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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 | |
---|---|---|---|---|---|---|---|---|---|---|
-0.20 | -0.13% | 157.80 | 157.20 | 157.80 | 160.20 | 157.80 | 160.20 | 151,756 | 12:47:12 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Silver Ores | 693.72M | -55.01M | -0.1069 | -14.78 | 812.84M |
TIDMHOC
RNS Number : 4487W
Hochschild Mining PLC
19 August 2015
___________________________________________________________________________
19 August 2015
Hochschild Mining plc
Interim Results for the six months ended 30 June 2015
Financial Results highlights[1]
-- Net revenue of $190.3 million (H1 2014: $282.0 million) -- Adjusted EBITDA of $39.3 million (H1 2014: $94.3 million)[2] -- Earnings per share of $(0.10) (H1 2014: $(0.01)) -- Cash balance of $84.3 million as at 30 June 2015
Inmaculada Project update
-- Inmaculada production to date:
o 21,100 ounces of gold
o 506,200 ounces of silver
-- Mined tonnage, grades and metallurgical recoveries in line with expectations -- 2015 production target of 6-7 million silver equivalent ounces on track[3]
Operational highlights
-- Half year production of 9.2 million attributable silver equivalent ounces -- 24.0 million silver equivalent ounce full year production target on track
-- Main operation all-in sustaining costs per silver equivalent ounce fell by 9% to $15.0 ($16.0 per ounce assuming silver-to-gold ratio of 60:1)[4]
-- $13-14 per ounce all-in sustaining cost target for 2015 on track ($15-16 per ounce assuming silver-to-gold ratio of 60:1)
H2 2015 Outlook
-- Significantly improved production expected in H2 2015 -- Inmaculada full production set to drive significant cost and margin improvement in H2 2015 $000, pre-exceptional unless stated Six months to 30 June 2015 Six months to 30 June 2014 ---------------------------------------------------- --------------------------- --------------------------- Attributable silver production (koz) 6,265 8,526 Attributable gold production (koz) 41 55 Net revenue[5] 190,259 282,012 Adjusted EBITDA 39,306 94,282 Loss from continuing operations (37,750) (1,546) Loss from continuing operations (post-exceptional) (43,885) (11,749) Earnings per share ($ pre-exceptional) (0.10) (0.01) Earnings per share ($ post-exceptional) (0.12) (0.04) ---------------------------------------------------- --------------------------- ---------------------------
Commenting on the results, Eduardo Hochschild, Chairman, said:
"During this year, we have been completing the investment in Hochschild's new flagship low cost Inmaculada mine. I am delighted that in June we reached a milestone for our Company with the production of our first ounces from this crucial project and I am confident that, as we move through the remainder of 2015, we will start to see the fruits of our long term investment strategy."
_______________________________________________________________________________________
A live conference call & audio webcast will be held at 2pm (London time) on Wednesday 19 August 2015 for analysts and investors. Details as follows:
For a live webcast of the presentation please click on the link below:
http://edge.media-server.com/m/p/h5k94yz3
Conference call dial in details:
UK: +44(0)20 3427 1900 (Please use the following confirmation code: 2270177).
A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone number:
UK: (0)20 3427 0598 (Access code: 2270177)
The On Demand version of the webcast will be available within two hours after the end of the presentation and is accessible using the same webcast link.
_______________________________________________________________________________________
Enquiries:
Hochschild Mining plc
Charles Gordon +44 (0)20 3714 9040
Head of Investor Relations
Hudson Sandler
Charlie Jack +44 (0)207 796 4133
Public Relations
_______________________________________________________________________________________
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.
CHIEF EXECUTIVE OFFICER'S STATEMENT
2015 has already proved to be both an exciting and challenging year for Hochschild. We have achieved first production from our flagship Inmaculada project whilst managing the existing business in an ongoing deteriorating commodity price environment. The financial position of the company is expected to improve through the second half as we reach full capacity at Inmaculada and begin to benefit from the new low cost production.
Growth
The Company made excellent progress in the first half on the final stages of construction at Inmaculada with the result that we were able to start the commissioning of the processing plant and deliver first production in early June. The subsequent ramp-up has progressed well with mining operations running smoothly and grades and recoveries in line with or better than expectations and we are now close to being able to declare commercial production. A number of non-essential deliverables, such as the paste backfill plant, remain to be completed but we are confident that, with approximately 1.8 million silver equivalent ounces produced to date, the operation is on track to deliver its six to seven million silver equivalent ounce target for the year. We also remain excited by the geological potential in the district surrounding our Inmaculada and Pallancata land packages and expect to continue exploration work in 2016 alongside similar programmes at Arcata and San Jose.
H1 2015 performance
Our current operations have delivered a solid first half despite the implementation of revised mine plans at both Peruvian operations, producing 9.2 million attributable silver equivalent ounces. So far in 2015, Arcata and San Jose have exceeded our expectations whilst Pallancata's performance has reflected the long-term move to thinner veins in addition to the delay in brownfield drilling at the mine. However, I am happy to report that early results from the recent resumption of drilling are extremely encouraging for the long term future of the operation. We remain on track to meet our annual production forecast of 24 million silver equivalent ounces with production in the second half expected to be boosted by between six to seven million ounces from Inmaculada.
Our financial results for the first half reflected the effects of a further 18% fall in the average silver price received versus the first half of 2014, our mine plan optimisation in Peru, our ongoing efforts to reduce costs and the final phase of our Inmaculada investment programme. Main operation all-in sustaining costs per silver equivalent ounce were in line with expectations at $15.0 and we can look forward to the increasing positive impact of low cost production from Inmaculada in the second half. Pre-exceptional EBITDA was $39.3 million whilst the first half loss per share resulted partly from interest costs arising from our $350 million senior notes issued in January 2014. We fully expect those costs to begin to be absorbed as cashflows from Inmaculada start to be generated. The cash balance at the end of the half was at $84 million which is net of $63 million of scheduled project capital expenditure executed during the period.
Financing
During the first half, Hochschild continued to allocate capital expenditure to complete Inmaculada. Early in the year, we further enhanced our liquidity with the drawdown of $75 million of short term lines of credit in Peru and towards the end of the half we were able to extend the maturity of these facilities as well as improve the interest rate to an average annual rate of approximately 0.9%. Furthermore, we took advantage of short periods of price improvement at the start of the year to hedge six million silver ounces for 2015 at $17.75 per ounce on top of the 38,000 gold ounces hedged at $1,300 per ounce, thereby continuing our policy of protecting cashflows during the Inmaculada construction.
Outlook
Production for the second half of 2015 is scheduled to include the first material contribution from Inmaculada and a stronger contribution from San Jose, with all-in sustaining cost expected to meet guidance of between $13 to $14 per silver equivalent ounce (or between $15 to $16 using the 60:1 gold to silver ratio).
The current market environment for precious metals remains uncertain but I am confident in a more positive outlook for Hochschild in the second half of this year and into 2016. We can look forward to the establishment of Inmaculada as a significant cash generating asset for the Company and thus becoming our new flagship operation.
Ignacio Bustamante
Chief Executive Officer
18 August 2015
OPERATING REVIEW
CURRENT OPERATIONS
Production
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2015 02:01 ET (06:01 GMT)
In the first half of 2015, the Company delivered attributable production of 9.2 million silver equivalent ounces, including 6.3 million ounces of silver and 40.6 thousand ounces of gold. With production from the newly commissioned Inmaculada mine ramping up, the Company is on track to meet its full year production target of 24.0 million attributable silver equivalent ounces.[6]
Costs
The Company's all-in sustaining costs at its main operations were reduced by 9% in H1 2015 to $15.0 per ounce driven by operational initiatives resulting from the cashflow optimisation programme, the ongoing local currency devaluation and better than expected grades particularly at Arcata.[7] Unit cost per tonne at the main Peruvian operations was at $106.5 (H1 2014: $74.0) with the key reason for the increase being the significant reduction in capacities at both mines as part of the Company's mine plan optimization announced in November 2014. In Argentina, unit cost per tonne increased by 10% to $219.5 (H1 2014: $200.0).
Main operations: Arcata (Peru)
The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.
Arcata summary Six months Six months % change to 30 June to 30 June 2015 2014 ------------------------------- ------------ ------------ --------- Ore production (tonnes) 300,924 365,573 (18) Average silver grade (g/t) 340 262 30 Average gold grade (g/t) 0.97 0.81 20 Silver produced (koz) 2,726 2,895 (6) Gold produced (koz) 7.17 8.76 (18) Silver equivalent produced (koz) 3,248 3,459 (6) Silver sold (koz) 2,683 2,947 (9) Gold sold (koz) 6.92 8.58 (19) Unit cost ($/t) 113.2 82.2 38 Total cash cost ($/oz Ag co-product)([8]) 11.5 12.5 (8) All-in sustaining cost ($/oz) 13.6 17.7 (23) ------------------------------- ------------ ------------ ---------
Production
At Arcata, total silver equivalent production in H1 2015 was 3.2 million ounces (H1 2014: 3.5 million ounces). Despite the announced adjusted mine plans for 2015 to ensure the extraction of profitable ounces, Arcata delivered a stronger than expected first half production with higher than expected tonnage and silver grades.
Costs
In the first half, the unit cost at Arcata of $113.2 per tonne (H1 2014: $82.2 per tonne) reflected the reduction in capacity as part of the above-mentioned mine plan adjustment. However, with corresponding grade increases and ongoing reductions in sustaining and development capital expenditure, all-in sustaining costs fell by 23% to $13.6 per silver equivalent ounce (H1 2014: $17.7 per ounce).
