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9 March 2016
Hochschild Mining plc
Preliminary Results for the twelve months ended 31 December 2015
Financial Results highlights
§ Net revenue of $469.1 million (2014: $493.0 million)
§ Adjusted EBITDA of $138.8 million (2014: $135.6 million)
§ Earnings per share of $(0.14) (2014: $(0.13))
§ Cash balance of $84.0 million as at 31 December 2015 (31 December 2014: $116.0 million)
§ Net debt of $350.5 million as at 31 December 2015 (30 June 2015: $455.6 million)
§ Net debt/EBITDA of 2.5x as at 31 December 2015 (30 June 2015: 5.8x)
§ Non-cash post tax impairment charges of $170.6 million
Strong 2015 operational delivery
§ 2015 All per silver equivalent ounce from operations reduced by 26% to $12.9 exceeding guidance
§ Inmaculada AISC per silver equivalent ounce significantly below guidance at $7.3
§ Full year production of 27.0 million attributable silver equivalent ounces exceeding guidance
§ Inmaculada mine produced 8.3 million silver equivalent ounces exceeding guidance
Improved financial position
§ $100 million equity rights issue completed
§ $105 million of debt repaid in Q4
§ Argentina macroeconomic and tax reforms already significantly improving San Jose cash flows
o Removal of export tax on dore and concentrate confirmed
o Ongoing devaluation of Argentine peso reducing operating costs
§ Cashflow further protected by additional 2016 precious metal hedges:
o 15,000 ounces of gold at $1,244 per ounce
o Zero cost collar for 3.0 million ounces of silver with a floor of $14.0 per ounce and a cap of $17.6 per ounce
o 55% of total 2016 attributable production target now hedged
2016 Outlook
§ Record attributable production target of 32.0 million silver equivalent ounces
§ AISC now expected to be $12.0-12.5 per silver equivalent ounce (previous guidance of $12-13 per ounce)
§ Inmaculada AISC expected to be $9-10 per silver equivalent ounce
§ Total sustaining and development capital expenditure expected to be approximately $100 million including $10 million to develop Pablo vein
$000, pre-exceptional unless stated | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Attributable silver production (koz) | 14,752 | 16,187 | (9) |
Attributable gold production (koz) | 166 | 101 | 64 |
Net revenue | 469,146 | 492,951 | (5) |
Adjusted EBITDA | 138,837 | 135,586 | 2 |
Loss from continuing operations | (66,399) | (56,689) | (17) |
Loss from continuing operations (post-exceptional) | (239,657) | (70,831) | (238) |
Earnings per share ($ pre-exceptional) | (0.14) | (0.13) | (8) |
Earnings per share ($ post-exceptional) | (0.52) | (0.16) | (225) |
Commenting on the results, Ignacio Bustamante, CEO, said:
'Now that the Company's key investment in the low cost Inmaculada project is complete and with strong operational performance at the mine, the outlook for the Company is much brighter. Together with the encouraging geological results achieved at our existing mines, further substantial cost and debt reductions and a much more positive environment in Argentina, the improvement to profitability is now a reality.'
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A presentation will be held for analysts & investors at 9.30am (UK time) on Wednesday 9 March 2016 at the offices of Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN
For a live webcast of the presentation please visit our website:
www.hochschildmining.com
To join the event via conference call, please see dial in details below:
+44(0)20 3427 1915(Please quote confirmation code 5064692)
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Enquiries:
Hochschild Mining plc
Charles Gordon +44 (0)20 3714 9044
Head of Investor Relations
Hudson Sandler
Charlie Jack +44 (0)207 796 4133
Public Relations
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About Hochschild Mining plc:
Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates four underground epithermal vein mines, three located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.
CHAIRMAN'S STATEMENT
Hochschild Mining has ended 2015 in a significantly enhanced operational and financial position compared to twelve months ago. The Company's key investment in the low cost Inmaculada project is now complete and I am delighted by the first six months of strong operational performance. Together with the encouraging geological results achieved at our existing mines and further cost reductions, the expected improved profitability is now a reality. In addition, the Company has taken decisive steps to reduce the debt position via the equity capital raise in the autumn and has taken a conservative approach to protect cashflows through a series of precious metal hedges. With these measures, the leverage ratios have materially improved and are reflecting the enhanced financial health of the business.
We were able to achieve first dore production at Inmaculada in early June 2015, marking the final stage for a project that has taken approximately six years from discovery to commissioning, a notable accomplishment in these turbulent times for the industry. The subsequent ramp-up process was smoothly executed with key operational metrics running according to or above design capacity. During the last quarter, our long-held confidence in the world class characteristics of this deposit was supported by production, costs and ultimately cashflows that surpassed our expectations. The Board believes that the entire process has been to the great credit of our management and operational and project teams who have efficiently dealt with the geological, operational and financial challenges of a new mining operation while ensuring the safety of our workforce and with due respect to the surrounding environment.
