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Share Name Share Symbol Market Type Share ISIN Share Description
Hochschild Mining Plc LSE:HOC London Ordinary Share GB00B1FW5029 ORD 25P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  10.30 5.26% 206.00 205.40 206.00 206.20 193.80 197.10 3,479,289 16:29:57
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Mining 454.8 46.0 2.2 95.7 1,054

Hochschild Mining PLC Preliminary Results 2020

18/02/2021 7:00am

UK Regulatory (RNS & others)


Hochschild Mining (LSE:HOC)
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RNS Number : 5146P

Hochschild Mining PLC

18 February 2021

18 February 2021

Hochschild Mining plc

Preliminary Results

Year ended 31 December 2020

HOCHSCHILD MINING PLC RESULTS FOR YEARED 31 DECEMBER 2020

Hochschild delivers robust performance in a challenging year

Resilient 2020 financial performance

-- Strong balance sheet and financial performance despite impact of Covid-19 stoppages

-- Revenue of $621.8 million (2019: $755.7 million) ([1])

-- Adjusted EBITDA of $270.9million (2019: $343.3 million) ([2])

-- Profit before income tax (pre-exceptional) of $85.8 million (2019: $103.4 million)

-- Profit before income tax (post-exceptional) of $62.9 million (2019: $76.8 million)

-- Basic earnings per share (pre-exceptional) of $0.06 (2019: $0.09)

-- Basic earnings per share (post-exceptional) of $0.03 (2019: $0.06)

-- Cash and cash equivalent balance of $231.9 million as at 31 December 2020 (2019: $166.4 million)

-- Net cash of $21.6 million as at 31 December 2020 (2019: net debt of $33.2 million)

-- Final proposed dividend of 2.335 cents per share ($12.0 million) bringing the full-year total dividend to $32.6 million (2019: $10.2 million)

Strong 2020 operational recovery [3]

-- All-in sustaining costs (AISC) from operations of $1,098 per gold equivalent ounce (2019: $990) or $12.8 per silver equivalent ounce (2019: $11.5) below revised full year cost guidance of $1,200-$1,250 per gold equivalent ounce or $14.0-14.5 per silver equivalent ounce [4]

-- Full year attributable production of 289,293 gold equivalent ounces (24.9 million silver equivalent ounces) at higher end of attributable production guidance of 280-290,000 gold equivalent ounces (24.0-25.0 million silver equivalent ounces)

-- Strong operational recovery despite Covid-19 related stoppages

-- Inmaculada drilling programme added 25.3 million gold equivalent ounces of reserves

-- Promising results from the Corina deposit, the Saavedra area at San Jose and at Arcata

2020 ESG KPIs

-- Strong ESG metrics despite impact of Covid-19 protocols

-- Lost Time Injury Frequency Rate of 1.38 (2019: 1.05) [5]

-- Accident Severity Index of 474 (2019: 54) [6]

-- Water consumption of 231lt/person/day (2019: 206lt/person/day)

-- Domestic waste generation of 1.18 kg/person/day (2019: 1.04kg/person/day)

-- ECO score of 5.74 out of 6 (2019: 4.82) [7]

2021 outlook

-- Production target of 360,000-372,000 gold equivalent ounces (31.0-32.0 million silver equivalent ounces)

-- 4 million ounces of silver hedged for both 2021 and 2022 at an average price of approximately $27 per ounce to protect cashflows in Peru - ensures profitable production from existing resources, mainly at Pallancata whilst brownfield exploration team continues to look for additional near-term resources

-- All-in sustaining costs expected to be $1,210-$1,250 per gold equivalent ounce ($14.1-14.5 per silver equivalent ounce)

-- Total sustaining and development capital expenditure expected to be approximately $120-130 million

-- Brownfield exploration budget expected to be approximately $34 million

-- Greenfield and advanced project budget set at approximately $11 million

-- $14 million budget for Biolantanidos rare earth deposit in Chile

-- $7 million budget approved to begin construction of ore sorting pilot plant at Inmaculada

 
 $000 unless stated                                        Year ended     Year ended   % change 
                                                          31 Dec 2020    31 Dec 2019 
                                                        -------------  ------------- 
 Attributable silver production (koz)                           9,808         16,808       (42) 
 Attributable gold production (koz)                               175            270       (35) 
 Revenue                                                      621,827        755,676       (18) 
 Adjusted EBITDA                                              270,918        343,332       (21) 
 Profit from continuing operations (pre-exceptional)           36,192         60,083       (40) 
 Profit from continuing operations (post-exceptional)          20,426         41,439       (51) 
 Basic earnings per share (pre-exceptional) $                    0.06           0.09       (33) 
 Basic earnings per share (post-exceptional) $                   0.03           0.06       (50) 
------------------------------------------------------  -------------  -------------  --------- 
 

________________________________________________________________________________________

Ignacio Bustamante, Chief Executive Officer said:

"We have delivered strong financial results in 2020, despite the impact of the Covid-19 related stoppages. Higher precious metals prices combined with strong free cashflow generation saw us finish the year in a net cash position for the first time in eight years. We have also made solid progress on our ongoing brownfield strategy with an increase in reserves at Inmaculada and promising results at the Corina, San Jose and Arcata deposits. This year, another ambitious programme is already underway with further exciting drill targets at all our current operations and projects throughout our southern Peru cluster. In addition, we look forward to progressing our greenfield and strategic alliance portfolio across the Americas."

________________________________________________________________________________________

A live conference call and audio webcast will be held at 2.00pm (London time) on Thursday 18 February 2021 for analysts and investors.

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

https://webcasting.brrmedia.co.uk/broadcast/60086e36efe97358c10a1d3a

Conference call dial in details:

UK: +44 (0)330 336 9411

UK Toll Free: 0800 279 7204

US/Canada Toll Free: 888-394-8218

Pin: 9179728

________________________________________________________________________________________

Enquiries:

Hochschild Mining plc

Charles Gordon +44 (0)20 3709-3264

Head of Investor Relations

Hudson Sandler

Charlie Jack

+44 (0)207 796 4133

Public Relations

________________________________________________________________________________________

Non-IFRS Financial Performance Measures

The Company has included certain non-IFRS measures in this news release. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardised meaning prescribed under IFRS, and therefore may not be comparable to other issuers.

About Hochschild Mining plc:

Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

CHAIRMAN'S STATEMENT

It would be an understatement to say that 2020 was an unprecedented year for our Company. The rapid spread of Covid-19 across the world has affected everyone in ways which could not be imagined a year ago. However, the response from our employees, workers and contractors is to be highly commended. The pandemic has made the task of leadership significantly more challenging and I would like to thank our Chief Executive and his senior team for their dedication and commitment to the task of navigating our employees through the extraordinary circumstances that we faced. Indeed throughout Hochschild Mining, our people have displayed commitment, professionalism and perseverance despite a succession of challenges and we have succeeded in achieving solid results while focusing our efforts on the health of our entire team. This has made the adoption of our stringent protocols and changing work conditions an easier task. The strong culture of the Company, which has been embedded throughout our operations and offices over many years, provided a firm foundation for the adoption of our stringent health protocols and changing work conditions.

Our people are our business and during 2020 we have continued to implement the second iteration of our successful programme to promote a Safety-First culture: Safety 2.0. The delivery of this initiative has naturally been adapted in light of the challenges posed by the Covid pandemic through ongoing training and communication campaigns and the recognition of safe working. As reported in our interim results, we regrettably suffered an operational fatality at our Pallancata mine in the early part of the year and we must therefore continue with our efforts to ensure that safety is never compromised and remains a top priority.

2020 saw the launch of an Environmental Culture Transformation Plan, which we believe will help us ensure that our excellent environmental performance is sustained and strengthened though time. I am delighted to report that we achieved our highest year-end ECO Score which, as you may remember, is our award-winning internally designed measure to gauge the Group's overall environmental performance. Furthermore, the Group was recognised by the Peruvian Water Authority for the successful execution of our commitment to conserve our water usage footprint working collaboratively with our partner communities. This year we are working with a global consultancy to strengthen our greenhouse gas reporting and identify opportunities to reduce our energy use and design a long-term action plan to minimise our carbon emissions.

Despite the difficulties posed by the pandemic and the resulting government-mandated restrictions, our Community Relations ("CR") team have continued with their valuable work to support local communities. Our focus on education, health and nutrition and economic development resulted in support for many community-run businesses and schools. We have previously established "Digital Centres" as a way of bringing internet access to our remote communities to achieve our social goals and this has proved fortuitous during the Covid crisis. Building on this experience, in 2020 we completed our "Keeping Connected" project which supported over 6,000 residents across 14 communities close to our mines to participate in online learning, help local businesses and keep families connected during these challenging times. To meet our communities' immediate health needs, our CR and health teams worked together throughout the year to donate food supplies as well as medical equipment to local hospitals and health centres. Further details on these and all our programmes will be available in the Sustainability section of the Annual Report and in the standalone ESG Report, which will be published during the second quarter of 2021.

Turning to our operations, the year was understandably impacted by events beyond our control and we were forced to shut all three of our operations in mid-March as both our host countries took steps to contain the spread of the virus. Despite a relatively quick restart in May, both Inmaculada and San Jose experienced additional Covid-related stoppages, although Pallancata in Peru operated without interruption for the remainder of the year. Nevertheless, we were able to reconfigure our mine plans and I was pleased to see us meeting our revised annual production and costs targets. We entered the crisis with a strong balance sheet which enabled us to finance the additional Covid-related expenses required by the business. In addition, with precious metal prices rising significantly, our business was able to generate strong free cashflow despite the ongoing disruption.

Our brownfield programme was impacted by the stoppages but we were able to obtain all necessary permits and start the drilling schedule mostly in the second half of the year and, as the year turned, began to get some exciting results. At Inmaculada, drilling achieved a significant increase in reserves whilst San Jose ended the year with some encouraging results in the Saavedra area close to the current mine. At Pallancata, we are still drilling nearby targets with a view to extending the life of the mine in the short term and this work will continue in 2021. In addition, results from the Corina deposit, to the north of Pallancata, could go some way to securing the long-term future of this mining area. Also promising, were early results from our new drilling programme to the west of our former Arcata mine with work continuing into 2021 to try to establish a new resource area for this historic deposit.

In the past 18 months, we have consistently stated the exciting potential of our investment in the Biolantanidos rare earths deposit in Chile where we believe we can create substantial shareholder value in an industry with very strong future demand characteristics and, crucially, in an environmentally-friendly manner. I am delighted to report that excellent progress was made in 2020 at this unique project by our dedicated management team and we can look forward to a key year in 2021 with the feasibility study due, as well as important permitting approvals. The rare earths industry has been very much in the media and financial market spotlight recently and we are confident that our deposit will play an important role in the supply of these vital commodities in the near future.

With regards to our Board composition, I am delighted that following a search process overseen by the Nomination Committee, Jill Gardiner joined as an Independent Non-Executive Director on 1 August. Naturally, her induction was adapted in light of travel restrictions but Jill's long-standing experience of the sector and corporate finance in Canada has already proven of great benefit to the Board.

2020 was another very strong year for precious metals driven by the enormous global monetary and fiscal response to the economic impact of the pandemic. The gold price had risen by 24% by the end of the year and silver increased by 47% enabling us to generate robust free cashflow despite the crisis and further strengthen our already healthy balance sheet. In April 2020, owing to the uncertainty caused by the crisis, the Board took the prudent decision to withdraw the proposal to pay the 2019 final dividend. However, following the encouraging second half recovery, a $21 million interim dividend was paid at the end of December. We fully recognise the need to continue to monitor the impact of the current Covid situation and therefore we have given much consideration to the subject of further capital returns. As a result, given the current net cash position and ongoing healthy price environment, the Board is pleased to propose a final dividend of 2.335 cents per share ($12.0 million).

The strength of our culture shone through this year and I am proud to be Chairman of such a Group and remain committed to overseeing the ongoing progress of our long-term strategy. We responded very quickly and appropriately to local and countrywide challenges in 2020 and these responses are a testament to the dedication, skills and ingenuity of our people. The Board and I will never be able to thank all of them enough for their extraordinary efforts during this time.

Eduardo Hochschild, Chairman

17 February 2021

CHIEF EXECUTIVE OFFICER'S STATEMENT

I am proud of how our team has responded to the many challenges presented by Covid-19 during 2020. Everyone in the Company demonstrated care, good judgement and very hard work in ensuring the health and wellbeing of our people whilst remaining focused on achieving our business objectives. Understandably, the performance of our Company during the year was significantly impacted by the pandemic but despite the resulting adjustments to our operational targets, we were able to still deliver solid production and good cost control. When combined with significant precious metal price rises, we generated strong cashflows allowing us to invest in a comprehensive crisis response programme and leave the Company in a net cash position at the end of the year. Our exploration programme was also reconfigured to the new reality but we made encouraging steps in our aim to add reserves and deliver growth opportunities.

We remain committed to furthering our wide range of ESG initiatives in order to make a lasting positive contribution to society, whatever the circumstances. This year our focus has been on supporting our communities and various other stakeholders to overcome the health and economic crisis caused by the pandemic. We have adopted several policy initiatives, including revised and new sustainability, human rights, gender and diversity, compliance and community relations policies that will further strengthen commitment to operate responsibly. Our ECO Score continues to be one of our key environmental management tools and we are working hard to encourage our key suppliers to also adopt it so that we can further align our environmental strategies. Finally, we have implemented our Safety-First culture: Safety 2.0. programme and launched our Environmental Culture

Transformation   Plan to build on the progress achieved to date in this area. 

We believe that our long-term strategy based on exploration, project delivery, value accretive acquisitions and solid ESG foundations remains key to driving our business and delivering returns for stakeholders.

Operations

Hochschild's output in 2020 was impacted by Covid-related stoppages at all our mines with the first major disruption lasting from the middle of March until the end of May. The crisis also resulted in substantial delays in permitting for exploration and operations for this year and beyond and we continue to work hard to overcome those delays.

At Inmaculada, we experienced a further halt to production in early July with another at San Jose in Argentina towards the end of the year. Overall production was 289,293 gold equivalent ounces (24.9 million silver equivalent ounces) which was understandably substantially lower than the 2019 figure of 465,336 gold equivalent ounces (40.0 million silver equivalent ounces). This was produced at an all-in sustaining cost of $1,098 per gold equivalent ounce ($12.8 per silver equivalent ounce) which reflected the reduced production rates. Inmaculada remained the cornerstone of the Company, producing 176,086 gold equivalent ounces (2019: 256,001 ounces) at $922 per gold equivalent ounce (2019: $811 per ounce), a pleasing result despite losing approximately a quarter's worth of output.

At Pallancata, despite the impact of the shutdown, the operation still had a steady period of production from the middle of the year onwards, delivering 4.8 million silver equivalent ounces (2019: 9.5 million ounces) at a cost of $15.6 per silver equivalent ounce (2019: $13.4 per ounce). In Argentina, San Jose initially experienced a shorter stoppage with production restarting in late April. However, restrictions on people's movement in the country resulted in a slow and difficult remobilisation whilst rising regional Covid infections in the Santa Cruz province led to a further 20-day stoppage in late November. Production was 9.7 million silver equivalent ounces (2019: 15.9 million ounces) with costs at $14.6 per silver equivalent ounce (2019: $13.3 per ounce).

Exploration

Our 2020 brownfield plans were also affected by the Covid-related delays and almost three months of the schedule was deferred. However, despite delays, we were able to obtain the permits required for 2020, reconfigure the programme and implement an aggressive series of campaigns for the remainder of the year in the surrounding areas of all three of our current mines. Our objectives remained the same in terms of upgrading our current resource base and discovering new potential resources. In this regard, we were broadly successful with approximately 75% of the programme completed and drilling achieving an increase in reserves of 25.3 million silver equivalent ounces at Inmaculada. This figure does not incorporate a portion of drilling from January 2021 and therefore not reflected in the 2020 audited ore reserves statement starting on page 54.

At San Jose, we were encouraged to see some positive drill results towards the end of the year in the Saavedra area close to where we are currently mining whilst, in the region surrounding Pallancata, exciting results from the second campaign at the Corina deposit to the north lead us to expect a maiden resource will be achieved in the next few months. Whilst there is still work to do to extend the current Pallancata mine life, we are hopeful that results at Corina may eventually secure the long-term future of production in the area. In addition, we also made a start on a new drilling campaign at our former mine, Arcata, and were highly encouraged by the first results from the area to the west of the mine with work expected to continue this year.

In Chile, work on our exciting Biolantanidos rare earths project has progressed well, notwithstanding a few minor delays resulting from the impact of the pandemic in the country. Key management personnel are in place and are advancing the various work streams including: brownfield drilling; updating the resource model; progressing the project's permitting; carrying out metallurgical tests and equipment piloting; and starting execution of the stakeholder engagement plan. The project is on track to complete a feasibility study towards end of the first half of the year.

Our greenfield programme was also impacted but we saw encouraging progress from Snip in British Columbia where our partner Skeena Resources announced a maiden resource for the deposit in July, and we look forward to results from the project's second drilling campaign which has now completed. Third-party exploration work also began at the Horsethief project in Nevada.

Financial position

Despite the significant impact of the Covid crisis, our resilient production performance combined with a higher price environment has resulted in our balance sheet now sitting in an enviably strong position with cash and cash equivalents of $231 million at the end of December (31 December 2019: $166.4 million). This has meant for the first time in eight years, Hochschild ended the year with a net cash position, $21.6 million (31 December 2019: $33.2 million net debt).

Financial results

As discussed above, total Group production was significantly lower versus 2019 and consequently, despite a 28% rise in the average realised gold price achieved and a 35% rise in the silver price, net revenue was reduced to $621.8 million (2019: $755.7 million). All-in sustaining costs do not include approximately $47 million of fixed costs at the operations incurred during the stoppages and ramp-up (presented within cost of sales). However, we were able to finish slightly below our revised cost guidance at $12.8 per silver equivalent ounce (2019: $11.9 per ounce). Adjusted EBITDA of $270.9 million (2019: $343.3 million) mostly reflects the reduced production levels as well as a rise in mine closure provisions of $16.1 million. Pre-exceptional earnings per share of $0.06 (2019: $0.09 per share) includes the impact of an increase in finance costs in Argentina and of income tax arising from the impact of local currency devaluation in Peru and Argentina. Post-exceptional earnings per share was lower at $0.03 (2019: $0.06 earnings per share) mainly due to the exceptional after tax cost of $22.0 million of Covid-19 response initiatives which are deemed to be exceptional as they are incremental to the Group's regular business, are material impacts and are not expected to recur. This was partially offset by the exceptional after-tax gain of $6.2 million from the reversal of impairment at San Jose.

Outlook

We expect attributable production in 2021 of between 360,000 and 372,000 gold equivalent ounces (31.0 to 32.0 million silver equivalent ounces) assuming the silver to gold ratio of 86:1 (the average ratio for 2020). This will be driven by: 223,000-228,000 gold equivalent ounces from Inmaculada; an attributable contribution of 6.4 to 6.8 million silver equivalent ounces from San Jose; and 5.4-5.6 million silver equivalent ounces from Pallancata. The Company has also taken steps to protect cashflow generation in Peru, from the existing marginal resource base, mainly at Pallancata, by hedg ing the sale of 4 million ounces of silver at $27.10 per ounce

for 2021 and a further 4 million ounces   of silver at $26.86 per ounce for 2022. 

All-in sustaining costs for operations are expected at between $1,210 to $1,250 per gold equivalent ounce ($14.1 to $14.5 per silver equivalent ounce). This forecast includes a rise in mine development costs at San Jose in order to increase reserves and an increase in development at Inmaculada. Grades at Inmaculada are expected to be lower due to the delay in mine development and permitting resulting from the Covid-related stoppages.

The budget for brownfield exploration is set at approximately $34 million with the greenfield and advanced project budget set at approximately $11 million. In addition, a budget of approximately $14 million has been allocated towards advancing the Biolantanidos project and includes approximately $5 million of further exploration costs. Finally, we have recently approved a $7 million budget to construct an ore sorting pilot plant at Inmaculada during 2021. We believe this project may eventually deliver significant improvements in recoveries at the mine and potentially help to optimise other key projects in Hochschild's portfolio.

2021 has started with the pandemic still heavily impacting both the countries we operate in. Precious metal price strength has continued but we will remain vigilant and we have the people and the cash resources to meet the challenges ahead. We also intend to continue investing for the future. We have scheduled another busy brownfield exploration programme involving drill targets across our portfolio with the aim of adding further high quality ounces to our resource base and optimising our early-stage projects. We will also continue to assess value-accretive acquisition opportunities and can look forward to the feasibility study at our Biolantanidos rare earths project towards the middle of the year.

Ignacio Bustamante, Chief Executive Officer

17 February 2021

OPERATING REVIEW

OPERATIONS

Note: All equivalent figures calculated using the Company's 2020 average gold/silver ratio of 86:1. 2019 figures have been restated (previously calculated using a gold/silver ratio of 81:1).

Production

In 2020, Hochschild delivered attributable production of 289,293 gold equivalent ounces or 24.9 million silver equivalent ounces, at the high end of the Company's revised forecasts published in early September but with the reduction versus 2019 reflecting the impact from Covid-related disruptions throughout the year

The overall attributable production target for 2021 is 360,000-372,000 gold equivalent ounces or 31.0-32.0 million silver equivalent ounces.

Total 2020 group production [8]

 
                              Year ended     Year ended 
                             31 Dec 2020    31 Dec 2019 
                           ------------- 
 Silver production 
  (koz)                           11,821         20,163 
 Gold production (koz)            207.08         321.58 
 Total silver equivalent 
  (koz)                           29,631         47,818 
 Total gold equivalent 
  (koz)                           344.54         556.03 
 Silver sold (koz)                11,846         20,062 
 Gold sold (koz)                  207.77         317.52 
-------------------------  -------------  ------------- 
 

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

Attributable 2020 group production

 
                            Year ended     Year ended 
                           31 Dec 2020    31 Dec 2019 
                         ------------- 
 Silver production 
  (koz)                          9,808         16,808 
 Gold production (koz)          175.24         269.89 
 Silver equivalent 
  (koz)                         24,879         40,019 
 Gold equivalent (koz)          289.29         465.34 
-----------------------  -------------  ------------- 
 

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

Attributable 2021 Production forecast split

 
 Operation           Oz Au Eq   Moz Ag Eq 
             ---------------- 
 Inmaculada   223,000-228,000   19.2-19.6 
 Pallancata     63,000-65,000     5.4-5.6 
 San Jose       74,000-79,000     6.4-6.8 
-----------  ----------------  ---------- 
 Total        360,000-372,000   31.0-32.0 
-----------  ----------------  ---------- 
 

Costs

All-in sustaining cost from operations in 2020 was $1,098 per gold equivalent ounce or $12.8 per silver equivalent ounce (2019: $990 per gold equivalent ounce or $11.6 per silver equivalent ounce), higher than 2019 mainly due to the effect of less production resulting from the Covid stoppages impacting administrative expenses, exploration expenses and capex per ounce in all units. The increase was also due to lower grades at all mines mostly resulting from the revised mine plans also due to the stoppages. These effects were partially offset by savings from cash optimisation plans and local currency devaluation in both Peru and Argentina. These figures do not include fixed costs incurred at the operations during the stoppages as well as abnormal costs during the phases of reduced production capacity as well as $27.6 million of exceptional Covid-19 response initiatives.

The all-in sustaining cost from operations in 2021 is expected to be between $1,210 and $1,250 per gold equivalent ounce (or $14.1 and $14.5 per silver equivalent ounce). These levels mainly reflect higher expected mine production costs aligned with mine plans and a rise in mine development capex to increase reserves primarily in San Jose and Inmaculada.

2021 AISC forecast split

 
 Operation                $/oz Au Eq   $/oz Ag Eq 
                        ------------ 
 Inmaculada              1,040-1,080    12.1-12.5 
 Pallancata              1,440-1,480    16.8-17.2 
 San Jose                1,370-1,400    15.9-16.3 
----------------------  ------------  ----------- 
 Total from operations   1,210-1,250    14.1-14.5 
----------------------  ------------  ----------- 
 

Inmaculada

The 100% owned Inmaculada gold/silver underground operation is located in the Department of Ayacucho in southern Peru. It commenced operations in June 2015.