Brownfield exploration
In the first half, the Arcata exploration programme has focused on the incorporation of resources from the Stephani, Cristina, Soledad, Macarena and Nicolle as well as further exploration of the Tunel 4 vein system. 5,026 metres of drilling were executed. Significant intercepts included:
Vein Results ------------ ------------------------------------- North-South DDH027-LM11: 2.12m at 0.43 g/t Au & 719 g/t Ag DDH768-LM14: 1.27m at 2.46 g/t Au & 549 g/t Ag DDH802-GE15: 1.58m at 0.56 g/t Au & 659 g/t Ag DDH990-GE11: 0.82m at 0.15 g/t Au & 1,667 g/t Ag ------------ ------------------------------------- Lucero DDH777-LM15: 1.35m at 1.35 g/t Au & 593 g/t Ag DDH792-GE15: 1.01m at 1.85 g/t Au & 395 g/t Ag DDH800-LM15: 0.97m at 1.49 g/t Au & 533 g/t Ag ------------ ------------------------------------- DDH800-LM15: 1.00m at 4.05 g/t Au & Soledad 1,015 g/t Ag ------------ -------------------------------------
Pallancata: Peru
The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.
Pallancata summary Six months Six months % change to 30 June to 30 June 2015 2014 ------------------------------- ------------ ------------ --------- Ore production (tonnes) 289,551 523,695 (45) Average silver grade (g/t) 248 264 (6) Average gold grade (g/t) 1.19 1.12 6 Silver produced (koz) 1,948 3,588 (46) Gold produced (koz) 8.44 12.84 (34) Silver equivalent produced (koz) 2,563 4,415 (42) Silver sold (koz) 1,986 3,615 (45) Gold sold (koz) 8.33 13.11 (36) Unit cost ($/t) 99.5 68.1 46 Total cash cost ($/oz Ag co-product) 12.3 10.1 22 All-in sustaining cost ($/oz) 15.6 15.1 3 ------------------------------- ------------ ------------ ---------
Production
At Pallancata, total production for the first half was 2.6 million silver equivalent ounces. (H1 2014: 4.4 million ounces) with tonnage significantly lower than the equivalent period in 2014 due to the adjusted mine plan resulting in an approximate halving of capacity although silver and gold grades have risen to compensate and are expected to remain at current levels for the remainder of the year.
Costs
Cost per tonne at Pallancata was $99.5 per tonne in the first half (H1 2014: $68.1 per tonne). As at Arcata, unit costs increased in line with the scheduled capacity reductions and although grade increases and sustaining capital expenditure cuts partially compensated, all-in sustaining cost per silver equivalent ounce increased slightly to $15.6 (H1 2014: $15.1) mostly due to the mine's ongoing transfer to thinner veins in the mix. The Company continues to target further cost reduction programmes at the operation.
Brownfield exploration
The exploration team at Pallancata received permits in May to begin a 19,100 metre exploration and drilling programme with the aim of focusing on inferred resource exploration at surface and also geological mapping of the west and south side of the district for new target definition. Results are expected in the second half of the year.
San Jose: Argentina
The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires. San Jose commenced production in 2007 and is a joint venture with McEwen Mining Inc (formerly Minera Andes Inc.). Hochschild holds a controlling interest of 51% in the mine and is the mine operator.
San Jose summary(*) Six months Six months % change to 30 June to 30 June 2015 2014 ------------------------------- ------------ ------------ --------- Ore production (tonnes) 232,995 276,663 (16) Average silver grade (g/t) 448 385 16 Average gold grade (g/t) 6.34 5.60 13 Silver produced (koz) 2,932 2,975 (1) Gold produced (koz) 42.30 43.91 (4) Silver equivalent produced (koz) 6,012 5,803 (4) Silver sold (koz) 3,115 3,004 4 Gold sold (koz) 42.75 43.25 (1) Unit cost ($/t) 219.5 200.0 10 Total cash cost ($/oz Ag co-product) 11.5 12.9 (11) All-in sustaining cost ($/oz) 15.6 16.7 (7) ------------------------------- ------------ ------------ ---------
(*) The Company has a 51% interest in San Jose
Production
The San Jose operation improved, as expected, from its seasonally shorter first quarter to deliver 6.0 million silver equivalent ounces (H1 2014: 5.8 million ounces) with both grades and recoveries particularly strong versus the same period of 2014, offsetting the slightly reduced tonnage in the half. San Jose is expected to deliver a stronger second half with tonnage expected to peak in the fourth quarter.
Costs
At San Jose, unit cost per tonne was $219.5 in the first half (H1 2014:$200.0). Tonnage decreased versus the same period of 2014 and this was only partially offset by the effect of the Company's ongoing optimisation plan and the moderate devaluation of the Argentinian peso. All-in sustaining costs were reduced by 7% versus the same period of 2014 with cash optimisation initiatives helping to reduce sustaining capital expenditure in addition to better grades. The Company continues to target further cost reduction programmes at San Jose.
PROJECT REVIEW
Inmaculada (Peru)
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2015 02:01 ET (06:01 GMT)
The 100% owned Inmaculada underground operation is located in the Department of Ayacucho in southern Peru. It commenced production in June 2015.
Inmaculada summary Six months Six months % change to 30 June to 30 June 2015 2014 ------------------------------ ------------- ------------ --------- Ore production (tonnes) 52,325 - - Average silver grade (g/t) 89 - - Average gold grade (g/t) 2.92 - - Silver produced (koz) 95.45 - - Gold produced (koz) 3.42 - - Silver equivalent produced 344 - - (koz) Silver sold (koz) - - - Gold sold (koz) - - - Unit cost ($/t) - - - Total cash cost ($/oz Ag - - - co-product)([9]) All-in sustaining cost ($/oz) - - - ------------------------------ ------------- ------------ ---------
During the first half, plant construction continued with first dore production achieved on 3 June 2015. By the end of June, as part of the ramp-up phase to achieve full commercial design capacity, 52,325 tonnes of low grade development material had been treated at the plant producing approximately 3,420 ounces of gold and 95,450 ounces of silver.
Ramp-up in mill throughput has continued throughout July and August with tonnes per day reaching an average of 3,000 tonnes per day and expected to hit the forecast capacity of 3,500 tonnes per day at the end of August whilst gold and silver recoveries have now slightly exceeded expectations with the target of reaching 95% in gold and 90% in silver by the end of the year.
The Hochschild team has continued underground mine development and currently a stockpile of approximately 270,000 tonnes is available for processing whilst stope mining activities have commenced utilising long hole and breasting methods. The Company reiterates that the overall production forecast of 6-7 million silver equivalent ounces for 2015 remains in place and that it is on course to receive its plant operating permit which will allow the Company to begin commercial sales.
Construction of the paste backfill plant has reached 65%, with work on the laboratories, warehouses and workshops now complete.
The Company and the contractor are currently in discussions over a number of contract change orders presented by the contractor relating to the completion of the EPC contract for Inmaculada. Based on Hochschild's own evaluation work and advice received from external advisers, the Company believes that the majority of the change orders are without any merit or will be subject to significant downward adjustment. In addition, the Company believes that GyM has breached a number of terms of the EPC Contract, including failing to meet the Completion Date. Hochschild continues to assess the change orders and discussions with the contractor are ongoing.
The exploration focus near the Inmaculada mine remains on the Palca area to the North East and following a mapping programme in 2014 at the Palca 1 zone, six promising vein structures have been selected amongst others in a corridor of almost five kilometres with work at Palca 2 zone starting later on in the year.
FINANCIAL REVIEW
Key performance indicators
(before exceptional items, unless otherwise indicated)
$000 unless otherwise indicated Six months to 30 June 2015 Six months 30 June 2014 % change ---------------------------------------------------- --------------------------- ------------------------ --------- Net Revenue[10] 190,259 282,012 (33) Attributable silver production (koz) 6,265 8,526 (27) Attributable gold production (koz) 41 55 (25) Main operation cash costs ($/oz Ag co-product)[11] 11.8 11.8 - Main operation cash costs ($/oz Au co-product) 872 803 9 Total all-in sustaining costs ($/oz)[12] 16.2 17.1 (5) Main operation all-in sustaining costs ($/oz) 15.0 16.4 (9) Adjusted EBITDA[13] 39,306 94,282 (58) (Loss)/profit from continuing operations (pre-exceptional) (37,750) (1,546) (2,342) (Loss)/profit from continuing operations (post exceptional) (43,885) (11,749) (274) Earnings per share (pre exceptional) (0.10) (0.01) (900) Earnings per share (post exceptional) (0.12) (0.04) (200) Cash flow from operating activities[14] 18,320 44,159 (59) ---------------------------------------------------- --------------------------- ------------------------ ---------
The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior periods.
Revenue
Gross revenue
Gross revenue from continuing operations decreased 34% to $202.5 million in H1 2015 (H1 2014: $308.1 million) driven by lower production arising from the Company's optimised mine plans at its Peruvian operations and another substantial fall in precious metal prices.
Silver
Gross revenue from silver decreased 37% in H1 2015 to $131.3 million (H1 2014: $206.8 million) as a result of a 18% fall in the average price received as well as a 23% decrease in the total amount of silver ounces sold to 7,785 koz (H1 2014:10,086 koz).
Gold
Gross revenue from gold decreased 30% in H1 2015 to $71.2 million (H1 2014: $101.3 million) as a result of a 8% fall in the average price received although mostly due to a 24% decline in gold sales - the total amount of gold ounces sold in H1 2015 was 58.0 koz (H1 2014: 76.3 koz).
