carry investments in entities at costs less any recognised impairment and therefore, fair value will need to be calculated. There are no other significant changes to the accounting treatment of these assets.
Impairment: The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables. However, given the short term nature of the Groups receivables, these are not expected to have a significant impact in the financial statements.
Disclosures: The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group's disclosures about its financial instruments particularly in the year of the adoption of the new standard.
The Group has also assessed other changes introduced by IFRS 9 that will have no impacts in the financial statements as explained below: The Group does not expect any impact on the accounting for financial liabilities, as the new requirements of IFRS 9 only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The Group does not currently apply hedge accounting and therefore there are no impacts in the financial statements. No impacts are expected in relation to derecognition of financial instruments as the same rules have been transferred from IAS 39 Financial Instruments: Recognition and Measurement.
-- IFRS 16 Leases, applicable for annual periods beginning on or after 1 January 2019. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17.The Group is analysing the adoption of this new standard and expected not to have a significant impact on the Group's financial position or performance.
-- IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2, applicable for annual periods beginning on or after 1 January 2018.The amendments are related to the classification and measurement of share-based payment transactions and it does not require to restate prior periods. The adoption of these amendments would not have impact on the Group's financial position or performance.
-- IFRIC 23 Uncertainty over income tax treatments, applicable for annual periods beginning on or after 1 January 2019. IFRIC 23 clarifies the accounting for uncertainties in income taxes. This interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The Group will adopt. The Interpretation specifically addresses the following: whether an entity considers uncertain tax treatments separately; the assumptions an entity makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in facts and circumstances
The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date, however we do not expect significant impacts on the financial statements on the implementation as the Group's current treatment is in line with the requirements of the interpretation.
The Group is analysing the effect of the standards and plans to adopt the new standards on the required effective date.
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 similar distribution channels. The Group undertakes a number of activities 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 at market prices. Those transfers are eliminated on consolidation.
For internal reporting purposes, management takes decisions and assesses the performance of the Group through consideration of the following reporting segments:
-- Operating units - Arcata and San Jose, which generate revenue from the sale of gold, silver, dore and concentrate.
-- Operating unit - Pallancata, which generates revenue from the sale of concentrate. -- Operating unit - Inmaculada, which generates revenue from the sale of gold, silver and dore.
-- Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the aim of extending the life of mine of existing operations and to assess the feasibility of new mines. The exploration segment includes costs charged to the profit and loss and capitalised as assets.
-- Other - includes the profit or loss generated by Empresa de Transmisión Aymaraes S.A.C. (a power transmission company that absorbed Empresa de Transmisión Callalli S.A.C. on 1 June 2016).
The Group's administration, financing, other activities (including other income and expense), and income taxes are managed at a corporate level and are not allocated to operating segments.
Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial information based on International Financial Reporting Standards (IFRS) as adopted for use in the European Union.
The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit, selling expenses and exploration expenses.
Segment assets include items that could be allocated directly to the segment.
(a) Reportable segment information
Adjustment
San and
Arcata Pallancata Jose Inmaculada Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
================ ======== ========== ======== ========== =========== ======== ============ =========
Year ended
31 December
2017
================ ======== ========== ======== ========== =========== ======== ============ =========
Revenue from
external
customers 77,940 120,529 227,094 296,594 - 415 - 722,572
================= ======== ========== ======== ========== =========== ======== ============ =========
Inter segment
revenue - - - - - 5,712 (5,712) -
================= ======== ========== ======== ========== =========== ======== ============ =========
Total revenue 77,940 120,529 227,094 296,594 - 6,127 (5,712) 722,572
================= ======== ========== ======== ========== =========== ======== ============ =========
Segment
profit/(loss) (4,212) 48,926 43,162 73,737 (17,393) 10,832 (9,752) 145,300
================= ======== ========== ======== ========== =========== ======== ============ =========
Others(2) (81,223)
================= ======== ========== ======== ========== =========== ======== ============ =========
Profit from
continuing
operations
before income
tax 64,077
================= ======== ========== ======== ========== =========== ======== ============ =========
Other segment
information
================ ======== ========== ======== ========== =========== ======== ============ =========
Depreciation(3) (17,447) (19,479) (49,019) (107,489) (413) (5,228) - (199,075)
================= ======== ========== ======== ========== =========== ======== ============ =========
Amortisation - - (1,247) - (462) (142) - (1,851)
================= ======== ========== ======== ========== =========== ======== ============ =========
Impairment
and write-off
of assets,net (43,135) 31,872 (205) (31) 8,364 (23) - (3,158)
================= ======== ========== ======== ========== =========== ======== ============ =========
Assets
================ ======== ========== ======== ========== =========== ======== ============ =========
Capital
expenditure 17,557 18,906 36,288 52,903 2,026 868 - 128,548
================= ======== ========== ======== ========== =========== ======== ============ =========
Current assets 5,483 21,699 47,398 22,707 30 2,570 - 99,887
================= ======== ========== ======== ========== =========== ======== ============ =========
Other non-current
assets 5,859 91,065 182,138 535,840 194,777 57,930 - 1,067,609
================= ======== ========== ======== ========== =========== ======== ============ =========
Total segment
assets 11,342 112,764 229,536 558,547 194,807 60,500 - 1,167,496
================= ======== ========== ======== ========== =========== ======== ============ =========
Not reportable
assets(4) - - - - - 334,828 - 334,828
================= ======== ========== ======== ========== =========== ======== ============ =========
Total assets 11,342 112,764 229,536 558,547 194,807 395,328 - 1,502,324
================= ======== ========== ======== ========== =========== ======== ============ =========
1 'Other' revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.
2 Comprised of administrative expenses of US$51,283,000, other income of US$10,192,000, other expenses of US$11,549,000, impairment and write-off of assets (net) of US$3,158,000, finance income of US$5,927,000, finance expense of US$26,095,000, and foreign exchange loss of US$5,257,000.
3 Includes depreciation capitalised in the Crespo project (US$831,000), and San Jose unit (US$2,290,000).
4 Not reportable assets are comprised of available-for-sale financial assets of US$6,264,000, other receivables of US$45,344,000, other financial assets of US$2,591,000, income tax receivable of US$21,241,000, deferred income tax asset of US$2,400,000 and cash and cash equivalents of US$256,988,000.
Adjustment
San and
Arcata Pallancata Jose Inmaculada Exploration Other(1) eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
================ ======== ========== ======== ========== =========== ======== ============ =========
Year ended
31 December
2016
================ ======== ========== ======== ========== =========== ======== ============ =========
Revenue from
external
customers 117,358 54,456 235,961 280,108 - 359 - 688,242
================= ======== ========== ======== ========== =========== ======== ============ =========
Inter segment
revenue - - - - - 2,062 (2,062) -
================= ======== ========== ======== ========== =========== ======== ============ =========
Total revenue 117,358 54,456 235,961 280,108 - 2,421 (2,062) 688,242 ================= ======== ========== ======== ========== =========== ======== ============ ========= Segment profit/(loss) 22,924 11,284 57,259 97,595 (9,155) (2,273) (462) 177,172 ================= ======== ========== ======== ========== =========== ======== ============ ========= Others(2) (68,893) ================= ======== ========== ======== ========== =========== ======== ============ ========= Profit from continuing operations before income tax 108,279 ================= ======== ========== ======== ========== =========== ======== ============ ========= Other segment information ================ ======== ========== ======== ========== =========== ======== ============ ========= Depreciation(3) (22,196) (10,606) (53,012) (98,243) (1,834) (4,877) - (190,768) ================= ======== ========== ======== ========== =========== ======== ============ ========= Amortisation - - (1,060) - (462) (138) - (1,660) ================= ======== ========== ======== ========== =========== ======== ============ ========= Impairment and write-off of assets (87) (885) (278) (414) (2) (246) - (1,912) ================= ======== ========== ======== ========== =========== ======== ============ ========= Assets ================ ======== ========== ======== ========== =========== ======== ============ ========= Capital expenditure 20,819 16,105 35,311 54,199 4,910 301 - 131,645 ================= ======== ========== ======== ========== =========== ======== ============ ========= Current assets 6,721 7,017 53,299 22,899 30 3,911 - 93,877 ================= ======== ========== ======== ========== =========== ======== ============ ========= Other non-current assets 48,843 55,380 196,056 589,666 185,825 65,077 - 1,140,847 ================= ======== ========== ======== ========== =========== ======== ============ ========= Total segment assets 55,564 62,397 249,355 612,565 185,855 68,988 - 1,234,724 ================= ======== ========== ======== ========== =========== ======== ============ ========= Not reportable assets(4) - - - - - 220,001 - 220,001 ================= ======== ========== ======== ========== =========== ======== ============ ========= Total assets 55,564 62,397 249,355 612,565 185,855 288,989 - 1,454,725 ================= ======== ========== ======== ========== =========== ======== ============ =========
1 'Other' revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C.and Empresa de Transmisión Aymaraes S.A.C.
2 Comprised of administrative expenses of US$47,979,000, other income of US$35,798,000, other expenses of US$24,533,000, impairment and write-off of assets of US$1,912,000, finance income of US$2,074,000, finance expense of US$30,541,000, and foreign exchange loss of US$1,800,000.
3 Includes depreciation capitalised in the Crespo project (US$2,215,000), San Jose unit (US$2,640,000), Arcata unit (US$117,000) and the Pallancata unit (US$3,000).
4 Not reportable assets are comprised of available-for-sale financial assets of US$991,000, other receivables of US$57,016,000, income tax receivable of US$20,988,000, deferred income tax asset of US$1,027,000 and cash and cash equivalents of US$139,979,000.
(b) Geographical information
The revenue for the period based on the country in which the customer is located is as follows:
Year ended
31 December
================
2017 2016
US$000 US$000
================== ======= =======
External customer
================== ======= =======
USA 370,035 225,073
=================== ======= =======
Peru 45,274 78,248
=================== ======= =======
Canada 60,991 181,569
=================== ======= =======
Germany 34,777 4,506
=================== ======= =======
Switzerland 73,186 89,838
=================== ======= =======
United Kingdom(1) - (1,689)
=================== ======= =======
Korea 102,596 92,769
=================== ======= =======
Bulgaria 27,211 16,334
=================== ======= =======
Japan 8,502 1,594
=================== ======= =======
Total 722,572 688,242
=================== ======= =======
Inter-segment
================== ======= =======
Peru 5,712 2,062
=================== ======= =======
Total 728,284 690,304
=================== ======= =======
1 Corresponds to the realised loss on the silver zero cost collar contract with JP Morgan Chase Bank, National Association, London Branch, settled on 30 December 2016 (refer to note 5).
In the periods set out below, certain customers accounted for greater than 10% of the Group's total revenues as detailed
in the following table:
Year ended 31 December Year ended 31 December
2017 2016
=============================== ===============================
US$000 % Revenue Segment US$000 % Revenue Segment
================ ======= ========= =========== ======= ========= ===========
Asahi Refining
USA 130,024 18% Inmaculada 30,304 4% Arcata
================= ======= ========= =========== ======= ========= ===========
Arcata,
Inmaculada Inmaculada
Republic Metals and San and San
Corporation 116,274 16% Jose 103,405 15% Jose
================= ======= ========= =========== ======= ========= ===========
Pallancata Pallancata
and San and San
LS Nikko 102,596 14% Jose 92,769 14% Jose
================= ======= ========= =========== ======= ========= ===========
Asahi Refining Arcata and
Canada Ltd. 17,492 2% Inmaculada 160,312 23% Inmaculada
================= ======= ========= =========== ======= ========= ===========
Auramet Trading Arcata and
Llc. 53,585 7% Inmaculada 97,616 14% Inmaculada
================= ======= ========= =========== ======= ========= ===========
Non-current assets, excluding financial instruments and deferred income tax assets, were allocated to the geographical areas in which the assets are located as follows:
As at 31
December
====================
2017 2016
US$000 US$000
==================================== ========= =========
Peru 782,659 850,605
===================================== ========= =========
Argentina 182,139 196,056
===================================== ========= =========
Mexico 38,841 30,990
===================================== ========= =========
Chile 63,970 63,196
===================================== ========= =========
Total non-current segment assets 1,067,609 1,140,847
===================================== ========= =========
Available-for-sale financial assets 6,264 991
===================================== ========= =========
Trade and other receivables 7,487 25,717
===================================== ========= =========
Other financial assets 1,333 -
===================================== ========= =========
Deferred income tax assets 2,400 1,027
===================================== ========= =========
Total non-current assets 1,085,093 1,168,582
===================================== ========= =========
4 Disposals of subsidiaries
HMX S.A. de C.V.