 
 Inmaculada summary                Year ended         Year ended   % change 
                                  31 Dec 2020        31 Dec 2019 
                                -------------  ----------------- 
 Ore production (tonnes)              948,937          1,338,569       (29) 
 Average silver grade (g/t)               154                163        (6) 
 Average gold grade (g/t)                4.33               4.71        (8) 
 Silver produced (koz)                  4,034              5,747       (30) 
 Gold produced (koz)                   129.17             189.18       (32) 
 Silver equivalent produced 
  (koz)                                15,143             22,016       (31) 
 Gold equivalent produced 
  (koz)                                176.09             256.00       (31) 
 Silver sold (koz)                      4,020              5,732       (30) 
 Gold sold (koz)                       129.70             188.59       (31) 
 Unit cost ($/t)                         95.1               93.3          2 
 Total cash cost ($/oz Au 
  co-product)                             576                504         14 
 All-in sustaining cost ($/oz 
  Au Eq)                                  922                811         14 
------------------------------  -------------  -----------------  --------- 
 

Production

The Inmaculada mine delivered gold equivalent production of 176,086 ounces in 2020 (2019: 256,001 ounces), with the reduction versus expectations due to the impact of two Covid-19 related stoppages during the year. These affected the operation firstly from mid-March until the end of May and secondly during most of July. Grades have proved to be slightly lower than originally budgeted due to delays in mine sequencing resulting from the stoppages.

Costs

All-in sustaining costs were $922 per gold equivalent ounce (2019: $811 per ounce) with the increase versus 2019 due to the impact of Covid stoppages on production and therefore on opex and capex per ounce and to lower gold grades, partially offset by savings from cash optimisation plans and local currency devaluation. Fixed costs of $11.7 million incurred during the stoppages and ramp-ups are not included in the figure in addition to $13.5 million of exceptional Covid-19 response initiatives.

Pallancata

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

 
 Pallancata summary                Year ended         Year ended   % change 
                                  31 Dec 2020        31 Dec 2019 
                                -------------  ----------------- 
 Ore production (tonnes)              519,611            915,877       (43) 
 Average silver grade (g/t)               247                278       (11) 
 Average gold grade (g/t)                0.87               1.01       (14) 
 Silver produced (koz)                  3,679              7,259       (49) 
 Gold produced (koz)                    12.93              25.95       (50) 
 Silver equivalent produced 
  (koz)                                 4,790              9,491       (50) 
 Gold equivalent produced 
  (koz)                                 55.70             110.36       (50) 
 Silver sold (koz)                      3,654              7,161       (49) 
 Gold sold (koz)                        12.80              25.45       (50) 
 Unit cost ($/t)                        101.2               83.8         21 
 Total cash cost ($/oz Ag 
  co-product)                            13.1                9.6         36 
 All-in sustaining cost ($/oz 
  Ag Eq)                                 15.6               13.4         16 
------------------------------  -------------  -----------------  --------- 
 

Production

Pallancata produced 4.8 million silver equivalent ounces in 2020 (2019: 9.5 million ounces) with the reduction versus the original forecast (7.2 million ounces) due to the effects of the single Covid-19 related stoppage from mid-March to early June. In addition grades dropped moderately in line with the mine plan.

Costs

All-in sustaining costs were at $15.6 per silver equivalent ounce (2019: $13.4 per ounce). The mining of lower grade areas and reduced production resulting from the stoppages led to increases versus 2019 but were partially offset by savings from cash optimisation plans, lower expected capex and local currency devaluation. Fixed costs of $4.9 million incurred during the stoppage and ramp-up not included in the figure in addition to $8.2 million of exceptional Covid-19 response initiatives.

San Jose

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

 
 San Jose summary                  Year ended     Year ended   % change 
                                  31 Dec 2020    31 Dec 2019 
                                -------------  ------------- 
 Ore production (tonnes)              401,202        544,165       (26) 
 Average silver grade (g/t)               357            443       (19) 
 Average gold grade (g/t)                5.63           6.81       (17) 
 Silver produced (koz)                  4,108          6,846       (40) 
 Gold produced (koz)                    64.99         105.48       (38) 
 Silver equivalent produced 
  (koz)                                 9,697         15,917       (39) 
 Gold equivalent produced 
  (koz)                                112.76         185.08       (39) 
 Silver sold (koz)                      4,172          6,846       (39) 
 Gold sold (koz)                        65.28         102.82       (37) 
 Unit cost ($/t)                        199.4          219.2        (9) 
 Total cash cost ($/oz Ag 
  co-product)                            11.1            9.6         16 
 All-in sustaining cost ($/oz 
  Ag Eq)                                 14.6           13.3         10 
------------------------------  -------------  -------------  --------- 
 

Production

Production at San Jose in 2020 totalled 9.7 million silver equivalent ounces (2019: 15.9 million ounces). Whilst the mine restarted operations in late April 2020, following the first Covid-19 stoppage, continuing restrictions on the movement of people in Argentina throughout the remainder of the year resulted in a revised mine plan and lower grades. A further stoppage due to an increase in Covid-19 infections in the region occurred for 20 days from 15 November to 5 December 2020. A reduced level of staff remained on-site thereafter to oversee the final production of the unit's revised 2020 output target following permission from the Santa Cruz provincial authorities to restart operations.

Costs

All-in sustaining costs were at $14.6 per silver equivalent ounce (2019: $13.3 per ounce) with the operation impacted by the effect of lower ounces produced versus 2019 resulting in higher opex and capex per ounce. In addition, the mining of lower grade areas and higher inflation in the country also contributed to the increase. These were partially offset by savings from cash optimisation plans and by local currency devaluation. Fixed costs of $28.0 million incurred during the stoppage and phased ramp-up are not included in the figure in addition to $5.9 million of exceptional Covid-19 response initiatives.

EXPLORATION

Inmaculada

In 2020, the brownfield programme commenced in the first quarter before the programme was halted in mid-March due to the Covid crisis. The programme resumed in the third quarter with a total of almost 28,000m of resource and potential drilling carried out by the end of the year on the Shakira, Juliana, Thalia and Millet East veins, amongst others, to add resources to the resource base and discover new ounces. A summary of significant drill results from 2020 are presented below:

 
 Vein               Results (potential/resource drilling) 
 Bety               IMS-20-001: 1.0m @ 1.3g/t Au & 94g/t Ag 
                   ------------------------------------------ 
 Lady               LAD-19-001: 1.3m @ 1.5g/t Au & 120g/t Ag 
                   ------------------------------------------ 
 Lady Sur           LAD-19-002: 0.9m @ 5.7g/t Au & 17g/t Ag 
                     LAD-19-003: 1.4m @ 27.0g/t Au & 113g/t 
                     Ag 
                   ------------------------------------------ 
 South vein         IMM-20-002: 0.8m @ 15.0g/t Au & 1,753g/t 
                     Ag 
                   ------------------------------------------ 
 Noel               HUA-20-008A: 1.1m @ 5.0g/t Au & 179g/t 
                     Ag 
                   ------------------------------------------ 
 Shakira            HUA-19-008: 3.1m @ 5.1g/t Au & 252g/t Ag 
                     HUA-20-008A: 1.3m @ 2.5g/t Au & 259g/t 
                     Ag 
                     IMS-20-019: 1.3m @ 1.3g/t Au & 70g/t Ag 
                     IMS-20-020: 2.9m @ 2.2g/t Au & 159g/t Ag 
                     IMM-20-022: 1.2m @ 22.1g/t Au & 21g/t Ag 
                     IMM-20-023: 5.6m @ 9.0g/t Au & 397g/t Ag 
                     IMS-20-025: 3.0m @ 5.2g/t Au & 241g/t Ag 
                     IMS-20-032: 7.6m @ 2.5g/t Au & 287g/t Ag 
                     IMS-20-036: 2.5m @ 4.7g/t Au & 337g/t Ag 
                     IMS-20-048: 1.8m @ 2.0g/t Au & 119g/t Ag 
                     IMS-20-049: 4.6m @ 14.0g/t Au & 303g/t 
                     Ag 
                   ------------------------------------------ 
 Millet             IMS-20-041: 1.2m @ 2.7g/t Au & 150g/t Ag 
                     IMS-20-042: 7.2m @ 2.2g/t Au & 153g/t Ag 
                   ------------------------------------------ 
 Angela extension   IMS-19-006: 1.2m @ 8.1g/t Au & 60g/t Ag 
                     IMS-20-035: 3.5m @ 3.1g/t Au & 76g/t Ag 
                   ------------------------------------------ 
 Tula               TLO-20-014: 1.1m @ 7.7g/t Au & 236g/t Ag 
                     TLO-20-016: 1.8m @ 1.5g/t Au & 82g/t Ag 
                     TLO-20-018: 1.2m @ 2.5g/t Au & 95g/t Ag 
                     TLO-20-020: 1.8m @ 6.4g/t Au & 158g/t Ag 
                   ------------------------------------------ 
 Diana              DIV-20-069: 1.1m @ 2.3g/t Au & 72g/t Ag 
                     DIV-20-072: 1.0m @ 2.7g/t Au & 93g/t Ag 
                   ------------------------------------------ 
 Perla              SBE-20-060: 0.8m @ 4.1g/t Au & 60g/t Ag 
                     SBE-20-061: 1.1m @ 3.2g/t Au & 166g/t Ag 
                   ------------------------------------------ 
 Lucrecia           SBE-20-039: 1.0m @ 2.0g/t Au & 131g/t Ag 
                     SBE-20-042: 0.9m @ 3.7g/t Au & 81g/t Ag 
                   ------------------------------------------ 
 Noelia             SBE-20-046: 0.8m @ 3.2g/t Au & 90g/t Ag 
                     SBE-20-065: 6.1m @ 8.8g/t Au & 1,086g/t 
                     Ag 
                   ------------------------------------------ 
 Peta               DIV-20-050: 1.3m @ 3.7g/t Au & 50g/t Ag 
                   ------------------------------------------ 
 

Just over 100,000m of infill drilling was also carried out up until the middle of January 2021 with the result that the reserve base was increased by 25.3 million silver equivalent ounces. However, the 2020 audited Full Year Reserves and Resources statement (on pages 54-56) does not include the results of January 2021 drill work which will be included in the 2021 statement.

During the first quarter of 2021, the goal is to carry out 2,500m of potential drilling in the extension of the Angela vein as well as the Eduardo vein structure. Drilling is also expected to start later in the year in areas further away from the current mine to identify new potential resources.

Pallancata

Pallancata's 2020 drilling programme was also affected by the Covid-related stoppage which halted work for the entire second quarter. In the first few months of the year, long hole drilling was executed from underground towards the Anomalia NE, Royropata, Veta 1, Mercedes, Luisa and Erika veins and 1,880m of drilling tracing the continuity of the Pallancata vein. The potential drilling campaign which took place mostly in the second half of the year involved almost 23,000m of drilling and was targeted towards the Elva, Oscar-Ignacio, Erika and Luciano veins and again the continuation of the Pallancata vein. A summary of drill results from 2020 are presented below:

 
 Vein            Results (potential/resource drilling) 
 Paola           DLLU-A206: 0.9m @ 1.3g/t Au & 479g/t Ag 
                ---------------------------------------- 
 Karina          DLLU-A206: 1.1m @ 6.8g/t Au & 539g/t Ag 
                ---------------------------------------- 
 Pallancata C    DLPL-A932: 4.6m @ 3.0g/t Au & 790g/t Ag 
                ---------------------------------------- 
 Puka            DLHU-A49: 1.9m @ 1.1g/t Au & 351g/t Ag 
                ---------------------------------------- 
 Oscar-Ignacio   DLER-A27: 2.0m @ 4.4g/t Au & 478g/t Ag 
                ---------------------------------------- 
 

Although no inferred resources were added during the year, the brownfield exploration team believes there remains potential to identify additional resources to extend the short-term life of the Pallancata mine. In the first half of 2021, the plan is to execute 3,000m of potential drilling to continue to test the continuity of the Pallancata vein as well as the Oscar-Ignacio and Luisa-Paola structures and also the potential extension to the Pablo vein. 1,500m of drilling is also planned for Cochaloma.

Corina

At Corina, to the north of Selene, 2,318m of resource drilling was executed towards the end of 2020 in the Corina structure with the key results below:

 
 Vein     Results (potential drilling) 
 Corina   DHCOR-20015: 25.7m @ 2.5g/t Au & 23g/t 
           Ag 
           including 2.5m @ 10.1g/t Au & 62g/t Ag 
           DHCOR-20018: 1.3m @ 1.2g/t Au & 14g/t Ag 
           DHCOR-20019: 4.8m @ 1.4g/t Au & 23g/t Ag 
           DHCOR-20020: 23.3m @ 4.9g/t Au & 43g/t 
           Ag 
           DHCOR-20021: 9.3m @ 3.9g/t Au & 47g/t Ag 
           including 2.3m @ 8.4g/t Au & 88g/t Ag 
           DHCOR-20022: 1.2m @ 1.4g/t Au & 3g/t Ag 
           DHCOR-20025: 4.8m @ 3.6g/t Au & 19g/t Ag 
         ------------------------------------------ 
 

Drilling continues with resource and potential drilling in the Corina vein and associated structures to the north east of the system. A maiden resource is expected to be established in the next few months.

San Jose

At San Jose, 2,889m of potential drilling was executed before the stoppage in the first quarter in the Micaela Oeste, Emily, Karina and Carlos structures. When exploration restarted in the second quarter, further potential drilling was carried out throughout the remainder of the year towards the Ayelen, Erika, Mara, Sigmoide Julia, Sigmoide Luli, Emilia, Salvador, Micaela Oeste, Cindy and Saavedra targets. Resource drilling was also executed in the Betania and Isabel structures. A total of close to 45,000m of drilling was carried out in 2020 whilst, in the second quarter of the year, a Titan geophysics survey was completed.

 
 Vein                 Results (potential drilling) 
 Micaela Oeste        SJD-2070: 0.9m @ 9.6g/t Au & 207g/t Ag 
                     ----------------------------------------- 
 Carlos               SJD-2084: 1.9m @ 3.5g/t Au & 1,024g/t Ag 
                     ----------------------------------------- 
 Odin                 SJD-2103: 2.8m @ 17.1g/t Au & 591g/t Ag 
                       SJD-2109: 0.9m @ 6.9g/t Au & 126g/t Ag 
                       SJM-505: 2.6m @ 11.0g/t Au & 968g/t Ag 
                     ----------------------------------------- 
 Julia                SJD-2108: 1.0m @ 7.0g/t Au & 812g/t Ag 
                       SJD-2110: 1.2m @ 5.8g/t Au & 197g/t Ag 
                     ----------------------------------------- 
 Erika                SJD-2114: 0.8m @ 1.5g/t Au & 332g/t Ag 
                     ----------------------------------------- 
 New vein 1           SJD-2110: 0.9m @ 8.0g/t Au & 398g/t Ag 
                     ----------------------------------------- 
 Isabel               SJD-2145: 0.8m @ 1.7g/t Au & 449g/t Ag 
                       SJD-2210: 1.6m @ 5.6g/t Au & 648g/t Ag 
                       SJD-2211: 1.6m @ 3.7g/t Au & 376g/t Ag 
                     ----------------------------------------- 
 Horiz.Savedra        SJD-2154: 2.4m @ 4.9g/t Au & 19g/t Ag 
                     ----------------------------------------- 
 Emilia               SJM-511: 0.9m @ 1.8g/t Au & 248g/t Ag 
                     ----------------------------------------- 
 Cindy                SJM-518: 1.2m @ 3.8g/t Au & 407g/t Ag 
                     ----------------------------------------- 
 HVS                  SJD-2140: 3.4m @ 10.0g/t Au & 523g/t Ag 
                     ----------------------------------------- 
 Kospi                SJD-2129: 1.4m @ 6.2g/t Au & 1,309g/t Ag 
                     ----------------------------------------- 
 Sig. Luli            SJM-507: 1.1m @ 14.9g/t Au & 295g/t Ag 
                       SJM-508: 1.5m @ 2.4g/t Au & 248g/t Ag 
                     ----------------------------------------- 
 Alina                SJD-2176: 1.2m @ 1.1g/t Au & 319g/t Ag 
                     ----------------------------------------- 
 Ramal HVNX           SJD-2184: 1.2m @ 4.0g/t Au & 557g/t Ag 
                       SJD-2188: 1.3m @ 13.8g/t Au & 3,149g/t 
                       Ag 
                     ----------------------------------------- 
 Betania (Saavedra)   SJD-2207: 4.0m @ 1.4g/t Au & 760g/t Ag 
                     ----------------------------------------- 
 Luisa                SJD-2210: 0.9m @ 2.2/t Au & 722g/t Ag 
                     ----------------------------------------- 
 

During the first quarter of 2021, 2,000m of resource drilling is planned at the Betania and Isabel veins with campaigns also continuing at the Saavedra area, the Telken zone close to Cerro Negro and at Aguas Vivas to the north west of San Jose.

Arcata

Following the early receipt of the exploration permit at Arcata in the fourth quarter, 5,022m was drilled in the Fatima, Tres Reyes and the West veins with selected results below:

 
 Vein         Results (potential drilling) 
 Fatima       DDH-609-S20: 3.0m @ 1.4g/t Au & 760g/t 
               Ag 
             --------------------------------------- 
 Tres Reyes   DDH-611-S20: 1.3m @ 1.5g/t Au & 313g/t 
               Ag 
             --------------------------------------- 
 Jenny        DDH-611-S20: 0.9m @ 0.7g/t Au & 204g/t 
               Ag 
             --------------------------------------- 
 

A further 3,000m of drilling is planned for the first quarter of 2021 at the Baja, Fatima and Tres Reyes veins.

Crespo

At the Crespo open pit project close to Arcata, 1,973m of potential drilling was carried out in the fourth quarter of the year to confirm the lateral continuity of the orebody as well as a potential deepening of the breccia and testing of the surrounding colluvial deposits.

 
 Target               Results (potential/resource drilling) 
 Lateral extension    DDH-CRE-2001: 26.2m @ 1.2g/t Au & 82g/t 
                       Ag 
                     ------------------------------------------ 
 Extension at depth   DDH-CRE-2002: 16.5m @ 0.3g/t Au & 14g/t 
                       Ag 
                       DDH-CRE-2002: 12.8m @ 0.3g/t Au & 1g/t 
                       Ag 
                     ------------------------------------------ 
 Colluvial            ROT-CRE-2009: 30.0m@ 0.2g/t Au & 8g/t Ag 
                       ROT-CRE-2010: 12.0m@ 0.2g/t Au & 5g/t Ag 
                     ------------------------------------------ 
 

When the team returns in the second quarter after the rainy season, the programme will continue with 2,000m of drilling aimed at the extension and deepening of hydrothermal breccias and the colluvial deposits.

BIOLANTANIDOS

At the 100% owned Biolantanidos rare earths deposit in Chile, despite minor delays due to Covid-19, progress on the feasibility study was maintained with key advances made in geology, processing and equipment testing. The project's environmental permitting process continued to move forward and in addition, further brownfield targets were identified which are expected to increase the project's resources. Finally, the rare earths dedicated team grew as several key employees were added to the Biolantanidos organisation, including a new General Manager. The project remains on track to deliver a feasibility study towards the end of the first half of 2021.

GREENFIELD AND BUSINESS DEVELOPMENT

Hochschild's strategy with regards to its greenfield exploration programme is to maintain and drill a balanced portfolio of early-stage to advanced opportunities using a combination of earn-in joint ventures, private placements with junior exploration companies and the staking of properties.

In 2020, there was considerable disruption to the programme from the Covid-19 crisis but exploration work was possible later in the year at: the Cooke Mountain gold project owned by Adamera Minerals Corp in Washington State, U.S. the Horsethief project owned by Allianza Minerals Ltd in Nevada, U.S.; Los Cuarentas owned by Riverside Minerals in Sonora, Mexico along with Sarape owned by Orogen Royalties also in Sonora; and the Illipah project owned by EMX Royalty Corp also in Nevada.

In 2021, the greenfield and advanced project budget is set at $11 million and the Company expects to drill five to six prospects in Peru, the U.S. and Mexico.

Snip

At Snip in the Golden Triangle of British Columbia, Hochschild's partner, Skeena Resources Limited, announced a maiden resource in July 2020 at their 100%-owned Snip Gold Project in northwest British Columbia, Canada.

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

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

 
                                  Domain     Tonnes   Contained    Contained 
                                              (000)    Grade Au       Metal 
                                                        (g/t)      Au (000 oz) 
----------------------------- 
 Indicated Mineral Resources 
                               -----------  -------  ----------  ------------- 
                  Main - V                    165       12.8           68 
 -----------------------------------------  -------  ----------  ------------- 
                  Main - S                    337       15.0          163 
 -----------------------------------------  -------  ----------  ------------- 
                 Twin West                     37       10.4           12 
 -----------------------------------------  -------  ----------  ------------- 
 Total Indicated                              539       14.0          244 
                                            -------  ----------  ------------- 
 Inferred Mineral Resources 
                               -----------  -------  ----------  ------------- 
                  Main - V                    287       13.1          121 
 -----------------------------------------  -------  ----------  ------------- 
                  Main - S                    599       13.4          258 
 -----------------------------------------  -------  ----------  ------------- 
                 Twin West                     56       12.4           23 
 -----------------------------------------  -------  ----------  ------------- 
 Total Inferred                               942       13.3          402 
                                            -------  ----------  ------------- 
 

Skeena has recently completed a second drilling campaign to follow up on the first campaign from 2019 with the aim of expanding the resource. Results from the programme are pending.

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

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

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

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

FINANCIAL REVIEW

The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance, the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years.

Revenue

Gross revenue [9]

Gross revenue from continuing operations decreased by 18% to $641.4 million in 2019 (2019: $780.3 million) due to the effects of the production stoppages during the year resulting from the Covid-19 crisis. This was partially offset by a strong rise in average realised precious metal prices.

Gold

Gross revenue from gold in 2020 decreased to $376.9 million (2019: $449.0 million) due to the 35% fall in gold sales arising from the production stoppages. This was partially offset by a 28% increase in the average realised gold price.

Silver

Gross revenue from silver fell in 2020 to $264.5 million (2019: $331.2 million) due to a 41% fall in silver sales arising from the production stoppages. This was partially offset by a 35% increase in the average realised silver price.

Gross average realised sales prices

The following table provides figures for average realised prices ( before the deduction of commercial discounts) and ounces sold for 2020 and 2019:

 
 Average realised prices                Year ended     Year ended 
                                       31 Dec 2020    31 Dec 2019 
                                     -------------  ------------- 
 Silver ounces sold (koz)                   11,846         20,062 
 Avg. realised silver price ($/oz)            22.3           16.5 
 Gold ounces sold (koz)                     207.77         317.52 
 Avg. realised gold price ($/oz)             1,814          1,414 
-----------------------------------  -------------  ------------- 
 

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrate, and are deducted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In 2020, the Group recorded commercial discounts of $19.7 million (2019: $24.7 million) with the decrease explained by the significant reduction in production. The ratio of commercial discounts to gross revenue in 2020 was 3% (2019: 3%).

Net revenue

Net revenue was $621.8 million (2019: $755.7 million), comprising net gold revenue of $370.1 million (2019: $441.6 million) and net silver revenue of $251.6 million (2019: $314.0 million). In 2020, gold accounted for 60% and silver 40% of the Company's consolidated net revenue (2019: gold 58% and silver 42%).