Gross average realised sales prices
The following table provides figures for average realised prices and ounces sold for H1 2015 and H1 2014:
Average realised prices Six months to Six months to 30 June 2015 30 June 2014 ----------------------------------- -------------- -------------- Silver ounces sold (koz) 7,785 10,086 Avg. realised silver price ($/oz) 16.9 20.5 Gold ounces sold (koz) 58.01 76.29 Avg. realised gold price ($/oz) 1,227 1,328 ----------------------------------- -------------- --------------
Commercial discounts
Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In H1 2015, the Group recorded commercial discounts of $12.3 million (H1 2014: $26.2 million). This decrease is explained by the reduction in sales of concentrate versus the same period of last year due to lower production and the higher proportion of dore produced at Arcata versus concentrate. The ratio of commercial discounts to gross revenue in 2014 decreased to 6% (H1 2014: 9%).
Net revenue
Net revenue decreased by 33% to $190.3 million (H1 2014: $282.0 million), comprising silver revenue of $122.5 million and gold revenue of $67.7 million. In H1 2015 silver accounted for 64% and gold 36% of the Company's consolidated net revenue compared to 66% and 34% respectively in H1 2014.
Revenue by mine
$000 unless otherwise indicated Six months to 30 June 2015 Six months to 30 June 2014 % change --------------------------------- --------------------------- --------------------------- --------- Silver revenue Arcata 45,901 60,273 (24) Ares - 10,420 - Pallancata 34,200 75,154 (54) San Jose 51,186 60,930 (16) Moris - 30 - Commercial discounts (8,829) (20,634) (57) Net silver revenue 122,458 186,173 (34) Gold revenue Arcata 9,018 11,308 (20) Ares - 14,391 -
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2015 02:01 ET (06:01 GMT)
Pallancata 10,990 17,555 (37) San Jose 51,177 57,629 (11) Moris - 441 - Commercial discounts (3,509) (5,517) 36 Net gold revenue 67,676 95,807 (29) --------------------------------- --------------------------- --------------------------- --------- Other revenue[15] 125 32 291 --------------------------------- --------------------------- --------------------------- --------- Net revenue 190,259 282,012 (33) --------------------------------- --------------------------- --------------------------- ---------
Costs
Total pre-exceptional cost of sales decreased 17% to $174.5 million in H1 2015 (H1 2014: $209.4 million). The direct production cost decreased by 13% to $114.2 million (H1 2014: $131.3 million) mainly due to lower tonnage treated and the impact of the mine plan revisions. Depreciation was $55.5 million (H1 2014: $58.9 million) with the decrease mainly due to lower tonnage and the lower cost of the conversion of resources into reserves. Other items, which principally includes the costs associated with a ten day work stoppage in Argentina, was $4.9 million (H1 2014: $3.0 million).
$000 Six months Six months % Change to 30 June to 30 June 2015 2014 ---------------------------------- ------------ ------------ --------- Direct production cost excluding depreciation 114,236 131,276 (13) Depreciation in production cost 55,486 58,856 (6) Other items 4,928 2,978 65 Change in inventories (157) 16,311 (101) ---------------------------------- ------------ ------------ --------- Pre-exceptional cost of sales 174,493 209,421 (17) ---------------------------------- ------------ ------------ ---------
Unit cost per tonne
The Company reported unit cost per tonne at its main operations of $138.3 in H1 2015 versus $102.8 in H1 2014. For further explanation on the increase in unit cost per tonne please refer to the Operating Review.
Unit cost per tonne by operation (including royalties)[16]:
Operating unit ($/tonne) Six months Six months % change to 30 June to 30 June 2015 2014 -------------------------- ------------ ------------ --------- Main operations 138.3 102.8 35 Peru 106.5 74.0 44 Arcata 113.2 82.2 38 Pallancata 99.5 68.1 46 -------------------------- ------------ ------------ --------- Argentina San Jose 219.5 200.0 10 -------------------------- ------------ ------------ --------- Others Ares - 117.8 - -------------------------- ------------ ------------ --------- Total 138.3 104.6 32 -------------------------- ------------ ------------ ---------
Cash costs
Cash cost reconciliation[17]:
$000 unless otherwise indicated Six months Six months % change to 30 June to 30 June 2015 2014 ----------------------------------- ------------ ------------ ---------------------------- Group cash cost 142,157 187,672 (24) ----------------------------------- ------------ ------------ ---------------------------- (+) Cost of sales 174,493 209,421 (17) (-) Depreciation and amortisation in cost of sales (56,536) (62,761) (10) (+) Selling expenses 11,600 14,536 (20) (+) Commercial deductions 12,600 26,476 (52) Gold 3,519 5,529 (36) Silver 9,081 20,947 (57) ----------------------------------- ------------ ------------ ---------------------------- Revenue 190,259 282,012 (33) ----------------------------------- ------------ ------------ ---------------------------- Gold 122,458 95,807 28 Silver 67,676 186,173 (64) Others 125 32 291 ----------------------------------- ------------ ------------ ---------------------------- Ounces sold ----------------------------------- ------------ ------------ ---------------------------- Gold 58.0 76.3 (24) Silver 7,785 10,086 (23) ----------------------------------- ------------ ------------ ---------------------------- Group cash cost ($/oz) ----------------------------------- ------------ ------------ ---------------------------- Co product Au 872 836 8 Co product Ag 11.8 12.3 (4) By product Au 181 (255) 171 By product Ag 9.1 8.6 6 ----------------------------------- ------------ ------------ ----------------------------
Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.
All-in sustaining cost reconciliation
All-in sustaining cash costs per silver equivalent ounce([18])
Six months to 30 June 2015
$000 unless otherwise indicated Arcata Pallancata San José Main Operations Other Corporate Total Operations & Others --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- (+) Production cost excluding depreciation[19] 33,629 27,186 49,559 110,374 - - 110,374 (+) Other items in cost of sales 1,058 595 3,275 4,928 - - 4,928 (+) Operating and exploration capex for units 5,283 5,010 19,968 30,261 - 1,199 31,460 (+) Brownfield exploration expenses 37 1,183 555 1,775 - 1,180 2,955 (+) Administrative expenses (excl depreciation and before exceptional items) 1,616 1,265 3,439 6,320 - 11,642 17,962 (+) Royalties 373 373 - 373 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-Total 41,623 35,612 76,796 154,031 - 14,021 168,052 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Au Ounces produced 7,168 8,443 42,300 57,911 57,911 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ag Ounces produced (000's) 2,726 1,948 2,932 7,606 - - 7,606 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ounces produced (Ag Eq 000's) 3,248 2,563 6,012 11,823 - - 11,823 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-total ($/oz) 12.8 13.9 12.8 13.0 - - 14.2 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- (+) Commercial deductions 1,974 3,750 6,876 12,600 - - 12,600 (+) Selling expenses 475 544 10,581 11,600 - - 11,600 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- -------
(MORE TO FOLLOW) Dow Jones Newswires
August 19, 2015 02:01 ET (06:01 GMT)
Sub-total 2,449 4,294 17,457 24,200 - - 24,200 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Au Ounces sold 6,921 8,333 42,754 58,008 - - 58,008 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ag Ounces sold (000's) 2,683 1,986 3,115 7,785 - - 7,785 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ounces sold (Ag Eq 000's) 3,187 2,592 6,228 12,008 - - 12,008 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-total ($/oz) 0.8 1.7 2.8 2.0 - - 2.0 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- All-in sustaining costs ($/oz Ag Eq) 13.6 15.6 15.6 15.0 - - 16.2 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- -------
All-in sustaining costs using the gold to silver ratio of 60:1 gives a total cost of $17.3 per ounce and main operations cost of $16.0 per ounce (Arcata at $14.0 per once, Pallancata at $16.2 per ounce and San Jose at $17.1 per ounce).
Six months to 30 June 2014
$000 unless otherwise indicated Arcata Pallancata San José Main Operations Other Corporate Total Operations & Others --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- (+) Production cost excluding depreciation 29,059 34,779 49,838 113,676 17,600 - 131,276 (+) Other items in cost of sales 992 647 656 2,295 683 - 2,978 (+) Operating and exploration capex for units 18,164 17,859 20,926 56,949 (5) 431 57,375 (+) Brownfield exploration expenses 214 629 91 934 (61) 688 1,561 (+) Administrative expenses (excl depreciation and before exceptional items) 2,144 2,947 4,063 9,154 166 10,709 20,029 (+) Royalties 897 897 262 - 1,159 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-Total 50,573 57,758 75,574 183,905 18,645 11,828 214,379 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Au Ounces produced 8,755 12,840 43,912 65,507 11,465 - 76,972 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ag Ounces produced (000's) 2,895 3,588 2,975 9,458 525 - 9,983 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ounces produced (Ag Eq 000's) 3,459 4,415 5,803 13,676 1,264 - 14,940 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-total ($/oz) 14.6 13.1 13.0 13.4 14.8 - 14.3 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- (+) Commercial deductions 9,846 7,872 8,758 26,476 - - 26,476 (+) Selling expenses 1,054 977 12,461 14,492 44 - 14,536 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-total 10,900 8,849 21,219 40,968 44 - 41,012 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Au Ounces sold 8,576 13,112 43,252 64,940 11,354 - 76,294 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ag Ounces sold (000's) 2,947 3,615 3,004 9,566 519 - 10,086 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Ounces sold (Ag Eq 000's) 3,499 4,460 5,789 13,748 1,251 - 14,998 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- Sub-total ($/oz) 3.1 2.0 3.7 3.0 0.0 - 2.7 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- ------- All-in sustaining costs ($/oz Ag Eq) 17.7 15.1 16.7 16.4 14.8 - 17.1 --------------------------------- ------ ---------- ------------- --------------- ----------- --------- -------
Administrative expenses
Administrative expenses before exceptional items decreased by 12% to $18.8 million (H1 2014: $21.4 million) primarily due to the continuing impact of the cashflow optimisation programme.