Precious metals once again experienced a volatile period with both silver and gold reaching new five year lows whilst other commodities such as oil, copper and iron ore also experienced sharp declines. Despite this difficult environment, our existing operations generated positive cashflows under revised operational plans and I was particularly encouraged by the success of our brownfield exploration programme which not only yielded the discovery of the Pablo vein thus reinvigorating Pallancata but also allowed Arcata to continue to prove its resilience. Later on in the year, there were positive macroeconomic and political developments in Argentina which have led us to believe that we are entering a new era of stronger cashflow generation at our high grade San Jose mine. In short, lower prices have once again been compensated by lower costs, rising production and new higher grade resources at key operations.
The careful management of our financial position was of paramount importance during the year so the success of several Company initiatives has been crucial. Firstly, the Company ensured the full financing of the Inmaculada project via a combination of short and long term debt. Secondly, a target of positive cashflow generation was set at all of our operations (before the effect of hedging) resulting in a high level of cost discipline at each operating asset. Finally, with the new mine having commenced production smoothly, we were able to raise $100 million via a rights issue with the proceeds used to pre-pay and renegotiate debt. We now have a comfortable debt amortisation profile and a solid cash position. However, despite these positive results, the Board remains alert to price volatility and is maintaining its focus on continuing to repay debt and consequently is not recommending reinstating a dividend payment. We remain committed to delivering shareholder returns and the Board intends to review the position again once the Company can sustainably achieve strong margins and the debt position is further reduced.
Operating Responsibly
I am delighted to report that 2015 was unprecedented in that it represented the second consecutive year in which we achieved our long-term aim of zero fatalities. In addition, the Group succeeded in reducing the year-on-year frequency of accidents as well as their severity by approximately 40% and 25% respectively. This is to the great credit of the many teams who, despite the limitation of resources, have worked relentlessly to ensure that we provide a safe workplace for all and to convey the non-negotiable message that safety comes first. As to our efforts to minimise our impact on the environment, I am pleased to report that we maintained our ISO 14001 certification, adopted a new and more robust Corporate Environmental Policy and KPI dashboard to strengthen the Group's environmental culture and made significant strides in water management. In relation to our interaction with local communities, we have continued to run the many programmes designed around our core themes of education, health and socio-economic development. Further details on the individual projects we have supported during the year can be found in our Sustainability Report and online.
Board
I wish to thank my fellow Board members for their valuable insight during the year. As reported last year, we suspended our Non-Executive succession plan to provide continuity at Board level given the difficult trading climate. The status of the plan was kept under review during 2015 and, in recognition of the benefits of a refreshed Board, resulted in the appointment of Michael Rawlinson as a Non-Executive Director with effect from 1 January 2016. I am very pleased that we have been able to secure someone with Michael's experience and knowledge of the mining sector which will undoubtedly prove invaluable during our Board deliberations. In line with our succession plan, Sir Malcolm Field will be retiring from the Board at the conclusion of the forthcoming AGM. Sir Malcolm has served on the Board since the Company's IPO in 2006 with tireless dedication and on behalf of my fellow Directors, I wish to express my profound gratitude for his support and wise counsel.
Outlook
We enter 2016 with renewed optimism. Inmaculada is a flagship producing asset operating at highly competitive costs and is expected to provide the financial stability necessary for targeting future growth plans. The operating environment in Argentina is rapidly improving and we believe that our high grade resource at San Jose will soon generate stronger cashflows. And finally, the optionality that the Arcata and Pallancata assets offer us in terms of geological potential as well as leverage to prices is a key feature that we expect to develop in this coming year.
Eduardo Hochschild, Chairman
8 March 2016
CHIEF EXECUTIVE OFFICER'S STATEMENT
At the start of last year, I noted that the Company's key objectives for 2015 were the commissioning of our new flagship mine, success from our brownfield exploration programme and achieving a stronger overall financial position by the year end. We are pleased to report that we have largely succeeded in our priorities and that we enter 2016 with confidence that, whilst the outlook for natural resources remains volatile, the prospects for the Company have substantially improved.
Inmaculada
Construction at the Inmaculada site continued into its final stages in the first half of the year with the result that commercial production was declared in August following a near faultless ramp-up period. All key metrics including tonnage, grades and recoveries proved to be in line with or above expectations and although there was a disagreement with our plant contractor over construction delays and a number of submitted change orders, the dispute was resolved amicably and in the final few months of the year, the mine delivered on its world class promise. Production for the year beat the higher end of our forecast range and Inmaculada's all-in sustaining cost per silver equivalent ounce for 2015 was at a very competitive $7.3 per ounce. We can now look forward to a full year of production at costs of between $9 to $10 per silver equivalent ounce which we believe will place the operation in the first quartile of the global cost curve and will ensure strong cashflow for the Company for the foreseeable future. We remain positive about the mine's expansion potential in the medium term and will begin a drill programme in the surrounding district in 2016.