Reconciliation of gross revenue by mine to Group net revenue

 
 $000                      Year ended     Year ended   % change 
                          31 Dec 2020    31 Dec 2019 
                        -------------  ------------- 
 Silver revenue 
 Arcata                             -          4,984          - 
 Inmaculada                    84,651         90,110        (6) 
 Pallancata                    83,405        121,494       (31) 
 San Jose                      96,472        114,623       (16) 
 Commercial discounts        (12,932)       (17,258)       (25) 
----------------------  -------------  -------------  --------- 
 Net silver revenue           251,596        313,953       (20) 
----------------------  -------------  -------------  --------- 
 Gold revenue 
 Arcata                             -            873          - 
 Inmaculada                   230,255        262,033       (12) 
 Pallancata                    24,154         37,237       (35) 
 San Jose                     122,483        148,901       (18) 
 Commercial discounts         (6,810)        (7,460)        (9) 
----------------------  -------------  -------------  --------- 
 Net gold revenue             370,082        441,584       (16) 
----------------------  -------------  -------------  --------- 
 Other revenue                    149            139          7 
----------------------  -------------  -------------  --------- 
 Net revenue                  621,827        755,676       (18) 
----------------------  -------------  -------------  --------- 
 

Cost of sales

Total cost of sales before exceptional items was $397.8 million in 2020 (2019: $512.7 million). The direct production cost excluding depreciation was lower at $218.2 million (2019: $327.7 million) mainly due to the Covid-related stoppages. Unallocated fixed costs at the operations incurred during the stoppages as well as abnormal costs during the phases of reduced production capacity were $46.5 million and are shown separately below. Depreciation in production cost fell to $113.1 million (2019: $184.4 million) due to lower extracted volumes across all operations. This figure does not include $1.8 million of depreciation incurred during the stoppages (also shown below within fixed costs during operational stoppages and reduced capacity line). The change in inventories was $17.3 million in 2020 (2019: $(3.8) million) due to a reduction in products in process (stockpiles and precipitates).

 
 $000                                  Year ended     Year ended   % Change 
                                      31 Dec 2020    31 Dec 2019 
                                    -------------  ------------- 
 Direct production cost excluding 
  depreciation                            218,212        327,660       (33) 
 Depreciation in production cost          113,146        184,388       (39) 
 Other items and workers profit 
  sharing                                   2,632          4,445       (41) 
 Fixed costs during operational            46,480              -          - 
  stoppages and reduced capacity 
 Change in inventories                     17,323        (3,782)      (558) 
----------------------------------  -------------  -------------  --------- 
 Cost of sales                            397,793        512,711       (22) 
----------------------------------  -------------  -------------  --------- 
 

Fixed costs at the operations during stoppages and reduced capacity

 
 $000 
 Personnel costs                 32,117 
 Third party services             8,948 
 Supplies                         1,698 
 Depreciation and amortisation    1,818 
 Others                           1,899 
 Total                           46,480 
 

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $119.9 per tonne in 2020, a 4% increase versus 2019 ($115.8 per tonne) mainly due to the expected lower tonnage rate at Pallancata. This was partially offset by lower temporary costs at San Jose as a result of using a higher proportion of mechanised mining due to Covid-related restrictions on staffing levels.

Unit cost per tonne by operation (including royalties) [10] :

 
 Operating unit ($/tonne)      Year ended     Year ended   % change 
                              31 Dec 2020    31 Dec 2019 
                            -------------  ------------- 
 Peru                                97.5           89.4          9 
 Inmaculada                          95.1           93.3          2 
 Pallancata                         101.2           83.8         21 
--------------------------  -------------  -------------  --------- 
 Arcata                                 -          182.2          - 
--------------------------  -------------  -------------  --------- 
 Argentina 
 San Jose                           199.4          219.2        (9) 
--------------------------  -------------  -------------  --------- 
 Total                              119.9          115.8          4 
--------------------------  -------------  -------------  --------- 
 

Cash costs

Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales.

Cash cost reconciliation [11]

Year ended 31 Dec 2020

 
 $000 unless otherwise indicated                   Inmaculada            Pallancata              San Jose       Total 
                                        ---------------------  --------------------  -------------------- 
 Group cash cost                                      102,135                62,181               107,119     271,435 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 (+) Cost of sales [12]                               154,950                83,272               113,091     351,313 
 (-) Depreciation and amortisation in 
  cost of sales                                      (55,338)              (28,608)              (30,716)   (114,662) 
 (+) Selling expenses                                     417                   632                11,705      12,754 
 (+) Commercial deductions [13]                         2,106                 6,885                13,039      22,030 
     Gold                                                 117                 1,102                 5,715       6,934 
     Silver                                             1,989                 5,783                 7,324      15,096 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 Revenue                                              314,906               100,674               206,098     621,678 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 Gold                                                 230,255                23,052               116,775     370,082 
 Silver                                                84,651                77,622                89,323     251,596 
 Others                                                     -                     -                     -           - 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 Ounces sold 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 Gold                                                   129.7                  12.8                  65.3       207.8 
 Silver                                                 4,020                 3,654                 4,172      11,846 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 Group cash cost ($/oz) 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 Co product Au                                            576                 1,112                   930         778 
 Co product Ag                                            6.8                  13.1                  11.1         9.3 
 By product Au                                            119               (1,658)                   160          23 
 By product Ag                                         (31.9)                  10.4                 (3.7)       (8.9) 
--------------------------------------  ---------------------  --------------------  --------------------  ---------- 
 

Year ended 31 Dec 2019

 
 $000 unless otherwise indicated                  Inmaculada            Pallancata              San Jose       Total 
                                        --------------------  --------------------  -------------------- 
 Group cash cost                                     127,690                90,705               152,873     378,931 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 (+) Cost of sales [14]                              206,199               129,771               169,955     512,711 
 (-) Depreciation and amortisation in 
  cost of sales                                     (81,570)              (51,195)              (49,862)   (182,676) 
 (+) Selling expenses                                    481                   996                19,444      21,071 
 (+) Commercial deductions [15]                        2,580                11,133                13,336      27,825 
     Gold                                                194                 1,772                 5,582       7,674 
     Silver                                            2,386                 9,361                 7,754      20,151 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 Revenue                                             352,143               147,598               250,715     755,676 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 Gold                                                262,033                35,465               143,339     441,584 
 Silver                                               90,110               112,133               107,376     313,953 
 Others                                                    -                     -                     -         139 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 Ounces sold 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 Gold                                                  188.6                  25.4                 102.8       317.5 
 Silver                                                5,732                 7,161                 6,846      20,062 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 Group cash cost ($/oz) 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 Co product Au                                           504                   857                   850         698 
 Co product Ag                                           5.7                   9.6                   9.6         7.8 
 By product Au                                           187               (1,210)                   367         141 
 By product Ag                                        (23.5)                   7.5                   0.6       (3.5) 
--------------------------------------  --------------------  --------------------  --------------------  ---------- 
 

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 [16]

All-in sustaining cash costs per silver equivalent ounce

Year ended 31 Dec 2020

 
  $000 unless            Inmaculada   Pallancata               San Jose                    Main   Corporate                Total 
  otherwise                                                                          operations           & 
  indicated                                                                                          others 
                        -----------  -----------  ---------------------  ----------------------  ---------- 
  (+) Direct 
   production 
   cost excluding 
   depreciation              86,874       51,534                 79,804                 218,212           -              218,212 
  (+) Other items and 
   workers profit 
   sharing 
   in cost of sales           1,383        1,249                      -                   2,632           -                2,632 
  (+) Operating and 
   exploration 
   capex for units 
   [17]                      62,128        7,506                 21,681                  91,315         447               91,762 
  (+) Brownfield 
   exploration 
   expenses                   2,526        4,652                  9,720                  16,898       3,745               20,643 
  (+) Administrative 
   expenses 
   (excl depreciation) 
   [18]                       3,768        1,205                  5,590                  10,563      30,533               41,096 
  (+) Royalties and 
   special 
   mining tax [19]            3,098          990                      -                   4,088       3,119                7,206 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  Sub-total                 159,777       67,136                116,795                 343,707      37,592              381,299 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  Au ounces produced        129,173       12,925                 64,987                 207,085           -              207,085 
  Ag ounces produced 
   (000s)                     4,034        3,679                  4,108                  11,821           -               11,821 
  Ounces produced (Ag 
   Eq 000s oz)               15,143        4,790                  9,697                  29,631           -               29,631 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  Sub-total ($/oz Ag 
   Eq)                         10.6         14.0                   12.0                    11.6           -                 12.9 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  (+) Commercial 
   deductions                 2,106        6,885                 13,039                  22,030           -               22,030 
  (+) Selling expenses          417          632                 11,705                  12,754           -               12,754 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  Sub-total                   2,523        7,517                 24,744                  34,784           -               34,784 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  Au ounces sold            129,697       12,798                 65,280                 207,776           -              207,776 
  Ag ounces sold 
   (000s)                     4,020        3,654                  4,172                  11,846           -               11,846 
  Ounces sold (Ag Eq 
   000s 
   oz)                       15,174        4,754                  9,786                  29,715           -               29,715 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  Sub-total ($/oz Ag 
   Eq)                          0.2          1.6                    2.5                     1.2           -                  1.2 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  All-in sustaining 
   costs 
   ($/oz Ag Eq)                10.7         15.6                   14.6                    12.8           -                 14.0 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
  All-in sustaining 
   costs 
   ($/oz Au Eq)                 922        1,341                  1,253                   1,098           -                1,208 
----------------------  -----------  -----------  ---------------------  ----------------------  ----------  ------------------- 
 

All-in sustaining cash costs do not include $44.7 million of fixed costs without depreciation incurred at the operations during the stoppages and abnormal costs during the phases of reduced production capacity. Also, not included in the figure are the exceptional Covid-19 response initiatives of $27.6 million corresponding to the operating mine units. These effects would have an impact on the AISC from main operations of $1.5/oz Ag Eq and $0.9/oz Ag Eq respectively.

Year ended 31 Dec 2019

 
  $000 unless                Inmaculada        Pallancata               San                 Main         Arcata             Corporate              Total 
  otherwise                                                            Jose           operations                                    & 
  indicated                                                                                                                    others 
                        ---------------  ----------------  ----------------  -------------------  -------------  -------------------- 
  (+) Production cost 
   excluding 
   depreciation                 124,814            75,590           120,529              320,933          6,727                     -            327,660 
  (+) Other items and 
   workers profit 
   sharing 
   in cost of sales               1,902             1,976               567                4,445              -                     -              4,445 
  (+) Operating and 
   exploration 
   capex for units 
   [20]                          66,435            26,605            41,406              134,446             42                 2,470            136,958 
  (+) Brownfield 
   exploration 
   expenses                       3,976             7,116             9,753               20,845          1,065                 3,954             25,864 
  (+) Administrative 
   expenses 
   (excl depreciation) 
   [21]                           3,917             1,642             6,215               11,774             44                31,669             43,487 
  (+) Royalties and 
   special 
   mining tax [22]                3,510             1,471                 -                4,981             47                 3,429              8,457 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  Sub-total                     204,554           114,400           178,470              497,424          7,925                41,522            546,871 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  Au ounces produced            189,180            25,952           105,478              320,611            966                     -            321,577 
  Ag ounces produced 
   (000s)                         5,747             7,259             6,846               19,851            311                     -             20,163 
  Ounces produced (Ag 
   Eq 000s oz)                   22,016             9,491            15,917               47,424            394                     -             47,818 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  Sub-total ($/oz Ag 
   Eq)                              9.3              12.1              11.2                 10.5           20.1                     -               11.4 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  (+) Commercial 
   deductions                     2,580            11,133            13,336               27,049            776                                   27,825 
  (+) Selling expenses              481               996            19,444               20,921            150                                   21,071 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  Sub-total                       3,061            12,129            32,780               47,970            926                     -             48,896 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  Au ounces sold                188,585            25,446           102,824              316,855            662                     -            317,515 
  Ag ounces sold 
   (000s)                         5,732             7,161             6,846               19,738            323                     -             20,062 
  Ounces sold (Ag Eq 
   000s 
   oz)                           21,951             9,349            15,688               46,988            380                     -             47,368 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  Sub-total ($/oz Ag 
   Eq)                              0.1               1.3               2.1                  1.0            2.4                     -                1.0 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  All-in sustaining 
   costs 
   ($/oz Ag Eq)                     9.4              13.4              13.3                 11.5           22.5                     -               12.5 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
  All-in sustaining 
   costs 
   ($/oz Au Eq)                     811             1,148             1,144                  990          1,938                     -              1,072 
----------------------  ---------------  ----------------  ----------------  -------------------  -------------  --------------------  ----------------- 
 

Administrative expenses

Administrative expenses were reduced by 6% to $43.3 million (2019: $45.9 million) due to cash optimisation measures implemented during the year as a result of the Covid-19 crisis.

Exploration expenses

In 2020, exploration expenses decreased to $32.8 million (2019: $38.0 million) mainly due to slower execution of the budgeted greenfield and brownfield programmes as a result of the Covid-19 lockdown.

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 categories. In 2020, the Company capitalised $1.7 million relating to brownfield exploration compared to $6.0 million in 2019, bringing the total investment in exploration for 2020 to $34.5 million (2019: $44.0 million).

Selling expenses

Selling expenses were reduced to $12.8 million (2019: $21.1 million) principally due to the fact that in Argentina, which levies export taxes, the San Jose operation was stopped for a significant period of time.

Other income/expenses

Other income was lower at $3.6 million (2019: $9.0 million) mainly due to a reduction in income from logistics services at the Matarani warehouse of $4.1 million.

Other expenses before exceptional items were lower at $28.9 million (2019: $33.9 million) mainly due to lower care and maintenance expenses at Arcata and Ares of $5.6 million (2019: $9.5 million), partially offset by higher increase in the provision for mine closure of $16.1 million (2019: $13.6 million), mainly as a result of the incremental budget to close the Ares tailings dam. Other expenses also include lower corporate social responsibility tax in Argentina at $2.7 million (2019: $3.8 million) and lower adjustment to receivables in Peru of $1.0 million (2019: $3.7 million).

Adjusted EBITDA

Adjusted EBITDA decreased by 21% to $270.9 million (2019: $343.3 million) primarily due to the fall in revenue resulting from the operational stoppages due to the Covid crisis and in spite of significantly increased precious metal prices.

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange losses and income tax plus non-cash items (depreciation and amortisation and changes in mine closure provisions) and exploration expenses other than personnel and other exploration related fixed expenses.

 
 $000 unless otherwise indicated                                                  Year ended     Year ended   % change 
                                                                                 31 Dec 2020    31 Dec 2019 
                                                                               -------------  ------------- 
 Profit from continuing operations before exceptional items, net finance 
  income/(cost), foreign 
  exchange loss and income tax                                                       107,837        112,276        (4) 
 Depreciation and amortisation in cost of sales                                      116,480        182,676       (37) 
 Depreciation and amortisation in administrative expenses and other expenses           2,158          2,480         60 
 Exploration expenses                                                                 32,795         37,965       (14) 
 Personnel and other exploration related fixed expenses                              (6,486)        (6,316)          3 
 Other non-cash income, net [23]                                                      18,134         14,251         27 
-----------------------------------------------------------------------------  -------------  -------------  --------- 
 Adjusted EBITDA                                                                     270,918        343,332       (21) 
-----------------------------------------------------------------------------  -------------  -------------  --------- 
 Adjusted EBITDA margin                                                                  44%            45% 
-----------------------------------------------------------------------------  -------------  -------------  --------- 
 

Finance income

Finance income before exceptional items of $4.2 million increased from 2019 ($2.9 million) mainly due to an increase in the fair value of the Group's holding in Americas Gold & Silver Corporation shares of $1.1 million (resulting from the sale of the San Felipe deposit).

Finance costs

Finance costs before exceptional items increased from $10.0 million in 2019 to $23.6 million in 2020, principally due to foreign exchange transaction costs to acquire $14.4 million dollars in Argentina, which resulted in a loss of $12.8 million (2019: $3.0 million). Also, costs increased as a result of interest expenses from the incremental debt raised in Peru in December 2019 ($200 million medium term loan which was a $50 million debt increase in the country) and the short term debt raised in Argentina to improve the cash position to pay for Covid expenses ($10 million as of December 2020).

Foreign exchange (losses)/gains

The Group recognised a foreign exchange loss of $2.6 million (2019: $1.8 million loss) as a result of exposures in currencies other than the functional currency - the Peruvian sol and the Argentinean peso which both depreciated in 2020.

Income tax

The Company's pre-exceptional income tax charge was $49.6 million (2019: $43.3 million). The increase in the charge is explained by the non-cash impact of local currency devaluation in Peru and Argentina which reduced the tax bases and impacted the deferred income tax by $11.7 million (2019: $1.5 million). There was also a negative impact from non-deductible expenses related to buying US dollars in Argentina of $4.1 million. The currency devaluation impact on income tax was partially offset by lower profit in line with lower production volumes.

The effective tax rate (pre-exceptional) for the period was 57.8% (2019: 41.9%), compared to the weighted average statutory income tax rate of 30.8% (2019: 30.9%). The high effective tax rate in 2020 versus the average statutory rate is mainly explained by the impact of local currency devaluation increasing the rate by 13.6%, the impact from Royalties and the Special Mining Tax which increased the effective rate by 8.4%, the impact of non-deductible expenses related to buying US dollars in Argentina (4.8%) and the impact from lower profit in the period which amplifies the effect of minor non-deductible expenses.

Exceptional items

Exceptional items in 2020 totalled a $15.8 million loss after tax (2019: $18.6 million loss after tax). Exceptional items mainly included Covid-19 response initiatives of $31.2 million distributed between cost of sales and other expenses, as well as the reversal of impairment of the San Jose mine unit of $8.3 million, partially offset by the associated tax effect.

The Covid initiatives include: incremental personnel expenses which are mainly one-off bonuses paid to those workers required to oversee critical processes during period of suspension; donations; accommodation whilst testing all workers for active Covid-19 cases prior to travelling to mine units; and additional transportation costs to facilitate social distancing. These items are presented as exceptional as they are incremental to the Group's regular business, resulting from initiatives to respond to the impact from Covid-19. They are material impacts and are not expected to be recurring. In 2019, there was the payment of termination benefits due to the restructuring process generated by the temporary suspension of operations at the Arcata mine unit ($12.2 million) and the impairment of Pallancata ($14.7 million), partially offset by their corresponding tax effect.

Covid-19 response initiatives [24]

 
 $000                      Peru   Argentina    Total 
                        -------  ---------- 
 Personnel                4,594           -    4,594 
 Donations                1,364         123    1,488 
 Third party services    16,928       5,667   22,595 
 Others                   2,470          80    2,550 
----------------------  -------  ----------  ------- 
 Total                   25,356       5,870   31,226 
----------------------  -------  ----------  ------- 
 

The tax effect of these exceptional items was a $7.2 million tax gain (2019: $7.9 million tax gain). The total effective tax rate was 68.0% (2019: 44.8%).

Cash flow and balance sheet review

Cash flow:

 
 $000                                         Year ended     Year ended     Change 
                                                  31 Dec    31 Dec 2019 
                                                    2020 
                                             -----------  ------------- 
 Net cash generated from operating 
  activities                                     195,374        283,259   (87,885) 
 Net cash used in investing activities         (112,229)      (203,613)     91,384 
 Cash flows generated (used in)/generated 
  from financing activities                     (12,411)          9,211   (21,622) 
 Foreign exchange adjustment                     (5,208)        (2,204)    (3,004) 
-------------------------------------------  -----------  -------------  --------- 
 Net increase in cash and cash equivalents 
  during the year                                 65,526         86,653   (21,127) 
-------------------------------------------  -----------  -------------  --------- 
 

Net cash generated from operating activities decreased from $283.3 million in 2019 to $195.4 million in 2020 mainly due to lower Adjusted EBITDA of $270.9 million (2019: $343.3.0 million).

Net cash used in investing activities decreased to $112.2 million in 2020 from $203.6 million in 2019 mainly due to the impact of the acquisition of the Biolantanidos project in 2019 and lower mine developments due to the Covid-related stoppages at the operations.

Cash from financing activities decreased to an outflow of $12.4 million from an inflow of $9.2 million in 2019, primarily due to lower net debt raised in 2020 of $10.8 million (2019: $44.0 million) and the payment of $20.9 million of dividends in 2020 (2019: $31.3 million).

Working capital

 
 $000                                            As at               As at 
                                      31 December 2020    31 December 2019 
                                    ------------------ 
 Trade and other receivables                    78,196              73,618 
 Inventories                                    42,362              62,600 
 Derivative financial liabilities              (1,500)                   - 
 Income tax payable, net                      (20,709)            (11,005) 
 Trade and other payables                    (114,415)           (120,537) 
 Provisions                                   (25,504)            (16,249) 
----------------------------------  ------------------  ------------------ 
 Working capital                              (41,570)            (11,573) 
----------------------------------  ------------------  ------------------ 
 

The Group's working capital position improved in 2020 from $(11.6) million to $(41.6) million. The key drivers were: lower inventories of $20.2 million; higher income tax payable of $(9.7) million; and higher provisions of $(9.3) million. These effects were partially offset by lower trade and other receivables of $4.6 million and lower trade and other payables of $6.1 million.

Net debt

 
 $000 unless otherwise indicated           As at               As at 
                                     31 December    31 December 2019 
                                            2020 
                                   ------------- 
 Cash and cash equivalents               231,883             166,357 
 Non-current borrowings                (199,554)           (199,308) 
 Current borrowings [25]                (10,778)               (234) 
---------------------------------  -------------  ------------------ 
 Net cash/(debt)                          21,551            (33,185) 
---------------------------------  -------------  ------------------ 
 

The Group's reported net cash position was $21.6 million as at 31 December 2020 (31 December 2019: net debt of $33.2 million). The Group benefited from strong cashflow generation resulting from the high precious metal prices and this was only moderately offset by an increase in current borrowings in Argentina.

Capital expenditure ([26])

 
 $000                    Year ended     Year ended 
                        31 Dec 2020    31 Dec 2019 
                      ------------- 
 Arcata                         105             42 
 Pallancata                   7,506         26,605 
 San Jose                    23,030         43,623 
 Inmaculada                  62,128         66,435 
--------------------  -------------  ------------- 
 Operations                  92,769        136,663 
 Biolantanidos [27]           8,650         60,726 
 Other                        6,505          7,727 
--------------------  -------------  ------------- 
 Total                      107,924        205,116 
--------------------  -------------  ------------- 
 

2020 capital expenditure of $107.9 million (2019: $205.1 million) mainly comprised of operational capex of $92.8 million (2019: $136.7 million) with the decrease versus 2019 resulting from deferred capex at all operations due to the impact of the Covid-19 pandemic.

Forward looking Statements

This announcement contains certain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its current goals, assumptions and expectations relating to its future financial condition, performance and results.

Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. The Company cautions against undue reliance on any forward looking statement or guidance, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption caused by Covid-19. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

o the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

o the Management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2020

 
                                     Year ended 31 December                Year ended 31 December 
                                              2020                                  2019 
                              ====================================  ==================================== 
                                            Exceptional                           Exceptional 
                                    Before        items                   Before        items 
                               exceptional        (note              exceptional        (note 
                                     items          10)      Total         items          10)      Total 
                       Notes        US$000       US$000     US$000        US$000       US$000     US$000 
====================   =====  ============  ===========  =========  ============  ===========  ========= 
Continuing 
operations 
Revenue                    4       621,827            -    621,827       755,676            -    755,676 
Cost of sales              5     (397,793)     (27,613)  (425,406)     (512,711)            -  (512,711) 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Gross profit                       224,034     (27,613)    196,421       242,965            -    242,965 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Administrative 
 expenses                  6      (43,282)            -   (43,282)      (45,920)            -   (45,920) 
Exploration expenses       7      (32,795)            -   (32,795)      (37,965)            -   (37,965) 
Selling expenses           8      (12,754)            -   (12,754)      (21,071)            -   (21,071) 
Other income              11         3,617            -      3,617         9,014            -      9,014 
Other expenses            11      (28,905)      (3,613)   (32,518)      (33,894)     (12,199)   (46,093) 
Impairment and 
 write-off 
 of non-current 
 assets, net                       (2,078)        8,303      6,225         (853)     (14,378)   (15,231) 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Profit/(loss) from 
 continuing 
 operations before 
 net finance 
 income/(cost), 
 foreign exchange 
 loss and income tax               107,837     (22,923)     84,914       112,276     (26,577)     85,699 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Finance income            12         4,197            -      4,197         2,938            -      2,938 
Finance costs             12      (23,560)            -   (23,560)      (10,038)            -   (10,038) 
Foreign exchange 
 loss, net                         (2,631)            -    (2,631)       (1,757)            -    (1,757) 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Profit/(loss) from 
 continuing 
 operations before 
 income 
 tax                                85,843     (22,923)     62,920       103,419     (26,577)     76,842 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Income tax 
 (expense)/benefit        13      (49,651)        7,157   (42,494)      (43,336)        7,933   (35,403) 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Profit/(loss) for the 
 year 
 from continuing 
 operations                         36,192     (15,766)     20,426        60,083     (18,644)     41,439 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Attributable to: 
====================   =====  ============  ===========  =========  ============  ===========  ========= 
Equity shareholders 
 of the 
 Parent                             31,962     (16,800)     15,162        47,598     (18,644)     28,954 
Non-controlling 
 interests                           4,230        1,034      5,264        12,485            -     12,485 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
                                    36,192     (15,766)     20,426        60,083     (18,644)     41,439 
                       =====  ============  ===========  =========  ============  ===========  ========= 
Basic earnings/(loss) 
 per 
 ordinary share from 
 continuing 
 operations for the 
 year 
 (expressed in US 
 dollars 
 per share)               14          0.06       (0.03)       0.03          0.09       (0.03)       0.06 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
Diluted 
 earnings/(loss) 
 per ordinary share 
 from 
 continuing 
 operations for 
 the year (expressed 
 in US 
 dollars per share)       14          0.06       (0.03)       0.03          0.09       (0.03)       0.06 
=====================  =====  ============  ===========  =========  ============  ===========  ========= 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2020

 
                                                                      Year ended 
                                                                      31 December 
                                                                   ================ 
                                                                      2020     2019 
                                                            Notes   US$000   US$000 
=========================================================   =====  =======  ======= 
Profit for the year                                                 20,426   41,439 
==========================================================  =====  =======  ======= 
Other comprehensive income that might be reclassified 
 to profit or loss in subsequent periods, net 
 of tax: 
Net loss on cash flow hedges                                       (5,913)        - 
Deferred tax benefit on cash flow hedges                       27    1,744        - 
Exchange differences on translating foreign operations                 159    (327) 
==========================================================  =====  =======  ======= 
                                                                   (4,010)    (327) 
                                                            =====  =======  ======= 
Other comprehensive income that will not be reclassified 
 to profit or loss in subsequent periods, net 
 of tax: 
Net gain on equity instruments at fair value 
 through other comprehensive income ('OCI')                    18    1,765    3,628 
==========================================================  =====  =======  ======= 
                                                                     1,765    3,628 
                                                            =====  =======  ======= 
Other comprehensive (loss)/income for the year, 
 net of tax                                                        (2,245)    3,301 
==========================================================  =====  =======  ======= 
Total comprehensive income for the year                             18,181   44,740 
==========================================================  =====  =======  ======= 
Total comprehensive income attributable to : 
Equity shareholders of the Company                                  12,917   32,255 
Non-controlling interests                                            5,264   12,485 
==========================================================  =====  =======  ======= 
                                                                    18,181   44,740 
                                                            =====  =======  ======= 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

 
                                                                   As at         As at 
                                                             31 December   31 December 
                                                                    2020          2019 
                                                     Notes        US$000        US$000 
==================================================   =====  ============  ============ 
ASSETS 
==================================================   =====  ============  ============ 
Non-current assets 
Property, plant and equipment                           15       787,663       795,277 
Evaluation and exploration assets                       16       192,121       181,562 
Intangible assets                                       17        21,564        22,359 
Financial assets at fair value through OCI              18           402         6,159 
Financial assets at fair value through profit 
 and loss                                               19         5,407             - 
Trade and other receivables                             20         5,395         5,188 
Deferred income tax assets                              27         1,009         1,627 
===================================================  =====  ============  ============ 
                                                               1,013,561     1,012,172 
                                                     =====  ============  ============ 
Current assets 
Inventories                                             21        42,362        62,600 
Trade and other receivables                             20        78,196        73,618 
Income tax receivable                                                 59           206 
Cash and cash equivalents                               22       231,883       166,357 
Assets held for sale                                    23             -        38,295 
===================================================  =====  ============  ============ 
                                                                 352,500       341,076 
                                                     =====  ============  ============ 
Total assets                                                   1,366,061     1,353,248 
===================================================  =====  ============  ============ 
EQUITY AND LIABILITIES 
==================================================   =====  ============  ============ 
Capital and reserves attributable to shareholders 
 of the Parent 
Equity share capital                                             226,506       226,506 
Share premium                                                    438,041       438,041 
Other reserves                                                 (225,664)     (221,800) 
Retained earnings                                                287,652       290,263 
===================================================  =====  ============  ============ 
                                                                 726,535       733,010 
                                                     =====  ============  ============ 
Non-controlling interests                                         79,550        74,631 
===================================================  =====  ============  ============ 
Total equity                                                     806,085       807,641 
===================================================  =====  ============  ============ 
Non-current liabilities 
Trade and other payables                                24           205           526 
Derivative financial liabilities                                   4,503             - 
Borrowings                                              25       199,554       199,308 
Provisions                                              26       109,033        99,322 
Deferred income                                                        -           172 
Deferred income tax liabilities                         27        73,316        63,103 
===================================================  =====  ============  ============ 
                                                                 386,611       362,431 
                                                     =====  ============  ============ 
Current liabilities 
Trade and other payables                                24       114,415       120,537 
Derivative financial liabilities                                   1,500             - 
Borrowings                                              25        10,778           234 
Provisions                                              26        25,504        16,249 
Deferred income                                                      400           400 
Income tax payable                                                20,768        11,211 
Liabilities directly associated with asset held 
 for sale                                               23             -        34,545 
===================================================  =====  ============  ============ 
                                                                 173,365       183,176 
                                                     =====  ============  ============ 
Total liabilities                                                559,976       545,607 
===================================================  =====  ============  ============ 
Total equity and liabilities                                   1,366,061     1,353,248 
===================================================  =====  ============  ============ 
 

These financial statements were approved by the Board of Directors on 17 February 2021 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

17 February 2021

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2020

 
                                                                   Year ended 
                                                                   31 December 
                                                              ==================== 
                                                                   2020       2019 
                                                       Notes     US$000     US$000 
====================================================   =====  =========  ========= 
Cash flows from operating activities 
Cash generated from operations                                  208,999    290,316 
Interest received                                                 2,292      2,622 
Interest paid                                                   (6,312)    (4,955) 
Payment of mine closure costs                             26    (3,987)    (3,488) 
Income tax, special mining tax and mining royalty 
 paid 1                                                         (5,618)    (1,236) 
=====================================================  =====  =========  ========= 
Net cash generated from operating activities                    195,374    283,259 
=====================================================  =====  =========  ========= 
Cash flows from investing activities 
Purchase of property, plant and equipment                      (94,046)  (133,724) 
Purchase of evaluation and exploration assets             16   (13,287)   (68,632) 
Purchase of intangibles                                   17          -        (2) 
Purchase of financial assets at fair value through 
 OCI                                                      18          -    (1,100) 
Purchase of Argentinian bonds                             12   (27,256)   (14,795) 
Proceeds from sale of Argentinian bonds                   12     14,486     11,835 
Proceeds from sale of financial assets at fair 
 value through OCI                                        18      7,522        421 
Proceeds from deferred income                                         -      2,250 
Proceeds from sale of property, plant and equipment                 352        134 
=====================================================  =====  =========  ========= 
Net cash used in investing activities                         (112,229)  (203,613) 
=====================================================  =====  =========  ========= 
Cash flows from financing activities 
Proceeds from borrowings                                  25     48,520    316,500 
Transaction costs related to borrowings                   25          -      (692) 
Repayment of borrowings                                   25   (37,717)  (272,500) 
Payment of lease liabilities                                    (2,021)    (2,506) 
Purchase of treasury shares                                       (292)      (309) 
Dividends paid to non-controlling interests               28      (345)   (11,069) 
Dividends paid                                                 (20,556)   (20,213) 
=====================================================  =====  =========  ========= 
Cash flows (used in)/generated from financing 
 activities                                                    (12,411)      9,211 
=====================================================  =====  =========  ========= 
Net increase in cash and cash equivalents during 
 the year                                                        70,734     88,857 
Exchange difference                                             (5,208)    (2,204) 
Cash and cash equivalents at beginning of year            22    166,357     79,704 
=====================================================  =====  =========  ========= 
Cash and cash equivalents at end of year                  22    231,883    166,357 
=====================================================  =====  =========  ========= 
 

1 Taxes paid have been offset with value added tax (VAT) credits of US$3,390,000 (2019:US$3,717,000).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year 31 December 2020

 
                                                                                      Other reserves 
                                                       ============================================================================ 
                                                            Fair 
                                                           value 
                                                         reserve 
                                                              of                                                                                     Capital 
                                                       financial                                                                                and reserves 
                                                          assets                                                                                attributable 
                                                         at fair                          Unrealised              Share-                                  to 
                            Equity                         value              Cumulative       gain/               based      Total             shareholders 
                             share    Share  Treasury    through  Dividends  translation      (loss)     Merger  payment      other   Retained        of the  Non-controlling     Total 
                           capital  premium    shares        OCI    expired   adjustment   on hedges    reserve  reserve   reserves   earnings        Parent        interests    equity 
                    Notes   US$000   US$000    US$000     US$000     US$000       US$000      US$000     US$000   US$000     US$000     US$000        US$000           US$000    US$000 
=================   =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Balance at 1 
 January 
 2019                      225,409  438,041         -    (4,324)         62     (13,708)           -  (210,046)    4,860  (223,156)    278,995       719,289           71,003   790,292 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Other 
 comprehensive 
 income/(expense)                -        -         -      3,628          -        (327)           -          -        -      3,301          -         3,301                -     3,301 
Profit for the 
 year                            -        -         -          -          -            -           -          -        -          -     28,954        28,954           12,485    41,439 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Total 
 comprehensive 
 income/ 
 (expense) for the 
 year                            -        -         -      3,628          -        (327)           -          -        -      3,301     28,954        32,255           12,485    44,740 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Sale of financial 
 assets 
 at fair value 
 through 
 OCI                   18        -        -         -      1,658          -            -           -          -        -      1,658    (1,658)             -                -         - 
Transfer of 
 financial 
 assets at fair 
 value 
 through OCI to 
 subsidiary                      -        -         -      (944)          -            -           -          -        -      (944)        944             -                -         - 
Issuance of shares           1,097        -         -          -          -            -           -          -        -          -          -         1,097                -     1,097 
Exercise of share 
 options                         -        -       309          -          -            -           -          -  (4,647)    (4,647)      3,241       (1,097)                -   (1,097) 
Expiration of 
 dividends                       -        -         -          -         37            -           -          -        -         37          -            37                2        39 
Dividends              28        -        -         -          -          -            -           -          -        -          -   (20,213)      (20,213)                -  (20,213) 
Dividends to non - 
 controlling 
 interests             28        -        -         -          -          -            -           -          -        -          -          -             -          (8,859)   (8,859) 
Purchase of 
 treasury 
 shares                          -        -     (309)          -          -            -           -          -        -          -          -         (309)                      (309) 
Share-based 
 payments                        -        -         -          -          -            -           -          -    1,951      1,951          -         1,951                -     1,951 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Balance at 31 
 December 
 2019                      226,506  438,041         -         18         99     (14,035)           -  (210,046)    2,164  (221,800)    290,263       733,010           74,631   807,641 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Other 
 comprehensive 
 income/(expense)                -        -         -      1,765          -          159     (4,169)          -        -    (2,245)          -       (2,245)                -   (2,245) 
Profit for the 
 year                            -        -         -          -          -            -           -          -        -          -     15,162        15,162            5,264    20,426 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Total 
 comprehensive 
 income/ 
 (expense) for the 
 year                            -        -         -      1,765          -          159     (4,169)          -        -    (2,245)     15,162        12,917            5,264    18,181 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Sale of financial 
 assets 
 at fair value 
 through 
 OCI                   18        -        -         -    (1,988)          -            -           -          -        -    (1,988)      1,988             -                -         - 
Exercise of share 
 options                         -        -       292          -          -            -           -          -  (1,087)    (1,087)        795             -                -         - 
Dividends              28        -        -         -          -          -            -           -          -        -          -   (20,556)      (20,556)                -  (20,556) 
Dividends to non - 
 controlling 
 interests             28        -        -         -          -          -            -           -          -        -          -          -             -            (345)     (345) 
Purchase of 
 treasury 
 shares                          -        -     (292)          -          -            -           -          -        -          -          -         (292)                -     (292) 
Share-based 
 payments                        -        -         -          -          -            -           -          -    1,456      1,456          -         1,456                -     1,456 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
Balance at 31 
 December 
 2020                      226,506  438,041         -      (205)         99     (13,876)     (4,169)  (210,046)    2,533  (225,664)    287,652       726,535           79,550   806,085 
==================  =====  =======  =======  ========  =========  =========  ===========  ==========  =========  =======  =========  =========  ============  ===============  ======== 
 
 

1 Notes to the condensed consolidated financial statements

For the year ended 31 December 2020

The financial information for the year ended 31 December 2020 and 2019 contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the years ended 31 December 2020 and 2019 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2020 which have been approved by the directors on 17 February 2021 and will be delivered to the Registrar of Companies in due course. The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

2 Significant accounting policies

Basis of preparation

The consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applied in the European Union (EU).

The basis of preparation and accounting policies used in preparing the consolidated financial statements for the years ended 31 December 2020 and 2019 are set out below. The consolidated financial statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments that are measured at fair value at the end of each reporting period, as explained below. These accounting policies have been consistently applied, except for the effects of the adoption of new and amended accounting standard.

The financial statements are presented in US dollars (US$) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.

Going concern

The Group's business activities, its future development and the factors likely to affect its performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowings are described in the Financial Review and discussion of the Group's viability on the occurrence of certain scenarios is provided in the Viability Statement. In addition, the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk.

Despite the recent domestic lockdown announced by the Government in Peru, mining has been allowed to continue to operate along with other industries as they are critical to the recovery of the national economy. In Argentina, the central government has declared mining an essential activity for the economy and the local authorities in the Santa Cruz province (where the San Jose mine is located) are also providing support for the continuity of the mining industry which is of critical regional importance.

The Directors therefore consider the risk of another government-imposed suspension across all operations to be low. In addition, the Group's mines are located in isolated areas with low Covid infection rates, thus allowing the Company to control and closely monitor access to its facilities.

As demonstrated throughout the Annual Report, the Group has implemented a wide-ranging action plan to mitigate the risk of localised Covid outbreaks at the Group's operations. The plan includes various health and safety protocols which go well beyond those required by law and include (a) the physical adaptation of the mining units to ensure that they are Covid secure, (b) the systematic use of antigen testing prior to transporting personnel to the mine units (c) strict hygiene and social distancing rules, and (d) the use of technology-based systems to track suspected cases.

Further information on the action taken by the Company in 2020 can be found on pages XX (Risk Management Report) and XX ([the Covid pages in the Annual Report]).

Management will continue to monitor its approach which will evolve over time as knowledge of the virus (and any variants) deepens and will seek to incorporate industry best practice.

The Directors have reviewed liquidity and covenant forecasts for the Group taking into account the impact of Covid-19 and they have also considered potential downside scenarios and the availability of mitigating action in assessing whether the Group is able to continue in operation during the period to 31 March 2022, which is at least 12 months from the date of these financial statements.

More specifically, the scenarios reviewed by the Directors included a base case (the "Base Scenario"), reflecting budgeted production for 2021 and the Life of Mine plan for Q1 2022, incremental Covid-related costs and average precious metal prices of US$1,919/oz for gold and US$25.6/oz for silver, being the average analysts' consensus for the next 15 months (the "Assumed Prices"). Taking into account the risks associated with Covid, described in the Risk Management report, the Directors also reviewed two other scenarios considering further periods of stoppage and extended incremental Covid-related costs. Separately, and in line with their usual practice, the Directors considered the impact on the Group's cash balance and debt covenant compliance under each scenario, applying different precious metal price assumptions.

Finally, the Directors reviewed a "Remote Scenario" which takes into account a combination of (a) precious metal prices which are 20% lower than the Assumed Prices (US$1,535/oz for gold and US$20.5/oz for silver which are significantly below current spot and futures forecast prices) (b) an eight-week suspension of all operations (c) forecast expenditure according to the Base Scenario and (d) incremental Covid related costs until March 2022.

The Remote Scenario naturally resulted in a reduced cash balance but which nevertheless remains adequate for the Group's forecast expenditure with sufficient headroom maintained to comply with debt covenants. In each scenario, it has been assumed that all employees remain on full pay and that no further mitigating actions would be necessary to maintain an adequate level of liquidity.

In conclusion, the Directors have a reasonable expectation that the Group and the Company have adequate resources, which would see it continue in operation for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Changes in accounting policy 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 2019, except for the adoption of new standards and interpretations effective for the Group from 1 January 2020. Other amendments and interpretations apply for the first time in 2020, but do not have an impact on the 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.

3 Segment reporting

The Group's activities are principally related to mining operations which involve the exploration, production and sale of gold and silver. Products are subject to the same risks and returns and are sold through similar distribution channels. The Group undertakes a number of activities solely to support mining operations including power generation and services. Transfer prices between segments are set on an arm's length basis in a manner similar to that used for third parties. Segment revenue, segment expense and segment results include transfers between segments at market prices. Those transfers are eliminated on consolidation.

For internal reporting purposes, management takes decisions and assesses the performance of the Group through

consideration of   the   following reporting segments: 

-- Operating unit - San Jose, which generates revenue from the sale of gold and silver (dore and concentrate).

-- Operating unit - Pallancata, which generate revenue from the sale of gold and silver (concentrate).

-- Operating unit - Inmaculada, which generates revenue from the sale of gold and silver (dore).

-- Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the aim of extending the life of mine of existing operations and to assess the feasibility of new mines. The exploration segment includes costs charged to the profit and loss and capitalised as assets.

-- Other - includes the profit or loss generated by Empresa de Transmisión Aymaraes S.A.C. The Arcata mine unit was put into care and maintenance on 13 February 2019 and consequently the revenue generated from the sale of gold and silver concentrate (US$5,081,000) is reported in others from 1 January 2020.

The Group's administration, financing, other activities (including other income and expense), and income taxes are managed at a corporate

level and are not allocated to operating segments.

Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial information

based on the adopted IFRS accounting policies in the financial statements.

The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit, selling expenses

and exploration expenses.

Segment assets include items that could be allocated directly to the segment.

(a) Reportable segment information

 
                                                                                 Adjustment 
                                                                                        and 
                      Pallancata  San Jose  Inmaculada  Exploration   Other1   eliminations      Total 
                          US$000    US$000      US$000       US$000   US$000         US$000     US$000 
==================    ==========  ========  ==========  ===========  =======  =============  ========= 
Year ended 31 
December 
2020 
==================    ==========  ========  ==========  ===========  =======  =============  ========= 
Revenue from 
 external 
 customers                96,134   199,803     314,742            -      149              -    610,828 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Inter segment 
 revenue                       -         -           -            -    6,918        (6,918)          - 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total revenue from 
 customers                96,134   199,803     314,742            -    7,067        (6,918)    610,828 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Provisional pricing 
 adjustment                4,540     6,295         164            -        -              -     10,999 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total revenue            100,674   206,098     314,906            -    7,067        (6,918)    621,827 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Segment 
 profit/(loss)             3,989    47,290     129,103     (33,436)    5,699        (1,773)    150,872 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Others2                                                                                       (87,952) 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Profit from 
 continuing 
 operations before 
 income 
 tax                                                                                            62,920 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Other segment 
information 
==================    ==========  ========  ==========  ===========  =======  =============  ========= 
Depreciation3           (28,969)  (31,238)    (54,522)        (406)  (3,734)              -  (118,869) 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Amortisation                   -     (552)        (82)        (442)     (39)              -    (1,115) 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Impairment and 
 write-off 
 of assets, net            (221)     7,750       (535)        (720)     (49)              -      6,225 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Assets 
==================    ==========  ========  ==========  ===========  =======  =============  ========= 
Capital expenditure        7,399    23,030      62,128       12,772    2,595              -    107,924 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Current assets            24,692    43,735      14,613            -    4,675              -     87,715 
Other non-current 
 assets                   33,784   166,887     516,505      232,135   52,037              -  1,001,348 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total segment assets      58,476   210,622     531,118      232,135   56,712              -  1,089,063 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Not reportable 
 assets4                       -         -           -            -  276,998              -    276,998 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total assets              58,476   210,622     531,118      232,135  333,710              -  1,366,061 
====================  ==========  ========  ==========  ===========  =======  =============  ========= 
 

1 'Other' revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.

2 Comprised of administrative expenses of US$43,282,000, other income of US$3,617,000, other expenses of US$32,518,000, write-off of assets (net) of US$2,078,000, reversal of impairment of assets of US$8,303,000, finance income of US$4,197,000, finance expense of US$23,560,000, and foreign exchange loss of US$2,631,000.

3 Includes depreciation capitalised in the Crespo project (US$768,000), and San Jose unit (US$1,349,000).

4 Not reportable assets are comprised of financial assets at fair value through OCI of US$402,000, financial assets at fair value through profit and loss of US$5,407,000, other receivables of US$38,238,000, income tax receivable of US$59,000, deferred income tax asset of US$1,009,000, and cash and cash equivalents of US$231,883,000.

 
                                                                                   Adjustment 
                                                                                          and 
                        Pallancata  San Jose  Inmaculada  Exploration   Other1   eliminations      Total 
                            US$000    US$000      US$000       US$000   US$000         US$000     US$000 
=====================   ==========  ========  ==========  ===========  =======  =============  ========= 
Year ended 31 
December 
2019 
=====================   ==========  ========  ==========  ===========  =======  =============  ========= 
Revenue from external 
 customers                 140,784   242,972     351,936            -    5,400              -    741,092 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Inter segment revenue            -         -           -            -    6,101        (6,101)          - 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total revenue from 
 customers                 140,784   242,972     351,936            -   11,501        (6,101)    741,092 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Provisional pricing 
 adjustment                  6,814     7,743         207            -    (180)              -     14,584 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total revenue              147,598   250,715     352,143            -   11,321        (6,101)    755,676 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Segment profit/(loss)       15,187    61,472     144,199     (38,062)    7,142        (6,009)    183,929 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Others2                                                                                        (107,087) 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Profit from continuing 
 operations before 
 income tax                                                                                       76,842 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Other segment 
information 
=====================   ==========  ========  ==========  ===========  =======  =============  ========= 
Depreciation3             (50,432)  (51,754)    (79,917)        (397)  (4,757)              -  (187,257) 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Amortisation                     -   (1,396)       (144)        (462)     (67)              -    (2,069) 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Impairment and 
 write-off 
 of assets, net           (14,892)     (488)       (135)          315     (31)              -   (15,231) 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Assets 
=====================   ==========  ========  ==========  ===========  =======  =============  ========= 
Capital expenditure         25,357    43,623      66,435       62,881    6,820              -    205,116 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
 
Current assets              20,500    48,286      26,601       38,301    5,006              -    138,694 
Other non-current 
 assets                     50,438   163,656     506,779      220,934   57,391              -    999,198 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total segment assets        70,938   211,942     533,380      259,235   62,397              -  1,137,892 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Not reportable assets4           -         -           -            -  215,356              -    215,356 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
Total assets                70,938   211,942     533,380      259,235  277,753              -  1,353,248 
======================  ==========  ========  ==========  ===========  =======  =============  ========= 
 

1 'Other' revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.

2 Comprised of administrative expenses of US$45,920,000, other income of US$9,014,000, other expenses of US$46,093,000, write-off of assets (net) of US$853,000, impairment of assets of US$14,378,000, finance income of US$2,938,000, finance expense of US$10,038,000, and foreign exchange loss of US$1,757,000.