Exploration expenses
In H1 2015, pre-exceptional exploration expenses, decreased by 50% to $4.1 million (H1 2014: $8.2 million).
In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. The Company capitalised $0.7 million relating to brownfield exploration compared to $1.2 million in H1 2014, bringing the total investment in exploration for H1 2015 to $4.8 million (H1 2014: $9.4 million). In addition, $0.8 million was invested in the Company's Advanced and Growth Projects.
Selling expenses
Selling expenses fell by 20% in H1 2015 to $11.6 million (H1 2014: $14.5 million) due to lower prices impacting the export tax in Argentina. Selling expenses mainly consist of export duties at San Jose (export duties in Argentina are levied at 10% of revenue for concentrate and 5% of revenue for dore) and logistic costs for the sale of concentrate.
Other income/expenses
Other income before exceptional items was $2.6 million (H1 2014: $2.0 million). Other expenses before exceptional items reached $4.6 million (H1 2014: $4.8 million) mainly due to care and maintenance expenses at Ares.
Adjusted EBITDA
Adjusted EBITDA decreased by 58% over the period to $39.3 million (H1 2014: $94.3 million) driven primarily by significantly precious metal prices as well as the decision to reduce capacity at the Peruvian operations as part of the Company's optimised mine plans for 2015. These effects were partially offset by the continuing impact of the cash optimisation initiatives.
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 Six months to 30 June 2015 Six months to 30 June 2014 % change ------------------------------------------------- --------------------------- --------------------------- --------- Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax (20,707) 25,738 (180) Operating margin (11)% 9% - Depreciation and amortisation in cost of sales 56,536 62,761 (10) Depreciation and amortisation in administrative expenses 817 1,324 (38) Exploration expenses 4,092 8,175 (50) Personnel and other exploration related fixed expenses (1,432) (3,716) (61) Other non cash expenses[20] - - - ------------------------------------------------- --------------------------- --------------------------- --------- Adjusted EBITDA 39,306 94,282 (58) ------------------------------------------------- --------------------------- --------------------------- --------- Adjusted EBITDA margin 21% 33%
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------------------------------------------------- --------------------------- --------------------------- ---------
Finance income
Finance income before exceptional items of $0.6 million reduced from H1 2014 ($1.8 million) mainly due to lower interest received on deposits and liquidity funds ($0.6 million) and the absence of dividends received from the investment in Gold Resource Corporation ($0.5 million).
Finance costs
Finance costs before exceptional items decreased from $18.1 million in H1 2014 to $14.6 million in the first half of 2015, principally due to the repayment of the Company's convertible bond in October 2014 and the resulting reduction in interest paid.
Foreign exchange losses
The Group recognised a foreign exchange loss of $1.2 million (H1 2014: $0.3 million loss) as a result of exposure in currencies other than the functional currency, principally the Peruvian Nuevo Sol and Argentinean Peso, which depreciated 5% and 8% respectively in the period against the US Dollar.
Income tax
The Company's pre-exceptional income tax expense was $1.8 million (H1 2014: $10.7 million). The reduction in the expense is mainly explained by the higher pre-exceptional loss before income tax of $(36.0) million (H1 2014: $9.1 million).
Exceptional items
Exceptional items in H1 2015 totalled $(6.1) million after tax (H1 2014: $10.2 million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $1.3 million (H1 2014: $2.3 million).
Exceptional items in H1 2015 comprise the following items:
H1 2015 negative exceptional items:
Main items $000 Description of main items ------------------------------------------------------- -------- ----------------------------------------------- Impairment and write-off of non-financial assets (net) (5,917) Impairment of the Crespo unit of $5.9 million. Finance cost (1,486) Interest on tax contingency ------------------------------------------------------- -------- -----------------------------------------------
Cash flow & balance sheet review
Cash flow:
$000 unless otherwise Six months to Six months to Change indicated 30 June 2015 30 June 2014 ------------------------------- -------------- -------------- --------- Net cash generated from operating activities 18,320 44,159 (25,839) Net cash used in investing activities (119,212) (127,049) 7,837 Cash flows generated/(used) in financing activities 70,215 27,374 42,841 ------------------------------- -------------- -------------- --------- Net (decrease)/increase in cash and cash equivalents during the period (30,677) (55,516) 24,839 ------------------------------- -------------- -------------- ---------
Operating cash flow decreased from $44.2 million in H1 2014 to $18.3 million in H1 2015, mainly due to lower prices. Net cash used in investing activities decreased to $(119.2) million in H1 2015 from $(127.0) million in H1 2014 due to reduced sustaining capex at all operations, partially offset by higher construction capex at Inmacualda. Finally, cash generated from financing activities increased to $70.2 million from $27.4 million in H1 2014, primarily as a result of the proceeds from the short term debt raised in Peru ($75 million). As a result, total cash generated improved from $(55.5) million in H1 2014 to $(30.7) million in H1 2015 ($24.8 million difference).
Working capital
$000 unless otherwise indicated As at 30 June 2015 As at 30 June 2014 -------------------------------------------- ------------------- -------------------------------- Trade and other receivables 161,903 194,265 Inventories 59,570 54,135 Net other financial assets / (liabilities) 7,511 5,207 Net income tax receivable / (payable) 21,921 21,514 Trade and other payables and provisions (217,466) (181,641) -------------------------------------------- ------------------- -------------------------------- Working Capital 33,439 93,480 -------------------------------------------- ------------------- --------------------------------
The Group's working capital position decreased to $33.4 million in H1 2015 from $93.5 million in H1 2014. This was primarily explained by: lower trade and other receivables ($(32.4) million) due to higher dore sales at Arcata and lower prices; and by higher trade and other payables and provisions ($(35.8) million, in line with improved payment terms obtained from vendors.
Net cash
$000 unless otherwise indicated As at 30 June 2015 As at 30 June 2014 --------------------------------- ------------------- -------------- Cash and cash equivalents 84,316 225,550 Long term borrowings (442,898) (343,174) Short term borrowings[21] (97,053) (137,678) --------------------------------- ------------------- -------------- Net cash/(debt) (455,635) (255,302) --------------------------------- ------------------- --------------
The Group reported net cash position was $(455.6) million as at 30 June 2015 (2014: $(255.3) million). The change was mainly driven by cash used to build the Inmaculada Project including construction capex and working capital allocated to the project.
Capital expenditure([22])
$000 unless otherwise indicated Six months to 30 June Six months 2015 to 30 June 2014 --------------------------------- ---------------------- ------------ Arcata 5,283 18,164 Ares - (5) Selene 130 156 Pallancata 4,880 17,703 San Jose 19,968 20,926 Operations 30,261 56,944 --------------------------------- ---------------------- ------------ Inmaculada 98,978 75,595 Crespo 1,012 2,467 Volcan 565 972 Azuca 137 578 Other 1,199 431 --------------------------------- ---------------------- ------------ Total 132,152 136,987 --------------------------------- ---------------------- ------------
H1 2015 capital expenditure of $132.2 million (H1 2014: $137.0 million) mainly composed of operational capex of $30.3 million and Inmaculada capital expenditure of $99.0 million.
RISKS
The principal risks and uncertainties facing the Company in respect of the year ended 31 December 2014 are set out in detail in the Risk Management section of the 2014 Annual Report and in Note 38 to the 2014 Consolidated Financial Statements.
The key risks disclosed in the 2014 Annual Report (available at www.hochschildmining.com) are categorised as:
o Financial risks which include commodity price risk and counterparty credit risk;
o Operational risks including the risks associated with operational performance, delivery of projects, business interruption, exploration & reserve and resource replacement and personnel;
o Macro-economic risks which include political, legal and regulatory risks; and
o Sustainability risks including risks associated with health and safety, environmental and community relations.
These risks continue to apply to the Company in respect of the remaining six months of the financial year.
In terms of the changes in the profile of these risks, the Board recognises the heightened level of financial risk that results from the combination of (i) a deteriorating precious metals pricing environment and (ii) the Company's commitments which include the financing of the Group's debt and the capital demands of the Inmaculada project as it ramps up to full capacity. In addition, such a pricing environment reduces the comfort gap between the current level of indebtedness and the limits established in the debt covenants.
The Company's risk management strategy overseen by the Board has prompted a number of actions taken by management to mitigate this risk which primarily include:
o an ongoing focus on managing costs following the implementation of the Cash Optimisation Plan; and
o the renewal of short-term credit lines, which will provide the Company with further financial flexibility.
The Board expects that the Group's financial position will improve significantly as production at Inmaculada increases as it achieves full capacity which, in addition to increasing the Group's total production, will also increase margins given its lower costs of production relative to the Group's other mines.
GOING CONCERN
The Company's business activities, together with the factors likely to affect future development, performance and position are set out in the Operating Review and Project Review on pages 4 to 7. The financial position of the Company, its cash flow and liquidity position are described in the Financial Review on pages 8 to16.
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The Directors believe that the financial resources available at the date of the issue of these condensed interim financial statements are sufficient for the Company to manage its business risks successfully.
The Company's forecasts and projections, taking into account reasonably possible changes in operational performance and in particular the price of gold and silver, and other mitigating actions described in the Risks section above, show that there are reasonable expectations that the Company will be able to operate on funds currently held and those generated internally, for the foreseeable future.
After making enquiries and considering the above, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate. As a result they continue to adopt the going concern basis of accounting in preparing the condensed interim financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that, to the best of their knowledge, the interim condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7 and 4.2.8.
A list of current Directors and their functions is maintained on the Company's website.