Cost reduction
With commodity prices experiencing a third year of declines, Hochschild continued its cashflow optimisation programme in order to ensure that all our operations were mining profitable ounces and are cashflow positive. The mine plans at Arcata and Pallancata were revised with the focus placed on accessible ore areas requiring reduced capital expenditure and assuming stringent cut off grades. The effect of these measures was somewhat mitigated during the year as both operations delivered successful brownfield exploration programmes allowing additional higher grade tonnage to be processed at Arcata in particular. At Pallancata, the discovery of the Pablo vein in August delivered the prospect of a transition to significantly lower cost feed for the Selene plant with our team expecting to have initial production from the vein towards the end of 2016. Overall, we were able to reduce all-in sustaining costs by 26% versus 2014, which is strong evidence of the Company's ability to operate flexibly in a difficult industry environment. Furthermore, the positive developments in Argentina towards the end of the year indicate the potential to continue to move our operations down the cost curve.
Financial position
In a year when careful management of the balance sheet was crucial, in particular with respect to the completion of our Inmaculada project, we believe we have taken substantial steps in our aim of de-risking the Company. Forming the first part of our three pronged financial strategy, the smooth progress of the new mine's ramp-up to full production started to bear fruit in the final two quarters with the generation of strong cashflow from this low cost operation. Secondly, in October, we announced a $100 million rights issue, the success of which allowed us to begin the process of strengthening our balance sheet and by the end of the year we had already paid down just over $100 million of mid to long term debt. And thirdly, we supplemented this initiative throughout the year by taking advantage of short periods of price strength to hedge around 40% of our production to ensure a degree of cashflow stability. This prudent policy has continued with approximately half of our 2016 production also protected at around the current spot prices. With net debt significantly reduced versus our peak position at the half year and with the maturities of the remaining debt adequately profiled, the Company is in a substantially healthier financial position than at the end of 2014.
2015 overview
One of the most pleasing aspects of the Company's ongoing response to the industry downturn has been the strength of our operations. Once again we exceeded the production target for the year, delivering 27.0 million silver equivalent ounces with both San Jose and Arcata especially, recording better than expected production. Pallancata's performance reflects an operation in a transitional period until new low cost material from the Pablo vein is introduced towards the end of the year. However, when also considering Inmaculada's maiden contribution, we believe the flexibility of the Hochschild portfolio has been amply demonstrated.
The average price achieved once again fell in 2015, by 12% for silver and by almost 10% for gold and consequently our revenue was lower despite total production increasing by almost 12%. However, pleasingly pre-exceptional EBITDA rose by 2% to $139m reflecting the higher margin contribution from Inmaculada and solid cost control across our operations. The cashflow from the new mine is beginning to offset the finance costs arising from our bond issue in January 2014 to fund its construction but this still affected the underlying earnings. Pre-exceptional EPS was $(0.14) per share. The cash balance at the end of the year was $84 million with the fourth quarter debt repayment programme resulting in net debt of approximately $351 million.
Outlook
We expect that 2016 will mark the fourth year of increasing production and reducing costs. Attributable production for the Company is expected to rise to 32.0 million silver equivalent ounces (assuming the average silver to gold ratio for 2015 of 74:1), boosted by the first full year of output from Inmaculada. The all-in sustaining cost per silver equivalent ounce is expected to once again be reduced to between $12.0 to $12.5 which includes almost 14 million ounces of production from Inmaculada at between $9 to $10 per silver equivalent ounce. The focus of our capital expenditure budget of approximately $100 million will be on sustaining and development expenditure for our current mines but included is also an allocation of approximately $10 million for the development of the Pablo vein - a project which initial Company economics estimate has a net asset value of approximately $40 million.
The recent regulatory and economic policy changes in Argentina also offer a promising future for our high grade San Jose mine. Changes including the significant devaluation of the Argentine peso and the new government's cancellation of the export taxes along with management's solid operational track record now place the mine in a good position to improve its cashflow contribution.
2015 has been a year of transformation for the Company. Whilst the industry downturn has necessitated a continued strong focus on cost efficiency, we are extremely encouraged by the positive attitude displayed by all our employees. We have entered 2016 with a renewed sense of confidence: a fourth consecutive year of production increases and reduced costs; a new mine; renewed resources at Arcata and Pallancata; a stronger balance sheet; and several brownfield exploration targets with the potential to continue improving the quality and quantity of our existing resources.