3 Includes depreciation capitalised in the Crespo project (US$809,000), and San Jose unit (US$2,217,000).

4 Not reportable assets are comprised of financial assets at fair value through OCI of US$6,159,000, other receivables of US$41,007,000, income tax receivable of US$206,000, deferred income tax asset of US$1,627,000, and cash and cash equivalents of US$166,357,000.

(b) Geographical information

The revenue for the period based on the country in which the customer is located is as follows:

 
                        Year ended 
                        31 December 
                     ================ 
                        2020     2019 
                      US$000   US$000 
==================   =======  ======= 
External customer 
Switzerland          236,455  109,927 
Korea                150,094   91,304 
Canada               138,795  381,149 
Germany               60,299   75,003 
Japan                 13,264   24,404 
Chile                 10,872        - 
Bulgaria               9,311   17,864 
USA                    2,994    5,446 
Peru                   (257)   50,579 
===================  =======  ======= 
Total                621,827  755,676 
===================  =======  ======= 
Inter-segment 
Peru                   6,918    6,101 
===================  =======  ======= 
Total                628,745  761,777 
===================  =======  ======= 
 

In the periods set out below, certain customers accounted for greater than 10% of the Group's total revenues as detailed in the following table:

 
                        Year ended 31 December 
                                  2020                   Year ended 31 December 2019 
                   =================================  ================================= 
                    US$000  % Revenue        Segment   US$000  % Revenue        Segment 
================   =======  =========  =============  =======  =========  ============= 
                                          Inmaculada 
Argor Heraus       176,543        28%   and San Jose  105,436        14%       San Jose 
=================  =======  =========  =============  =======  =========  ============= 
                                          Pallancata                         Pallancata 
LS Nikko           150,094        24%   and San Jose   91,304        12%   and San Jose 
=================  =======  =========  =============  =======  =========  ============= 
Asahi Refining 
 Canada            121,048        19%     Inmaculada  352,949        47%     Inmaculada 
=================  =======  =========  =============  =======  =========  ============= 
MKS Switzerland 
 S.A.               59,912        10%     Inmaculada        -         0%              - 
=================  =======  =========  =============  =======  =========  ============= 
Asahi Refining 
 USA                     -         0%              -    (806)        47%     Inmaculada 
=================  =======  =========  =============  =======  =========  ============= 
 

Non-current assets, excluding financial instruments and deferred income tax assets, were allocated to the geographical areas in which the assets are located as follows:

 
                                                           As at 31 December 
                                                          ==================== 
                                                               2020       2019 
                                                             US$000     US$000 
=======================================================   =========  ========= 
Peru                                                        699,121    709,022 
Argentina                                                   166,887    163,656 
Mexico                                                            -        838 
Chile                                                       135,340    125,682 
========================================================  =========  ========= 
Total non-current segment assets                          1,001,348    999,198 
========================================================  =========  ========= 
Financial assets at fair value through OCI                      402      6,159 
Financial assets at fair value through profit and loss        5,407          - 
Trade and other receivables                                   5,395      5,188 
Deferred income tax assets                                    1,009      1,627 
========================================================  =========  ========= 
Total non-current assets                                  1,013,561  1,012,172 
========================================================  =========  ========= 
 

4 Revenue

 
                                                  Year ended 31 December                            Year ended 31 December 
                                                                    2020                                              2019 
                        ================================================  ================================================ 
                               Revenue from                                      Revenue from 
                                 customers                                         customers 
                        ==========================  ===========  =======  ==========================  ===========  ======= 
                          Goods  Shipping           Provisional             Goods  Shipping           Provisional 
                           sold  services    Total      pricing    Total     sold  services    Total      pricing    Total 
                         US$000    US$000   US$000       US$000   US$000   US$000    US$000   US$000       US$000   US$000 
====================    =======  ========  =======  ===========  =======  =======  ========  =======  ===========  ======= 
Gold (from dore bars)   255,142       577  255,719          144  255,863  320,813     1,011  321,824          238  322,062 
Siver (from dore 
 bars)                  101,195       383  101,578           62  101,640  134,757       766  135,523           60  135,583 
Gold (from 
 concentrates)          109,816     2,447  112,263        1,956  114,219  111,318     2,456  113,774        5,748  119,522 
Siver (from 
 concentrates)          138,669     2,450  141,119        8,837  149,956  166,912     2,920  169,832        8,538  178,370 
Services                    149         -      149            -      149      139         -      139            -      139 
Total                   604,971     5,857  610,828       10,999  621,827  733,939     7,153  741,092       14,584  755,676 
======================  =======  ========  =======  ===========  =======  =======  ========  =======  ===========  ======= 
 

5 Cost of sales before exceptional items

Included in cost of sales are:

 
                                                                 Year ended 
                                                                 31 December 
                                                              ================ 
                                                                 2020     2019 
                                                               US$000   US$000 
===========================================================   =======  ======= 
Depreciation and amortisation in cost of sales1               114,662  182,676 
Personnel expenses (note 9) 2                                  65,077  102,977 
Mining royalty (note 30 )                                       5,208    6,412 
Change in products in process and finished goods               17,323  (3,782) 
Fixed costs at the operations during stoppages and reduced 
 capacity3                                                     46,480        - 
Other items4                                                        -      567 
============================================================  =======  ======= 
 

1 The depreciation and amortisation in production cost is US$113,146,000 (2019: US$184,388,000).

2 Includes workers profit sharing of US$2,632,000 (2019: US$3,878,000).

3 Corresponds to the unallocated fixed cost accumulated during the stoppage and operation of the mine units under planned operating capacity due to the Covid-19 pandemic. These costs mainly include personnel expenses of US$32,117,000, third party services of US$8,948,000, supplies of US$1,698,000, depreciation and amortisation of US$1,818,000 and others costs of US$1,899,000.

4 Other items include costs related to stoppage of US$567,000 at the San José mine unit.

6 Administrative expenses

 
                                  Year ended 
                                  31 December 
                                 ============  ======= 
                                         2020     2019 
                                       US$000   US$000 
==============================   ============  ======= 
Personnel expenses (note 9)            27,016   26,580 
Professional fees                       4,978    5,481 
Donations                                 373      331 
Lease rentals                           1,353    1,343 
Travel expenses                           188    1,058 
Third party services                      241      347 
Communications                            427      502 
Indirect taxes                          2,029    1,461 
Depreciation and amortisation           1,723    1,950 
Depreciation of rights of use             284      324 
Technology and systems                  1,063    1,400 
Security                                  891      912 
Other1                                  2,716    4,231 
===============================  ============  ======= 
Total                                  43,282   45,920 
===============================  ============  ======= 
 
 

1 Predominantly related to advertising costs of US$292,000 (2019; US$388,000), insurance fees of US$464,000 (2019: US$384,000), repair and maintenance of US$314,000 (2019: US$320,000), supplies costs of US$42,000 (2019: US$202,000) and personnel transportation of US$115,000 (2019: US$330,000).

7 Exploration expenses

 
                                       Year ended 
                                       31 December 
                                    ================ 
                                       2020     2019 
                                     US$000   US$000 
=================================   =======  ======= 
Mine site exploration1 
Arcata                                  990    1,065 
Ares                                    940      884 
Inmaculada                            2,526    3,976 
Pallancata                            4,652    7,116 
San Jose                              9,720    9,753 
==================================  =======  ======= 
                                     18,828   22,794 
                                    =======  ======= 
Prospects2 
Peru                                  1,731      265 
USA                                   1,902    3,600 
Chile                                 (211)    1,300 
==================================  =======  ======= 
                                      3,422    5,165 
                                    =======  ======= 
Generative3 
Peru                                  2,331    3,322 
USA                                      12        - 
Mexico                                  974        - 
Chile                                   437        - 
==================================  =======  ======= 
                                      3,754    3,322 
                                    =======  ======= 
Personnel (note 9 )                   5,905    5,748 
==================================  =======  ======= 
Others                                  581      568 
==================================  =======  ======= 
Depreciation right-of-use assets        305      368 
==================================  =======  ======= 
Total                                32,795   37,965 
==================================  =======  ======= 
 

1 Mine-site exploration is performed with the purpose of identifying potential minerals within an existing

mine-site, with the goal of maintaining or extending the   mine's life. 

2 Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable

for exploration. Exploration expenses are generally incurred in the following areas: mapping, sampling,

geophysics, identification of local targets and reconnaissance   drilling. 

3 Generative expenditure is early stage exploration expenditure related to the basic evaluation of the region to identify prospects areas that have the geological conditions necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public information and identification of exploration targets.

The Group determines the cash flows which relate to the exploration activities of the companies engaged only in exploration. Exploration activities incurred by Group operating companies are not included since it is not practicable to separate the liabilities related to the exploration activities of these companies from their operating liabilities.

Cash outflows on exploration activities were US$6,176,000 in 2020 (2019: US$7,503,000).

8 Selling expenses

 
                                  Year ended 
                                  31 December 
                               ================ 
                                  2020     2019 
                                US$000   US$000 
============================   =======  ======= 
Personnel expenses (note 9)        303      288 
Warehouse services               1,281    1,627 
Taxes1                           9,202   16,259 
Other                            1,968    2,897 
=============================  =======  ======= 
Total                           12,754   21,071 
=============================  =======  ======= 
 

1 Corresponds to the export duties in Argentina.

9 Personnel expenses

 
                                 Year ended 
                                 31 December 
                              ================ 
                                 2020     2019 
                               US$000   US$000 
===========================   =======  ======= 
Salaries and wages            104,331  100,441 
Workers profit sharing          4,986    5,965 
Other legal contributions      22,158   21,453 
Statutory holiday payments      6,214    6,380 
Long Term Incentive Plan        1,764    1,294 
Restricted share plan               -      843 
Termination benefits            1,495   14,464 
Other                             752    1,600 
============================  =======  ======= 
Total                         141,700  152,440 
============================  =======  ======= 
 

1 Includes exceptional personnel expenses amounting to US$4,595,000 (refer to note 10(1) (2019: US$12,199,000 (refer to note 10(4))

Personnel expenses are distributed as follows:

 
                                                   Year ended 
                                                   31 December 
                                                ================ 
                                                   2020     2019 
                                                 US$000   US$000 
=============================================   =======  ======= 
Cost of sales(1)                                101,404  102,977 
Administrative expenses                          27,016   26,580 
Exploration expenses                              5,905    5,748 
Selling expenses                                    303      288 
Other expenses(2)                                 4,255   16,462 
Capitalised as property, plant and equipment      2,817      385 
==============================================  =======  ======= 
Total                                           141,700  152,440 
==============================================  =======  ======= 
 

1 Exceptional personnel expenses included in cost of sales amount to US$4,210,000 (2019: US$nil).

2 Exceptional personnel expenses included in other expenses amount to US$385,000 (2019: US$12,199,000).

Average number of employees for 2020 and 2019 were as follows:

 
                    Year ended 
                    31 December 
                  ============== 
                    2020    2019 
===============   ======  ====== 
Peru               1,897   2,072 
Argentina          1,432   1,394 
Chile                 13       3 
United Kingdom        10      10 
================  ======  ====== 
Total              3,352   3,479 
================  ======  ====== 
 

10 Exceptional items

Exceptional items are those significant items which, due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and facilitate comparison with prior years. Unless stated, exceptional items do not correspond to a reporting segment of the Group.

 
                                                               Year ended    Year ended 
                                                              31 December   31 December 
                                                                     2020          2019 
                                                                   US$000        US$000 
==========================================================   ============  ============ 
Cost of sales 
Incremental costs due to Covid - 19 pandemic 1                   (27,613)             - 
Total                                                            (27,613)             - 
===========================================================  ============  ============ 
Other expenses 
Incremental costs due to Covid - 19 pandemic 1                    (3,613)             - 
Restructuring of Arcata mine unit 4                                     -      (12,199) 
===========================================================  ============  ============ 
Total                                                             (3,613)      (12,199) 
===========================================================  ============  ============ 
(Impairment)/impairment reversal of non-financial assets, 
 net 
Impairment of assets 5                                                  -      (14,693) 
Reversal of impairment of assets 2 and 5                            8,303           315 
===========================================================  ============  ============ 
Total                                                               8,303      (14,378) 
===========================================================  ============  ============ 
Income tax benefit 3 and 6                                          7,157         7,933 
===========================================================  ============  ============ 
Total                                                               7,157         7,933 
===========================================================  ============  ============ 
 

The exceptional items for the year ended 31 December 2020 are as follows:

1 Incremental production costs incurred in the operating mine units to manage the Covid-19 pandemic have been presented within costs of sales and costs incurred by mine units in care and maintenance and those related to corporate activities have been presented within other expenses.

 
                                        Year ended 
                                        31 December 
                                           2020 
                                   ==================== 
                                        Cost      Other 
                                    of sales   expenses 
                                      US$000     US$000 
================================   =========  ========= 
Third party services                  18,823        665 
Personnel expenses (note 9)            4,210        385 
Donations                                124      1,365 
Consumption of medical supplies        1,062        248 
Cleaning and food services             1,493         59 
Depreciation and amortisation            534          - 
Others                                 1,367        891 
=================================  =========  ========= 
Total                                 27,613      3,613 
=================================  =========  ========= 
 

These costs have been incurred in respect of the implementation of the necessary protocols including incremental third party services mainly related to accommodation whilst testing all workers for active Covid-19 cases prior to travelling to mine units, medical tests and additional transportation costs to facilitate social distancing, personnel expenses mainly reflecting one-off bonuses paid to those workers required to oversee critical processes during period of suspension, donations which includes the value of equipment donated to assist the national effort in Peru to control the pandemic as well as the donations to hardship funds administered by educational institutions, UTEC and TECSUP (refer to note 29)). These expenses are not expected to be recurring as a result of the efficiencies made to the health protocols and logistics required to operate throughout the pandemic. For further details on the health protocols implemented across all operations refer to the detailed discussion outlined in the Risks section of the Annual Report

2 Reversals of impairment related to the San Jose mine unit of US$8,303,000 (refer to notes 15, 16 and 17).

3 The current tax credit generated by the incremental costs arising from the Covid-19 pandemic of US$9,241,000 and the deferred tax charge generated by the reversal of the impairment related to the San Jose mine unit of US$2,084,000.

The exceptional items for the year ended 31 December 2019 are as follows:

4 The termination benefits of 859 employees resulting from the restructuring process generated as the Arcata mine unit was placed on care and maintenance in February 2019.

5 Impairment of the Pallancata mine unit of US$14,693,000 and reversals of impairment related to the San Felipe mine project of US$315,000 (refer to notes 15, 16 and 17).

6 The current tax credit generated by the termination benefits arising from the restructuring process of the Arcata mine unit of US$3,599,000 and the deferred tax credit generated by the impairment of Pallancata mine unit of US$4,334,000.

11 Other income and other expenses before exceptional items

 
                                                                Year ended    Year ended 
                                                               31 December   31 December 
                                                                      2020          2019 
                                                              ============  ============ 
                                                                    Before        Before 
                                                               exceptional   exceptional 
                                                                     items         items 
                                                                    US$000        US$000 
===========================================================   ============  ============ 
Other Income 
Decrease in provision for mine closure (note 26(1))                      -           223 
Logistic services                                                      336         4,489 
Recovery of provision of obsolescence of supplies 
 (note 21)                                                           1,921 
Income related to the San Felipe agreement                               -           600 
Other1                                                               1,360         3,702 
============================================================  ============  ============ 
Total                                                                3,617         9,014 
============================================================  ============  ============ 
Other expenses 
Increase in provision for mine closure (note 26(1))               (16,056)      (13,621) 
Provision of obsolescence of supplies (note 21)                          -       (1,449) 
Care and maintenance expenses of Ares mine unit                    (2,578)       (4,593) 
Write off of value added tax                                         (101)         (144) 
Corporate social responsibility contribution in Argentina2         (2,689)       (3,636) 
Care and maintenance expenses of Arcata mine unit                  (2,966)       (4,888) 
Provision for impairment of receivables3                             (996)       (3,706) 
Other4                                                             (3,519)      (1, 857) 
============================================================  ============  ============ 
Total                                                             (28,905)      (33,894) 
============================================================  ============  ============ 
 

1 Mainly corresponds to the gain on sale of property plant and equipment of US$231,000 and the gain recognised for the Mosquito project of US$400,000 (2019: mainly corresponds to the recognition of a receivable from a supplier following a claim ruled in favour of the Group of US$1,061,000, the gain on recovery of expenses of US$623,000, gain on sale of supplies of US$325,000 and the gain recognised for the Mosquito project of US$400,000).

2 Relates to a contribution in Argentina to the Santa Cruz province, calculated as a proportion of sales.

3 Mainly due to write-off of a claim receivable of US$996,000 (2019: US$2,934,000).

4 Mainly corresponds to the expenses due to concessions of US$295,000 (2019: US$667,000), depreciation expense for right-of-use assets of US$151,000 (2019: US$206,000), the loss on recovery of expenses of US$158,000 and the loss on sale of supplies of US$1,312,000.

12 Finance income and finance costs before exceptional items

 
                                                                  Year ended    Year ended 
                                                                 31 December   31 December 
                                                                        2020          2019 
                                                                ============  ============ 
                                                                      Before        Before 
                                                                 exceptional   exceptional 
                                                                       items         items 
                                                                      US$000        US$000 
=============================================================   ============  ============ 
Finance income 
Interest on deposits and liquidity funds                               2,106         2,557 
==============================================================  ============  ============ 
Interest income                                                        2,106         2,557 
==============================================================  ============  ============ 
Unwind of discount on mine rehabilitation (note 26)                      387             - 
Gain on discount of other receivables1                                   335             - 
Gain from changes in the fair value of financial instruments 
 (2)                                                                   1,057             - 
Other                                                                    312           381 
==============================================================  ============  ============ 
Total                                                                  4,197         2,938 
==============================================================  ============  ============ 
Finance costs 
Interest on secured bank loans (note 25 )                            (7,086)       (4,122) 
Other interest                                                         (684)         (335) 
==============================================================  ============  ============ 
Interest expense                                                     (7,770)       (4,457) 
==============================================================  ============  ============ 
Fair value loss on interest rate swap reclassified 
 from equity                                                         (1,497)             - 
Unwind of discount on mine rehabilitation (note 26)                        -         (506) 
Loss on discount of other receivables1                                     -         (902) 
Loss from changes in the fair value of financial instruments 
 3                                                                  (12,770)       (3,007) 
Other                                                                (1,523)       (1,166) 
==============================================================  ============  ============ 
Total                                                               (23,560)      (10,038) 
==============================================================  ============  ============ 
 

1 Mainly related to the effect of the discount of tax credits in Argentina and Peru.

2 Related to the fair value adjustment of the Americas Gold and Silver Corporation (AGSC) shares received as a final payment of the San Felipe project (refer to note 23)

3 Represents the foreign exchange transaction costs to acquire US$14,486,000 dollars through the sale of bonds in Argentina (2019: US$11,835).

13 Income tax expense

 
                                         Year ended 31 December              Year ended 31 December 
                                                  2020                                2019 
                                   ==================================  ================================== 
                                         Before                              Before 
                                    exceptional  Exceptional            exceptional  Exceptional 
                                          items        items    Total         items        items    Total 
                                         US$000       US$000   US$000        US$000       US$000   US$000 
================================   ============  ===========  =======  ============  ===========  ======= 
Current corporate income tax 
 from continuing operations 
================================   ============  ===========  =======  ============  ===========  ======= 
Corporate income tax charge              31,551      (9,241)   22,310        35,543      (3,599)   31,944 
Withholding tax                             402            -      402         3,253            -    3,253 
=================================  ============  ===========  =======  ============  ===========  ======= 
                                         31,953      (9,241)   22,712        38,796      (3,599)   35,197 
                                   ============  ===========  =======  ============  ===========  ======= 
Deferred taxation 
Origination and reversal of 
 temporary differences from 
 continuing operations (note 
 27 )                                    10,491        2,084   12,575       (2,687)      (4,334)  (7,021) 
Effect of change in income 
 tax rates1                                   -            -        -       (1,230)            -  (1,230) 
=================================  ============  ===========  =======  ============  ===========  ======= 
                                         10,491        2,084   12,575       (3,917)      (4,334)  (8,251) 
                                   ============  ===========  =======  ============  ===========  ======= 
Corporate income tax                     42,444      (7,157)   35,287        34,879      (7,933)   26,946 
=================================  ============  ===========  =======  ============  ===========  ======= 
 
Current mining royalties 
Mining royalty charge (note 
 30)                                      4,088            -    4,088         5,028            -    5,028 
Special mining tax charge (note 
 30)                                      3,119            -    3,119         3,429            -    3,429 
=================================  ============  ===========  =======  ============  ===========  ======= 
Total current mining royalties            7,207            -    7,207         8,457            -    8,457 
=================================  ============  ===========  =======  ============  ===========  ======= 
 
Total taxation charge/(credit) 
 in the income statement                 49,651      (7,157)   42,494        43,336      (7,933)   35,403 
=================================  ============  ===========  =======  ============  ===========  ======= 
 

1 On 29 December 2017, the Argentinian government enacted a tax reform. The main change was the reduction in the statutory income tax rate, from 35% to 30% with effect from 1 January 2018 and to 25% with effect from 1 January 2020. On December 2019 there was a further tax reform in Argentina, stating that the income tax rate of 25% will be applied from 1 January 2022

The weighted average statutory income tax rate was 30.8% for 2020 and 30.9% for 2019. This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group companies in their respective countries as included in the consolidated financial statements.

The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates.

There was tax related to items charged to equity during the year ended 31 December 2020 of US$1,744,000 (2019: US$nil).

The total taxation charge on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the consolidated profits of the Group companies as follows:

 
                                                             As at 31 December 
                                                            =================== 
                                                                 2020      2019 
                                                               US$000    US$000 
=========================================================   =========  ======== 
Profit from continuing operations before income tax            62,920    76,842 
==========================================================  =========  ======== 
At average statutory income tax rate of 30.8% ( 2019: 
 30.9 %)                                                       19,368    23,740 
==========================================================  =========  ======== 
Expenses not deductible for tax purposes                        5,251       360 
Adjustment related to Restricted Share Plan (RSP)                   -     (940) 
Change in statutory income tax rate                           (1,529)     1,230 
Deferred tax recognised on special investment regime1         (2,870)   (2,590) 
Movement in unrecognised deferred tax2                          4,571     5,223 
Special mining tax and mining royalty deductible for 
 corporate income tax                                         (2,126)   (2,495) 
Other                                                             461   (2,288) 
==========================================================  =========  ======== 
Corporate income tax at average effective income tax 
 rate of 36.8% (2019: 28.9%) before foreign exchange 
 effect and withholding tax                                    23,126    22,240 
==========================================================  =========  ======== 
Special mining tax and mining royalty3                          7,207     8,457 
==========================================================  =========  ======== 
Corporate income tax and mining royalties at average 
 effective income tax rate of 48.2% (2019: 39.9%)              30,333    30,697 
==========================================================  =========  ======== 
Foreign exchange rate effect4                                  11,759     1,453 
==========================================================  =========  ======== 
Corporate income tax and mining royalties at average 
 effective income tax rate of 66.9% (2019: 41.8%) before 
 withholding tax                                               42,092    32,150 
==========================================================  =========  ======== 
Withholding tax                                                   402     3,253 
==========================================================  =========  ======== 
Total taxation charge in the income statement at average 
 effective tax rate 67.5% (2019: 46.1%) from continuing 
 operations                                                    42,494    35,403 
==========================================================  =========  ======== 
 

1 Argentina benefits from a special investment regime that allows for a super (double) deduction in calculating its taxable profits for all costs relating to prospecting, exploration and metallurgical analysis, pilot plants and other expenses incurred in the preparation of feasibility studies for mining projects.

2 Includes the income tax charge on mine closure provision of US$1,687,000 (2019: US$836,000), the tax charge related to the Inmaculada mine unit depreciation of US$902,000 (2019: US$1,636,000), and the effect of not recognised tax losses of US$1,982,000 (2019: US$2,751,000).

3 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 30).