On 22 February 2016 the Group sold its Mexican subsidiary HMX S.A. de C.V. to Sergio Salinas and Servicios de Integración Fiscal S.A. de C.V., for nil consideration. The carrying value of the net assets disposed was US$60,000 and the transaction resulted in a loss of US$60,000.
Asociación Sumac Tarpuy
On 17 May 2016 the Group transferred all its rights over its non-for-profit subsidiary Asociación Sumac Tarpuy to Inversiones ASPI S.A. ("ASPI"), recognising a gain on disposal of US$811,000. The gain on disposal was determined as follows:
US$000
--------------------------------- ------
Cash consideration 1,100
---------------------------------- ------
Assets and liabilities disposed:
--------------------------------- ------
Cash and cash equivalents 293
---------------------------------- ------
Other payables (4)
---------------------------------- ------
Net assets disposed 289
---------------------------------- ------
Gain on disposal 811
---------------------------------- ------
US$000
---------------------------------------------------- --------
Net cash inflow arising on disposal
---------------------------------------------------- --------
Consideration received in cash and cash equivalents 1,100
----------------------------------------------------- --------
Less: cash and cash equivalents disposed
of: (293)
----------------------------------------------------- --------
807
--------
5 Revenue
Year ended
31 December
================
2017 2016
US$000 US$000
========================== ======= =======
Gold (from dore bars) 266,214 263,010
=========================== ======= =======
Silver (from dore bars) 144,762 177,450
=========================== ======= =======
Gold (from concentrate) 106,101 91,348
=========================== ======= =======
Silver (from concentrate) 205,080 156,075
=========================== ======= =======
Services 415 359
=========================== ======= =======
Total 722,572 688,242
=========================== ======= =======
Included within revenue is a gain of US$2,578,000 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2016: loss of US$6,667,000) arising on sales of concentrates and dore.
In 2016, revenue includes realised loss on gold and silver swaps and zero cost collar contracts of US$18,722,000 (gold: US$10,030,000, silver: US$8,692,000).
Other sources of revenue are disclosed at note 13.
6 Cost of sales
Included in cost of sales are:
Year ended
31 December
================
2017 2016
US$000 US$000
=========================================== ======= =======
Depreciation and amortisation in cost of
sales(1) 196,150 180,317
============================================ ======= =======
Personnel expenses (note 10) 124,507 103,130
============================================ ======= =======
Mining royalty (note 30) 6,677 7,506
============================================ ======= =======
Change in products in process and finished
goods 4,131 6,487
============================================ ======= =======
Other items(2) 3,241 1,750
============================================ ======= =======
1 The depreciation and amortisation in production cost is US$196,241,000 (2016: US$185,655,000)
2 Other items includes costs related to the stoppage at Pallancata and San Jose mine units (2016: Personnel related provisions in Arcata, Pallancata, Inmaculada and San Jose mining units).
7 Administrative expenses
Year ended
31 December
================
2017 2016
US$000 US$000
========================================= ======= =======
Personnel expenses (note 10) 34,775 33,028
========================================== ======= =======
Professional fees 3,233 3,075
========================================== ======= =======
Social and community welfare expenses(1) 586 384
========================================== ======= =======
Lease rentals 1,474 1,455
========================================== ======= =======
Travel expenses 1,020 598
========================================== ======= =======
Communications 415 438
========================================== ======= =======
Indirect taxes 2,173 2,057
========================================== ======= =======
Depreciation and amortisation 1,564 1,798
========================================== ======= =======
Technology and systems 686 678
========================================== ======= =======
Security 773 656
========================================== ======= =======
Supplies 123 109
========================================== ======= =======
Other(2) 4,461 3,703
========================================== ======= =======
Total 51,283 47,979
========================================== ======= =======
1 Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.
2 Predominantly related to third party services of US$1,273,000 (2016: US$972,000), technical services of US$553,000 (2016: US$533,000), repair and maintenance of US$388,000 (2016: US$492,000) and impairment of receivables of US$79,000 (2016: US$312,000).
8 Exploration expenses
Year ended
31 December
================
2017 2016
US$000 US$000
========================= ======= =======
Mine site exploration(1)
========================= ======= =======
Arcata 3,029 1,305
========================== ======= =======
Ares 69 297
========================== ======= =======
Inmaculada 1,127 1
========================== ======= =======
Pallancata 1,279 733
========================== ======= =======
San Jose 3,407 1,691
========================== ======= =======
8,911 4,027
======= =======
Prospects(2)
========================= ======= =======
Peru 336 316
========================== ======= =======
Argentina 30 11
========================== ======= =======
Chile 267 26
========================== ======= =======
633 353
======= =======
Generative(3)
========================= ======= =======
Peru 1,862 866
========================== ======= =======
USA 398 -
========================== ======= =======
2,260 866
======= =======
Personnel (notes 10) 4,646 3,476
========================== ======= =======
Others 749 471
========================== ======= =======
Total 17,199 9,193
========================== ======= =======
1 Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending the mine's life.
2 Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable
for exploration. Exploration expenses are generally incurred in the following areas: mapping, sampling, geophysics, identification of local targets and reconnaissance drilling.
3 Generative expenditure is early stage exploration expenditure related to the basic evaluation of the region to identify prospects areas that have the geological conditions necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public information and identification of exploration targets.
The Group determines the cash flows which relate to the exploration activities of the companies engaged only in exploration. Exploration activities incurred by Group operating companies are not included since it is not practicable to separate the liabilities related to the exploration activities of these companies from their operating liabilities.
Cash outflows on exploration activities were US$2,600,000 in 2017 (2016: US$1,168,000).
9 Selling expenses
Year ended
31 December
================
2017 2016
US$000 US$000
======================================== ======= =======
Transportation of dore, concentrate and
maritime freight 6,477 8,250
========================================= ======= =======
Personnel expenses (note 10) 296 254
========================================= ======= =======
Warehouse services 1,742 1,861
========================================= ======= =======
Taxes(1) 16 1,495
========================================= ======= =======
Other 2,493 2,315
========================================= ======= =======
Total 11,024 14,175
========================================= ======= =======
1 The export tax on concentrates in Argentina was reduced to zero percent on 12 February 2016.
10 Personnel expenses(1)
Year ended
31 December
================
2017 2016
US$000 US$000
=========================== ======= =======
Salaries and wages 116,597 98,741
============================ ======= =======
Other legal contributions 26,937 20,552
============================ ======= =======
Statutory holiday payments 7,124 6,361
============================ ======= =======
Long Term Incentive Plan 9,348 10,528
============================ ======= =======
Restricted share plan 2,090 3,181
============================ ======= =======
Termination benefits 2,228 2,577
============================ ======= =======
Other 2,670 1,951
============================ ======= =======
Total 166,994 143,891
============================ ======= =======
1 Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses, other expenses and capitalised as property plant and equipment amounting to US$124,507,000 (2016: US$103,130,000), US$34,775,000 (2016: US$33,028,000), US$4,646,000 (2016: US$3,476,000), US$296,000 (2016: US$254,000), US$1,621,000 (2016: US$2,406,000) and US$1,149,000 (2016: US$1,597,000) respectively.
Average number of employees for 2017 and 2016 were as follows:
Year ended
31 December
--------------
2017 2016
--------------- ------ ------
Peru 2,920 2,825
---------------- ------ ------
Argentina 1,175 1,125
---------------- ------ ------
Chile 3 3
---------------- ------ ------
United Kingdom 10 11
---------------- ------ ------
Total 4,108 3,964
---------------- ------ ------
11 Exceptional items
Exceptional items are those significant 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 facilitate comparison with prior years. Unless stated, exceptional items do not correspond to a reporting segment of the Group.
Year Year
ended ended
31 31
December December
2017 2016
US$000 US$000
================================================= ========= =========
Other income
================================================= ========= =========
Reversal of reserves tax(3) - 2,667
================================================== ========= =========
Total - 2,667
================================================== ========= =========
Other expenses
================================================= ========= =========
Work stoppage at Pallancata mine unit(4) - (2,474)
================================================== ========= =========
Penalty for termination of agreement(5) - (4,254)
================================================== ========= =========
Damage of tailing dump in Ares mine unit(6) - (2,150)
================================================== ========= =========
Provision for impairment of other receivables(7) - (1,797)
================================================== ========= =========
Total - (10,675)
================================================== ========= =========
(Impairment)/impairment reversal and write-off
of non-financial assets, net
================================================= ========= =========
Impairment of assets(1) (43,009) -
================================================== ========= =========
Reversal of impairment of assets(1) 40,256 -
================================================== ========= =========
Write-off of non-current assets(8) - (1,634)
================================================== ========= =========
Total (2,753) (1,634)
================================================== ========= =========
Finance income
================================================= ========= =========
Reversal of interests on reserves tax(3) - 974
================================================== ========= =========
Total - 974
================================================== ========= =========
Income tax benefit(2, 9) 3,279 2,224
================================================== ========= =========
Total 3,279 2,224
================================================== ========= =========
The exceptional items for the year ended 31 December 2017 are as follows:
1 Corresponds to the impairment of the Arcata mine unit of US$43,009,000, and the reversal of impairment related to the Pallancata mine unit of US$31,892,000 and the San Felipe project of US$8,364,000.
2 Corresponds to the deferred tax credit generated by the impairment of the Arcata mine unit, net by the reversal on impairment of the Pallancata mine unit.
The exceptional items for the year ended 31 December 2016 are as follows:
3 Corresponds to the reversal of the reserves tax liability recorded in previous periods and their associated interests as a result of the settlement agreed between Minera Santa Cruz S.A.C. and the Fiscal Authority in Argentina.
4 From 16 November 2016 until the end of the year, due to actions by the communities surrounding the Pallancata mine unit, the extracting and treatment operations were temporarily suspended. At 31 December 2016 the fixed indirect costs related to abnormal decrease in production from the work stoppage amounted to US$2,474,000, corresponding to the Pallancata reporting segment.
5 Penalty for early termination of the energy supply contract between Compañia Minera Ares S.A.C. and SDF Energia.
6 A section of the Ares tailings dam lateral walls showed unusual decay. A comprehensive study was conducted to determine long-term stability and the conclusion was that certain areas needed to be repaired. This failure was not anticipated and required works aimed at repairing and reinforcing the walls and ensuring the long term sustainability of the dam had to be conducted. The expenditure incurred was not part of our mine closure provision and reflects an unexpected, one-off event.
7 Provision for impairment of the account receivable with a third party due to the uncertainty surrounding the outcome of the legal dispute and hence its recoverability.
8 As at 31 December 2016 corresponds to the write-off of non-current assets of Compañia Minera Ares S.A.C. of US$1,634,000 arising from events falling outside the entity's ordinary activities. The charge was generated by the change of the exploitation method in the Pallancata mine unit, from mechanised to conventional.
9 Mainly corresponds to the current tax credit arising from the costs of the work stoppage at Pallancata mine unit, the penalty for early termination of agreement in Compañia Minera Ares S.A.C., the costs incurred due to the damage of the tailings dam in Ares mine unit and the reversal of reserves tax in Argentina (US$1,212,000) and the deferred tax credit arising from the write-off of non-current assets and the account receivable (US$1,012,000).