Ignacio Bustamante, Chief Executive Officer
8 March 2016
OPERATING REVIEW
OPERATIONS
Note: silver/gold equivalent production figures assume the average gold/silver ratio for 2015 of 74:1.
Production
In 2015, Hochschild once again exceeded its full year production target, delivering attributable production of 27.0 million silver equivalent ounces (24.7 million ounces using the Company's previous gold/silver ratio of 60:1), including 14.8 million ounces of silver and 166 thousand ounces of gold. The overall production target for 2016 is 32.0 million silver equivalent ounces, assuming the average silver-to-gold ratio for 2015, which consists of just over 14 million ounces from Inmaculada, approximately 7 million attributable ounces from the 51% owned San Jose and the balance from the remaining two Peruvian operations. 2016 production is expected to be equally weighted between gold and silver.
Costs
The Company's all-in sustaining cost was reduced by 26% in 2015 to $12.9 per silver equivalent ounce driven by Inmaculada with a very competitive $7.3 per silver equivalent ounce. Operational initiatives (cashflow optimisation programme), devaluation of local currencies and grade improvements at all operating units also contributed to the reduction. Please see page 12 of the Financial Review for further details on costs.
The all-in sustaining cost per silver equivalent ounce in 2016 is now expected to be between $12.0 and $12.5 with Inmaculada costs forecast to be between $9 and $10 per ounce, the remaining Peruvian mines at approximately $14.5 per ounce and San Jose at approximately $13 per ounce although ongoing Argentinean peso devaluation and a series of tax cancellations may reduce the target further.
Inmaculada (Peru)
The 100% owned Inmaculada underground operation is located in the Department of Ayacucho in southern Peru. It commenced production in June 2015.
Inmaculada summary | Year ended 31 Dec 2015 |
Ore production (tonnes) | 659,737 |
Average silver grade (g/t) | 115 |
Average gold grade (g/t) | 4.36 |
Silver produced (koz) | 2,055 |
Gold produced (koz) | 84.64 |
Silver equivalent produced (koz) | 8,318 |
Silver sold (koz) | 1,638 |
Gold sold (koz) | 67.51 |
Unit cost ($/t) | 63.3 |
Total cash cost ($/oz Ag co-product) | 4.6 |
All-in sustaining cost ($/oz) | 7.3 |
Production
Commercial production was declared at the new flagship mine in August 2015 and the Company subsequently announced on 22 September that it had received the final mill operating permit from the Peruvian government with sales of dore commencing soon afterwards. Overall production in 2015 improved on the targeted range, coming in at 8.3 million silver equivalent ounces consisting of 84.6 thousand ounces of gold and 2.1 million ounces of silver. This was primarily driven by solid gold and silver grades and increased tonnage as the processing plant operated at closer to 3,850 tonnes per day during the last quarter of the year compared to its design capacity of 3,500 tonnes per day.
Costs
The all-in sustaining costs were low at $7.3 per silver equivalent ounce. This was driven by better than expected extraction costs, operational efficiencies versus the plan and by the processing of the significant ore stockpile which incurred a low cost in the plant's ramp-up phase and increased tonnage overall when mining operations commenced. The original cost of mining this stockpile was capitalised over the previous few periods. Overall all-in sustaining costs are expected to increase to the normalised forecast level of between $9 to $10 in 2016.
Brownfield exploration
In 2016, a geological mapping programme is planned for the Inmacualda and Hualhua areas along with a 7,000 metre drilling programme in the Palca zone.
Arcata (Peru)
The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.
Arcata summary | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Ore production (tonnes) | 648,051 | 701,947 | (8) |
Average silver grade (g/t) | 323 | 286 | 13 |
Average gold grade (g/t) | 0.99 | 0.85 | 16 |
Silver produced (koz) | 5,613 | 5,827 | (4) |
Gold produced (koz) | 15.67 | 16.89 | (7) |
Silver equivalent produced (koz) | 6,772 | 7,077 | (4) |
Silver sold (koz) | 5,653 | 5,621 | 1 |
Gold sold (koz) | 15.29 | 15.66 | (2) |
Unit cost ($/t) | 109.1 | 89.1 | 22 |
Total cash cost ($/oz Ag co-product) | 11.7 | 12.6 | (7) |
All-in sustaining cost ($/oz) | 14.3 | 17.7 | (19) |
Production
At Arcata, total silver equivalent production for 2015 was 6.8 million ounces (2014: 7.1 million ounces). Despite introducing an adjusted mine plan at the start of 2015 to ensure the extraction of profitable ounces, Arcata has delivered a much stronger year than expected. A successful brownfield exploration programme has ensured considerable tonnage at higher silver grades than expected.