4 The foreign exchange effect is composed of US$1,584,000 loss (2019: US$3,280,000 loss) from Argentina and a loss of US$10,175,000 (2019: US$1,827,000 gain) from Peru. This mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the corresponding functional currency. The main contributor of the foreign exchange effect on the tax charge in 2020 is the devaluation of the Peruvian soles (2019: Argentinian peso).

14 Basic and diluted earnings per share

Earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of

the Parent by the   weighted average number of ordinary shares issued during the year. 

The Company has dilutive potential ordinary shares.

As at 31 December 2020 and 2019, EPS has been calculated as follows:

 
                                                                 As at 31 December 
                                                                =================== 
                                                                     2020      2019 
=============================================================   =========  ======== 
Basic earnings/(loss) per share from continuing operations 
Before exceptional items (US$)                                       0.06      0.09 
Exceptional items (US$)                                            (0.03)    (0.03) 
==============================================================  =========  ======== 
Total for the year and from continuing operations (US$)              0.03      0.06 
==============================================================  =========  ======== 
Diluted earnings/(loss) per share from continuing operations 
Before exceptional items (US$)                                       0.06      0.09 
Exceptional items (US$)                                            (0.03)    (0.03) 
==============================================================  =========  ======== 
Total for the year and from continuing operations (US$)              0.03      0.06 
==============================================================  =========  ======== 
 

Profit from continuing operations before exceptional items and attributable to equity holders of the Parent is derived as follows:

 
                                                             As at 31 December 
                                                            =================== 
                                                                 2020      2019 
=========================================================   =========  ======== 
Profit attributable to equity holders of the Parent 
 - continuing operations (US$ 000 )                            15,162    28,954 
==========================================================  =========  ======== 
Exceptional items after tax - attributable to equity 
 holders of the Parent (US$ 000 )                              16,800    18,644 
==========================================================  =========  ======== 
Profit from continuing operations before exceptional 
 items attributable to equity holders of the Parent (US$ 
 000 )                                                         31,962    47,598 
==========================================================  =========  ======== 
Profit from continuing operations before exceptional 
 items attributable to equity holders of the Parent for 
 the purpose of diluted earnings per share (US$ 000 )          31,962    47,598 
==========================================================  =========  ======== 
 

The following reflects the share data used in the basic and diluted earnings per share computations:

 
                                                               As at 31 December 
                                                              =================== 
                                                                   2020      2019 
===========================================================   =========  ======== 
Basic weighted average number of ordinary shares in 
 issue (thousands)                                              513,876   510,562 
============================================================  =========  ======== 
Effect of dilutive potential ordinary shares related 
 to contingently issuable shares (thousands)                        600       538 
============================================================  =========  ======== 
Weighted average number of ordinary shares in issue 
 for the purpose of diluted earnings per share (thousands)      514,476   511,100 
============================================================  =========  ======== 
 

15 Property, plant and equipment

 
                      Mining 
                  properties 
                         and                       Plant                         Construction 
                 development          Land           and                   Mine   in progress 
                       costs           and     equipment                closure   and capital 
                          1      buildings          1, 2  Vehicles(5)     asset      advances      Total 
                      US$000        US$000        US$000       US$000    US$000        US$000     US$000 
=============   ============  ============  ============  ===========  ========  ============  ========= 
Year ended 31 
December 
2020 
=============   ============  ============  ============  ===========  ========  ============  ========= 
Cost 
At 1 January 
 2020              1,449,374       529,081       610,955       11,748    99,696        15,196  2,716,050 
==============  ============  ============  ============  ===========  ========  ============  ========= 
                                                                                       25,646 
Additions             62,442           118         6,431            -         -             4     94,637 
Initial 
 recognition               -             -             -            -       235             -        235 
Change in 
 discount rate             -             -             -            -     5,385             -      5,385 
Change in mine 
 closure 
 estimate                  -             -             -            -     2,424             -      2,424 
Disposals                  -         (132)       (1,870)         (31)         -             -    (2,033) 
Write-offs                 -             -       (8,613)      (1,127)         -             -    (9,740) 
Transfers and 
 other 
 movements 3           2,888         1,717         5,717           64         -       (7,522)      2,864 
==============  ============  ============  ============  ===========  ========  ============  ========= 
At 31 December 
 2020              1,514,704       530,784       612,620       10,654   107,740        33,320  2,809,822 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Accumulated 
depreciation 
and 
impairment 
At 1 January 
 2020              1,119,462       334,065       384,155        7,310    74,834           947  1,920,773 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Depreciation 
 for the 
 year                 72,067        19,030        22,700        2,618     2,454             -    118,869 
Disposals                  -          (17)       (1,867)         (28)         -             -    (1,912) 
Write-offs                 -             -       (6,539)      (1,123)         -             -    (7,662) 
Reversal of 
 impairment          (3,831)       (1,101)       (1,589)            -   (1,369)             -    (7,890) 
Transfers and 
 other 
 movements 4             706           111         (705)         (23)         -         (108)       (19) 
==============  ============  ============  ============  ===========  ========  ============  ========= 
At 31 December 
 2020              1,188,404       352,088       396,155        8,754    75,919           839  2,022,159 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Net book 
 amount at 31 
 December 2020       326,300       178,696       216,465        1,900    31,821        32,481    787,663 
==============  ============  ============  ============  ===========  ========  ============  ========= 
 

1 Within mining properties and development costs and plant and equipment there are US$28,489,000 and 6,718,000 related to the Crespo CGU that is not currently being depreciated as the unit is not operating pending the feasibility of the project.

2 Within plant and equipment US$150,747,000 is subject to depreciation on a unit of production basis for which the accumulated depreciation is US$230,709,000 and depreciation charge for the year is US$10,289,000.

3 Transfers and other movements include US$2,828,000 that was transferred from evaluation and exploration assets (note 16).

4 There were borrowing costs capitalised in property, plant and equipment amounting to US$32,000.

5 Vehicles include US$410,000 of right of use assets.

 
                      Mining 
                  properties 
                         and                       Plant                         Construction 
                 development          Land           and                   Mine   in progress 
                       costs           and     equipment                closure   and capital 
                          1      buildings          1, 2  Vehicles(5)     asset      advances      Total 
                      US$000        US$000        US$000       US$000    US$000        US$000     US$000 
=============   ============  ============  ============  ===========  ========  ============  ========= 
Year ended 31 
December 
2019 
=============   ============  ============  ============  ===========  ========  ============  ========= 
Cost 
=============   ============  ============  ============  ===========  ========  ============  ========= 
At 31 December 
 2018              1,345,516       519,450       590,447        6,680    96,397        14,966  2,573,456 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Recognised on 
 transition 
 of IFRS 16                -             -             -        5,337         -             -      5,337 
==============  ============  ============  ============  ===========  ========  ============  ========= 
At 1 January 
 2019, 
 after IFRS 16 
 adjustment        1,345,516       519,450       590,447       12,017    96,397        14,966  2,578,793 
==============  ============  ============  ============  ===========  ========  ============  ========= 
                                                                                       14,773 
Additions             99,658           716        21,084          842         -             4    137,073 
Asset 
 acquisition               -             -           218            -         -             -        218 
Change in 
 discount rate             -             -             -            -     3,249             -      3,249 
Change in mine 
 closure 
 estimate                  -             -             -            -        50             -         50 
Disposals                  -             -       (1,893)      (1,969)         -             -    (3,862) 
Write-offs                 -             -       (3,426)            -         -         (241)    (3,667) 
Transfers and 
 other 
 movements 3           4,200         8,915         4,525          858         -      (14,302)      4,196 
==============  ============  ============  ============  ===========  ========  ============  ========= 
At 31 December 
 2019              1,449,374       529,081       610,955       11,748    99,696        15,196  2,716,050 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Accumulated 
depreciation 
and 
impairment 
At 1 January 
 2019                999,695       298,024       349,908        4,707    71,003           947  1,724,284 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Depreciation 
 for the 
 year                108,911        34,177        37,076        3,262     3,831             -    187,257 
Disposals                  -             -       (1,744)        (777)         -             -    (2,521) 
Write-offs                 -             -       (2,814)            -         -             -    (2,814) 
Impairment 
 charge               10,856         1,864         1,798           49         -             -     14,567 
Transfers and 
 other 
 movements 3               -             -          (69)           69         -             -          - 
==============  ============  ============  ============  ===========  ========  ============  ========= 
At 31 December 
 2019              1,119,462       334,065       384,155        7,310    74,834           947  1,920,773 
==============  ============  ============  ============  ===========  ========  ============  ========= 
Net book 
 amount at 31 
 December 2019       329,912       195,016       226,800        4,438    24,862        14,249    795,277 
==============  ============  ============  ============  ===========  ========  ============  ========= 
 

1 Within mining properties and development costs and plant and equipment there are US$27,693,000 and 6,718,000 related to the Crespo CGU that is not currently being depreciated as the unit is not operating pending the feasibility of the project.

2 Within plant and equipment US$154,552,000 is subject to depreciation on a unit of production basis for which the accumulated depreciation is US$224,763,000 and depreciation charge for the year is US$20,452,000.

3 Transfers and other movements include US$4,200,000 that was transferred from evaluation and exploration assets (note 16).

4 There were no borrowing costs capitalised in property, plant and equipment.

5 Vehicles include US$2,533,000 of right of use assets.

In 2020, management determined that there was a trigger of impairment in the San Jose mine unit due to the increase of the discount rate from 13.5% to 15.9%, mainly explained by the rise in country risk premium in Argentina. In addition, the increase in the short term analyst consensus forecast prices of gold and silver in the year represented a trigger of impairment reversal for the Pallancata and San Jose mine units as both of these CGUs have previously been impaired.

The impairment test performed over the San Jose CGU resulted in a reversal of impairment recognised as at 31 December 2020 amounted to US$8,303,000 (US$7,890,000 in property, plant and equipment, US$100,000 in evaluation and exploration assets and US$313,000 in intangibles). The reversal of impairment was mainly driven by an increase in analyst consensus prices of silver and gold and which was partially offset by the impact of the increase in the discount rate.

The result of the impairment test performed over the Pallancata CGU show that the recoverable value of Pallancata supports the carrying value, and neither an impairment nor impairment reversal was recognised at 31 December 2020.

In 2019, management determined that there was a trigger of impairment in the San Jose mine unit due to the increase of the discount rate from 9.5% to 13.5%, mainly explained by the rise in country risk premium in Argentina. The impairment test result did not show a difference versus the carrying value given that the negative effects of the increased discount rate were offset by an increase in the silver and gold analyst consensus prices. Therefore, no impairment, nor impairment reversal was recognised.

In 2019, as a result of the delays in obtaining exploration permits in the Pallancata mine unit, management revised its mine plan. The revised plan considers only the reserves and resources economically exploitable based on the latest model whilst spreading the remaining reserves and resources over a longer period of time to allow more time for the permitting and exploration campaigns to be completed. Management determined that this was a trigger of impairment and an impairment test was carried. The effect of the changes in the mine plan was partly offset by an increase in analyst consensus prices, and the resulting impairment charge recognised as at 31 December 2019 amounted to US$14,693,000 (US$14,567,000 in property, plant and equipment and US$126,000 in evaluation and exploration assets).

No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.

The recoverable values of the San Jose and Pallancata CGUs were determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD was determined using a combination of level 2 and level 3 inputs, which result in fair value measurements categorised in its entirety as level 3 in the fair value hierarchy, 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 FVLCD and the associated recoverable values calculated are gold and silver prices, future capital requirements, production costs, reserves and resources volumes (reflected in the production volume), and the discount rate.

2020

 
 Real prices US$ per oz.      2021    2022    2023    2024   Long-term 
=========================   ======  ======  ======  ======  ========== 
 Gold                        1,937   1,823   1,684   1,452       1,400 
 Silver                       26.4    21.8    21.0    19.2        17.8 
==========================  ======  ======  ======  ======  ========== 
 
 
                              San Jose   Pallancata 
==========================   =========  =========== 
 Discount rate (post tax)         5.9%         4.1% 
===========================  =========  =========== 
 

The period of 6 and 2 years were used to prepare the cash flow projections of the San Jose mine unit and the Pallancata mine unit respectively which is in line with their life of mine.

 
 31 December 2020 (US$000)          San Jose   Pallancata 
================================   =========  =========== 
 Current carrying value of CGU, 
  net of deferred tax                127,500       35,481 
=================================  =========  =========== 
 

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount.

A change in any of the key assumptions would have the following impact:

 
                                                            US$000 
                                            ====================== 
                                             San Jose   Pallancata 
========================================    =========  =========== 
 Gold and silver prices (decrease by 
  10%)                                       (61,800)     (12,200) 
 Gold and silver prices (increase by 
  5%)                                        7,700(1)     9,750(1) 
 Production costs (increase by 10%)          (32,800)      (4,700) 
 Production costs (decrease by 10%)(1)       7,700(1)        4,700 
 Production volume (decrease by 10%)         (11,800)            - 
 Production volume (increase by 10%)(1)      7,700(1)            - 
 Post tax discount rate (increase by          (8,200) 
  3%)(2)                                                         - 
 Post tax discount rate (decrease by         7,700(1) 
  3%)(2)                                                         - 
 Capital expenditure (increase by 10%)       (10,300)            - 
 Capital expenditure (decrease by 10%)       7,700(1)            - 
==========================================  =========  =========== 
 

1 This represents the maximum impairment loss that could be reversed, as it represents the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2 Management believes that a 3% change is was a reasonably possible change in the post-tax discount rate in Argentina. However, changes in the perception of Argentina arising from political, social and financial disruption may give rise to significant movement in the discount rate used in the assessment of the San Jose CGU.

Management has also determined that the Group's CGUs are sensitive to future stoppage of operations as a result of Covid-19. In the absence of any changes to the current gold and silver prices projections or any of the other key assumptions, we would expect the estimated recoverable amount of our CGUs related to the San Jose and Pallancata mine units could be reduced by US$8,900,000 and US$3,700,000 respectively, per month of stoppage.

2019

 
 US$ per oz.      2019    2020    2021    2022    2023   Long-term 
=============   ======  ======  ======  ======  ======  ========== 
 Gold            1,506   1,492   1,469   1,377   1,340       1,369 
==============  ======  ======  ======  ======  ======  ========== 
 Silver           18.3    17.5    17.7    17.7    18.5        17.7 
==============  ======  ======  ======  ======  ======  ========== 
 
 
                              San Jose   Pallancata 
==========================   =========  =========== 
 Discount rate (post tax)        13.5%         6.5% 
===========================  =========  =========== 
 

The period of 6 and 2 years were used to prepare the cash flow projections of San Jose mine unit and the Pallancata mine unit respectively which is in line with their life of mine.

 
 31 December 2019 (US$000)          San Jose   Pallancata 
================================   =========  =========== 
 Current carrying value of CGU, 
  net of deferred tax                132,278       59,147 
=================================  =========  =========== 
 

The estimated recoverable values of the Group's CGUs are equal to, or not materially different than, their carrying values.

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount.

A change in any of the key assumptions would have the following impact:

 
                                                             US$000 
                                            ======================= 
                                              San Jose   Pallancata 
========================================    ==========  =========== 
 Gold and silver prices (decrease by 
  10%)                                        (62,700)     (19,900) 
 Gold and silver prices (increase by 
  5%)                                        17,839(1)        8,500 
 Production costs (increase by 10%)           (38,000)     (11,300) 
 Production costs (decrease by 10%)(1)       17,839(1)       10,600 
 Production volume (decrease by 10%)          (28,700)      (6,000) 
 Production volume (increase by 10%)(1)      17,839(1)        4,900 
 Post tax discount rate (increase by          (11,200) 
  3%)(2)                                                          - 
 Post tax discount rate (decrease by            12,900 
  3%)(2)                                                          - 
 Capital expenditure (increase by 10%)        (11,700)            - 
 Capital expenditure (decrease by 10%)       11,700(1)            - 
==========================================  ==========  =========== 
 

1 This represents the maximum impairment loss that could be reversed, as it represents the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2 Management believed that a 3% change was a reasonably possible change in the post-tax discount rate in Argentina. However, changes in the perception of Argentina arising from political, social and financial disruption may give rise to significant movement in the discount rate used in the assessment of the San Jose CGU.

16 Evaluation and exploration assets

 
                                                          San 
                                     Azuca   Crespo    Felipe  Biolantanidos   Volcan   Others     Total 
                                    US$000   US$000    US$000         US$000   US$000   US$000    US$000 
=================================   ======  =======  ========  =============  =======  =======  ======== 
Cost 
Balance at 1 January 
 2019                               82,026   26,599    55,450              -   94,682   19,364   278,121 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Asset acquisition                        -        -         -         59,358        -        -    59,358 
Additions                              687      643         -          1,149      770    6,025     9,274 
Transfers to assets held 
 for sale (note 23)                      -        -  (55,450)              -        -        -  (55,450) 
Transfers to property 
 plant and equipment (note 
 15)                                     -        -         -              -        -  (4,236)   (4,236) 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Balance at 31 December 
 2019                               82,713   27,242         -         60,507   95,452   21,153   287,067 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Additions                              551    1,684         -          8,297    1,068    1,687    13,287 
Transfers to property 
 plant and equipment (note 
 15)                                     -        -         -              -        -  (2,857)   (2,857) 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Balance at 31 December 
 2020                               83,264   28,926         -         68,804   96,520   19,983   297,497 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Accumulated impairment 
Balance at 1 January 
 2019                               45,876    9,878    17,470              -   44,381    5,275   122,880 
==================================  ======  =======  ========  =============  =======  =======  ======== 
(Impairment reversal)/impairment         -        -     (315)              -        -      126     (189) 
Transfers to assets held 
 for sale (note 23)                      -        -  (17,155)              -        -        -  (17,155) 
Transfers to property, 
 plant and equipment (note 
 15)                                     -        -         -              -        -     (31)      (31) 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Balance at 31 December 
 2019                               45,876    9,878         -              -   44,381    5,370   105,505 
==================================  ======  =======  ========  =============  =======  =======  ======== 
(Impairment reversal)/impairment         -        -         -              -        -    (100)     (100) 
Transfers to property, 
 plant and equipment (note 
 15)                                     -        -         -              -        -     (29)      (29) 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Balance at 31 December 
 2020                               45,876    9,878         -              -   44,381    5,241   105,376 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Net book value as at 
 31 December 2019                   36,837   17,364         -         60,507   51,071   15,783   181,562 
==================================  ======  =======  ========  =============  =======  =======  ======== 
Net book value as at 
 31 December 2020                   37,388   19,048         -         68,804   52,139   14,742   192,121 
==================================  ======  =======  ========  =============  =======  =======  ======== 
 

At 31 December 2020, the Group has recorded a reversal of impairment with respect to evaluation and exploration assets of the San Jose mine unit of US$100,000 (2019: impairment charge of the Pallancata mine unit of US$126,000).

At 31 December 2019, the Group has recorded an impairment charge with respect to evaluation and exploration assets of the Pallancata mine unit of US$126,000 (the calculation of the recoverable values is detailed in note 15).

There were no borrowing costs capitalised in evaluation and exploration assets.

As at 31 December 2019, the San Felipe project, which is part of the exploration segment, was reclassified to assets held for sale. Consequently, management recognised a reversal of impairment of US$315,000 in the period to adjust the carrying value to the amount pending of collection from the option payment at 31 December 2019.

17 Intangible assets

 
                                           Transmission       Water   Software     Legal 
                                                  line1    permits2   licences   rights3    Total 
                                                 US$000      US$000     US$000    US$000   US$000 
========================================   ============  ==========  =========  ========  ======= 
Cost 
Balance at 1 January 2019                        22,157      26,583      1,888     8,580   59,208 
=========================================  ============  ==========  =========  ========  ======= 
Additions                                             -           -          2         -        2 
Transfer                                              -           -          9         -        9 
=========================================  ============  ==========  =========  ========  ======= 
Balance at 31 December 2019                      22,157      26,583      1,899     8,580   59,219 
=========================================  ============  ==========  =========  ========  ======= 
Additions                                             -           -          -         -        - 
Transfer                                              -           -          7         -        7 
=========================================  ============  ==========  =========  ========  ======= 
Balance at 31 December 2020                      22,157      26,583      1,906     8,580   59,226 
=========================================  ============  ==========  =========  ========  ======= 
Accumulated amortisation and impairment 
Balance at 1 January 2019                        15,276      12,686      1,741     5,142   34,845 
=========================================  ============  ==========  =========  ========  ======= 
Amortisation for the year4                        1,210           -        186       673    2,069 
Transfer                                              -           -       (54)         -     (54) 
=========================================  ============  ==========  =========  ========  ======= 
Balance at 31 December 2019                      16,486      12,686      1,873     5,815   36,860 
=========================================  ============  ==========  =========  ========  ======= 
Amortisation for the year4                          535           -         17       563    1,115 
Reversal of impairment                            (313)           -          -         -    (313) 
=========================================  ============  ==========  =========  ========  ======= 
Balance at 31 December 2020                      16,708      12,686      1,890     6,378   37,662 
=========================================  ============  ==========  =========  ========  ======= 
Net book value as at 31 December 
 2019                                             5,671      13,897         26     2,765   22,359 
=========================================  ============  ==========  =========  ========  ======= 
Net book value as at 31 December 
 2020                                             5,449      13,897         16     2,202   21,564 
=========================================  ============  ==========  =========  ========  ======= 
 

1 The transmission line is amortised using the units of production method. At 31 December 2020 the remaining amortisation period is approximately 7 years (2019: 6 years) in line with the life of the mine. At 31 December 2020, the Group has recorded a reversal of impairment with respect to the transmission line of the San Jose mine unit of US$313,000 (the calculation of the recoverable values is detailed in note 15).

2 Corresponds to the acquisition of water permits of Andina Minerals Group ("Andina"). These permits have an indefinite life according to Chilean law. To determine the fair value less costs of disposal of the Volcan cash-generating unit, which includes the water permits held by the Group, the Group used the value-in-situ methodology. This methodology applies a realisable 'enterprise value' to unprocessed mineral resources which was US$7.40 per gold equivalent ounce of resources at 31 December 2020 (2019: US$6.60). The risk adjusted enterprise value figure has been determined using a combination of level 2 (enterprise values and gold prices) and level 3 inputs (unprocessed mineral resources and risk factor), which result in a fair value measurement categorised in its entirety as level 3 in the fair value hierarchy, to estimate the amount that would be paid by a willing third party in an arm's length transaction, taking into account the water restrictions imposed by the Chilean government.

3 Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production.

At 31 December 2020 the remaining amortisation period is from 2.5 to 12.5 years (2019: 4 to 14 years).

4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.

The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess of its recoverable amount. No impairments were recognised in 2020 and 2019. The estimated recoverable amount is not materially different than its carrying value.

Key assumptions

 
                                                      2020   2019 
==================================================   =====  ===== 
 Risk adjusted value per in-situ (gold equivalent 
  ounce) US$                                          7.40   6.60 
===================================================  =====  ===== 
 
 
 US$000                                  2020     2019 
===================================   =======  ======= 
 Current carrying value Volcan CGU     66,036   64,968 
====================================  =======  ======= 
 

The estimated recoverable amount is not materially greater than its carrying value.

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value exceed its recoverable amount.

A change in the value in situ assumption could cause an impairment loss or reversal of impairment to be recognised as follows:

 
 Approximate (impairment)/reversal of impairment         2020       2019 
  resulting from the following changes (US$000) 
=================================================   =========  ========= 
 Value per in-situ ounce (20% decrease)              (14,100)   (12,594) 
 Value per in-situ ounce (20% increase)                14,100     12,594 
 Risk factor (increase by 5%)                         (5,400)    (4,844) 
 Risk factor (decrease by 5%)                           5,400      4,844 
==================================================  =========  ========= 
 

18 Financial assets at fair value through OCI

 
                                        Year ended 
                                        31 December 
                                     ================ 
                                        2020     2019 
                                      US$000   US$000 
==================================   =======  ======= 
Beginning balance                      6,159    5,296 
===================================  =======  ======= 
Acquisitions1                              -    1,100 
Fair value change recorded in OCI      1,765    3,628 
Disposals2                           (7,522)    (421) 
Transfer of shares(3)                      -  (3,444) 
===================================  =======  ======= 
Ending balance                           402    6,159 
===================================  =======  ======= 
 

1 Corresponds to the purchase of 147,831,737 shares of REE UNO SpA (US$500,000), and 452,200 shares of Americas Silver Corporation (ASC) (US$600,000).