12 Other income and other expenses before exceptional items
Year
Year ended
ended 31
31 December December
2017 2016
============ ============
Before Before
exceptional exceptional
items items
US$000 US$000
============================================= ============ ============
Other Income
============================================= ============ ============
Decrease in provision for mine closure
(note 26(3)) 1,428 6,346
============================================== ============ ============
Export credits(1) 1,613 19,029
============================================== ============ ============
Lease rentals 253 391
============================================== ============ ============
Gain on sale of other assets(2) 1,495 1,550
============================================== ============ ============
Gain on sale of subsidiaries (note 4) - 751
============================================== ============ ============
Logistic services 3,552 4,288
============================================== ============ ============
Other 1,851 776
============================================== ============ ============
Total 10,192 33,131
============================================== ============ ============
Other expenses
============================================= ============ ============
Provision of obsolescence of supplies (542) (2,162)
============================================== ============ ============
Contingencies (347) (570)
============================================== ============ ============
Donations (note 29) (754) (1,000)
============================================== ============ ============
Write off of value added tax (221) (1,208)
============================================== ============ ============
Corporate social responsibility contribution
in Argentina(3) (3,063) (3,146)
============================================== ============ ============
Other(4) (6,622) (5,772)
============================================== ============ ============
Total (11,549) (13,858)
============================================== ============ ============
1 Corresponds to the benefit of the silver refund in Argentina. In 2016, the amount includes income recognised with respect to the Patagonian port rebate of US$16,900,000. This benefit was eliminated in December 2016.
2 Corresponds to the gain generated by the sale of mining rights of the Ricky project (2016: Corresponds to a gain generated by the sale of a royalty purchase agreement signed with Minera Bateas S.A.C. to Lemuria Royalties Corp).
3 Relates to a new contribution in Argentina to the Santa Cruz province, effective since January 2016 and calculated as a proportion of sales.
4 Mainly corresponds to the expenses in Ares mine unit of US$4,369,000 (2016: US$1,910,000), concessions of US$491,000 (2016: US$1,210,000) and rentals of US$205,000 (2016: US$440,000)
13 Finance income and finance costs before exceptional items
Year
Year ended
ended 31
31 December December
2017 2016
============ ============
Before Before
exceptional exceptional
items items
US$000 US$000
============================================= ============ ============
Finance income
============================================= ============ ============
Interest on deposits and liquidity funds 1,696 1,011
============================================== ============ ============
Interest income 1,696 1,011
============================================== ============ ============
Gain from changes in the fair value of
financial instruments 647 -
============================================== ============ ============
Gain on exchange of available-for-sale
financial assets 1,386 -
============================================== ============ ============
Gain on discount of other receivables 1,946 -
============================================== ============ ============
Other 252 89
============================================== ============ ============
Total 5,927 1,100
============================================== ============ ============
Finance costs
============================================= ============ ============
Interest on secured bank loans (note
25) (185) (2,602)
============================================== ============ ============
Other interest (813) (1,106)
============================================== ============ ============
Interest on bond (note 25) (24,088) (23,925)
============================================== ============ ============
Interest expense (25,086) (27,633)
============================================== ============ ============
Unwind of discount on mine rehabilitation
(note 26) (280) (46)
============================================== ============ ============
Loss on discount of other receivables - (2,257)
============================================== ============ ============
Loss on sale of available-for-sale financial
assets (32)
============================================== ============ ============
Other (697) (605)
============================================== ============ ============
Total (26,095) (30,541)
============================================== ============ ============
14 Income tax expense
Year ended 31 Year ended 31
December 2017 December 2016
=================================== ==================================
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
US$000 US$000 US$000 US$000 US$000 US$000
=============================== ============ =========== ======== ============ =========== =======
Current corporate income
tax from
continuing operations
=============================== ============ =========== ======== ============ =========== =======
Current corporate income
tax charge 15,070 - 15,070 31,701 (1,212) 30,489
================================ ============ =========== ======== ============ =========== =======
Current mining royalty
charge (note 30) 4,201 - 4,201 3,882 - 3,882
================================ ============ =========== ======== ============ =========== =======
Current special mining
tax charge (note 30) 2,229 - 2,229 3,869 - 3,869
================================ ============ =========== ======== ============ =========== =======
Withholding taxes - - - 552 - 552
================================ ============ =========== ======== ============ =========== =======
21,500 - 21,500 40,004 (1,212) 38,792
============ =========== ======== ============ =========== =======
Deferred taxation
=============================== ============ =========== ======== ============ =========== =======
Origination and reversal
of temporary differences
from continuing operations 2,755 (3,279) (524) 6,364 (961) 5,403
================================ ============ =========== ======== ============ =========== =======
Effect of change in
tax rate(1) (10,780) - (10,780) 1,273 (51) 1,222
================================ ============ =========== ======== ============ =========== =======
(8,025) (3,279) (11,304) 7,637 (1,012) 6,625
============ =========== ======== ============ =========== =======
Total taxation charge/(credit)
in the income statement 13,475 (3,279) 10,196 47,641 (2,224) 45,417
================================ ============ =========== ======== ============ =========== =======
1 On 29 December 2017, the Argentinian government enacted the tax reforms. The main change is the decrease of the statutory income tax rate, from its current level of 35% to 30% with effect from 1 January 2018 and to 25% with effect from 1 January 2020 (2016: In December 2016, the Peruvian government approved an increase of the statutory income tax rate, from its current level of 28% to 29.5% with effect from 1 January 2017).
The weighted average statutory income tax rate was 29.0% for 2017 and 30.1% for 2016. 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 tax related to items charged or credited to equity is as follows:
As at 31
December
================
2017 2016
US$000 US$000
=========================================== ======= =======
Deferred taxation:
=========================================== ======= =======
Deferred income tax relating to fair value
losses on cash flow hedges - (5,955)
============================================ ======= =======
Total tax credit in the statement of other
comprehensive income - (5,955)
============================================ ======= =======
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
=================
2017 2016
US$000 US$000
================================================ ======== =======
Profit from continuing operations before
income tax 64,077 108,279
================================================= ======== =======
At average statutory income tax rate of
29.0% (2016: 30.1%) 18,562 32,570
================================================= ======== =======
Expenses not deductible for tax purposes 776 1,051
================================================= ======== =======
Deferred tax recognised on special investment
regime (1,819) (1,715)
================================================= ======== =======
Movement in unrecognised deferred tax(1) (1,324) 2,705
================================================= ======== =======
Change in statutory income tax rate(2) (10,780) 1,222
================================================= ======== =======
Withholding tax - 552
================================================= ======== =======
Special mining tax and mining royalty(3) 6,430 7,751
================================================= ======== =======
Derecognition of deferred tax asset - 316
================================================= ======== =======
Foreign exchange rate effect(4) (1,043) 2,383
================================================= ======== =======
Utilisation of losses not previously recognised (1,618) -
================================================= ======== =======
Other 1,012 (1,418)
================================================= ======== =======
At average effective income tax rate of
15.9% (2016: 41.9%) 10,196 45,417
================================================= ======== =======
Taxation charge attributable to continuing
operations 10,196 45,417
================================================= ======== =======
Total taxation charge in the income statement 10,196 45,417
================================================= ======== =======
1 Includes the income tax credit on mine closure provision of US$3,010,000 (2016: US$1,925,000).
2 The Argentinian government approved a decrease of the statutory income tax rate, from its current level of 35% to 30% with effect from the 1 January 2018 and 25% with effect from 1 January 2020 (2016: Peruvian government approved an increase of the statutory income tax rate, from its current level of 28% to 29.5% with effect from the 1 January 2017).
3 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 30).
4 Mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the functional currency.
The effective tax rate for corporate income tax for the period ended 31 December 2017 is 15.9% (2016: 41.9%), compared to the weighted average statutory tax rate of 29.0% (2016: 30.1%), and 39.0% (2016: 37.3%) taking into account the mining royalty and the special mining tax which are income taxes under IAS 12. The main factor that reduced the effective tax rate for corporate income tax is the deferred tax impact of the reduction of the Argentina tax rate and the reversal of San Felipe impairment, which does not attract a deferred tax liability, on the basis that no deferred tax asset arose when the impairment was originally recognised.
15 Basic and diluted earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of the Company by the weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2017 and 2016, EPS has been calculated as follows:
As at 31
December
============
2017 2016
================================================ ==== ======
Basic earnings/(loss) per share from continuing
operations
================================================ ==== ======
Before exceptional items (US$) 0.08 0.11
================================================= ==== ======
Exceptional items (US$) - (0.02)
================================================= ==== ======
Total for the year and from continuing
operations (US$) 0.08 0.09
================================================= ==== ======
Diluted earnings/(loss) per share from
continuing operations
================================================ ==== ======
Before exceptional items (US$) 0.08 0.10
================================================= ==== ======
Exceptional items (US$) - (0.01)
================================================= ==== ======
Total for the year and from continuing
operations (US$) 0.08 0.09
================================================= ==== ======
Profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:
As at 31
December
==============
2017 2016
============================================= ====== ======
Profit attributable to equity holders of
the parent - continuing operations (US$000) 41,561 45,550
============================================== ====== ======
Exceptional items after tax - attributable
to equity holders of the parent (US$000) (526) 7,604
============================================== ====== ======
Profit from continuing operations before
exceptional items attributable to equity
holders of the parent (US$000) 41,035 53,154
============================================== ====== ======
Profit from continuing operations before
exceptional items attributable to equity
holders of the parent for the purpose
of diluted earnings per share (US$000) 41,035 53,154 ============================================== ====== ======
The following reflects the share data used in the basic and diluted earnings per share computations:
As at 31
December
================
2017 2016
============================================== ======= =======
Basic weighted average number of ordinary
shares in issue (thousands) 507,204 505,521
=============================================== ======= =======
Effect of dilutive potential ordinary shares
related to contingently issuable shares
(thousands) 7,768 9,435
=============================================== ======= =======
Weighted average number of ordinary shares
in issue for the purpose of diluted earnings
per share (thousands) 514,972 514,956
=============================================== ======= =======
16 Property, plant and equipment
Mining Construction
properties in progress
and Land Plant Mine and
development and and closure capital
costs(1) buildings equipment Vehicles asset advances Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
===================== =========== ========== ========== ======== ======== ============ =========
Year ended 31
December
2017
===================== =========== ========== ========== ======== ======== ============ =========
Cost
===================== =========== ========== ========== ======== ======== ============ =========
At 1 January 2017 1,180,904 488,486 536,929 6,210 95,390 24,943 2,332,862
====================== =========== ========== ========== ======== ======== ============ =========
Additions 79,054 187 16,339 29 - 28,045 123,654
====================== =========== ========== ========== ======== ======== ============ =========
Change in discount
rate - - - - 575 - 575
====================== =========== ========== ========== ======== ======== ============ =========
Change in mine
closure estimate - - - - 2,572 - 2,572
====================== =========== ========== ========== ======== ======== ============ =========
Disposals - - (2,927) (3) - - (2,930)
====================== =========== ========== ========== ======== ======== ============ =========
Write-offs - (127) (3,492) (172) - (19) (3,810)
====================== =========== ========== ========== ======== ======== ============ =========
Transfers and other
movements(2) (56) 8,378 10,633 547 - (19,560) (58)
====================== =========== ========== ========== ======== ======== ============ =========
At 31 December
2017 1,259,902 496,924 557,482 6,611 98,537 33,409 2,452,865
====================== =========== ========== ========== ======== ======== ============ =========
Accumulated
depreciation
and impairment
===================== =========== ========== ========== ======== ======== ============ =========
At 1 January 2017 791,641 218,123 277,692 4,554 64,480 889 1,357,379
====================== =========== ========== ========== ======== ======== ============ =========
Depreciation for
the year 109,642 44,431 40,356 325 4,321 - 199,075
====================== =========== ========== ========== ======== ======== ============ =========
Disposals - - (2,564) (3) - - (2,567)
====================== =========== ========== ========== ======== ======== ============ =========
Write-offs - (98) (3,152) (155) - - (3,405)
====================== =========== ========== ========== ======== ======== ============ =========
Impairment/(reversal
of impairment),
net (2,369) 3,613 8,631 24 (1,646) 143 8,396
====================== =========== ========== ========== ======== ======== ============ =========
Transfers and other
movements(2) 467 - (2,146) - - - (1,679)
====================== =========== ========== ========== ======== ======== ============ =========
At 31 December
2017 899,381 266,069 318,817 4,745 67,155 1,032 1,557,199
====================== =========== ========== ========== ======== ======== ============ =========
Net book amount
at 31 December
2017 360,521 230,855 238,665 1,866 31,382 32,377 895,666
====================== =========== ========== ========== ======== ======== ============ =========
There were borrowing costs capitalised in property, plant and equipment amounting to US$601,000 (2016: US$825,000). The capitalisation rate used was 8.27% (2016: 7.23%).