For and on behalf of the Board
Ignacio Bustamante
Chief Executive Officer
18 August 2015
INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC
Introduction
We have been engaged by Hochschild Mining plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 which comprises the Interim condensed consolidated income statement, the Interim condensed consolidated statement of comprehensive income, the Interim condensed consolidated statement of financial position, the Interim condensed consolidated statement of cash flows, the Interim condensed consolidated statement of changes in equity and the related notes 1 to 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
18 August 2015
Interim condensed consolidated income statement
Six-months ended Six-months ended Notes 30 June 2015 (Unaudited) 30 June 2014 (Unaudited) ----- ------------------------------------ ----------------------------------- Exceptional Exceptional Before items Before items exceptional (Note exceptional (Note items 6) Total items 6) Total US$000 US$000 US$000 US$000 US$000 US$000 ----------- ----------- --------- ----------- ----------- --------- Continuing operations Revenue 4 190,259 - 190,259 282,012 - 282,012 Cost of sales 5 (174,493) - (174,493) (209,421) (3,511) (212,932) ----------- ----------- --------- ----------- ----------- --------- Gross profit 15,766 - 15,766 72,591 (3,511) 69,080 Administrative expenses (18,779) - (18,779) (21,355) (868) (22,223) Exploration expenses (4,092) - (4,092) (8,175) (537) (8,712) Selling expenses (11,600) - (11,600) (14,536) - (14,536) Other income 2,602 - 2,602 2,030 - 2,030 Other expenses (4,604) - (4,604) (4,817) (2,963) (7,780) Impairment and write-off of non-financial assets (net) - (5,917) (5,917) - (476) (476) (Loss)/profit from continuing operations before net finance income/(cost), foreign exchange loss and income tax (20,707) (5,917) (26,624) 25,738 (8,355) 17,383 Finance income 7 581 - 581 1,813 - 1,813 Finance costs 7 (14,636) (1,486) (16,122) (18,087) (4,189) (22,276) Foreign exchange loss (1,211) - (1,211) (335) - (335) ----------- ----------- --------- ----------- ----------- --------- (Loss)/profit from continuing operations before income tax (35,973) (7,403) (43,376) 9,129 (12,544) (3,415) Income tax (expense)/benefit 8 (1,777) 1,268 (509) (10,675) 2,341 (8,334) ----------- ----------- --------- ----------- ----------- --------- Loss for the period from continuing operations (37,750) (6,135) (43,885) (1,546) (10,203) (11,749) Attributable to: Equity shareholders of the Company (38,341) (6,135) (44,476) (2,469) (10,161) (12,630) Non-controlling interests 591 - 591 923 (42) 881 ----------- ----------- --------- ----------- ----------- --------- (37,750) (6,135) (43,885) (1,546) (10,203) (11,749) =========== =========== ========= =========== =========== ========= Basic and diluted earnings per ordinary share from continuing operations and for the period (expressed in U.S. dollars per share) (0.10) (0.02) (0.12) (0.01) (0.03) (0.04) =========== =========== ========= =========== =========== =========
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Interim condensed consolidated statement of comprehensive income
Six-months ended 30 June ---------------------------------- 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Loss for the period (43,885) (11,749) Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences on translating foreign operations (309) (79) Change in fair value of available-for-sale financial assets 201 2,538 Recycling of the loss on available-for-sale financial assets (1) 934 Change in fair value of cash flow hedges 9,509 4,294 Recycling of the gain on cash flow hedges (4,991) (2,189) Deferred income tax relating to components of other comprehensive income (1,266) (631) ---------------- ---------------- Other comprehensive gain for the period, net of tax 3,143 4,867 ---------------- ---------------- Total comprehensive expense for the period (40,742) (6,882) ---------------- ---------------- Total comprehensive (expense)/income attributable to: Equity shareholders of the Company (41,333) (7,763) Non-controlling interests 591 881 ---------------- ---------------- (40,742) (6,882) ================ ================
Interim condensed consolidated statement of financial position
As at 30 As at 31 June December 2015 2014 (Unaudited) Notes US$000 US$000 ----- ------------- ---------- ASSETS Non-current assets Property, plant and equipment 9 1,136,541 1,076,310 Evaluation and exploration assets 10 208,286 207,290 Intangible assets 10 41,860 42,815 Available-for-sale financial assets 653 455 Trade and other receivables 5,897 6,488 Deferred income tax assets 896 1,574 1,394,133 1,334,932 ------------- ---------- Current assets Inventories 59,570 58,417 Trade and other receivables 156,006 167,038 Income tax receivable 22,155 25,584 Other financial assets 11 9,052 4,342 Cash and cash equivalents 13 84,316 115,999 ------------- ---------- 331,099 371,380 ------------- ---------- Total assets 1,725,232 1,706,312 ============= ========== EQUITY AND LIABILITIES Capital and reserves attributable to shareholders of the Parent Equity share capital 15 170,609 170,389 Share premium 15 396,021 396,021 Treasury shares (898) (898) Other reserves (214,073) (217,335) Retained earnings 408,227 451,047 ------------- ---------- 759,886 799,224 Non-controlling interests 95,751 95,160 Total equity 855,637 894,384 ------------- ---------- Non-current liabilities Trade and other payables 81 92 Borrowings 14 442,898 440,834 Provisions 107,163 111,751 Deferred income 25,000 25,000 Deferred income tax liabilities 85,403 84,959 ------------- ---------- 660,545 662,636 ------------- ---------- Current liabilities Trade and other payables 102,642 111,890 Other financial liabilities 11 1,541 1,533 Borrowings 14 97,053 27,882 Provisions 7,580 2,870 Income tax payable 234 5,117 ------------- ---------- 209,050 149,292 ------------- ---------- Total liabilities 869,595 811,928 ------------- ---------- Total equity and liabilities 1,725,232 1,706,312 ============= ==========
Interim condensed consolidated statement of cash flows
Six-months ended 30 June ---------------------------------- 2015 (Unaudited) 2014 (Unaudited) Notes US$000 US$000 ----- ---------------- ---------------- Cash flows from operating activities Cash generated from operations 44,503 56,477 Interest received 346 1,533 Interest paid 14 (18,554) (6,021) Payment of mine closure costs (969) (2,485) Income tax paid (7,006) (5,345) ---------------- ---------------- Net cash generated from operating activities 18,320 44,159 ---------------- ---------------- Cash flows from investing activities Purchase of property, plant and equipment (116,012) (140,456) Purchase of evaluation and exploration assets (2,732) (2,188) Purchase of intangibles (592) (281) Dividends received - 414 Deferred income received related to San Felipe property - 1,223 Proceeds from sale of available-for-sale financial assets 3 14,121 Proceeds from sale of property, plant and equipment 9 121 118 Net cash used in investing activities (119,212) (127,049) ---------------- ---------------- Cash flows from financing activities Proceeds from borrowings 14 100,784 357,812 Repayment of borrowings 14 (29,924) (322,828) Dividends paid 16 (645) (7,610) Cash flows generated from financing activities 70,215 27,374 ---------------- ---------------- Net decrease in cash and cash equivalents
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during the period (30,677) (55,516) Impact of foreign exchange (1,006) (5,369) Cash and cash equivalents at beginning of period 115,999 286,435 ---------------- ---------------- Cash and cash equivalents at end of period 13 84,316 225,550 ================ ================
Interim condensed consolidated statement of changes in equity
Other reserves Capital Unrealised and reserves gain/(loss) attributable on to Equity available-for-sale Unrealised Bond Cumulative Share-based Total shareholders share Share Treasury financial gain equity translation Merger payment other Retained of the Non-controlling Total capital premium Shares assets on hedges component adjustment reserve reserve reserves earnings Parent interests Equity Note 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 US$000 Balance at 1 January 2015 170,389 396,021 (898) 14 3,126 - (13,005) (210,046) 2,576 (217,335) 451,047 799,224 95,160 894,384 ------- ------- ----- ----- ----- ----- -------- --------- ------- --------- -------- -------- ------- -------- Other comprehensive gain/ (loss) - - - 200 3,252 - (309) - - 3,143 - 3,143 - 3,143 (Loss)/gain for the period - - - - - - - - - - (44,476) (44,476) 591 (43,885) ----- ----- ----- -------- ------- Total comprehensive (loss)/income for the period - - - 200 3,252 - (309) - - 3,143 (44,476) (41,333) 591 (40,742) Issuance of shares 15 220 - - - - - - - (1,560) (1,560) 1,340 - - - Deferred bonus plan - - - - - - - - 424 424 - 424 - 424 Restricted share plan - - - - - - - - 1,238 1,238 - 1,238 - 1,238 CEO LTIP - - - - - - - - 17 17 316 333 - 333 Balance at 30 June 2015 (unaudited) 170,609 396,021 (898) 214 6,378 - (13,314) (210,046) 2,695 (214,073) 408,227 759,886 95,751 855,637 ======= ======= ===== ===== ===== ===== ======== ========= ======= ========= ======== ======== ======= ======== Balance at 1 January 2014 170,389 396,021 (898) 1,024 - 8,432 (11,289) (210,046) 736 (211,143) 511,492 865,861 104,375 970,236 ----- ----- ----- -------- ------- Other comprehensive gain/(loss) - - - 3,472 1,474 - (79) - - 4,867 - 4,867 - 4,867 (Loss)/gain for the period - - - - - - - - - - (12,630) (12,630) 881 (11,749) ----- ----- ----- -------- ------- Total comprehensive (loss)/income for the period - - - 3,472 1,474 - (79) - - 4,867 (12,630) (7,763) 881 (6,882) Deferred bonus plan - - - - - - - - 106 106 - 106 - 106 CEO LTIP - - - - - - - - 260 260 - 260 - 260 Dividends declared to non-controlling interests - - - - - - - - - - - - (5,511) (5,511) Balance at 30 June 2014 (unaudited) 170,389 396,021 (898) 4,496 1,474 8,432 (11,368) (210,046) 1,102 (205,910) 498,862 858,464 99,745 958,209 ======= ======= ===== ===== ===== ===== ======== ========= ======= ========= ======== ======== ======= ========
Notes to the interim condensed consolidated financial statement
1 Corporate Information
Hochschild Mining plc (hereinafter the "Company" and together with its subsidiaries, the "Group") is a public limited company incorporated on 11 April 2006 under the Companies Act 1985 as a limited company and registered in England and Wales with registered number 05777693. The Company's registered office is located at 23 Hanover Square, London W1S 1JB, United Kingdom. Its ordinary shares are traded on the London Stock Exchange.