Costs
In 2015, all-in sustaining costs fell by 19% to $14.3 per silver equivalent ounce (2014: $17.7 per ounce) due to a substantial decline in capital expenditure resulting from the announced adjusted mine plan as well as improved grades.
Brownfield exploration
During 2015, the Arcata exploration programme has focused on the incorporation of resources from the Stephani, Cristina, Soledad, Macarena and Nicole veins as well as further exploration of the Tunels 3 and 4 vein systems. Just over 10,000 metres of drilling were executed. Significant intercepts included:
Vein | Results |
North-South | DDH027-LM11: 2.12m @ 0.43 g/t Au & 719 g/t Ag DDH768-LM14: 1.27m @ 2.46 g/t Au & 549 g/t Ag DDH802-GE15: 1.58m @ 0.56 g/t Au & 659 g/t Ag DDH990-GE11: 0.82m @ 0.15 g/t Au & 1,667 g/t Ag |
Lucero | DDH777-LM15: 1.35m @ 1.35 g/t Au & 593 g/t Ag DDH792-GE15: 1.01m @ 1.85 g/t Au & 395 g/t Ag DDH800-LM15: 0.97m @ 1.49 g/t Au & 533 g/t Ag |
Soledad | DDH800-LM15: 1.00m @ 4.05 g/t Au & 1,015 g/t Ag |
Tunel 3 | DDH871-GE15: 1.2m @1.04 g/t Au & 1,135 g/t Ag DDH872-GE15: 1.3m @2.09 g/t Au & 1,196 g/t Ag |
Tunel 4 | DDH878-GE15: 1.0m @ 2.4 g/t Au & 3,479 g/t Ag DDH883-GE15: 1.7m @ 1.6 g/t Au & 1,729 g/t Ag |
The focus of 2016 will be a 7,000 metre drilling programme to incorporate additional resources from the Tunel 4, Marion and Alexia veins.
Pallancata (Peru)
The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.
Pallancata summary | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Ore production (tonnes) | 522,431 | 1,051,068 | (50) |
Average silver grade (g/t) | 259 | 238 | 9 |
Average gold grade (g/t) | 1.28 | 1.03 | 24 |
Silver produced (koz) | 3,664 | 6,527 | (44) |
Gold produced (koz) | 16.42 | 24.34 | (33) |
Silver equivalent produced (koz) | 4,879 | 8,329 | (41) |
Silver sold (koz) | 3,632 | 6,502 | (44) |
Gold sold (koz) | 15.80 | 24.03 | (34) |
Unit cost ($/t) | 98.9 | 69.3 | 43 |
Total cash cost ($/ozAg co-product) | 12.5 | 11.0 | 14 |
All-in sustaining cost ($/oz) | 15.7 | 16.7 | (6) |
Production
At Pallancata, total production for the year was 4.9 million silver equivalent ounces (2014: 8.3 million ounces). Tonnage throughout the year was significantly lower than 2014 due to the adjusted mine plan's approximate halving of capacity although silver and gold grades rose gradually throughout the year to partially compensate. The operation remains in a transitional phase with the Selene plant expected to transition to the new Pablo vein later in 2016. See further details of the Pablo vein below.
Costs
All-in sustaining costs fell by 6% to $15.7 per silver equivalent ounce (2014: $16.7 per ounce) due to the scheduled decline in capex as well as better grades. These improvements were partially offset by incremental capex approved to develop the newly discovered Pablo vein. See details below of the Pablo vein's preliminary economics.
Brownfield exploration
The exploration team at Pallancata began a 19,100 metre exploration and drilling programme in May 2015 with the aim of focusing on inferred resource exploration at surface. In mid August, whilst pursuing the west extension of the Yurika vein to the north west of the main Pallancata vein, a new blind structure at a depth of 200 metres below surface was discovered. The Pablo vein has been recognised along an east-west strike for 700 metres and dips 50-75° south. The structure's significant thickness (greater than 10m wide) is associated with dilation zones in flexures and fault jogs. The Pablo vein is a fine-to-medium grain white quartz vein and shows a banded texture and multiple brecciation events filled with adularia and quartz crystals. It is part of a major regional structure, currently extending to about 2 km, which will be explored over the medium term.
Following the initial discovery of the Pablo vein, drilling continued and an initial inferred resource was achieved. The Company's preliminary economics for a two year mine life for the Pablo vein are detailed below. Resources (unaudited) are estimates based on a cut-off grade of 103g/t silver equivalent.