1 Mining properties and development costs related to Crespo project (US$26,016,000) are not currently being depreciated.
2 Net of transfers and other movements of US$1,607,000 were transferred from evaluation and exploration assets (note 17).
Management determined there were triggers of impairment in the Arcata mine unit as it has experienced difficulties to replace production with incremental resources and to convert resources into reserves, and there was a significant decrease in production during the year. An impairment test was carried out resulting in an impairment charge of US$43,009,000 (US$39,905,000 in property, plant and equipment and US$3,104,000 and evaluation and exploration assets).
In the case of the Pallancata mine unit, there was an increase in terms of tonnage, grades and resources and reserves due to the Pablo vein. The Group is currently operating the vein, converting inferred resources into reserves, and the process is showing better results than expected in terms of tonnage and grades. An impairment test was carried out resulting in an impairment reversal of US$31,892,000 (US$31,509,000 in property, plant and equipment and US$383,000 and evaluation and exploration assets).
In addition, management evaluated the carrying value of the San Felipe Project, recognising an impairment reversal of US$8,364,000 (all in evaluation and exploration assets) due to the proceeds received in the year (refer to note 23) and the significant increase in zinc market prices over the year resulting in an increase of the in-situ value (refer to notes 11 and 17).
No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.
The recoverable values of the Arcata and Pallancata CGUs were determined using a fair value less costs of disposal (FVLCD) methodology with the exception of San Felipe, where the recoverable value was determined using a value in use (VIU). FVLCD was determined using a combination of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction.
In assessing the recoverable value of the San Felipe CGU, given the early stage of the project, the Group applied a value in-situ methodology which applies a realisable 'enterprise value' to unprocessed mineral resources. The enterprise value used is based on observable external market information. Together with the US$29,396,000 recognised as a deferred income (refer to note 23) that will be realised once the option is exercised or terminated; the total recoverable value of the project under a value in use approach amounts to $37,081.
The key assumptions on which management has based its determination of FVLCD and the associated recoverable values calculated are gold and silver prices, production costs, the discount rate and the value per in-situ regarding the San Felipe project. Gold and silver prices used, discount rate applied and value per in-situ per zinc equivalent tonne are presented below.
US$ per oz. 2018 2019 2020 Long-term
============ ===== ===== ===== =========
Gold 1,298 1,300 1,303 1,300
============= ===== ===== ===== =========
Silver 18 18 19 19
============= ===== ===== ===== =========
Arcata Pallancata(1) San
Felipe
====================================== ====== ============= =======
Discount rate (post tax) 4.3% 5.4% n/a
======================================= ====== ============= =======
Value per in-situ per zinc equivalent
tonne (US$) n/a n/a 29.53
======================================= ====== ============= =======
1 The Pallancata CGU was assessed for impairment reversal at 30 June 2017 and therefore the above reflects the relevant assumption at that date.
Current carrying value of CGU, net Arcata Pallancata San of deferred tax (US$000) Felipe =================================== ====== ========== ======= 31 December 2017 5,859 91,065 37,081 ==================================== ====== ========== =======
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount.
The estimated recoverable amounts of the following of the Group's CGUs are equal to, or not materially greater than, their carrying values.
As the Arcata CGU was fully impaired at 31 December 2017, a negative change in any of the key assumptions would not have an impact on the impairment charge recognised. However a positive change in the following key assumptions would, in isolation, decrease the impairment charge recorded by:
US$000
==================================== ======
Prices (increase by 10%) 11,696
===================================== ======
Post tax discount rate (decrease by
3%) 30
===================================== ======
Production costs (decrease by 10%) 9,535
===================================== ======
As the impairment charge previously recognised at the Pallancata CGU was fully reversed at 30 June 2017, a positive change in any of the key assumptions would not have an impact on the impairment reversal recognised. Similarly, an adverse change in the key assumptions (10% decrease in price, 3% increase in post tax discount rate and 10% increase in production costs), in isolation, would still result in a full reversal of the impairment previously recognised.
With respect to the impairment assessment performed at the San Felipe CGU, a decrease of 10% in the value in-situ per tonne would result in a reversal of impairment of US$7,595,000, whilst an increase of 10% would result in a reversal of previously recognised impairment of US$9,132,000.
Mining Construction
properties in progress
and Land Plant Mine and
development and and closure capital
costs(1) buildings equipment Vehicles asset advances Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
==================== ============ ========== ========== ======== ======== ============ =========
Year ended 31
December
2016
==================== ============ ========== ========== ======== ======== ============ =========
Cost
==================== ============ ========== ========== ======== ======== ============ =========
At 1 January 2016 1,097,107 472,093 480,747 6,151 103,386 62,392 2,221,876
===================== ============ ========== ========== ======== ======== ============ =========
Additions 80,565 6,695 15,379 - - 25,514 128,153
===================== ============ ========== ========== ======== ======== ============ =========
Change in discount
rate - - - - (2,367) - (2,367)
===================== ============ ========== ========== ======== ======== ============ =========
Change in mine
closure estimate - - - - (5,629) - (5,629)
===================== ============ ========== ========== ======== ======== ============ =========
Disposals - - (3,420) (298) - (56) (3,774)
===================== ============ ========== ========== ======== ======== ============ =========
Write-offs - - (8,500) (85) - - (8,585)
===================== ============ ========== ========== ======== ======== ============ =========
Transfer to
intangibles - - - - - (44) (44)
===================== ============ ========== ========== ======== ======== ============ =========
Transfers and other
movements(2) 3,232 9,698 52,723 442 - (62,863) 3,232
===================== ============ ========== ========== ======== ======== ============ =========
At 31 December
2016 1,180,904 488,486 536,929 6,210 95,390 24,943 2,332,862
===================== ============ ========== ========== ======== ======== ============ =========
Accumulated
depreciation
and impairment
==================== ============ ========== ========== ======== ======== ============ =========
At 1 January 2016 678,547 179,036 253,388 4,447 59,790 1,152 1,176,360
===================== ============ ========== ========== ======== ======== ============ =========
Depreciation for
the year 112,526 39,243 33,921 462 4,616 - 190,768
===================== ============ ========== ========== ======== ======== ============ =========
Disposals - - (3,361) (283) - - (3,644)
===================== ============ ========== ========== ======== ======== ============ =========
Write-offs - - (6,591) (82) - - (6,673)
===================== ============ ========== ========== ======== ======== ============ =========
Transfers and other
movements(2) 568 (156) 335 10 74 (263) 568
===================== ============ ========== ========== ======== ======== ============ =========
At 31 December
2016 791,641 218,123 277,692 4,554 64,480 889 1,357,379
===================== ============ ========== ========== ======== ======== ============ =========
Net book amount
at 31 December
2016 389,263 270,363 259,237 1,656 30,910 24,054 975,483
===================== ============ ========== ========== ======== ======== ============ =========
1 Mining properties and development costs related to Crespo project (US$27,321,000) are not currently being depreciated.
2 Net of transfers and other movements of US$2,664,000 were transferred from evaluation and exploration assets (note 17).
17 Evaluation and exploration assets
San Volcan
Azuca Crespo Felipe US$000 Others Total
US$000 US$000 US$000 US$000 US$000
======================= ======= ======= ======= ======= ======= =======
Cost
======================= ======= ======= ======= ======= ======= =======
Balance at 1 January
2016 80,165 25,780 55,950 92,993 12,970 267,858
======================== ======= ======= ======= ======= ======= =======
Additions 1,237 251 - 691 1,299 3,478
======================== ======= ======= ======= ======= ======= =======
Transfers to property,
plant and equipment - - - - (3,232) (3,232)
======================== ======= ======= ======= ======= ======= =======
Balance at 31 December
2016 81,402 26,031 55,950 93,684 11,037 268,104
======================== ======= ======= ======= ======= ======= =======
Additions 197 208 - 768 3,705 4,878
======================== ======= ======= ======= ======= ======= =======
Disposals - - (500) - - (500)
======================== ======= ======= ======= ======= ======= =======
Transfers to property
plant and equipment - - - - (2,074) (2,074)
======================== ======= ======= ======= ======= ======= =======
Balance at 31 December
2017 81,599 26,239 55,450 94,452 12,668 270,408
======================== ======= ======= ======= ======= ======= =======
Accumulated impairment
======================= ======= ======= ======= ======= ======= =======
Balance at 1 January
2016 45,876 9,878 25,834 44,381 3,718 129,687
======================== ======= ======= ======= ======= ======= =======
Transfers to property,
plant and equipment - - - - (568) (568)
======================== ======= ======= ======= ======= ======= =======
Balance at 31 December
2016 45,876 9,878 25,834 44,381 3,150 129,119
======================== ======= ======= ======= ======= ======= =======
Transfers to property,
plant and equipment - - - - (467) (467)
======================== ======= ======= ======= ======= ======= =======
Impairment/(reversal
of impairment) (1) - - (8,364) - 2,721 (5,643)
======================== ======= ======= ======= ======= ======= =======
Balance at 31 December
2017 45,876 9,878 17,470 44,381 5,404 123,009 ======================== ======= ======= ======= ======= ======= ======= Net book value as at 31 December 2016 35,526 16,153 30,116 49,303 7,887 138,985 ======================== ======= ======= ======= ======= ======= ======= Net book value as at 31 December 2017 35,723 16,361 37,980 50,071 7,264 147,399 ======================== ======= ======= ======= ======= ======= =======
There were no borrowing costs capitalised in evaluation and exploration assets.
1 At 31 December 2017, the Group has recorded an impairment charge with respect to evaluation and exploration assets of the Arcata mine unit of US$3,104,000, and reversals of impairment with respect to the Pallancata mine unit of US$383,000 and the San Felipe project of US$8,364,000. The calculation of recoverable values is detailed in note 16.
18 Intangible assets
Transmission Water Software Legal
line(1) permits(2) licences rights(3) Total
US$000 US$000 US$000 US$000 US$000
================================= ============ ============ ========= ========== =======
Cost
================================= ============ ============ ========= ========== =======
Balance at 1 January 2016 22,157 26,583 1,798 6,686 57,224
================================== ============ ============ ========= ========== =======
Additions - - 14 - 14
================================== ============ ============ ========= ========== =======
Transfer - - 44 - 44
================================== ============ ============ ========= ========== =======
Balance at 31 December 2016 22,157 26,583 1,856 6,686 57,282
================================== ============ ============ ========= ========== =======
Additions - - 16 - 16
================================== ============ ============ ========= ========== =======
Balance at 31 December 2017 22,157 26,583 1,872 6,686 57,298
================================== ============ ============ ========= ========== =======
Accumulated amortisation
and impairment
================================= ============ ============ ========= ========== =======
Balance at 1 January 2016 12,070 12,686 1,315 3,172 29,243
================================== ============ ============ ========= ========== =======
Amortisation for the year(4) 1,004 - 56 600 1,660
================================== ============ ============ ========= ========== =======
Balance at 31 December 2016 13,074 12,686 1,371 3,772 30,903
================================== ============ ============ ========= ========== =======
Amortisation for the year(4) 1,089 - 158 604 1,851
================================== ============ ============ ========= ========== =======
Balance at 31 December 2017 14,163 12,686 1,529 4,376 32,754
================================== ============ ============ ========= ========== =======
Net book value as at 31 December
2016 9,083 13,897 485 2,914 26,379
================================== ============ ============ ========= ========== =======
Net book value as at 31 December
2017 7,994 13,897 343 2,310 24,544
================================== ============ ============ ========= ========== =======
1 The transmission line is amortised using the units of production method. At 31 December 2017 the remaining amortisation period is approximately 8 years (2016: 9 years).