2 As the investments were not considered to be strategic, the Group sold 452,200 shares of ASC, 7,399,331 shares of Skeena Resources Limited and 7,000,026 shares of Goldspot Discoveries Inc. with a fair value at the date of sale of US$1,257,000, US$5,337,000 and US$928,000, generating a gain on disposal of US$658,000, US$1,091,000 and US$239,000 respectively. (2019: the Group sold 10,032,000 shares of Santa Cruz Silver Mining (SCSM) with a fair value at the date of sale of US$421,000 generating a loss on disposal of US$1,658,000).

3 Corresponds to the reclassification of the investment held in REE UNO Spa to subsidiary, following its acquisition on 2 October 2019. On reclassification of the investment, US$944,000 was reclassified from the fair value reserves of financial assets at fair value through OCI to retained earnings.

The Group made the election at initial recognition to measure the below equity investments at fair value through OCI as they are not held for trading.

The fair value at 31 December 2020 and 31 December 2019 is as follows:

 
 
                                                               US$000 
                                                           ============= 
 
                                                             2020   2019 
========================================================   ======  ===== 
Listed equity investments: 
Power Group Projects Corp (formerly Cobalt Power Group)        27     28 
Revelo Resources Corp.                                          8      4 
Skeena Resources Limited                                      325  3,937 
Goldspot Discoveries Inc.                                       -    755 
Americas Gold and Silver Corporation (formerly Americas 
 Silver Corporation)                                            -  1,417 
Empire Petroleum Corp.                                         42     18 
=========================================================  ======  ===== 
Total listed equity investments                               402  6,159 
=========================================================  ======  ===== 
Total non-listed equity investments                             -      - 
========================================================   ======  ===== 
Total                                                         402  6,159 
=========================================================  ======  ===== 
 

Fair value of the listed shares is determined by reference to published price quotations in an active market and they are categorised as level 1.

The fair value of non-listed equity investments is determined based on financial information available of the companies and they are categorised as level 3.

19 Financial assets at fair value through profit and loss

 
                                                    Year ended 
                                                    31 December 
                                                 ================ 
                                                    2020     2019 
                                                  US$000   US$000 
==============================================   =======  ======= 
Beginning balance                                      -        - 
==============================================   =======  ======= 
Acquisitions1                                      4,301        - 
Fair value change recorded in profit and loss      1,106        - 
Disposals                                              -        - 
==============================================   =======  ======= 
Ending balance                                     5,407        - 
===============================================  =======  ======= 
 

1 Corresponds to 1,687,401 shares of Americas Gold and Silver Corporation received as a payment for the balance receivable for the sale of the San Felipe project recognised as an asset held for sale as at 31 December 2019 (refer to note 23).

The below equity investments are classified at fair value through profit and loss as they are held for trading.

The fair value at 31 December 2020 and 31 December 2019 is as follows:

 
 
                                           US$000 
                                        ============ 
 
                                          2020  2019 
=====================================   ======  ==== 
Listed equity investments: 
Americas Gold and Silver Corporation     5,407     - 
======================================  ======  ==== 
Total listed equity investments          5,407     - 
======================================  ======  ==== 
 

Fair value of the listed shares is determined by reference to published price quotations in an active market and they are categorised as level 1.

20 Trade and other receivables

 
                                                                 As at 31 December 
                                                     ========================================== 
                                                                     2020                  2019 
==================================================   ====================  ==================== 
                                                     Non-current  Current  Non-current  Current 
                                                          US$000   US$000       US$000   US$000 
==================================================   ===========  =======  ===========  ======= 
Trade receivables                                              -   45,353            -   37,799 
Advances to suppliers                                          -    4,045            -    3,810 
Duties recoverable from exports of Minera 
 Santa Cruz 1                                                846        -          664        - 
Receivables from related parties (note 
 29 (a) )                                                      -      388            -      569 
Loans to employees                                           603      101          726      177 
Interest receivable                                            -      126            -      178 
Receivable from Kaupthing, Singer and Friedlander 
 Bank                                                          -      201            -      197 
Other2                                                     1,519   10,298        1,671   11,496 
Provision for impairment3                                      -  (7,111)            -  (6,766) 
===================================================  ===========  =======  ===========  ======= 
Assets classified as receivables                           2,968   53,401        3,061   47,460 
===================================================  ===========  =======  ===========  ======= 
Prepaid expenses                                             212    4,606          800    2,281 
Value Added Tax (VAT)4                                     2,215   20,189        1,327   23,877 
===================================================  ===========  =======  ===========  ======= 
Total                                                      5,395   78,196        5,188   73,618 
===================================================  ===========  =======  ===========  ======= 
 

The fair values of trade and other receivables approximate their book value.

1 Relates to export benefits through the Patagonian Port and silver refunds in Minera Santa Cruz, discounted over 18 and 24 months (2019: 18 and 24 months) at a rate of 14.03% (2019: 22.24%) for dollars denominated amounts and 40.34% (2019: 48.93%) for Argentinian pesos. The gain on the unwinding of the discount is recognised within finance income (2019: finance costs).

2 Mainly corresponds to account receivables from contractors for the sale of supplies of US$ 1,642,000 (2019: US$2,426,000) , receivables from government agencies of US$4,476,000 (2019: US$3,809,000), loan to third parties of US$512,000 (2019: US$540,000), claim receivable of US$1,269,000 (2019: US$1,365,000), receivable from the sale of VAT in San José of US$1,222,000 (2019: US$nil) and other tax claims of US$45,000 (2019: US$663,000).

3 Includes the provision for impairment of trade receivable from customers in Peru of US$1,403,000 (2019: US$1,533,000), the impairment of deposits in Kaupthing, Singer and Friedlander of US$201,000 (2019: US$197,000), the impairment of the account receivables from a government agencies of US$4,476,000 (2019: US$3,809,000), the impairment of account receivable from third parties of US$656,000 (2019: US$817,000) and other receivables of US$375,000 (2019: US$410,000).

4 Primarily relates to US$9,747,000 (2019: US$12,832,000) of VAT receivable related to the San Jose project that will be recovered through future sales of gold and silver and also through the sale of these credits to third-parties by Minera Santa Cruz. It also includes the VAT of Minera Ares of US$9,154,000 (2019: US$7,724,000), REE UNO SpA of US$2,166,000 (2019; US$1,424,000) and Empresa de Transmisión Aymaraes S.A.C. of US$590,000 (2019: US$2,435,000). The VAT is valued at its recoverable amount.

Movements in the provision for impairment of receivables:

 
                                          Individually 
                                              impaired 
                                                US$000 
=======================================   ============ 
At 1 January 2019                                5,997 
========================================  ============ 
Provided for during the year (note 11)           3,706 
Released during the year1                     ( 2,937) 
========================================  ============ 
At 31 December 2019                              6,766 
========================================  ============ 
Provided for during the year (note 11)             996 
Foreign exchange effect                          (651) 
========================================  ============ 
At 31 December 2020                              7,111 
========================================  ============ 
 

1 Corresponds to the release of the provision of US$5,000 and write off of US$2,932,000.

As at 31 December 2020 and 2019, none of the financial assets classified as receivables (net of impairment) were past due.

21 Inventories

 
                                           As at 31 December 
                                          =================== 
                                               2020      2019 
                                             US$000    US$000 
=======================================   =========  ======== 
Finished goods valued at cost                     -     1,950 
Products in process valued at cost            4,087    19,460 
Products in process accrual                   4,413     6,445 
Supplies and spare parts                     38,778    41,582 
========================================  =========  ======== 
                                             47,278    69,437 
                                          =========  ======== 
Provision for obsolescence of supplies      (4,916)   (6,837) 
========================================  =========  ======== 
Total                                        42,362    62,600 
========================================  =========  ======== 
 

Finished goods include ounces of gold and silver, dore and concentrate.

Products in process include stockpile (2019: stockpile and precipitates).

The Group either sells dore bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining into gold and silver ounces which are then sold. In the latter scenario, the dore bars are classified as products in process. At 31 December 2020 and 2019 the Group had no dore on hand included in products in process.

Concentrate is sold to smelters, but in addition could be used as a product in process to produce dore.

As part of the Group's short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts. The Group has contracts as at 31 December 2020 of US$10,628,000 (2019: US$nil) (refer to note 25).

The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw materials is US$76,739,000 (2019: US$112,383,000).

Movements in the provision for obsolescence comprise an increase in the provision of US$nil (2019: US$1,449,000) and the reversal of US$1,921,000 related to supplies and spare parts, that had been provided for (2019: US$nil).

22 Cash and cash equivalents

 
                                                           As at 31 December 
                                                          =================== 
                                                               2020      2019 
                                                             US$000    US$000 
=======================================================   =========  ======== 
Cash at bank                                                  1,198       331 
Liquidity funds1                                                  -        16 
Current demand deposit accounts2                             79,834    37,900 
Time deposits3                                              150,851   128,110 
========================================================  =========  ======== 
Cash and cash equivalents considered for the statement 
 of cash flows                                              231,883   166,357 
========================================================  =========  ======== 
 

The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities available in the future for operating activities or capital commitments.

1 The liquidity funds are mainly invested in certificates of deposit, commercial papers and floating rate notes with a weighted average maturity of nil days as at

31 December 2020 (2019: nil days).

2 Relates to bank accounts which are freely available and bear interest.

3 These deposits have an average maturity of 45 days (2019: Average of 7 days).

23 Assets held for sale

On 3 August 2011, the Group entered into an agreement with Impulsora Minera Santa Cruz ("IMSC") whereby IMSC acquired the right to explore the San Felipe properties and an option to purchase the related concessions. Under the terms of this agreement the Group has received US$33,646,000 as non-refundable payments at 31 December 2019. These payments will reduce the total consideration that IMSC will be required to pay upon exercise of the option and constitute an advance of the final purchase price, rather than an option premium and, as such, they were recorded as deferred income.

In March 2017, IMSC entered into an agreement with Americas Silver Corporation ('ASC') to assign 100% of its interest in the San Felipe Project. On 15 December 2018, the option to sell the San Felipe property to ASC was extended to 15 December 2020 with the outstanding option payment of US$6,000,000 payable in quarterly equal instalments over the 2 years period. In consideration for the extension, the Group received 452,200 ASC's common shares on 18 January 2019 at an issue price equal to US$600,000 that was recognised as other income. During 2019 the Group collected US$2,250,000.

As the sale was highly probable to be completed within the twelve months of the year-end, the assets and liabilities were transfer to assets and liabilities related to asset held for sale, respectively as at 31 December 2019. The major classes of assets and liabilities classified as assets held for sale as at 31 December 2019 are as follows

 
                                                                US$000 
                                                              ======== 
Assets 
Evaluation and exploration assets, net of impairment (note 
 16)                                                            38,295 
============================================================  ======== 
Total non-current assets                                        38,295 
============================================================  ======== 
Liabilities 
Provision for mine closure (note 26)                             (899) 
Deferred income                                               (33,646) 
============================================================  ======== 
Total liabilities directly associated with assets held for 
 sale                                                         (34,545) 
============================================================  ======== 
Net assets directly associated with assets held for sale         3,750 
============================================================  ======== 
 

Upon exercise of the option in July 2020, AGSC agreed to issue a fixed number of AGSC shares to the Group (1,687,401 shares) which were valued at US$4,301,000.

24 Trade and other payables

 
                                                         As at 31 December 
                                             ========================================== 
                                                     2020                  2019 
                                             ====================  ==================== 
                                             Non-current  Current  Non-current  Current 
                                                  US$000   US$000       US$000   US$000 
==========================================   ===========  =======  ===========  ======= 
Trade payables1                                        -   72,066            -   75,252 
Salaries and wages payable2                            -   26,580            -   26,956 
Dividends payable                                      -       34            -       37 
Taxes and contributions                                3    5,075            6    5,220 
Guarantee deposits                                     -    5,962            -    5,440 
Mining royalties (note 30)                             -      315            -      607 
Accounts payable to related parties (note 
 29 (a) )                                              -      266            -      192 
Lease liabilities                                      -      617            -    2,577 
Other                                                202    3,500          520    4,256 
===========================================  ===========  =======  ===========  ======= 
Total                                                205  114,415          526  120,537 
===========================================  ===========  =======  ===========  ======= 
 

The fair value of trade and other payables approximate their book values.

1 Trade payables relate mainly to the acquisition of materials, supplies and contractors' services. These payables do not accrue interest and no guarantees have been granted.

2 Salaries and wages payable relates to remuneration payable. At 31 December 2020, there were Board members remuneration payable of US$151,000 (2019: US$184,000) and no long-term incentive plan payable (2019: US$nil)

25 Borrowings

 
                                                                                  As at 31 December 
                                                           ================================================================ 
                                                                                      2020                             2019 
                                                           ===============================  =============================== 
                                                           Effective                        Effective 
                                                            interest  Non-current  Current   interest  Non-current  Current 
                                                                rate       US$000   US$000       rate       US$000   US$000 
========================================================   =========  ===========  =======  =========  ===========  ======= 
Secured bank loans (a) 
                                                              28% to 
  *    Pre-shipment loans in Minera Santa Cruz (note 21)         35%            -   10,628                       -        - 
 
  *    Bank loans                                               1.5%      199,554      150      3.05%      199,308      234 
=========================================================  =========  ===========  =======  =========  ===========  ======= 
Total                                                                     199,554   10,778                 199,308      234 
=========================================================  =========  ===========  =======  =========  ===========  ======= 
 

(a) Secured bank loans:

Medium-term bank loans:

In December 2019, a five-year credit agreement was signed between Minera Ares and Scotiabank Peru S.A.A., The Bank of Nova Scotia and BBVA Securities Inc, with Hochschild Mining plc as guarantor. The US$200,000,000 medium term loan is payable on equal quarterly instalments from the second anniversary of the loan with an interest rate of Libor three months plus 1.5% payable quarterly until maturity on 13 December 2024. The carrying value including accrued interests payable net of capitalised expenses related to the borrowing (US$446,000 (2019: US$692,000)) at 31 December 2020 is US$199,554,000 (2019: US$199,542,000).

The maturity of non-current borrowings is as follows:

 
                          As at 31 December 
                         =================== 
                              2020      2019 
                            US$000    US$000 
======================   =========  ======== 
Between 1 and 2 years       66,666         - 
Between 2 and 5 years      132,888   199,308 
Over 5 years                     -         - 
======================   =========  ======== 
Total                      199,554   199,308 
=======================  =========  ======== 
 

The carrying amount of current borrowings differs their fair value only with respect to differences arising under the effective interest rate calculations described above. The carrying amount and fair value of the non--current borrowings are as follows:

 
                        Carrying amount          Fair value 
                        as at 31 December     as at 31 December 
                      ====================  ==================== 
                           2020       2019       2020       2019 
                         US$000     US$000     US$000     US$000 
===================   =========  =========  =========  ========= 
Secured bank loans      199,554    199,308    199,110    186,653 
====================  =========  =========  =========  ========= 
Total                   199,554    199,308    199,110    186,653 
====================  =========  =========  =========  ========= 
 

The movement in borrowings during the year is as follows:

 
 
 
                           As at                                                   As at 
                       1 January  Additions  Repayments  Reclassifications   31 December 
                     2020 US$000     US$000      US$000             US$000   2020 US$000 
=================   ============  =========  ==========  =================  ============ 
Current 
Bank loans                     -     48,520    (37,717)              (702)        10,101 
Accrued interest             234      6,759     (6,312)                (4)           677 
==================  ============  =========  ==========  =================  ============ 
                             234     55,279    (44,029)              (706)        10,778 
                    ============  =========  ==========  =================  ============ 
Non-current 
Bank loans               199,308        327           -               (81)       199,554 
==================  ============  =========  ==========  =================  ============ 
                         199,308        327           -               (81)       199,554 
                    ============  =========  ==========  =================  ============ 
 

26 Provisions

 
                                                         Long 
                                        Provision        Term   Workers 
                                         for mine   Incentive    profit 
                                         closure1       Plan2   sharing    Other    Total 
                                           US$000      US$000    US$000   US$000   US$000 
                                        =========  ==========  ========  =======  ======= 
At 1 January 2019                          93,855       1,002         -    2,936   97,793 
======================================  =========  ==========  ========  =======  ======= 
(Reductions)/Additions                          -       (184)     5,965     (71)    5,710 
Accretion (note 12)                           506           -         -        -      506 
Change in discount rate                     3,819           -         -        -    3,819 
Change in estimates                        12,878           -         -        -   12,878 
Foreign exchange effect                         -           -        98    (846)    (748) 
Transfer to trade and other payables        (899)           -         -        -    (899) 
Payments                                  (3,488)           -         -        -  (3,488) 
======================================  =========  ==========  ========  =======  ======= 
At 31 December 2019                       106,671         818     6,063    2,019  115,571 
======================================  =========  ==========  ========  =======  ======= 
Less: current portion                       9,358           -     6,063      828   16,249 
======================================  =========  ==========  ========  =======  ======= 
Non-current portion                        97,313         818         -    1,191   99,322 
======================================  =========  ==========  ========  =======  ======= 
At 1 January 2020                         106,671         818     6,063    2,019  115,571 
======================================  =========  ==========  ========  =======  ======= 
Additions/(reduction)                         235         308     4,986       41    5,570 
Accretion (note 12)                         (387)           -         -        -    (387) 
Change in discount rate                     7,129           -         -        -    7,129 
Change in estimates                        16,736           -         -        -   16,736 
Foreign exchange effect                         -           -      (11)    (435)    (446) 
Payments                                  (3,987)           -   (5,649)        -  (9,636) 
======================================  =========  ==========  ========  =======  ======= 
At 31 December 2020                       126,397       1,126     5,389    1,625  134,537 
======================================  =========  ==========  ========  =======  ======= 
Less: current portion                      19,390           -     5,389      725   25,504 
======================================  =========  ==========  ========  =======  ======= 
Non-current portion                       107,007       1,126         -      900  109,033 
======================================  =========  ==========  ========  =======  ======= 
 

1 The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the mines. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure adjusted for the impact of inflation as at 31 December 2020 and 2019 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mines, as new resources and reserves are discovered. The discount rate used was -1.58% (2019: 0.00%). Expected cash flows will be over a period from one to seventeen years (2019: over a period from one to eighteen years).

Based on the internal and external reviews of mine rehabilitation estimates, the provision for mine closure increased by US$16,736,000 mainly due to increase in the Ares mine unit of US$14,070,000 and San Jose mine unit of US$1,944,000 (2019: increase by US$12,878,000, mainly due to the increase in Ares mine unit of US$7,787,000 and Sipan mine unit of US$5,264,000).

A net charge of US$16,056,000 related to changes in estimates (US$14,312,000) and discount rates (US$1,744,000) for mines already closed were recognised directly in the income statement (2019: net charge of US$13,398,000 related to changes in estimates (US$12,828,000) and discount rates (US$570,000) for mines already closed were recognised directly in the income statement).

A change in any of the following key assumptions used to determine the provision would have the following impact:

 
                                                               US$000 
==========================================================   ======== 
 Closure costs (increase by 10%) increase of provision         12,639 
 Discount rate (increase by 0.5%) (decrease of provision)     (6,557) 
===========================================================  ======== 
 

2 Corresponds to the provision related to awards granted under the Long Term Incentive Plan ('LTIP') to designated personnel of the Group. Includes the following benefits:(i) 2020 awards, granted in February 2020, payable in February 2023, as 50% in cash, (ii) 2019 awards, granted in July 2019, payable in February 2022, as 50% in cash, (iii) 2018 awards, granted in May 2018, payable in May 2021, as 50% in cash with a result of US$nil. Only employees who remain in the Group's employment on the vesting date will be entitled to vested awards, subject to exceptions approved by the Remuneration Committee of the Board. There are two parts to the performance conditions attached to LTIP awards: 70% is subject to the Company's TSR ranking relative to a tailored peer group of mining companies, and 30% is subject to the Company's TSR ranking relative to the constituents of the FTSE 350 mining index. The liability for the LTIP paid in cash is measured, initially and at the end of each reporting period until settled, at the fair value of the awards, by applying the Monte Carlo pricing model, taking into account the terms and conditions on which the awards were granted, and the extent to which the employees have rendered services to date. The net increase to the provision of US$308,000 (2019: US$184,000 decrease) have been recorded as administrative expenses US$295,000 (2019: US$172,000) and exploration expenses US$13,000 (2019: US$12,000).

The following tables list the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2020 and 2019, respectively:

 
                                LTIP 2018                   LTIP 2019                   LTIP 2020 
                        ==========================  ==========================  ========================== 
                         31 December   31 December   31 December   31 December   31 December   31 December 
                                2020          2019          2020          2019          2020          2019 
For the period ended          US$000        US$000        US$000        US$000        US$000        US$000 
=====================   ============  ============  ============  ============  ============  ============ 
Dividend yield (%)                 -          1.73          1.43          1.73          1.43             - 
Expected volatility 
 (%)                               -          2.70          3.39          2.70          3.39             - 
Risk-free interest 
 rate (%)                          -          0.61         -0.12          0.53         -0.13             - 
Expected life (years)              -             1             1             2             2             - 
Weighted average share 
 price (pence GBP)                 -        235.08        161.37        161.37        179.61             - 
======================  ============  ============  ============  ============  ============  ============ 
 

The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the awards and is indicative of future trends, which may not necessarily be the actual outcome.

27 Deferred income tax

The changes in the net deferred income tax assets/(liabilities) are as follows:

 
                                               As at 31 December 
                                              =================== 
                                                   2020      2019 
                                                 US$000    US$000 
===========================================   =========  ======== 
Beginning of the year                          (61,476)  (69,727) 
============================================  =========  ======== 
Income statement (credit)/charge (note 13)     (12,575)     8,251 
Equity charge                                     1,744         - 
============================================  =========  ======== 
End of the year                                (72,307)  (61,476) 
============================================  =========  ======== 
 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.

The movement in deferred income tax assets and liabilities before offset during the year is as follows:

 
                                    Differences                Provisional 
                                        in cost          Mine      pricing 
                                        of PP&E   development   adjustment   Others    Total 
                                         US$000        US$000       US$000   US$000   US$000 
=================================   ===========  ============  ===========  =======  ======= 
Deferred income tax liabilities 
At 1 January 2019                        40,214        83,588        1,010    1,676  126,488 
==================================  ===========  ============  ===========  =======  ======= 
Income statement (credit)/charge        (3,444)       (1,820)        (657)    2,607  (3,314) 
==================================  ===========  ============  ===========  =======  ======= 
At 31 December 2019                      36,770        81,768          353    4,283  123,174 
==================================  ===========  ============  ===========  =======  ======= 
Income statement (credit)/charge          2,751         3,184          343    (636)    5,642 
==================================  ===========  ============  ===========  =======  ======= 
At 31 December 2020                      39,521        84,952          696    3,647  128,816 
==================================  ===========  ============  ===========  =======  ======= 
 
 
                                    Differences  Provision 
                                        in cost   for mine      Tax 
                                        of PP&E    closure   losses  Mine development  Others(1)    Total 
                                         US$000     US$000   US$000            US$000     US$000   US$000 
=================================   ===========  =========  =======  ================  =========  ======= 
Deferred income tax assets 
At 1 January 2019                        26,298     18,403      204               693     11,163   56,761 
==================================  ===========  =========  =======  ================  =========  ======= 
Income statement credit/(charge)          4,746      2,977    (204)             (109)    (2,473)    4,937 
==================================  ===========  =========  =======  ================  =========  ======= 
At 31 December 2019                      31,044     21,380        -               584      8,690   61,698 
==================================  ===========  =========  =======  ================  =========  ======= 
Income statement credit/(charge)       (10,914)      4,004        -             (110)         87  (6,933) 
Equity credit/(charge)                        -          -        -                 -      1,744    1,744 
==================================  ===========  =========  =======  ================  =========  ======= 
At 31 December 2020                      20,130     25,384        -               474     10,521   56,509 
==================================  ===========  =========  =======  ================  =========  ======= 
 

1 Credit/(charge) in the period mainly related to the interest rate swap of US$ 1,744,000 (2019; US$nil), statutory holiday provision of US$857,000 (2019: US$866,000), long term incentive plan of US$771,000(2019: US$574,000) and inventory of US$nil(2019: US$1,149,000).