Pablo | |
Inferred resources (kt) (unaudited) | 1,251 |
Ag grade (g/t) | 344 |
Au grade (g/t) | 1.3 |
LOM production (M oz Ag Eq) | 12.6 |
LOM AISC ($/oz Ag Eq) | 10.6 |
LOM Cashflows ($m) | |
Revenue | 161.4 |
Costs | (108.5) |
Selling expenses | (3.0) |
Capital expenditure | (19.7) |
Taxes (SMT & Royalties) | (2.4) |
Pre-tax total | 27.9 |
NAV @5% (spot metal prices)(illustrative) | 40.5 |
Spot metal prices: $15.5/oz Ag; $1,230/oz Au
Work has started on mine development to access the vein and the Company currently expects to have initial production from Pablo towards the end of 2016.
Drilling has continued at the deposit and 7,242 metres were drilled at Pablo and Yurika veins during the last quarter of the year. Preliminary results are below:
Vein | Results |
Pablo | DLEP-A21: 9.0m @0.68 g/t Au & 225 g/t Ag DLEP-A23: 7.1m @1.09 g/t Au & 389 g/t Ag DLEP-A24: 2.9m @1.34 g/t Au & 334 g/t Ag DLEP-A25: 9.0m @1.20 g/t Au & 324 g/t Ag DLEP-A26: 4.7m @0.73 g/t Au & 290 g/t Ag |
Yurika | DLYU-A97: 2.8m @1.66 g/t Au & 438 g/t Ag |
Yurika ceiling | DLYU-A97: 1.5m @ 3.94 g/t Au & 748 g/t Ag DLYU-A99: 1.0m @ 0.89 g/t Au & 231 g/t Ag |
The focus of the brownfield exploration programme for 2016 will be a 5,500 metre drilling programme to add resources in from the Pablo and Yurica veins. Geological mapping of the Pallancata-Selene area will also be carried out.
San Jose: Argentina
The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires. San Jose commenced production in 2007 and is a joint venture with McEwen Mining Inc. Hochschild holds a controlling interest of 51% in the mine and is the mine operator.
San Jose summary | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Ore production (tonnes) | 532,488 | 571,017 | (7) |
Average silver grade (g/t) | 448 | 404 | 11 |
Average gold grade (g/t) | 6.36 | 5.77 | 10 |
Silver produced (koz) | 6,706 | 6,469 | 4 |
Gold produced (koz) | 96.64 | 94.16 | 3 |
Silver equivalent produced (koz) | 13,857 | 13,437 | 3 |
Silver sold (koz) | 6,340 | 6,316 | - |
Gold sold (koz) | 88.79 | 91.28 | (3) |
Unit cost ($/t) | 210.4 | 197.8 | 6 |
Total cash cost ($/ozAg co-product) | 10.8 | 12.1 | (11) |
All-in sustaining cost ($/oz) | 14.1 | 17.8 | (21) |
The Company has a 51% interest in San Jose
Production
The San Jose operation once again delivered another consistent year with operation producing a record 13.9 million silver equivalent ounces (2014: 13.4 million ounces) driven by better than projected silver and gold grades.
On 17 December 2015, the Argentinean peso fell by approximately 40% against the dollar following the decision by the government to lift capital controls. With approximately 70% of operating costs at San Jose incurred in pesos, the effect of this significant devaluation is already having a material impact on the mine's cost position.
The Argentinean government published a decree on 2 November 2015 restoring the right to receive a rebate from goods exported through Patagonian ports (previously cancelled in 2009). This benefit is applicable to Hochschild at a rate of approximately 9% of the FOB value of its exports which amounts to approximately $15 million per annum. The current estimate for collection is approximately two years.
In late December 2015, following an announcement by the new government that they would remove export taxes on agricultural and industrial products, it was subsequently confirmed that the decree included removal of the 5% export tax on finished mining products such as dore (approximately 50% of the mine's output). Subsequently in 2016 it was confirmed that the additional 10% export tax on concentrate would also be removed from February 2016.
Finally it was also confirmed recently that the 1% tax on the market value of reserves that was imposed by the Province of Santa Cruz in 2013 has been removed with the resulting positive effect amounting to approximately $3 million per annum.
The effect of all the above-mentioned changes in Argentina is that the Company expects overall economic and operating environment in Argentina to improve significantly.
Costs
At San Jose, unit cost per tonne increased by 6% versus 2014 to $210.4. However, all-in sustaining costs were reduced by 21% to $14.1 per silver equivalent ounce (2014: $17.8 per ounce) driven by cost reduction initiatives, lower capex andbetter grades.
Brownfield exploration
Whilst no drilling was carried out in 2015, a 3,500 metre programme is planned for 2016 in the Los Pinos and Colorado Grande areas as well as a comprehensive mapping programme of other areas such as Agua Vivas to the South of the mine.
PROJECT REVIEW
Hochschild's portfolio currently includes three Growth Projects, Crespo, Azuca and Volcan. The continuing weakness of the precious metal markets during 2015, following the initial price declines in 2013, led to the focus on completing construction of Hochschild's flagship Inmaculada project.