2 Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina"). They have an indefinite life according to Chilean law. To determine the fair value less costs of disposal of the Volcan cash-generating unit, which includes the water permits held by the Group, the Group used the value-in-situ methodology. This methodology applies a realisable 'enterprise value' to unprocessed mineral resources which was US$7.10 per gold equivalent ounce of resources at 31 December 2017 (2016: US$6.90). The risk adjusted enterprise value figure has been determined using a combination of level 2 and level 3 inputs to estimate the amount that would be paid by a willing third party in an arm's length transaction, taking into account the water restrictions imposed by the Chile government.
3 Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production.
At 31 December 2017 the remaining amortisation period is from 10 to 20 years (2016: 8 to 20 years).
4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess of its recoverable amount.
Key assumptions
2017 2016
------------------------------------------------------------ ------ ------
Risk adjusted value per in-situ (gold equivalent ounce) US$ 7.10 6.90
------------------------------------------------------------- ------ ------
(US$000) 2017 2016
------------------------------------------------------------ ------ ------
Current carrying value of Volcan CGU 63,968 63,187
------------------------------------------------------------- ------ ------
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value exceed its recoverable amount.
The estimated recoverable amount is not materially greater than its carrying value. A change in the value in situ assumption could cause an impairment loss or reversal of impairment to be recognised as follows:
Approximate impairment/reversal of impairment resulting from the following changes (US$000) 2017 2016 ============================================================= ======= ======= Value per in-situ ounce (10% decrease) (2,667) (3,896) ============================================================== ======= ======= Risk factor (increase by 5%) (1,095) (2,376) ============================================================== ======= ======= Risk factor (decrease by 5%) 9,384 7,760 ============================================================== ======= =======
19 Available-for-sale financial assets
Year ended
31 December
================
2017 2016
US$000 US$000
===================================== ======= =======
Beginning balance 991 366
====================================== ======= =======
Acquisitions(1) 7,163 -
====================================== ======= =======
Fair value change recorded in equity (323) 774
====================================== ======= =======
Disposals(2) (1,160) (149)
====================================== ======= =======
Exchange of shares(2) (407) -
====================================== ======= =======
Ending balance 6,264 991
====================================== ======= =======
1 Corresponds to the purchase of 4,886,538 shares of Cobalt Power Group (Cobalt) (US$500,000), 14,545,454 shares of Red Eagle Mining Corporation (Red Eagle) (US$3,314,000), and 153,616 shares of Goldspot Discoveries Inc. (US$569,000). In addition, 13,415,000 shares of Santa Cruz Silver Mining were received in payment (US$2,780,000) of the option for the San Felipe project (refer note 23) and thus no cash consideration was received.
With the acquisition of the shares, the Group also acquired 14,545,454 warrants of Red Eagle and 2,443,269 warrants of Cobalt respectively, The warrants were recognised at fair value on acquisition and presented as other financial assets.
2 As at 31 December 2016 the Group held an investment in Mariana Resources Ltd which was acquired by Sandstorm Gold on 12 July 2017. In consideration for the exchange of shares the Group received cash proceeds of $407,000 and shares of Sandstorm Gold generating a gain of US$1,386,000. On 17 July 2017 the Group disposed its investment in Sandstorm Gold realising a loss on sale of available-for-sale-financial assets of US$32,000.
The fair value of the listed shares is determined by reference to published price quotations in an active market.
Investments held in Pembrook Mining Corp. (US$11,745,000), ECI Exploration and Mining Inc.(US$2,639,000) and Goldspot Discoveries Inc. (US$581,000) are unlisted and recognised at cost less any recognised impairment loss as there is no active market for these investments. The investments in Pembrook Mining Corp and ECI Exploration and Mining Inc. are fully impaired as at 31 December 2016 and 2017.
20 Trade and other receivables
As at 31 December
==========================================
2017 2016
================================== ==================== ====================
Non-current Current Non-current Current
US$000 US$000 US$000 US$000
================================== =========== ======= =========== =======
Trade receivables - 43,209 - 36,821
=================================== =========== ======= =========== =======
Advances to suppliers - 4,482 - 2,458
=================================== =========== ======= =========== =======
Duties recoverable from exports
of Minera Santa Cruz (1) 1,570 2,681 19,065 -
=================================== =========== ======= =========== =======
Receivables from related parties
(note 29(a)) - 160 - 71
=================================== =========== ======= =========== =======
Loans to employees 877 353 856 230
=================================== =========== ======= =========== =======
Interest receivable - 402 - 151
=================================== =========== ======= =========== =======
Receivable from Kaupthing, Singer
and Friedlander Bank - 208 - 198
=================================== =========== ======= =========== =======
Other(2) 1,810 9,397 2,188 10,205
=================================== =========== ======= =========== =======
Provision for impairment(3) - (4,594) - (6,342)
=================================== =========== ======= =========== =======
Assets classified as receivables 4,257 56,298 22,109 43,792
=================================== =========== ======= =========== =======
Prepaid expenses 91 3,720 44 2,590
=================================== =========== ======= =========== =======
Value Added Tax (VAT)(4) 3,139 21,048 3,564 21,738
=================================== =========== ======= =========== =======
Total 7,487 81,066 25,717 68,120
=================================== =========== ======= =========== =======
The fair values of trade and other receivables approximate their book value.
1 Relates to export benefits through Port Patagonico and silver refunds in Minera Santa Cruz, discounted over 19 months (2016: 24 months) at a rate of 5.40% (2016: 6.39%) for dollars denominated amounts and 29.60% (2016: 23.31%) for Argentinian pesos. The gain on the unwinding of the discount is recognised within finance income (2016: loss on discount is recognised within finance costs).
2 Mainly corresponds to account receivables from contractors for the sale of supplies of US$4,773,000 (2016: US$3,968,000), and other tax claims of US3,903,000 (2016: US$5,333,000).
3 Includes the provision for impairment of trade receivable from a customer in Peru of US$1,080,000 (2016: US$1,043,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$208,000 (2016: US$198,000), the impairment of the account receivable from a third party of US$2,501,000 (2016: US$1,797,000) and other receivables of US$805,000 (2016: US$3,304,000) that mainly relates to an exploration project that would be recovered through an ownership interest if it succeeds.
4 Primarily relates to US$12,829,000 (2016: US$16,030,000) of VAT receivable related to the San Jose project that will be recovered through future sales of gold and silver and also through the sale of these credits to third parties by Minera Santa Cruz S.A. It also includes the VAT of Compañía Minera Ares S.A.C. of US$6,519,000 (2016: US$4,776,000) and Empresa de Transmisión Aymaraes S.A.C. of US$4,034,000 (2016: US$3,665,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
Individually
impaired
US$000
============================= ============
At 1 January 2016 5,327
============================== ============
Provided for during the year 2,061
============================== ============
Released during the year (1,046)
============================== ============
At 31 December 2016 6,342
============================== ============
Provided for during the year 1,065
============================== ============
Released during the year(1) (2,813)
============================== ============
At 31 December 2017 4,594
============================== ============
1 Corresponds to the reversal of the provision of US$9,000 (2016: US$1,046,000) and write-off of US$2,804,000 (2016: US$nil)
As at 31 December 2017 and 2016, none of the financial assets classified as receivables (net of impairment) were past due.
21 Inventories
As at 31
December
================
2017 2016
US$000 US$000
======================================= ======= =======
Finished goods valued at cost 3,011 3,515
======================================== ======= =======
Products in process valued at cost 17,099 20,727
======================================== ======= =======
Raw materials - 33
======================================== ======= =======
Supplies and spare parts 41,572 40,241
======================================== ======= =======
61,682 64,516
======= =======
Provision for obsolescence of supplies (5,004) (7,460)
======================================== ======= =======
Total 56,678 57,056
======================================== ======= =======
Finished goods include ounces of gold and silver, dore and concentrate.
Products in process include stockpile and precipitates.
The Group either sells dore bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining into gold and silver ounces which are then sold. In the latter scenario, the dore bars are classified as products in process. At 31 December 2017 and 2016 the Group had no dore on hand included in products in process.
Concentrate is sold to smelters, but in addition could be used as a product in process to produce dore.
As part of the Group's short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts.
The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw materials is US$104,689,000 (2016: US$86,754,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$542,000 (2016: US$2,162,000) and the reversal of US$2,997,000 relating to the sale of supplies and spare parts, that had been provided for (2016: US$nil).
22 Cash and cash equivalents
As at 31
December
================
2017 2016
US$000 US$000
========================================= ======= =======
Cash at bank 335 353
========================================== ======= =======
Liquidity funds(1) 2,869 203
========================================== ======= =======
Current demand deposit accounts(2) 61,612 68,643
========================================== ======= =======
Time deposits(3) 192,172 70,780
========================================== ======= =======
Cash and cash equivalents considered for
the statement of cash flows 256,988 139,979
========================================== ======= =======
The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities available in the future for operating activities or capital commitments.
1 The liquidity funds are mainly invested in certificates of deposit, commercial papers and floating rate notes with a weighted average maturity of 29 days as at 31 December 2017 (2016: average of 16 days).
2 Relates to bank accounts which are freely available and bear interest.
3 These deposits have an average maturity of 32 days (2016: Average of 3 days).
23 Deferred income
As at 31
December
================
2017 2016
US$000 US$000
======================== ======= =======
San Felipe contract(1) 29,396 25,000
========================= ======= =======
El Mosquito contract(2) 1,413 -
========================= ======= =======
30,809 25,000
======= =======
Current balance (400) -
========================= ======= =======
Non-current 30,409 25,000
========================= ======= =======
1. On 3 August 2011, the Group entered into an agreement with Impulsora Minera Santa Cruz ("IMSC") whereby IMSC acquired the right to explore the San Felipe properties and an option to purchase the related concessions. Under the terms of this agreement the Group has received US$29,396,000 as non-refundable payments at 31 December 2017 (2016: US$25,000,000).
These payments will reduce the total consideration that IMSC will be required to pay upon exercise of the option and constitute an advance of the final purchase price, rather than an option premium and, as such, they were recorded as deferred income.
On 30 November 2016, IMSC renegotiated terms of the agreement, extending the validity of the agreement to 1 December 2017. As a result of this extension, on 9 March 2017 the Group received in payment 13,415,000 ordinary shares of Santa Cruz Silver Mining ("SCSM") quoted in the Toronto Stock Exchange, at the unit price of CAD 0.28 amounting to CAD 3,756,000 equivalent to US$2,780,000. The amount received included valued added taxes of US$384,000 and part consideration of US$2,396,000 recognised as deferred income.
On 28 February 2017, the Group signed a new option agreement with IMSC for the San Felipe properties for a total consideration of US$10,000,000. An initial payment of US$2,000,000 was received in cash on 7 March 2017.
In March 2017, IMSC entered into an agreement with Americas Silver Corporation ('ASC') to assign 100% of its interest in the San Felipe Project.
On 1 December 2017, the option to sell the San Felipe property to IMSC was extended to 31 December 2018 based on an amendment to the payment terms and an additional US$8,000,000 is payable by IMSC at 31 December 2017.
2. On 25 April 2017 the Group signed a five year option agreement with Minas Argentinas S.A. ("MASA") giving MASA the right ot explore and the option to purchase the Mosquito property, located in Argentina. The Group has received in cash US$2,000,000, recognising US$1,813,000 as deferred income at 31 December 2017.