The Group's principal business is the mining, processing and sale of silver and gold. The Group has two operating mines (Arcata and Pallancata) and two plants (Selene, currently used to treat ore from the Pallancata mine and the Ares plant (which ceased operations during 2014)) located in Southern Peru, and one operating mine (San Jose) located in Argentina. The Inmaculada advanced project, located in Peru, will enter commercial production later in 2015. The Group also has a portfolio of projects located across Peru, Argentina, Mexico and Chile at various stages of development.
These interim condensed consolidated financial statements were approved for issue on behalf of the Board of Directors on 18 August 2015.
2 Significant Accounting Policies (a) Basis of preparation
These interim condensed consolidated financial statements set out the Group's financial position as at 30 June 2015 and 31 December 2014 and its financial performance and cash flows for the six months periods ended 30 June 2015 and 30 June 2014.
They have been prepared in accordance with IAS 34 Interim Financial Reporting in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Accordingly, the interim condensed consolidated financial statements do not include all the information required for full annual financial statements and therefore, should be read in conjunction with the Group's 2014 annual consolidated financial statements as published in the 2014 Annual Report.
The interim condensed consolidated financial statements do not constitute statutory accounts as defined in the Companies Act 2006. The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2014. A copy of the statutory accounts for that year, which were prepared in accordance with IFRS as adopted by the European Union has been delivered to the Registrar of Companies. The auditor's report under section 495 of the Companies Act 2006 in relation to those accounts was unmodified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.
The impact of the seasonality or cyclicality of operations is not regarded as significant on the interim condensed consolidated financial statements.
The interim condensed consolidated financial statements are presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.
(b) Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2014, except for the adoption of new standards and interpretations effective for the Group from 1 January 2015, which has not had a material impact on the annual consolidated financial statements or the interim condensed consolidated financial statements of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
(c) Going concern
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After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed set of financial statements. For further detail refer to the detailed discussion of the assumptions outlined in the Going Concern section of the announcement.
3 Segment Reporting
The following tables present revenue and loss information for the Group's operating segments for the six months ended 30 June 2015 and 2014 and asset information as at 30 June 2015 and 31 December 2014 respectively:
Exploration Six months and Adjustments ended 30 San Advanced and June 2015 Ares Arcata Pallancata Jose Inmaculada Projects Other eliminations Total (unaudited) US$000 US$000 US$000 US$000 (3) US$000 US$000 US$000 US$000 US$000 -------------- ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Revenue from external customers - 52,945 41,440 95,749 - - 125 - 190,259 Inter segment revenue - - - - - - 900 (900) - Total revenue - 52,945 41,440 95,749 - - 1,025 (900) 190,259 ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Segment profit/(loss) - 2,007 (8,332) 10,245 - (6,297) 336 2,115 74 Others(1) (43,450) --------- Loss from continuing operations before income tax (43,376) --------- As at 30 June 2015 (unaudited) Assets Capital expenditure - 5,283 4,880 19,968 98,973 1,714 1,334 - 132,152 Current assets 2,979 13,917 20,978 59,876 12,849 30 2,311 - 112,940 Other non-current assets 807 132,172 98,473 222,067 591,146 272,556 69,466 - 1,386,687 ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Total segment assets 3,786 146,089 119,451 281,943 603,995 272,586 71,777 - 1,499,627 Not reportable assets(2) - - - - - - 225,605 - 225,605 ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Total assets 3,786 146,089 119,451 281,943 603,995 272,586 297,382 - 1,725,232 ------ ------- ---------- ------- ---------- ----------- ------- ------------ ---------
(1) Comprised of administrative expenses of US$18,779,000, other income of US$2,602,000, other expenses of US$4,604,000, impairment of the Crespo unit of US$5,917,000, finance income of US$581,000, finance costs of US$16,122,000, and foreign exchange loss of US$1,211,000.
(2) Not reportable assets are comprised of available-for-sale financial assets of US$653,000, other receivables of US$108,533,000, income tax receivable of US$22,155,000, deferred income tax assets of US$896,000, other financial assets of US$9,052,000, and cash and cash equivalents of US$84,316,000.
(3) Inmaculada achieved first doré production on 3 June 2015; however, as the mine has not yet reached the commercial production phase and has yet to make sales, no revenues have yet been earned, nor has any profit/(loss) been generated.
Exploration Six months and Adjustments ended 30 San Advanced and June 2014 Ares Arcata Pallancata Jose Inmaculada Projects Other eliminations Total (unaudited) US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 -------------- ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Revenue from external customers 24,811 61,735 84,837 110,126 - - 503 - 282,012 Inter segment revenue - - - - - - 1,952 (1,952) - Total revenue 24,811 61,735 84,837 110,126 - - 2,455 (1,952) 282,012 ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Segment profit/(loss) (574) 10,275 22,415 22,687 - (9,178) 655 (448) 45,832 Others(1) (49,247) --------- Profit from continuing operations before income tax (3,415) --------- As at 31 December 2014 Assets Capital expenditure - 28,867 34,160 51,350 193,445 6,522 6,777 - 321,121 Current assets 6,740 27,993 21,174 66,995 5,877 35 2,421 - 131,235 Other non-current assets 832 143,524 112,365 223,295 497,771 277,829 70,799 - 1,326,415 ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Total segment assets 7,572 171,517 133,539 290,290 503,648 277,864 73,220 - 1,457,650 Not reportable assets(2) - - - - - - 248,662 - 248,662 ------ ------- ---------- ------- ---------- ----------- ------- ------------ --------- Total assets 7,572 171,517 133,539 290,290 503,648 277,864 321,882 - 1,706,312 ------ ------- ---------- ------- ---------- ----------- ------- ------------ ---------
(1) Comprised of administrative expenses of US$22,223,000, other income of US$2,030,000, other expenses of US$7,780,000, write off of assets of US$476,000, finance income of US$1,813,000, finance costs of US$22,276,000, and foreign exchange loss of US$335,000.
(2) Not reportable assets are comprised of available-for-sale financial assets of US$455,000, other receivables of US$100,708,000, income tax receivable of US$25,584,000, deferred income tax assets of US$1,574,000, other financial assets of US$4,342,000 and cash and cash equivalents of US$115,999,000.
4 Revenue Six-months ended 30 June ---------------------------------- 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Gold (from dore bars) 30,664 36,418 Silver (from dore bars) 58,796 37,303 Gold (from concentrate) 37,012 59,389 Silver (from concentrate) 63,662 148,870 Services 125 32 190,259 282,012 ================ ================
The realised gain on gold and silver forward sales contracts in the period recognised within revenue was US$4,991,000 (Gold: US$1,793,000, Silver: US$3,198,000) (2014: US$2,189,000 (Gold: US$506,000, Silver: US$1,683,000)).
5 Cost of sales before exceptional items
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Included in cost of sales are:
Six-months ended 30 June ---------------------------------- 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Depreciation and amortisation 56,962 60,043 Personnel expenses 52,977 55,480 Mining royalty 2,613 3,029 Change in products in process and finished goods (157) 16,311 ---------------- ---------------- 6 Exceptional items
Exceptional items relate to:
Six-months ended 30 June ------------------------------------ 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Cost of sales Termination benefits Ares mine unit(1) - (3,511) ---------------- ----------------- Total - (3,511) Administrative expenses Termination benefits(2) - (868) ---------------- ----------------- Total - (868) ---------------- ----------------- Exploration expenses Termination benefits(2) - (537) ---------------- ----------------- Total - (537) Other expenses Loss on sale of subsidiary(3) - (2,963) Total - (2,963) Impairment and write-off of assets (net) Impairment of assets(4) (5,917) - Write-off of non-current assets(5) - (476) Total (5,917) (476) Finance costs Loss from changes in the fair value of financial instruments(6) - (18) Interest on disputed tax charges(7) (1,486) - Amortisation of transaction costs on secure bank loans(8) - (3,256) Loss on sale of available-for-sale financial assets(9) - (915) Total (1,486) (4,189) ---------------- ----------------- Income tax (expense)/benefit Income tax benefit(10) 1,268 2,341 ---------------- ----------------- Total 1,268 2,341 ---------------- ----------------- 1. Termination benefits in connection with the suspension of the Ares mine unit.
2. Termination benefits paid to employees as part of the restructuring plan implemented by management in 2014.
3. Loss generated by the sale of the Group's subsidiary Minas Santa María de Moris, S.A. de C.V. ("Moris") to Exploraciones y Desarrollos Regiomontanos, S.A. de C.V. and Arturo Préstamo Elizondo.
4. Corresponds to the impairment of the Crespo project of US$5,917,000 (note 9).
5. Write-off of non-current assets in Compañía Minera Ares S.A.C. ("CMA") of US$345,000 and Minera Santa Cruz S.A. ("MSC") of US$131,000.
6. Impairment of the Group's available-for-sale investment in Brionor Resources (US$18,000).
7. Interest on overdue tax charges owed by the Group following a change in circumstances surrounding a tax dispute with the local tax authority, resulting in the exposure now being assessed as 'probable', rather than 'possible'.
8. Corresponds to the attributable issue costs of the syndicated loan granted to CMA, disclosed as an exceptional item as a significant one-off expense and shown net of capitalised borrowing costs of US$1,104,000.