The strategy with regards to Crespo, Azuca and Volcan was revised in late 2013 with work on these deposits remaining on hold throughout 2014 and 2015. Despite the above-mentioned prioritisation of Inmaculada, all three projects remain an important component of the company's portfolio of development assets. It is management's intention that in the event that precious metals markets show sustained improvement, this would allow the Company to assess capital re-allocation to these assets and potentially re-initiate development.
Inmaculada
During the first half of 2015, construction of the plant continued with first dore production achieved on 3 June 2015. The ramp-up phase was ongoing throughout the third quarter with tonnes per day reaching the forecast capacity of 3,500 in mid August and operating at just above that level for the remainder of the year. Gold and silver recoveries trended to close to their target of 93.7% in gold and 87.9% in silver.
The Hochschild team also continued underground mine development throughout the first half and a stockpile of approximately 270,000 tonnes began to be processed following commissioning of the plant whilst stope mining activities (utilising long hole and breasting methods) were being initiated. Following the declaration of commercial production at the mine in August, the Company subsequently announced on 22 September that it had received the final mill operating permit from the Peruvian government and consequently sales of dore were able to commence.
Construction of the paste backfill plant also continued throughout the year with the mine's laboratories, warehouses and workshops also completed.
During the year, the contractor Graña y Montero (GyM), made a number of requests for additional costs from the Company under the Engineering, Procurement and Construction Contract ('EPC'). In addition, Hochschild made certain claims against GyM as a result of delays in the construction of the plant and related components of the project. In September, following discussions, the Company and GyM settled their mutual claims and agreed that the total amount payable by the Company to GyM for all works under the EPC Contract (including pending work) would be fixed at approximately $159.1 million, of which $20 million represented additional amounts payable in settlement of all claims made by GyM for additional costs under the EPC Contract. In addition, it was agreed that GyM would bear all risks and costs resulting from the completion of all pending work under the EPC Contract and, therefore, subject to certain limited exceptions, GyM would not be entitled to request further adjustments to the amounts agreed to be paid.
To date Hochschild has paid to GyM approximately $136 million under the EPC Contract. It was agreed that the above mentioned amount of $20 million would be paid in four instalments every six months starting in September 2017, with interest accruing at an annual rate of 5% of the outstanding balance. The remaining approximately $4 million will be paid following completion of the outstanding work.
Total construction capital expenditure for the Inmaculada mine was $455 million, of which $449 million has already been incurred by the end of the year with the remaining construction capital expenditure of $6 million expected to be spent during 2016 (to be funded from existing cash resources).
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
Gross revenue from continuing operations decreased by 5% to $469.2 million in 2015 (2014: $493.0 million) primarily driven by another substantial fall in precious metal prices.
Silver
Gross revenue from silver decreased 23% in 2015 to $275.3 million (2014: $358.2 million) as a result of lower prices as well as a 9% decrease in the total amount of silver ounces sold to 17,263 koz (2014:18,981 koz) driven by the fall in ounces produced from Pallancata due to the imposition of the adjusted mine plan.
Gold
Gross revenue from gold increased 19% in 2015 to $217.2 million (2014: $182.7 million) as a result of a 31% rise in the total amount of gold ounces sold in 2015 (187.4 koz) offsetting the 9% fall in the average price received. The increase in gold sales came from the first output from the new Inmaculada operation.
Gross average realised sales prices
The following table provides figures for average realised prices (which are reported before the deduction of commercial discounts and include the effects of the existing hedging agreements)and ounces sold for 2015 and 2014:
Average realised prices |
Year ended |
Year ended | |
Silver ounces sold (koz) | 17,263 | 18,981 | |
Avg. realised silver price ($/oz) | 16.0 | 18.9 | |
Gold ounces sold (koz) | 187.39 | 142.77 | |
Avg. realised gold price ($/oz) | 1,159 | 1,279 |
Commercial discounts
Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, 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 2015, the Group recorded commercial discounts of $23.6 million (2014: $48.1 million). This decrease is explained by the decision to switch the majority of production from Arcata back to dore in 2015 as opposed to the previous year when most was sold as concentrate due to favourable commercial terms. The ratio of commercial discounts to gross revenue in 2015 decreased to 5% (2014: 9%).
Net revenue
Net revenue decreased by 5% to $469.1 million (2014: $493.0 million), comprising silver revenue of $258.4 million and gold revenue of $210.5 million. In 2015 silver accounted for 55% and gold 45% of the Company's consolidated net revenue with a 10 percentage point change from 2014 due to commencement of contributions from the Inmaculada mine.