24 Trade and other payables
As at 31 December
==========================================
2017 2016
==================== ====================
Non-current Current Non-current Current
US$000 US$000 US$000 US$000
==================================== =========== ======= =========== =======
Trade payables(1) - 63,038 - 55,381
===================================== =========== ======= =========== =======
Salaries and wages payable(2) - 36,143 - 28,500
===================================== =========== ======= =========== =======
Dividends payable - 107 - 75
===================================== =========== ======= =========== =======
Taxes and contributions 32 6,425 43 4,962
===================================== =========== ======= =========== =======
Guarantee deposits - 6,946 - 5,073
===================================== =========== ======= =========== =======
Mining royalty (note 30) - 684 - 679
===================================== =========== ======= =========== =======
Accounts payable to related parties
(note 29) - 149 - 94
===================================== =========== ======= =========== =======
Other 1,049 3,287 1,223 3,720
===================================== =========== ======= =========== =======
Total 1,081 116,779 1,266 98,484
===================================== =========== ======= =========== =======
The fair value of trade and other payables approximate their book values.
1 Trade payables relate mainly to the acquisition of materials, supplies and contractors' services. These payables do not accrue interest and no guarantees have been granted.
2 Salaries and wages payable relates to remuneration payable. There were Board members remuneration payable of US$nil (2016: US$2,000) and long term incentive plan payable of US$7,520,000 (2016: US$6,279,000) at 31 December 2017.
25 Borrowings
As at 31 December
================================================================
2017 2016
=============================== ===============================
Effective Effective
interest Non-current Current interest Non-current Current
rate US$000 US$000 rate US$000 US$000
======================================================== ========= =========== ======= ========= =========== =======
Bond payable (a) 8.56% 291,955 8,779 8.56% 291,073 8,778
========================================================= ========= =========== ======= ========= =========== =======
Secured bank loans (b)
======================================================== ========= =========== ======= ========= =========== =======
1.80% 2.70%
* Pre-shipment loans in Minera Santa Cruz (note 21) to 2.85% - 9,043 to 3.00% - 2,524
========================================================= ========= =========== ======= ========= =========== =======
* Short-term bank loans 1.75% - 50,041 0.65% - 25,010
========================================================= ========= =========== ======= ========= =========== =======
Total 291,955 67,863 291,073 36,312
========================================================= ========= =========== ======= ========= =========== =======
(a) Bond payable
On 23 January 2014 the Group issued US$350,000,000 7.75% Senior Unsecured Notes of Compañía Minera Ares S.A.C. guaranteed by Hochschild Mining plc and Hochschild Mining (Argentina) Corporation S.A. The interest is paid semi-annually, until maturity in 23 January 2021. During November and December 2015, the Group repurchased bonds amounting to US$55,225,000 for US$54,369,000, giving rise to a gain on repurchase of US$856,000. The balance at 31 December 2017 comprises the carrying value, including accrued interest payable, of US$300,734,000 (2016: US$299,851,000) determined in accordance with the effective interest method.
The following options could be taken before the maturity:
-- Optional Redemption without Make-Whole Premium: The issuer may redeem all or part of the notes on or after 23 January 2018 at
the redemption prices specified plus accrued and unpaid interest and additional amounts, if any, to the redemption date. The Make
Whole Premium requires repayment of 103.875%, 101.938% or 100% of the outstanding principal balance if exercised in 2018, 2019
or 2020 respectively.
-- Optional Redemption Upon Tax Event: 100% of the outstanding principal amount plus accrued and unpaid interest and additional amounts, if any.
-- Change of Control Offer: 101% of principal amount plus accrued and unpaid interest.
(b) Secured bank loans:
Short-term bank loans:
One credit agreement signed by Compañía Minera Ares S.A.C. with BBVA Continental (2016: two credit agreements signed by Compañía Minera Ares S.A.C. with BBVA Continental). The loan has an interest rate of 1.75% (2016: 0.65%). The carrying value including accrued interest payable at 31 December 2017 is US$50,041,000 (2016: US$25,010,000). The due date is 15 December 2018 (2016: Repaid on due date 7 February 2017).
The maturity of non-current borrowings is as follows:
As at 31
December
================
2017 2016
US$000 US$000
====================== ======= =======
Between 1 and 2 years - -
====================== ======= =======
Between 2 and 5 years 291,955 291,073
======================= ======= =======
Over 5 years - -
====================== ======= =======
Total 291,955 291,073
======================= ======= =======
The carrying amount of current borrowings differs their fair value only with respect to differences arising under the effective interest rate calculations described above. The carrying amount and fair value of the non--current borrowings are as follows:
Carrying
amount Fair value
as at 31 as at 31
December December
================ ================
2017 2016 2017 2016
US$000 US$000 US$000 US$000
=================== ======= ======= ======= =======
Secured bank loans - - - -
=================== ======= ======= ======= =======
Bond payable 291,955 291,073 306,566 318,062
==================== ======= ======= ======= =======
Total 291,955 291,073 306,566 318,062
==================== ======= ======= ======= =======
In the case of the bond payable, the fair value was determined with reference to the quoted price of these bonds in an active market, it is Level 1 input.
The movement in borrowings during the year is as follows:
As at As at
1 January 31 December
2017 Additions Repayments Reclassifications 2017
US$000 US$000 US$000 US$000 US$000
======================== ========== ========= ========== ================= ============
Current
======================== ========== ========= ========== ================= ============
Bank loans 27,534 69,686 (38,136) - 59,084
========================= ========== ========= ========== ================= ============
Bond payable 8,778 24,688 (23,805) (882) 8,779
========================= ========== ========= ========== ================= ============
36,312 94,374 (61,941) (882) 67,863
========== ========= ========== ================= ============
Non-current
======================== ========== ========= ========== ================= ============
Bond payable 291,073 - - 882 291,955
========================= ========== ========= ========== ================= ============
291,073 - - 882 291,955
========== ========= ========== ================= ============
Accrued interest (8,812) (24,874) 23,941 - (9,745)
========================= ========== ========= ========== ================= ============
Before accrued interest 318,573 69,500 (38,000) - 350,073
========================= ========== ========= ========== ================= ============
26 Provisions
Provision Long
for Term
mine Incentive
closure(1) Plan2 Other Total
US$000 US$000 US$000 US$000
=========== ========== ======= ========
At 1 January 2016 120,080 963 6,474 127,517
====================================== =========== ========== ======= ========
Additions - 9,965 570 10,535
====================================== =========== ========== ======= ========
Accretion 46 - - 46
====================================== =========== ========== ======= ========
Change in discount rate(4) (2,367) - - (2,367)
====================================== =========== ========== ======= ========
Change in estimates(4) (11,975)(3) - - (11,975)
====================================== =========== ========== ======= ========
Foreign exchange effect - - (547) (547)
====================================== =========== ========== ======= ========
Transfer to trade and other payables - (6,279) (2,048) (8,327)
====================================== =========== ========== ======= ========
Payments (3,355) - - (3,355)
====================================== =========== ========== ======= ========
At 31 December 2016 102,429 4,649 4,449 111,527
====================================== =========== ========== ======= ========
Less: current portion 3,580 - 1,826 5,406
====================================== =========== ========== ======= ========
Non-current portion 98,849 4,649 2,623 106,121
====================================== =========== ========== ======= ========
At 1 January 2017 102,429 4,649 4,449 111,527
====================================== =========== ========== ======= ========
Additions - 8,702 347 9,049
====================================== =========== ========== ======= ========
Accretion 280 - - 280
====================================== =========== ========== ======= ========
Change in discount rate(4) 863 - - 863
====================================== =========== ========== ======= ========
Change in estimates(4) 856(3) - - 856
====================================== =========== ========== ======= ========
Foreign exchange effect - - (352) (352)
====================================== =========== ========== ======= ========
Transfer to trade and other payables - (7,520) - (7,520)
====================================== =========== ========== ======= ========
Payments (4,359) - (34) (4,393)
====================================== =========== ========== ======= ========
At 31 December 2017 100,069 5,831 4,410 110,310
====================================== =========== ========== ======= ========
Less: current portion 4,562 - 1,641 6,203
====================================== =========== ========== ======= ========
Non-current portion 95,507 5,831 2,769 104,107
====================================== =========== ========== ======= ========
1 The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the mines. 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 adjusted for the impact of quantitative easing as at 31 December 2017 and 2016 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mines, as new resources and reserves are discovered. The discount rate used was 0.14% (2016: 0.25%). Expected cash flows will be over a period from one to sixteen years.
2 Corresponds to the provision related to awards granted under the Long Term Incentive Plan ('LTIP') to designated personnel of the Group. Includes the following benefits: (i) 2017 awards, granted in March 2017, payable in March 2020 (ii) 2016 awards, granted in March 2016, payable in March 2019. Only employees who remain in the Group's employment on the vesting date will be entitled to a cash payment, subject to exceptions approved by the Remuneration Committee of the Board. The percentage of the award granted is determined 70% by the Company's TSR ranking relative to a tailored peer group of mining companies, and 30% by the Company's TSR ranking relative to a peer group of FTSE 350 companies. The liability for the LTIP is measured, initially and at the end of each reporting period until settled, at the fair value of the awards, by applying the Monte Carlo pricing model, taking into account the terms and conditions on which the awards were granted, and the extent to which the employees have rendered services to date. Changes to the provision of US$8,702,000 (2016: US$9,965,000) have been recorded as administrative expenses US$8,215,000 (2016: US$9,298,000) and exploration expenses US$487,000 (2016: US$667,000).
The following tables list the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2016 and 2017, respectively:
LTIP 2015 LTIP 2016 LTIP 2017
========================== ========================== ==========================
31 December 31 December 31 December 31 December 31 December 31 December
For the period 2017 2016 2017 2016 2017 2016
ended US$000 US$000 US$000 US$000 US$000 US$000
===================== ============ ============ ============ ============ ============ ============
Dividend yield
(%) - 0.49 0.81 0.49 0.81 -
====================== ============ ============ ============ ============ ============ ============
Expected volatility
(%) - 3.89 4.02 3.89 4.02 -
====================== ============ ============ ============ ============ ============ ============
Risk-free interest
rate (%) - 0.12 0.25 0.12 0.25 -
====================== ============ ============ ============ ============ ============ ============
Expected life (years) - 1 1 2 2 -
====================== ============ ============ ============ ============ ============ ============
Weighted average
share price (pence
GBP) - 100.68 63.07 63.49 239.22 -
====================== ============ ============ ============ ============ ============ ============
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the awards and is indicative of future trends, which may not necessarily be the actual outcome.
3 Based on the 2017 internal and external review of mine rehabilitation estimates, the provision for mine closure increased by US$856,000 (2016: US$11,975,000 decrease). The net increase (2016: net decrease) mainly corresponds to the Pallancata mine unit of US$1,385,000 (2016: US$447,000 decrease), the Inmaculada mine unit of US$1,191,000 (2016: US$1,651,000 increase), the Crespo project of US$43,000 (2016: US$37,000 decrease), the Ares mine unit of US$22,000 (2016: US$1,622,000 decrease) and the Azuca project of US$7,000 (2016: US$8,000 decrease), net of the decrease in Arcata mine unit of US$1,131,000 (2016: US$6,648,000 decrease), the Selene mine unit of US$607,000 (2016: US$698,000 decrease) and San José mine unit of US$54,000 (US$4,166,000 decrease).
4 US$1,428,000 (2016: US$6,346,000) related to changes in estimate and discount rates for mines already closed and the Arcata mine unit which reduction of the estimated costs exceeded the carrying value of the mine asset, , therefore the effect has been recognised directly in the income statement.
27 Deferred income tax
The changes in the net deferred income tax assets/(liabilities) are as follows:
As at 31
December
==================
2017 2016
US$000 US$000
============================================== ======== ========
Beginning of the year (64,944) (64,274)
=============================================== ======== ========
Income statement (credit)/charge (note
14) 11,304 (6,625)
=============================================== ======== ========
Deferred income tax arising on net unrealised
gains on cash flow hedges recognised in
equity (note 14) - 5,955
=============================================== ======== ========
End of the year (53,640) (64,944)
=============================================== ======== ========
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.