9. Corresponds to the loss on sale of part of the Group's available-for-sale investment in Gold Resource Corp. ("GRC") of US$1,663,000, net of the gain on sale of part of the Group's investments in Chaparral Gold Corp and Mirasol Resources Ltd of US$547,000 and US$201,000 respectively
10. Primarily related to the deferred tax benefit arising from the impairment of the Crespo project of US$1,539,000, net of the associated underlying tax charge of item 7 above, disclosed as exceptional current income tax of US$271,000. As at 30 June 2014, mainly related to the tax benefit over the amortisation of transaction costs on secure bank loans of US$977,000 and termination benefits of US$1,214,000.
7 Finance income and finance cost before exceptional items
The Group recognised the following finance income and finance costs before exceptional items:
Six-months ended 30 June ----------------------------------- 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Finance income: Interest on deposits and liquidity funds 262 910 Interest on loans 31 73 Dividends - 504 Unwind of discount rate 274 - Others 14 326 ---------------- ---------------- Total 581 1,813 ---------------- ---------------- Finance cost: Interest on bank loans (4,125 ) (2,938) Interest on convertible bond - (3,370) Interest on bond (9,188 ) (9,143) Other interest (781) - ---------------- ---------------- Total interest expense (14,094 ) (15,451) ---------------- ---------------- Unwind of discount rate (11) (1,837) Others (531 ) (799) ---------------- ---------------- Total (14,636 ) (18,087) ---------------- ----------------
Finance costs above are presented net of borrowing costs capitalised in property, plant and equipment amounting to US$6,165,000 (2014: US$5,912,000) (note 9).
8 Income tax expense Six-months ended 30 June ---------------------------------- 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Current tax Current income tax expense 280 5,348 Current mining royalty charge 373 1,159 Current special mining tax charge - 392 Withholding taxes - (733) ---------------- ---------------- Total 653 6,166 ---------------- ---------------- Deferred tax Deferred income tax relating to origination and reversal of temporary differences (144) 2,168 ---------------- ---------------- Total (144) 2,168 ---------------- ---------------- Total taxation (credit)/charge in the income statement 509 8,334 ================ ================
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The pre-exceptional tax charge for the period was US$1,777,000 (2014: US$10,675,000). In 2014, the charge primarily originated as result of a decrease in the US dollar value of the Group's Peruvian Nuevo Sol and Argentine Peso-denominated tax bases, due to the devaluation of these currencies relative to the US dollar in the period.
The tax related to items charged or credited to equity is as follows:
Six-months ended 30 June ---------------------------------- 2015 (Unaudited) 2014 (Unaudited) US$000 US$000 ---------------- ---------------- Deferred income tax relating to fair value gains on cash flow hedges 1,266 631 Total taxation charge in the statement of comprehensive income 1,266 631 ================ ================ 9 Property, plant and equipment
During the six months ended 30 June 2015, the Group acquired assets with a cost of US$128,827,000 (30 June: US$134,518,000). The additions for the six months ended 30 June 2015 relate to:
Other property Mining properties plant and and development equipment US$000 US$000 ----------------- -------------- San Jose 13,381 5,467 Pallancata 3,778 1,081 Inmaculada 33,178 65,142 Arcata 4,032 527 Crespo 912 - Others - 1,329 ----------------- -------------- 55,281 73,546 ================= ==============
Assets with a net book value of US$53,000 were disposed of by the Group during the six month period ended 30 June 2015 (30 June 2014: US$83,000) resulting in a net gain on disposal of US$68,000 (30 June 2014: US$35,000).
For the six months ended 30 June 2015, the depreciation charge on property, plant and equipment was US$63,056,000 (30 June 2014: US$63,936,000).
At 30 June 2015, the Group recorded an impairment charge of US$3,899,000 with respect to property, plant and equipment at the Crespo project (2014: US$nil). The recoverable value of this CGU was determined using a fair value less costs of disposal ('FVLCD') methodology. 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. The key assumptions on which management has based its determination of fair value less costs of disposal are substantially consistent with those employed at the time of the impairment assessment carried out at 31 December 2014, and disclosed in the Group's full annual financial statements for that year. The key changes resulting in the impairment charge recorded were changes in macroeconomic conditions leading to a delay for the Crespo property's development.
As a result of the impairment charge, the estimated recoverable amount of the Crespo CGU is equal to its carrying value; consequently, any change in the following key assumptions would, in isolation, cause a further impairment charge or a reversal of all or a portion of the impairment charge to be recognised for this CGU:
(Further impairment)/ reversal of Sensitivities impairment US$000 -------------------------------- ---------------------- Price (10% decrease) (19,204) Discount rate (3% increase) (14,731) Production cost (10% increase) (9,357) --------------------------------- ---------------------- Price (10% increase) 18,848 Discount rate (3% decrease) 19,360 Production cost (10% decrease) 9,224 --------------------------------- ----------------------
In addition to the sensitivities above, any further delay in the timing of the expected development of the Crespo property would be likely to result in a further impairment charge.
10 Evaluation, exploration and intangible assets
a) Evaluation and exploration assets: During the six months ended 30 June 2015, the Group capitalised evaluation and exploration costs of US$2,732,000 (30 June 2014: US$2,188,000). The additions correspond to the following properties:
US$000 ------ Azuca 137 San Jose 1,114 Pallancata 21 Inmaculada 71 Arcata 724 Crespo 100 El Dorado 565 2,732 ======
There were no transfers from evaluation and exploration assets to property, plant and equipment during the period (2014: US$nil).
At 30 June 2015, the Group recorded an impairment charge of US$1,736,000 with respect to evaluation and exploration assets at the Crespo project (2014: US$nil), refer to note 9.
b) Intangible assets: During the six months ended 30 June 2015, the additions to intangible assets amounted to US$593,000 (30 June 2014: US$281,000).
For the six months ended 30 June 2015, the amortisation charge on intangible assets was US$684,000 (30 June 2014: US$747,000).
There were transfers from intangibles to property, plant and equipment during the period of US$582,000 (30 June 2014: from property, plant and equipment to intangibles of US$496,000).
At 30 June 2015, the Group recorded an impairment charge of US$282,000 with respect to intangible assets at the Crespo project (2014: US$nil), refer to note 9.
11 Other financial assets and liabilities As at 30 June As at 31 December 2015 2014 (unaudited) US$000 US$000 ------------- ------------- Other financial assets Bonds 192 - Commodity swaps(1) 8,860 4,342 ------------- ------------- Other financial assets 9,052 4,342 ============= ============= Other financial liabilities Embedded derivatives(2) 1,541 1,533 Other financial liabilities 1,541 1,533 ============= ============= 1 Corresponds to the fair value of the following unsettled commodity swap contracts:
a. signed in August 2014 with JP Morgan to hedge the sale of 38,000 ounces of gold at US$1,300 per ounce, during the period from January to December 2015; and
b. signed in January 2015 with JP Morgan to hedge the sale of 6,000,000 ounces of silver at US$17.75 per ounce, during the period from January to December 2015.
2 Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded (note 12).
12 Financial instruments
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
At 30 June 2015 and 31 December 2014, the Group held the following financial instruments measured at fair value:
As at 30 June 2015 (unaudited) Level 1 Level 2 Level 3 US$000 US$000 US$000 US$000 ------------- ------------ -------- -------- Assets measured at fair value Equity shares 653 653 - - Bonds (note 11) 192 192 - - Commodity swaps (note 11) 8,860 - 8,860 - 9,705 845 8,860 - ------------- ------------ -------- -------- Liabilities measured at fair value Embedded derivatives (note 11) (1,541) - - (1,541) ------------ ------------ -------- (1,541) - - (1,541) ------------- ------------ ------------ -------- As at 31 December Level 1 Level 2 Level 3 2014 US$000 US$000 US$000 US$000 Assets measured at fair value Equity shares 455 455 - -
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Commodity swaps (note 11) 4,342 - 4,342 - 4,797 455 4,342 - Liabilities measured at fair value Embedded derivatives (note 11) (1,533) - - (1,533) ------------ -------- -------- (1,533) - - (1,533) ------------- ------------ -------- --------
During the six months ended 30 June 2015 and the year ended 31 December 2014, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as Level 3 is as follows:
Embedded derivatives Equity (liabilities)/assets shares US$000 US$000 -------------------------- -------- Balance at 1 January 2014 (2,294) 6,000 Gain from the period recognised in revenue 761 - Impairment through profit and loss (finance costs) - (6,000) Balance 31 December 2014 (1,533) - Loss from the period recognised in revenue (8) - Balance 30 June 2015 (unaudited) (1,541) - -------------------------- --------
Valuation techniques:
Level 2: Commodity swap contracts
Commodity swap contracts: Contracts entered into to hedge against the risk of commodity price fluctuations. These swap contracts are valued using a commonly accepted methodology which makes maximum use of market inputs such as quoted market prices and discount rates.
Level 3: Embedded derivatives and equity shares of Pembrook Mining Corp.
Embedded derivatives: Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of time (usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the dore into gold and silver), with the Group either paying or receiving the difference between the provisional price and the final price. This price exposure is considered to be an embedded derivative in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'. The gain or loss that arises on the fair value of the embedded derivative is recorded in 'Revenue' (note 4). The selling price of metals can be reliably measured as these are actively traded on international exchanges but the estimated metal content is a non-observable input to this valuation.
Equity shares: The investments in unlisted shares (Pembrook Mining Corp. and ECI Exploration and Mining Inc.) were recognised at cost less any recognised impairment losses given that there is not an active market for these investments. The investments in ECI Exploration and Mining Inc. and Pembrook Mining Corp. are fully impaired as at 30 June 2015 and 31 December 2014, based on available observable market data of similar peers.