The amounts after offset, as presented on the face of the statement of financial position, are as follows:

 
                                    As at 31 December 
                                   =================== 
                                        2020      2019 
                                      US$000    US$000 
================================   =========  ======== 
Deferred income tax assets             1,009     1,627 
Deferred income tax liabilities     (73,316)  (63,103) 
=================================  =========  ======== 
Total                               (72,307)  (61,476) 
=================================  =========  ======== 
 

Unrecognised tax losses expire in the following years:

 
                            As at 31 December 
                           =================== 
                                2020      2019 
                              US$000    US$000 
========================   =========  ======== 
Expire in one year                 -         - 
Expire in two years                -     4,843 
Expire in three years              -     2,990 
Expire in four years               -         - 
Expire after four years      171,527   174,771 
=========================  =========  ======== 
                             171,527   182,604 
                           =========  ======== 
 

Other unrecognised deferred income tax assets comprise (gross amounts):

 
                                As at 31 December 
                               =================== 
                                    2020      2019 
                                  US$000    US$000 
============================   =========  ======== 
Provision for mine closure1        9,212     7,456 
=============================  =========  ======== 
 

1 This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected to be available to offset the expenditure.

Unrecognised deferred tax liability on retained earnings

At 31 December 2020 and 2019, there was no recognised deferred tax liability for taxes that would be payable on the unremitted earnings

of certain of the Group's subsidiaries as the intention is that these amounts are permanently reinvested.

28 Dividends

 
                                                               2020     2019 
                                                             US$000   US$000 
=========================================================   =======  ======= 
Dividends paid and proposed during the year 
Equity dividends on ordinary shares: 
Final dividend for 2019 : nil US cents per share ( 2018: 
 1.959 US cents per share)                                        -   10,002 
Interim dividend for 2020 : 4.000 US cents per share 
 ( 2019: 2.000 US cents per share)                           20,556   10,211 
==========================================================  =======  ======= 
Total dividends paid on ordinary shares                      20,556   20,213 
==========================================================  =======  ======= 
Proposed dividends on ordinary shares: 
Final dividend for 2020: 2.335 US cents per share (2019: 
 nil US cents per share)                                     12,000        - 
==========================================================  =======  ======= 
 
Dividends declared to non-controlling interests: 0.002 
 US$ per share ( 2019 : 0.05 US$ per share)                     345    8,859 
==========================================================  =======  ======= 
Total dividends declared to non-controlling interests           345    8,859 
==========================================================  =======  ======= 
 

Dividends paid in 2020 to non-controlling interests amount to US$345,000 (2019: US$11,069).

Dividends per share

The interim dividend paid in December 2020 was US$20,556,000 (4.000 US cents per share). A proposed dividend in respect of the year ending 31 December 2020 of 2.335 US cents per share, amounting to a total dividend of US$12,000,000, is subject to approval at the Annual General Meeting to be held on 21 May 2021 and is not recognised as a liability as at 31 December 2020.

29 Related-party balances and transactions

(a) Related-party accounts receivable and payable

The Group had the following related-party balances and transactions during the years ended 31 December 2020 and 2019. The related parties are companies owned or controlled by the main shareholder of the Parent company or associates.

 
                                   Accounts receivable     Accounts payable 
                                    as at 31 December      as at 31 December 
                                  =====================  ==================== 
                                        2020       2019       2020       2019 
                                      US$000     US$000     US$000     US$000 
===============================   ==========  =========  =========  ========= 
Current related party balances 
Cementos Pacasmayo S.A.A.1               387        569        146         56 
Tecsup2                                    1          -        120         41 
Universidad UTEC2                          -          -          -         95 
================================  ==========  =========  =========  ========= 
Total                                    388        569        266        192 
================================  ==========  =========  =========  ========= 
 

1 The account receivable relates to reimbursement of expenses paid by the Group on behalf of Cementos Pacasmayo S.A.A. The account payable relates to the payment of rentals.

2 Peruvian not for profit educational institutions controlled by Eduardo Hochschild.

As at 31 December 2020 and 2019, all accounts are, or were, non-interest bearing.

No security has been granted or guarantees given by the Group in respect of these related party balances.

Principal transactions between affiliates are as follows:

 
                                                                   Year ended 
                                                                ================ 
                                                                   2020     2019 
                                                                 US$000   US$000 
=============================================================   =======  ======= 
Expenses 
Expense recognised for the rental paid to Cementos Pacasmayo 
 S.A.A.                                                           (469)    (200) 
Expense recognised for the interests generated by the 
 short-term loan from Banco de Credito del Peru                       -    (480) 
Expense donations to Tecsup                                       (505)        - 
Expense donations to Universidad UTEC                             (875)    (240) 
==============================================================  =======  ======= 
 

The Group entered in 2019 into transactions with Banco de Credito del Peru at arm's length such as short-term loan and deposits which are undertaken in the normal course of a banker-customer relationship. This bank is controlled by Dionisio Romero who is a Non-Executive Director of the Group.

Transactions between the Group and these companies are on an arm's length basis.

(b) Compensation of key management personnel of the Group

 
                                                                 As at 31 December 
                                                                =================== 
Compensation of key management personnel (including                  2020      2019 
 Directors)                                                        US$000    US$000 
=============================================================   =========  ======== 
Short-term employee benefits                                        7,330     7,911 
Long Term Incentive Plan, Deferred Bonus Plan and Restricted 
 Share Plan                                                           808     1,184 
==============================================================  =========  ======== 
Total compensation paid to key management personnel                 8,138     9,095 
==============================================================  =========  ======== 
 

This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$3,821,000 (2019: US$4,238,000).

30 Mining royalties

Peru

In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and non--metallic resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate or equivalent sold, based on quoted market prices.

In October 2011 changes came into effect for mining companies, with the following features:

a) Introduction of a Special Mining Tax ('SMT'), levied on mining companies at the stage of exploiting mineral resources. The additional tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.

b) Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%, of the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.

The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12 "Income Taxes".

c) For companies that have mining projects benefiting from tax stability regimes, mining royalties are calculated and recorded as they were previously, applying an additional new special charge on mining that is calculated using progressive scale rates, ranging from 4% to 13.12% of quarterly operating profit.

As at 31 December 2020, the amount payable as under the new mining royalty, and the SMT amounted to US$1,544,000 (2019: US$1,263,000), and US$1,492,000 (2019: US$1,196,000) respectively. The new mining royalty and SMT is reported as 'Income tax payable' in the Statement of Financial Position. The amount recorded in the income statement was US$4,088,000 (2019: US$5,028,000) of new mining royalty and US$3,119,000 (2019: US$3,429,000) of SMT, both classified as income tax.

Argentina

In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to collect royalties from mine operators. For San Jose, the mining royalty applicable to dore and concentrate is 3% of the pit-head value. As at 31 December 2020, the amount payable as mining royalties amounted to US$315,000 (2019: US$607,000). The amount recorded in the income statement as cost of sales was US$5,208,000 (2019: US$6,412,000).

31 Subsequent events

(a) On 8 February 2021, the Group signed agreements to hedge the sale of 4,000,000 ounces of silver at $27.10 per ounce for 2021 and a further 4,000,000 ounces of silver at US$26.86 per ounce for 2022. This is to protect cashflows from the Pallancata mine in the next two years with the existing resource base.

(b) In February 2021, the Group sold 324,001 shares of AGSC for a total consideration of US$891,000 generating a loss of US$147,000, recognised in profit and loss.

Profit by operation

(Segment report reconciliation) as at 31 December 2020

 
                                                                               Consolidation 
                                                                                  adjustment 
Group (US$000)                              Pallancata  Inmaculada   San Jose     and others  Total/HOC 
=========================================   ==========  ==========  =========  =============  ========= 
Revenue                                        100,674     314,906    206,098            149    621,827 
==========================================  ==========  ==========  =========  =============  ========= 
Cost of sales (pre consolidation)             (96,053)   (185,386)  (147,103)          3,136  (425,406) 
==========================================  ==========  ==========  =========  =============  ========= 
Consolidation adjustment                           824     (3,919)       (41)          3,136          - 
Cost of sales (post consolidation)            (96,877)   (181,467)  (147,062)              -  (425,406) 
  Production cost excluding depreciation      (51,534)    (86,874)   (79,804)              -  (218,212) 
  Depreciation in production 
   cost                                       (28,695)    (53,472)   (30,979)              -  (113,146) 
  Workers profit sharing                       (1,249)     (1,383)          -              -    (2,632) 
  Other items                                 (13,605)    (26,517)   (33,971)              -   (74,093) 
  Change in inventories                        (1,794)    (13,221)    (2,308)              -   (17,323) 
==========================================  ==========  ==========  =========  =============  ========= 
Gross profit                                     4,621     129,520     58,995          3,285    196,421 
==========================================  ==========  ==========  =========  =============  ========= 
Administrative expenses                              -           -          -       (43,282)   (43,282) 
Exploration expenses                                 -           -          -       (32,795)   (32,795) 
Selling expenses                                 (632)       (417)   (11,705)              -   (12,754) 
Other income/expenses                                -           -          -       (28,901)   (28,901) 
==========================================  ==========  ==========  =========  =============  ========= 
Operating profit before impairment               3,989     129,103     47,290      (101,693)     78,689 
==========================================  ==========  ==========  =========  =============  ========= 
Reversal of impairment and 
 write-off of assets, net                            -           -          -          6,225      6,225 
Finance income                                       -           -          -          4,197      4,197 
Finance costs                                        -           -          -       (23,560)   (23,560) 
Foreign exchange loss                                -           -          -        (2,631)    (2,631) 
==========================================  ==========  ==========  =========  =============  ========= 
Profit/(loss) from continuing 
 operations before 
 income tax                                      3,989     129,103     47,290      (117,462)     62,920 
==========================================  ==========  ==========  =========  =============  ========= 
Income tax                                           -           -          -       (42,494)   (42,494) 
==========================================  ==========  ==========  =========  =============  ========= 
Profit/(loss) for the year 
 from continuing operations                      3,989     129,103     47,290      (159,956)     20,426 
==========================================  ==========  ==========  =========  =============  ========= 
 

1 On a post-exceptional basis.

RESERVES AND RESOURCES

Ore reserves and mineral resources estimates

Hochschild Mining plc reports its mineral resources and reserves estimates in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2012 edition ("the JORC Code"). This establishes minimum standards, recommendations and guidelines for the public reporting of exploration results and mineral resources and reserves estimates. In doing so it emphasises the importance of principles of transparency, materiality and confidence. The information on ore reserves and mineral resources on pages 57 to 59 were prepared by or under the supervision of Competent Persons (as defined in the JORC Code). Competent Persons are required to have sufficient relevant experience and understanding of the style of mineralisation, types of deposits and mining methods in the area of activity for which they are qualified as a Competent Person under the JORC Code. The Competent Person must sign off their respective estimates of the original mineral resource and ore reserve statements for the various operations and consent to the inclusion of that information in this report, as well as the form and context in which it appears.

Hochschild Mining plc employs its own Competent Person who has audited all the estimates set out in this report. Hochschild Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants. The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and mineral resource, the overall value thereof and the time that has lapsed since the previous independent third-party audit.

The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts (which, in the Group's case, are prepared by ex-house specialists largely using estimates of future supply and demand and long-term economic outlooks).

Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental regulations and any other relevant new information and therefore these can vary from year-to-year. Mineral resource estimates can also change and tend to be influenced mostly by new information pertaining to the understanding of the deposit and secondly the conversion to ore reserves.

The estimates of ore reserves and mineral resources are shown as at 31 December 2020, unless otherwise stated. Mineral resources that are reported include those mineral resources that have been modified to produce ore reserves. All tonnage and grade information has been rounded to reflect the relative uncertainty in the estimates; there may therefore be small differences. The prices used for the reserves calculation were: Au Price: US$1,800 per ounce and Ag Price: US$20.0 per ounce.

ATTRIBUTABLE METAL RESERVES AS AT 31 DECEMBER 2020

 
                           Proved 
                     and probable       Ag      Au      Ag      Au   Ag Eq 
Reserve category              (t)    (g/t)   (g/t)   (moz)   (koz)   (moz) 
-----------------   -------------  -------  ------  ------  ------  ------ 
OPERATIONS (1) 
-----------------   -------------  -------  ------  ------  ------  ------ 
Inmaculada 
Proved                  2,490,623      154     3.7    12.3   297.7    37.9 
Probable                5,267,732       98     2.4    16.6   401.7    51.2 
------------------  -------------  -------  ------  ------  ------  ------ 
Total                   7,758,354      116     2.8    28.9   699.3    89.1 
------------------  -------------  -------  ------  ------  ------  ------ 
Pallancata 
Proved                    515,499      283     1.1     4.7    18.3     6.3 
Probable                  118,910      216     0.9     0.8     3.6     1.1 
------------------  -------------  -------  ------  ------  ------  ------ 
Total                     634,409      270     1.1     5.5    22.0     7.4 
------------------  -------------  -------  ------  ------  ------  ------ 
San Jose 
Proved                    403,140      466     7.6     6.0    98.3    14.5 
Probable                  108,019      146     2.4     0.5     8.4     1.2 
------------------  -------------  -------  ------  ------  ------  ------ 
Total                     511,159      399     6.5     6.5   106.7    15.7 
------------------  -------------  -------  ------  ------  ------  ------ 
GRAND TOTAL 
Proved                  3,409,261      210     3.8    23.0   414.3    58.7 
Probable                5,494,661      102     2.3    18.0   413.7    53.5 
------------------  -------------  -------  ------  ------  ------  ------ 
TOTAL                   8,903,922      143     2.9    41.0   828.0   112.2 
------------------  -------------  -------  ------  ------  ------  ------ 
 

Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company's ownership only. Includes discounts for ore loss and dilution.

1 Operations were audited by P&E Consulting.

ATTRIBUTABLE METAL RESOURCES AS AT 31 DECEMBER 2020(1,2)

 
                          Tonnes      Ag      Au    Ag Eq      Ag        Au    Ag Eq 
Resource category            (t)   (g/t)   (g/t)   (g/t)w   (moz)     (koz)    (moz) 
------------------   -----------  ------  ------  -------  ------  --------  ------- 
OPERATIONS 
------------------   -----------  ------  ------  -------  ------  --------  ------- 
Inmaculada 
Measured               2,406,000     193    4.75      602    15.0     367.7     46.6 
Indicated              5,253,000     127    3.17      400    21.4     535.8     67.5 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                  7,659,000     148    3.67      463    36.3     903.4    114.0 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred               9,921,000     104    2.66      333    33.3     849.1    106.3 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Pallancata 
Measured               1,454,000     329    1.41      450    15.4      65.8     21.0 
Indicated                691,000     239    1.11      335     5.3      24.6      7.4 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                  2,145,000     300    1.31      413    20.7      90.4     28.5 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred               1,947,000     248    1.13      345    15.5      70.8     21.6 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
San Jose 
Measured                 893,520     484    7.89    1,162    13.9     226.6     33.4 
Indicated                510,000     335    5.68      823     5.5      93.1     13.5 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                  1,403,520     429    7.09    1,039    19.4     319.7     46.9 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred                 949,110     345    5.58      825    10.5     170.2     25.2 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
GROWTH PROJECTS 
------------------   -----------  ------  ------  -------  ------  --------  ------- 
Crespo 
Measured               5,211,000      47    0.47       87     7.9      78.6     14.7 
Indicated             17,298,000      38    0.40       72    21.0     222.5     40.1 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                 22,509,000      40    0.42       76    28.8     301.0     54.7 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred                 775,000      46    0.57       95     1.1      14.2      2.4 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Azuca 
Measured                 191,000     244    0.77      310     1.5       4.7      1.9 
Indicated              6,859,000     187    0.77      253    41.2     168.8     55.7 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                  7,050,000     188    0.77      254    42.7     173.5     57.6 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred               6,946,000     170    0.89      247    37.9     199.5     55.1 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Volcan 
Measured             105,918,000       -   0.738       63       -   2,513.1    216.1 
Indicated            283,763,000       -   0.698       60       -   6,368.0    547.6 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                389,681,000       -   0.709       61       -   8,881.1    763.8 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred              41,553,000       -   0.502       43       -     670.7     57.7 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Arcata 
Measured                 834,000     438    1.34      553    11.7      36.1     14.8 
Indicated              1,304,000     411    1.36      527    17.2      56.9     22.1 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                  2,138,000     421    1.35      537    29.0      92.9     36.9 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred               3,533,000     370    1.26      478    42.1     142.6     54.3 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
GRAND TOTAL 
------------------   -----------  ------  ------  -------  ------  --------  ------- 
Measured             116,907,520      17    0.88       93    65.3   3,292.6    348.5 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Indicated            315,678,000      11    0.74       74   111.6   7,469.6    753.9 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Total                432,585,520      13    0.77       79   176.9  10,762.1  1,102.4 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
Inferred              65,624,110      67    1.00      153   140.5   2,117.0    322.5 
-------------------  -----------  ------  ------  -------  ------  --------  ------- 
 

1 Prices used for resources calculation: Au: $1,800/oz and Ag: $20.0/oz and Ag/Au ratio of 86x.

2 Tables represents 100 % of the Mineral Resource. Resources are inclusive of Reserves.

CHANGE IN ATTRIBUTABLE RESERVES AND RESOURCES

 
                                        Percentage  December  December 
                                      attributable      2019      2020 
Ag equivalent content                     December      Att.       Att 
 (million ounces)        Category             2020       (1)     . (1)  Net difference  % change 
----------------------   ---------   -------------  --------  --------  --------------  -------- 
Inmaculada                Resource             100%     233.8     220.3          (13.5)    (5.8%) 
  Reserve                                               76.1      89.1            12.9     17.0% 
  ----------                         -------------  --------  --------  --------------  -------- 
Pallancata                Resource             100%      58.6      50.1           (8.5)   (14.5%) 
  Reserve                                               11.9       7.4           (4.5)   (38.0%) 
  ----------                         -------------  --------  --------  --------------  -------- 
San Jose                  Resource              51%      71.4      72.0             0.6      0.9% 
  Reserve                                               18.3      15.7           (2.6)   (14.1%) 
  ----------                         -------------  --------  --------  --------------  -------- 
Crespo                    Resource             100%      57.1      57.1               -         - 
                         Reserve                           -         -               -         - 
----------------------   ---------   -------------  --------  --------  --------------  -------- 
Azuca                     Resource             100%     112.7     112.7               -         - 
                         Reserve                           -         -               -         - 
----------------------   ---------   -------------  --------  --------  --------------  -------- 
Volcan                    Resource             100%     821.5     821.5               -         - 
                         Reserve                           -         -               -         - 
----------------------   ---------   -------------  --------  --------  --------------  -------- 
Arcata                    Resource             100%      91.3      91.3               -         - 
                         Reserve                           -         -               -         - 
----------------------   ---------   -------------  --------  --------  --------------  -------- 
Total                     Resource                    1,446.3   1,425.0          (21.3)    (1.5%) 
  Reserve                                              106.4     112.2             5.8      5.5% 
  ----------  ---------------------  -------------  --------  --------  --------------  -------- 
 

1 Attributable reserves and resources based on the Group's percentage ownership of its joint venture projects.

SHAREHOLDER INFORMATION

Company website

Hochschild Mining plc Interim and Annual Reports and results announcements are available via the internet on our website at www.hochschildmining.com. Shareholders can also access the latest information about the Company and press announcements as they are released, together with details of future events and how to obtain further information.

Registrars

The Registrars can be contacted as follows for information about the AGM, shareholdings, and dividends and to report changes in personal details:

BY POST

Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

BY TELEPHONE

If calling from the UK: 0371 664 0300 (calls cost 12p per minute plus your phone company's access charge. Lines are open 9.00am-5.30pm Mon to Fri excluding public holidays in England and Wales).

If calling from overseas: +44 371 664 0300 (Calls charged at the applicable international rate).

Currency option and dividend mandate

Shareholders wishing to receive their dividend in US dollars should contact the Company's registrars to request a currency election form. This form should be completed and returned to the registrars by 14 May 2021 in respect of the 2020 final dividend.

The Company's registrars can also arrange for the dividend to be paid directly into a shareholder's UK bank account. To take advantage of this facility in respect of the 2020 final dividend, a dividend mandate form, also available from the Company's registrars, should be completed and returned to the registrars by 14 May 2021. This arrangement is only available in respect of dividends paid in UK pounds sterling. Shareholders who have already completed one or both of these forms need take no further action.

Financial Calendar

 
 Dividend dates                                     2021 
 Ex-dividend date                                  6 May 
 Record date                                       7 May 
 Deadline for return of currency election forms   14 May 
 Payment date                                     2 June 
-----------------------------------------------  ------- 
 

17 Cavendish Square

London

W1G 0PH

United Kingdom

[1] Revenue presented in the financial statements is disclosed as net revenue and is calculated as gross revenue less commercial discounts plus services revenue

(2) Please see the Financial Review page 16 for a definition of Adjusted EBITDA

[3] All equivalent figures calculated using the Company's 2020 average gold/silver ratio of 86:1. 2019 figures have been restated (previously calculated using a gold/silver ratio of 81:1)

4 All-in sustaining cost per (AISC) silver equivalent ounce: Calculated before exceptional items and includes production cost excluding depreciation, other items and workers profit sharing in cost of sales, administrative expenses (excl depreciation), brownfield exploration, operating and exploration capex and royalties and special mining tax (presented with income tax) divided by silver or gold equivalent ounces produced, plus commercial deductions and selling expenses divided by silver or gold equivalent ounces sold using a gold/silver ratio of 86:1. The Arcata operation is excluded from the calculation of the AISC from operations in 2019.

[5] Calculated as total number of accidents per million labour hours

([6]) Calculated as total number of days lost per million labour hours.

[7] The ECO Score is an internally designed Key Performance Indicator measuring environmental performance in one number and encompassing numerous fronts including management of waste water, outcome of regulatory inspections and sound environmental practices relating to water consumption and the recycling of materials.

[8] Group production figures for 2019 include 394,000 silver equivalent ounces from the Arcata operation which was placed on care and maintenance in February 2019.

[9] Includes revenue from services

[10] Unit cost per tonne is calculated by dividing mine and treatment production costs (excluding depreciation) by extracted and treated tonnage respectively

[11] Cash costs are calculated to include cost of sales, commercial discounts and selling expenses items less depreciation included in cost of sales

([12]) Does not include Fixed costs during operational stoppages and reduced capacity of $46.5 million

[13] Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore

([14]) Does not include Fixed costs during operational stoppages and reduced capacity of $46.5 million

[15] Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore

[16] Calculated using a gold /silver ratio of 86:1. 2019 figures have been restated (previously calculated using a gold/silver ratio of 81:1)

[17] Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments

[18] Administrative expenses does not include expenses from the Biolantanidos project ($179,000)

[19] Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line

[20] Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments

[21] Administrative expenses does not include expenses from the Biolantanidos project ($160,000)

[22] Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line

[23] Adjusted EBITDA has been presented before the effect of significant non-cash (income)/expenses related to changes in mine closure provisions and the write-off of property, plant and equipment

[24] Covid-19 response initiatives are distributed between cost of sales and other expenses. Cost of sales mainly includes the expenses related to the operating mine units (Inmaculada, Pallancata, San Jose) of $27.6 million. Other expenses includes corporate expenses and expenses from non-operating units of $3.6 million.

[25] Includes pre-shipment loans and short term interest payables

[26] Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in the expected closure costs of mine asset

[27] Capital expenditure from Biolantanidos in 2019 includes the fair value of the asset at acquisition plus additions since the acquisition

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