The movement in deferred income tax assets and liabilities before offset during the year is as follows:
Differences
in
cost
of Mine Financial
PP&E development instruments Others Total
US$000 US$000 US$000 US$000 US$000
================================= =========== ============ ============ ======= =======
Deferred income tax liabilities
================================= =========== ============ ============ ======= =======
At 1 January 2016 47,967 60,107 8,064 4,762 120,900
================================== =========== ============ ============ ======= =======
Income statement (credit)/charge (6,319) 8,235 - (1,938) (22)
================================== =========== ============ ============ ======= =======
Deferred income tax arising
on net unrealised gains on
cash flow hedges recognised
in equity - - (5,955) - (5,955)
================================== =========== ============ ============ ======= =======
Transfer - - (2,109) - (2,109)
================================== =========== ============ ============ ======= =======
At 31 December 2016 41,648 68,342 - 2,824 112,814
================================== =========== ============ ============ ======= =======
Income statement (credit)/charge 2,474 991 201 (1,197) 2,469
================================== =========== ============ ============ ======= =======
At 31 December 2017 44,122 69,333 201 1,627 115,283
================================== =========== ============ ============ ======= =======
Differences
in Provision
cost for
of mine Tax Mine Financial
PP&E closure losses development instruments Others Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
================== =========== ========= ======== ============ ============ ======= =======
Deferred income
tax assets
================== =========== ========= ======== ============ ============ ======= =======
At 1 January 2016 7,862 22,853 16,814 954 2,253 5,890 56,626
=================== =========== ========= ======== ============ ============ ======= =======
Income statement
credit/(charge) 8,463 (3,319) (15,868) (42) 160 3,959 (6,647)
=================== =========== ========= ======== ============ ============ ======= =======
Transfer - - - - (2,109) - (2,109)
=================== =========== ========= ======== ============ ============ ======= =======
At 31 December
2016 16,325 19,534 946 912 304 9,849 47,870
=================== =========== ========= ======== ============ ============ ======= =======
Income statement
credit/(charge) 14,347 (51) 893 (110) (304) (1,002) 13,773
=================== =========== ========= ======== ============ ============ ======= =======
At 31 December
2017 30,672 19,483 1,839 802 - 8,847 61,643
=================== =========== ========= ======== ============ ============ ======= =======
The amounts after offset, as presented on the face of the Statement of financial position, are as follows:
As at 31
December
==================
2017 2016
US$000 US$000
================================ ======== ========
Deferred income tax assets 2400 1,027
================================= ======== ========
Deferred income tax liabilities (56,040) (65,971)
================================= ======== ========
Tax losses expire in the following years:
As at 31
December
================
2017 2016
US$000 US$000
======================== ======= =======
Unrecognised
======================== ======= =======
Expire in one year 3,517 2,268
========================= ======= =======
Expire in two years 493 3,231
========================= ======= =======
Expire in three years 42 4,594
========================= ======= =======
Expire in four years 4,320 2,295
========================= ======= =======
Expire after four years 119,461 111,630
========================= ======= =======
127,833 124,018
======= =======
Other unrecognised deferred income tax assets comprise (gross amounts):
As at 31
December
================
2017 2016
US$000 US$000
============================== ======= =======
Provision for mine closure(1) 7,287 9,971
=============================== ======= =======
Impairments of assets(2) 2,509 14,692
=============================== ======= =======
1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected against which the expenditure can be offset.
2 Related to the reversal of impairment of San Felipe project (2016: Related to the impairment of San Felipe and Volcan project) (note 17).
Unrecognised deferred tax liability on retained earnings
At 31 December 2017 and 2016, there was no recognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries as the intention is that these amounts are permanently reinvested.
28 Dividends
2017 2016
US$000 US$000
============================================= ======= =======
Dividends paid and proposed during the
year
============================================= ======= =======
Equity dividends on ordinary shares:
============================================= ======= =======
Final dividend for 2016: 1.38 US cent per
share (2015: nil US cent per share) 6,997 -
============================================== ======= =======
Interim dividend for 2017: 1.38 US cent
per share (2016: 1.38 US cent per share) 6,999 6,998
============================================== ======= =======
Total dividends paid on ordinary shares 13,996 6,998
============================================== ======= =======
Proposed dividends on ordinary shares:
============================================= ======= =======
Final dividend for 2017: 1.965 US cent
per share (2016: 1.38 US cent per share) 9,967 6,997
============================================== ======= =======
Dividends paid to non-controlling interests:
1.80 US$ per share (2016: 10.05 US cent
per share) 12,585 16,983
============================================== ======= =======
Dividends paid to non-controlling interest
related to 2014 and previous periods - 753
============================================== ======= =======
Total dividends paid to non-controlling
interests 12,585 17,736
============================================== ======= =======
Dividends per share
The interim dividend paid in September 2017 was US$6,999,000 (1.38 US cents per share). A proposed dividend in respect of the year ending 31 December 2017 of 1.965 US cent per share, amounting to a total dividend of US$9,967,000, is subject to approval at the Annual General Meeting on 25 May 2018 and is not recognised as a liability as at 31 December 2017.
29 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 2017 and 2016. The related parties are companies owned or controlled by the main shareholder of the parent company or associates.
Accounts Accounts
receivable payable
as at 31 as at 31
December December
---------------- ----------------
2017 2016 2017 2016
US$000 US$000 US$000 US$000
------------------------------- ------- ------- ------- -------
Current related party balances
------------------------------- ------- ------- ------- -------
Cementos Pacasmayo S.A.A.(1) 160 71 149 94
-------------------------------- ------- ------- ------- -------
Total 160 71 149 94
-------------------------------- ------- ------- ------- -------
1 The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A. The account payable relates to the payment of rentals.
As at 31 December 2017 and 2016, all 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:
Year ended
================
2017 2016
US$000 US$000
========================================== ======= =======
Income
========================================== ======= =======
Gain on sale of Asociacion Sumac Tarpuy
to Inversiones ASPI S.A. - 811
=========================================== ======= =======
Expenses
========================================== ======= =======
Donation to the Universidad de Ingenieria
y Tecnologia "UTEC" - (1,000)
=========================================== ======= =======
Expense recognised for the rental paid
to Cementos Pacasmayo S.A.A. (200) (200)
=========================================== ======= =======
Transactions between the Group and these companies are on an arm's length basis.
(b) Compensation of key management personnel of the Group
As at 31
December
----------------
Compensation of key management personnel 2017 2016
(including Directors) US$000 US$000
------------------------------------------ ------- -------
Short-term employee benefits 6,086 5,459
------------------------------------------- ------- -------
Long Term Incentive Plan, Deferred Bonus
Plan and Restricted Share Plan 5,446 6,622
------------------------------------------- ------- -------
Total compensation paid to key management
personnel 11,532 12,081
------------------------------------------- ------- -------
This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$5,438,873 (2016: US$5,487,769).
30 Mining royalties
Peru
In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and non--metallic resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate
or equivalent sold, based on quoted market prices.
In October 2011 changes came into effect for mining companies, with the following features:
a) Introduction of a Special Mining Tax ('SMT'), levied on mining companies at the stage of exploiting mineral resources. The
additional tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.
b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%,
of the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.
The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12 "Income Taxes".
c) For companies that have mining projects benefiting from tax stability regimes, mining royalties are calculated and recorded as they were previously, applying an additional new special charge on mining that is calculated using progressive scale rates, ranging from 4% to 13.12% of quarterly operating profit.
d) In the case of the Arcata mine unit, the company left the tax stability agreement, but has maintained the agreement for the mining royalties, such that the Arcata unit, is liable for the new SMT but the mining royalties remain payable at the same rate as they were, before the modification in 2011.
As at 31 December 2017, the amount payable as under the former mining royalty (for the Arcata mining unit), the new mining royalty (for the Ares, Pallancata and Inmaculada mining units), and the SMT amounted to US$108,000 (2016: US$170,000), US$1,133,000 (2016: US$769,000), and US$492,000 (2016: US$737,000) respectively. The former mining royalty is recorded as 'Trade and other payables', and the new mining royalty and SMT as 'Income tax payable' in the Statement of Financial Position. The amount recorded in the income statement was US$885,000 (2016: US$1,759,000) representing the former mining royalty, classified as cost of sales, US$4,201,000 (2016: US$3,882,000) of new mining royalty and US$2,229,000 (2016: US$3,869,000) of SMT, both classified as income tax.
Argentina
In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to collect royalties from mine operators. For San Jose, the mining royalty applicable to dore and concentrate is 3% of the pit-head value. As at 31 December 2017, the amount payable as mining royalties amounted to US$576,000 (2016: US$509,000). The amount recorded in the income statement as cost of sales was US$5,792,000 (2016: US$5,747,000).
31 Subsequent events
a) A restructuring plan has been established for the Arcata mining unit that includes the dismissal of approximately 165 employees. This reduction is aligned with the exploitation plan 2018, which is lower than budgeted in 2017, and is scheduled to take place between the months of January and February 2018.The process has been coordinated and communicated during January 2018 to the employees and the union. The approximate cost associated with the indemnities is estimated to be around US$1,388,000.
b) On 23 January 2018, the Group redeemed in full all of the US$294,775,000 outstanding principal amount of the Senior Unsecured Notes of Compañía Minera Ares S.A.C. (refer to note 25 (a)). The redemption price was US317,620,062, that includes the principal amount of US$294,775,000, the total amount of unpaid interests of US$11,422,531 and a premium of US$11,422,531.
c) On 10 January 2018 the Group signed a short term loan with Nova Scotia Bank of US$50,000,000 (3 months LIBOR plus 0.32%) and on 17 January 2018 signed a medium term loan with Nova Scotia Bank of US$100,000,000 (3 months LIBOR plus 0.70%). The proceeds were employed to redeem the Senior Unsecured Notes of Compañia Minera Ares S.A.C.
d) On 2 January 2018 the Group issued 1,660,805 ordinary shares under the Restricted Share Plan, to certain employees of the Group.
Profit by operation(1)
(Segment report reconciliation) as at 31 December 2017
Consolidation
San adjustment
Company (US$000) Arcata Pallancata Inmaculada Jose and others Total/HOC
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Revenue 77,940 120,529 296,594 227,094 415 722,572
Cost of sales (pre-consolidation) (80,221) (70,305) (221,739) (177,255) 471 (549,049)
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Consolidation adjustment (159) (175) (277) 140 471 -
Cost of sales (post-consolidation) (80,062) (70,130) (221,462) (177,395) - (549,049)
Production cost
excluding depreciation (62,340) (46,874) (109,005) (127,217) - (345,436)
Depreciation in production
cost (17,446) (20,256) (110,632) (47,907) - (196,241)
Other items - (1,461) - (1,780) - (3,241)
Change in inventories (276) (1,539) (1,825) (491) - (4,131)
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Gross (loss)/profit (2,281) 50,224 74,855 49,839 886 173,523
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Administrative expenses - - - - (51,283) (51,283)
Exploration expenses - - - - (17,199) (17,199)
Selling expenses (1,931) (1,298) (1,118) (6,677) - (11,024)
Other income/(expenses),
net - - - - (1,357) (1,357)
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Operating (loss)/profit
before net impairments (4,212) 48,926 73,737 43,162 (68,953) 92,660
Impairment, net of
impairment reversals,
and write-off of
non-current assets - - - - (3,158) (3,158)
Finance income - - - - 5,927 5,927
Finance costs - - - - (26,095) (26,095)
Foreign exchange
loss - - - - (5,257) (5,257)
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Profit/(loss) from
continuing operations
before income tax (4,212) 48,926 73,737 43,162 (97,536) 64,077
Income tax - - - - (10,196) (10,196)
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
Profit/(loss) for
the year from continuing
operations (4,212) 48,926 73,737 43,162 (107,732) 53,881
----------------------------------- -------- ---------- ---------- --------- ------------- ---------
1 On a post exceptional basis.
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 43 to 45 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 2017, 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$1,200 per ounce and Ag Price: US$16.5 per ounce.
ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2017
Proved
and probable Ag Au Ag Au Ag Eq
Reserve category (t) (g/t) (g/t) (moz) (koz) (moz)
----------------- ------------- ------- ------ ------ ------ ------
OPERATIONS(1)
----------------- ------------- ------- ------ ------ ------ ------
Arcata
----------------- ------------- ------- ------ ------ ------ ------
Proved 318,092 395 1.2 4.0 11.8 4.9
------------------ ------------- ------- ------ ------ ------ ------
Probable 539,625 335 1.1 5.8 18.4 7.2
------------------ ------------- ------- ------ ------ ------ ------
Total 857,717 357 1.1 9.8 30.2 12.1
------------------ ------------- ------- ------ ------ ------ ------
Inmaculada
----------------- ------------- ------- ------ ------ ------ ------
Proved 3,124,529 147 4.1 14.8 412.0 45.3
------------------ ------------- ------- ------ ------ ------ ------
Probable 1,564,684 214 5.0 10.8 249.5 29.2
------------------ ------------- ------- ------ ------ ------ ------
Total 4,689,213 169 4.4 25.6 661.5 74.5
------------------ ------------- ------- ------ ------ ------ ------
Pallancata
----------------- ------------- ------- ------ ------ ------ ------
Proved 934,208 360 1.4 10.8 41.8 13.9
------------------ ------------- ------- ------ ------ ------ ------
Probable 368,996 289 1.2 3.4 14.4 4.5
------------------ ------------- ------- ------ ------ ------ ------
Total 1,303,204 340 1.3 14.3 56.3 18.4
------------------ ------------- ------- ------ ------ ------ ------
San Jose
----------------- ------------- ------- ------ ------ ------ ------
Proved 495,980 490 7.0 7.8 111.5 16.1
------------------ ------------- ------- ------ ------ ------ ------
Probable 221,327 384 6.7 2.7 48.0 6.3
------------------ ------------- ------- ------ ------ ------ ------
Total 717,307 457 6.9 10.5 159.5 22.4
------------------ ------------- ------- ------ ------ ------ ------
GRAND TOTAL
----------------- ------------- ------- ------ ------ ------ ------
Proved 4,872,809 239 3.7 37.5 577.2 80.2
------------------ ------------- ------- ------ ------ ------ ------
Probable 2,694,631 262 3.8 22.7 330.3 47.2
------------------ ------------- ------- ------ ------ ------ ------
TOTAL 7,567,440 247 3.7 60.2 907.5 127.4
------------------ ------------- ------- ------ ------ ------ ------
Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company's ownership only. Includes discounts for ore loss and dilution.
1 Operations were audited by P&E Consulting.
.
ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2017(1)
Ag Ag
Resource Tonnes Ag Au Zn Pb Cu Eq Ag Au Eq Zn Pb Cu
category (t) (g/t) (g/t) (%) (%) (%) (g/t) (moz) (koz) (moz) (kt) (kt) (kt)
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
OPERATIONS
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Arcata
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Measured 1,168,941 416 1.26 - - - 509 15.6 47.3 19.1 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Indicated 1,933,181 381 1.25 - - - 473 23.7 77.5 29.4 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Total 3,102,122 394 1.25 - - - 487 39.3 124.8 48.6 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inferred 4,129,459 334 1.24 - - - 426 44.3 164.7 56.5 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inmaculada
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Measured 3,023,358 178 4.93 - - - 542 17.3 479.1 52.7 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Indicated 1,797,660 253 5.55 - - - 664 14.6 321.0 38.4 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Total 4,821,018 206 5.16 - - - 588 31.9 800.2 91.1 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inferred 2,964,567 128 3.28 - - - 370 12.2 312.5 35.3 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Pallancata
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Measured 1,331,079 426 1.73 - - - 554 18.2 74.0 23.7 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Indicated 693,617 311 1.37 - - - 412 6.9 30.6 9.2 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Total 2,024,696 387 1.61 - - - 506 25.2 104.7 32.9 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inferred 3,095,641 327 1.31 - - - 424 32.5 130.3 42.2 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
San Jose
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Measured 805,579 583 8.37 - - - 1,202 15.1 216.7 31.1 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Indicated 844,078 427 6.76 - - - 927 11.6 183.5 25.2 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Total 1,649,657 503 7.55 - - - 1,061 26.7 400.2 56.3 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inferred 446,885 360 6.68 - - - 854 5.2 96.0 12.3 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
GROWTH
PROJECTS
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Crespo
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Measured 5,211,058 47 0.47 - - - 82 7.9 78.6 13.7 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Indicated 17,298,228 38 0.40 - - - 67 21.0 222.5 37.4 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Total 22,509,286 40 0.42 - - - 71 28.8 301.0 51.1 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inferred 775,429 46 0.57 - - - 88 1.1 14.2 2.2 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Azuca
------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Measured 190,602 244 0.77 - - - 301 1.5 4.7 1.8 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Indicated 6,858,594 187 0.77 - - - 243 41.2 168.8 53.7 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Total 7,049,196 188 0.77 - - - 245 42.7 173.5 55.5 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
Inferred 6,946,341 170 0.89 - - - 236 37.9 199.5 52.7 - - -
------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Volcan ------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Measured 105,918,000 - 0.738 - - - 55 - 2,513.1 186.0 - - - ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Indicated 283,763,000 - 0.698 - - - 52 - 6,368.0 471.2 - - - ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Total 389,681,000 - 0.709 - - - 52 - 8,882.7 657.3 - - - ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Inferred 41,553,000 - 0.502 - - - 37 - 670.7 49.6 - - - ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- OTHER PROJECTS(2) ------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Measured 1,393,716 69 0.02 7.12 3.10 0.39 315 3.1 0.9 14.1 99.3 43.1 5.5 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Indicated 1,354,261 82 0.06 6.14 2.73 0.31 295 3.6 2.4 12.9 83.2 37.0 4.2 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Total 2,747,977 76 0.04 6.64 2.92 0.35 305 6.7 3.3 27.0 182.4 80.1 9.7 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Inferred 13,445,001 8 0.30 0.58 0.21 1.22 160 3.4 128.6 69.0 77.8 28.5 163.6 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- GRAND TOTAL ------------ ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Measured 119,042,333 21 0.89 0.08 0.04 0.00 89 78.7 3,414.5 342.3 99.3 43.1 5.5 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Indicated 314,542,619 12 0.73 0.03 0.01 0.00 67 122.6 7,374.3 677.4 83.2 37.0 4.2 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Total 433,584,952 14 0.77 0.04 0.02 0.00 73 201.3 10,790.4 1,019.8 182.4 80.1 9.7 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- ----- Inferred 73,356,323 58 0.73 0.10 0.04 0.22 136 136.7 1,716.4 319.8 77.8 28.5 163.6 ------------- ----------- ----- ----- ---- ---- ---- ----- ----- -------- ------- ----- ---- -----
1 Prices used for resources calculation: Au: $1,200/oz and Ag: $16.5/oz.
2 Includes the Jasperoide copper project and the San Felipe zinc/silver project. The silver equivalent grade (147 g/t Ag Eq) has being calculated applying the following ratios, Cu/Ag=96.38 and Au/Ag=60
CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES
Percentage
Ag equivalent attributable December December
content (million December 2016 2017 Net
ounces) Category 2017 Att.(1) Att.(1) difference % change
------------------ --------- ------------- -------- -------- ----------- --------
Arcata Resource 100% 104.2 105.1 0.9 0.9%
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve 17.7 12.1 (5.6) (31.6%)
---------- ------------- -------- -------- ----------- --------
Inmaculada Resource 100% 143.8 126.4 (17.4) (12.1%)
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve 89.4 74.5 (14.9) (16.7%)
---------- ------------- -------- -------- ----------- --------
Pallancata Resource 100% 83.6 75.1 (8.5) (10.2%)
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve 18.0 18.4 0.4 2.2%
---------- ------------- -------- -------- ----------- --------
San Jose Resource 51% 73.5 68.6 (4.9) (6.7%)
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve 29.4 22.4 (7.0) (23.8%)
---------- ------------- -------- -------- ----------- --------
Crespo Resource 100% 53.3 53.3 - -
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve - - - -
------------------ --------- ------------- -------- -------- ----------- --------
Azuca Resource 100% 108.2 108.2 - -
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve - - - -
------------------ --------- ------------- -------- -------- ----------- --------
Volcan Resource 100% 706.9 706.9 - -
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve - - - -
------------------ --------- ------------- -------- -------- ----------- --------
Reserve - - - -
------------------ --------- ------------- -------- -------- ----------- --------
Other projects
total Resource 100% 96.0 96.0 - -
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve - - - -
------------------ --------- ------------- -------- -------- ----------- --------
Total Resource 1,369.5 1,339.6 (29.9) (2.2%)
------------------- ---------- ------------- -------- -------- ----------- --------
Reserve 154.5 127.4 (27.1) (17.5%)
---------- ----------------- ------------- -------- -------- ----------- --------
1 Attributable reserves and resources based on the Group's percentage ownership of its joint venture projects.
SHAREHOLDER INFORMATION
Company website
Hochschild Mining plc Interim and Annual Reports and results announcements are available via the internet on our website at www.hochschildmining.com. Shareholders can also access the latest information about the Company and press announcements as they are released, together with details of future events and how to obtain further information.
Registrars
The Registrars can be contacted as follows for information about the AGM, shareholdings, and dividends and to report changes in personal details:
BY POST
Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
BY TELEPHONE
If calling from the UK: 0371 664 0300 (calls cost 12p per minute plus your phone company's access charge. Lines are open 9.00am-5.30pm Mon to Fri excluding public holidays in England and Wales).
If calling from overseas: +44 371 664 0300 (Calls charged at the applicable international rate).
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars should contact the Company's registrars to request a currency election form. This form should be completed and returned to the registrars 15 May 2018 in respect of the 2017 final dividend.
The Company's registrars can also arrange for the dividend to be paid directly into a shareholder's UK bank account. To take advantage of this facility in respect of the 2017 final dividend, a dividend mandate form, also available from the Company's registrars, should be completed and returned to the registrars by 15 May 2018. This arrangement is only available in respect of dividends paid in UK pounds sterling. Shareholders who have already completed one or both of these forms need take no further action.
Financial Calendar
Dividend dates 2018 ----------------------------------------------- ------- Ex-dividend date 10 May Record date 11 May Deadline for return of currency election forms 15 May Payment date 1 June ----------------------------------------------- -------
17 Cavendish Square
London
W1G 0PH
United Kingdom
[1]Revenue presented in the financial statements is disclosed as net revenue and is calculated as gross revenue less commercial discounts plus services revenue
(2) Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax plus depreciation, and exploration expenses other than personnel and other exploration related fixed expenses and other non-cash (income)/expenses
[3]On a pre-exceptional basis
[4]All-in sustaining cost per (AISC) silver equivalent ounce: Calculated before exceptional items and includes cost of sales less depreciation in production cost and change in inventories, administrative expenses, brownfield exploration, operating and exploration capex and royalties (presented with income tax) divided by silver equivalent ounces produced, plus commercial deductions and selling expenses divided by silver equivalent ounces sold using a gold/silver ratio of 74:1
[5]All equivalent figures assume the average gold/silver ratio of 74:1
[6] All in-sustaining cost from operations
[7]$9.0-9.5 per silver equivalent ounce
[8]Excludes revenue from services
[9]Reconciliation of gross revenue by mine to Group net revenue
[10]Unit cost per tonne is calculated by dividing mine and treatment production costs (excluding depreciation) by extracted and treated tonnage respectively
[11]Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items less depreciation included in cost of sales
[12]Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore
[13]Calculated using a gold silver ratio of 74:1
[14]Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line
[15]Adjusted EBITDA has been presented before the effect of significant non-cash (income)/expenses related to changes in mine closure provisions and the write-off of property, plant and equipment
[16]Includes pre-shipment loans and short term interest payables
[17]Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in the expected closure costs of mine asset
This information is provided by RNS
The company news service from the London Stock Exchange
END
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February 21, 2018 02:00 ET (07:00 GMT)
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