13 Cash and cash equivalents As at 30 June As at 31 December 2015 2014 (unaudited) US$000 US$000 ------------- ------------- Cash at bank 278 293 Liquidity funds(1) 484 935 Current demand deposit accounts(2) 62,441 76,850 Time deposits(3) 21,113 37,921 ------------- ------------- Cash and cash equivalents 84,316 115,999 ============= =============
1 The liquidity funds are mainly invested in certificate of deposits, commercial papers and floating rate notes with a weighted average maturity of 10 days as at 30 June 2015 (as at 31 December 2014: 10 days).
2 Relates to bank accounts which are readily accessible to the Group and bear interest. 3 These deposits have an average maturity of 3 days (as at 31 December 2014: 2 days). 14 Borrowings
The movement in borrowings during the six month period to 30 June 2015 is as follows:
As at 1 As at 30 January Additions Repayments Reclassifications June 2015 2015 US$000 US$000 US$000 US$000 US$000 ------------- ---------- ----------- ------------------ ----------- Current Bank loans(1) 14,425 105,880 (34,393) (764) 85,148 Bond payable(2) 13,457 14,355 (14,085) (1,822) 11,905 27,882 120,235 (48,478) (2,586) 97,053 Non-current Bank loan(3) 98,791 - - 764 99,555 Bond payable(2) 342,043 - - 1,300 343,343 440,834 - - 2,064 442,898 ------------- ---------- ----------- ------------------ ----------- Accrued interest: (14,951) (19,451) 18,554 2,586 (13,262) ------------- ---------- ----------- ------------------ ----------- Before accrued interest 453,765 100,784 (29,924) 2,064 526,689 ------------- ---------- ----------- ------------------ -----------
1 Relates to the US$75,377,000 short- term credit lines drew down during January and June 2015 (2014: US$nil), pre-shipment loans for a total amount of US$9,211,000 (2014: US$13,843,000) which are credit lines given by banks to meet payment obligations arising from the exports of the Group, and the current portion of the medium-term loan totalling US$560,000 (2014: US$582,000).
2 Relates to the issuance of US$350,000,000 7.75% Senior Unsecured Notes on 23 January 2014.The carrying value at 30 June 2015 of US$355,248,000 (2014: US$355,500,000) was determined in accordance with the effective interest method.
3 Medium-term loan of US$100,000,000 with Scotiabank Peru S.A.A. acting as Lead Arranger and The Bank of Nova Scotia and Corpbanca as lenders. The carrying value at 30 June 2015 of US$100,115,000 (2014: US$99,373,000) was determined in accordance with the effective interest method.
The carrying amount of current borrowings approximates their fair value. The carrying amount and fair value of the non--current borrowings are as follows:
Carrying amount Fair value ------------------------ ------------------------ As at 30 As at 31 As at 30 As at 31 June 2015 December June 2015 December US$000 2014 US$000 US$000 2014 US$000 ---------- ------------ ---------- ------------ Bank loan 99,555 98,791 98,992 99,083 Bond payable 343,343 342,043 359,188 348,250 -------------- ---------- ------------ ---------- ------------ Total 442,898 440,834 458,180 447,333 -------------- ---------- ------------ ---------- ------------ 15 Equity
Share capital and share premium
The movement in share capital of the Company from 31 December 2014 to 30 June 2015 is as follows:
Number Share Share of Ordinary Capital premium shares US$000 US$000 --------------------------------------- ------------ -------- -------- Shares issued as at 1 January 2015 367,101,352 170,389 396,021 Shares issued and paid pursuant to the Deferred Bonus Plan on 20 March 2015 587,015 220 - ---------------------------------------- ------------ -------- -------- Shares issued as at 30 June 2015 367,688,367 170,609 396,021 ---------------------------------------- ------------ -------- --------
At 30 June 2015 and 31 December 2014 all issued shares with a par value of 25 pence each were fully paid (30 June 2015: weighted average of US$0.464 per share, 31 December 2014: weighted average of US$0.464 per share).
On 20 March 2015 the Group issued 587,015 ordinary shares under the Deferred Bonus Plan, a benefit granted to certain employees of the Group.
16 Dividends paid and declared
There were dividends paid in the six months ended 30 June 2015 of US$645,000 (30 June 2014: US$7,610,000).
There were no dividends declared in the six months ended 30 June 2014 or 2015. The Directors of the Company have not declared an interim dividend in respect of the six months ended 30 June 2015 (30 June 2014: US$nil).
17 Related party transactions
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There were no significant transactions with related parties during the six months ended 30 June 2015.
18 Commitments a) Mining rights purchase options
During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third parties. Generally, under the terms of these agreements, the Group has the option to acquire the concession or invest in the entity holding the concession. In order to exercise the option the Group must satisfy certain financial and other obligations over the agreement term. The option lapses in the event that the Group does not meet the financial requirements. At any point in time, the Group may cancel the agreements without penalty, except in certain specific circumstances.
The Group continually reviews its requirements under the agreements and determines on an annual basis whether to proceed with the financial commitment. Based on management's current intention regarding these projects, the commitments at the balance sheet date are as follows:
As at As at 30 June 2015 US$000 31 December 2014 US$000 -------------------- ------------------------ Less than one year 550 350 More than one year 6,450 6,850 b) Capital commitments
The future capital commitments of the Group are as follows:
As at As at 30 June 2015 US$000 31 December 2014 US$000 -------------------- ------------------------ Peru 43,192 97,826 Argentina 8,569 6,091 51,761 103,917 -------------------- ------------------------ 19 Contingencies
Inmaculada project:
On 10 August 2012 the Group's principal operating subsidiary in Peru, CMA, entered into a turn-key engineering, procurement and construction contract (the "EPC Contract") with GyM S.A. ("GyM"), under which GyM agreed to complete the engineering, construction and commissioning of the plant and related components of the Inmaculada Advanced Project in order to commence commercial production by 31 December 2014 (the "Completion Date").
Under the terms of the EPC Contract, the Group agreed to pay GyM as consideration a fixed maximum guaranteed price of approximately US$140 million (the "Maximum Fixed Price"). The Maximum Fixed Price may be amended, under limited circumstances, through written change orders signed by the parties. Against this background, the Group has received a number of change orders from GyM requesting, among other things, additional payments under the EPC Contract (the "GyM Change Orders"). As at the date of the approval of these condensed consolidated interim financial statements, the Group has approved certain of these change orders amounting to US$4.4 million.
The Group has engaged Hill International ("Hill"), a construction claims consultant, to advise on the technical merits of the GyM Change Orders and Miranda & Amado Abogados, a law firm in Peru, to advise on the contractual merits and other matters relating to Peruvian law ("M&A" and, together with Hill, the "External Advisers"). Based on their evaluation of the GyM Change Orders and advice received from the External Advisers, the Group believes that almost all of the GyM Change Orders are without any merit or will be subject to significant downward adjustment. In addition, the Group believes that GyM has breached a number of terms of the EPC Contract, including failing to meet the Completion Date.
The Group continues to assess the GyM Change Orders and discussions with GyM are ongoing. On that basis, other than the approved change orders amounting to US$4.4 million, no other provision has been made. Any further disclosure in relation to this matter would be commercially prejudicial to the Group's interests.
20 Subsequent events
1 On 9 July 2015 the Group refinanced its short-term loans with Interbank (US$10,000,000) and Citibank (US$25,000,000), with US$35,000,000 drawn on its short-term credit lines in Peru with BBVA. The new facility has an annual interest rate of 0.8% and matures on 4 July 2016.
2 On 7 July 2015, the Group renegotiated the terms of the agreement with Impulsora Minera Santa Cruz ("IMSC") to sell the San Felipe property. Under the new terms the US$5 million payment originally due from IMSC on 1 December 2015 was postponed to 1 December 2016.
Profit by operation(1)
(Segment report reconciliation) as at 30 June 2015
Consolidation adjustment Company (US$000) Arcata Pallancata San Jose Inmaculada and others Total/HOC -------------------------------------- -------- ---------- -------- ---------- ------------- --------- Revenue 52,945 41,440 95,749 - 125 190,259 Cost of sales (pre-consolidation) (50,463) (49,228) (74,923) - 121 (174,493) --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Consolidation adjustment 48 73 - - (121) - Cost of sales (post-consolidation) (50,415) (49,155) (74,923) - - (174,493) Production cost excluding Depreciation (33,629) (27,186) (49,559) (3,862) - (114,236) Depreciation in production cost (15,955) (20,380) (19,023) (128) - (55,486) Other items (1,058) (595) (3,275) - - (4,928) Change in inventories 227 (994) (3,066) 3,990 - 157 --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Gross profit 2,482 (7,788) 20,826 - 246 15,766 --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Administrative expenses - - - - (18,779) (18,779) Exploration expenses - - - - (4,092) (4,092) Selling expenses (475) (544) (10,581) - - (11,600) Other income/expenses - - - - (2,002) (2,002) --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Operating profit before impairment 2,007 (8,332) 10,245 - (24,627) (20,707) --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Impairment and write-off of assets - - - - (5,917) (5,917) Finance income - - - - 581 581 Finance costs - - - - (16,122) (16,122) Foreign exchange - - - - (1,211) (1,211) --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Profit/(loss) from continuing operations before income tax 2,007 (8,332) 10,245 - (47,296) (43,376) --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Income tax - - - - (509) (509) --------------------------------------- -------- ---------- -------- ---------- ------------- --------- Profit/(loss) for the year from continuing operations 2,007 (8,332) 10,245 - (47,805) (43,885) --------------------------------------- -------- ---------- -------- ---------- ------------- ---------
1 On a post-exceptional basis.
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.
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