Revenue by mine
$000 unless otherwise indicated |
Year ended |
Year ended | % change |
Silver revenue | |||
Arcata | 93,445 | 103,963 | (10) |
Ares | - | 10,896 | - |
Inmaculada | 25,223 | - | - |
Pallancata | 59,803 | 129,042 | (54) |
San Jose | 96,837 | 114,276 | (15) |
Moris | - | 30 | - |
Commercial discounts | (16,929) | (37,369) | (55) |
Net silver revenue | 258,379 | 320,838 | (19) |
Gold revenue | |||
Arcata | 19,124 | 20,040 | (5) |
Ares | - | 14,993 | - |
Inmaculada | 77,080 | - | - |
Pallancata | 19,929 | 31,984 | (38) |
San Jose | 101,046 | 115,211 | (12) |
Moris | - | 441 | - |
Commercial discounts | (6,688) | (10,713) | (38) |
Net gold revenue | 210,491 | 171,956 | 22 |
Otherrevenue | 276 | 157 | 76 |
Net revenue | 469,146 | 492,951 | (5) |
Costs
Total pre-exceptional cost of sales was steady at $403.7 million in 2015 (2014: $404.6 million). The direct production cost was flat at $265.1 million (2014: $265.6 million) with the positive effects of Inmaculada's lower costs offsetting the additional production delivered. Depreciation in 2015 was $139.5 million (2014: $126.0 million) with the increase mainly due to Inmaculada capex depreciation. Other items, which principally include the costs associated with stoppages in Argentina, was $9.3 million in 2015 (2014: $4.4 million). Change in inventories was $10.3 million in 2015 (2014: $8.6 million).
$000 |
Year ended |
Year ended | % Change |
Direct production cost excluding depreciation | 265,107 | 265,637 | - |
Depreciation in production cost | 139,533 | 125,955 | 11 |
Other items | 9,272 | 4,406 | 110 |
Change in inventories | (10,255) | 8,641 | (219) |
Pre-exceptional cost of sales | 403,657 | 404,639 | - |
Unit cost per tonne
The Company reported unit cost per tonne at its main operations of $118.4 in 2015, slightly up on 2014 (2014: $106.6). For further explanation on the increase in unit cost per tonne please refer to page 6 of the Operating Review.
Unit cost per tonne by operation (including royalties):
Operating unit ($/tonne) | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Peru | 90.7 | 77.3 | 17 |
Arcata | 109.1 | 89.1 | 22 |
Inmaculada | 63.3 | - | - |
Pallancata | 98.9 | 69.3 | 43 |
Argentina | |||
San Jose | 210.4 | 197.8 | 6 |
Others | |||
Ares | - | 119.3 | - |
Total | 118.4 | 107.4 | 10 |
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:
$000 unless otherwise indicated | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Group cash cost | 313,939 | 353,736 | (11) |
(+) Cost of sales | 403,657 | 404,639 | - |
(-) Depreciation and amortisation in cost of sales | (135,645) | (128,480) | (5) |
(+) Selling expenses | 21,729 | 28,697 | (24) |
(+) Commercial deductions | 24,198 | 48,880 | (50) |
Gold | 6,714 | 10,752 | (38) |
Silver | 17,484 | 38,128 | (54) |
Revenue | 469,146 | 492,951 | (5) |
Gold | 210,491 | 171,956 | 22 |
Silver | 258,379 | 320,838 | (19) |
Others | 276 | 157 | 76 |
Ounces Sold | |||
Gold | 187.4 | 142.8 | 31 |
Silver | 17,263 | 18,981 | (9) |
Group Cash Cost ($/oz) | |||
Co product Au | 752 | 865 | (13) |
Co product Ag | 10.0 | 12.1 | (17) |
By product Au | 203 | (37) | 648 |
By product Ag | 5.6 | 9.0 | (38) |
Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.
All-in sustaining cost reconciliation
All-in sustaining cash costs per silver equivalent ounce
Year ended 31 Dec 2015
$000 unless otherwise indicated | Arcata | Inmac | Pallancata | San José | Main operations | Other operations | Corporate & others | Total |
(+) Production cost excluding depreciation | 71,128 | 32,765 | 51,599 | 108,101 | 263,593 | - | - | 263,593 |
(+) Other items in cost of sales | 2,133 | 1,544 | 1,610 | 5,499 | 10,786 | - | - | 10,786 |
(+) Operating and exploration capex for units | 14,600 | 13,704 | 10,683 | 38,451 | 77,438 | - | 1,193 | 78,631 |
(+) Brownfield exploration expenses | 62 | 6 | 2,457 | 1,463 | 3,988 | - | 1,990 | 5,978 |
(+) Administrative expenses (excl depreciation and before exceptional items) | 2,641 | 2,515 | 1,796 | 7,095 | 14,046 | - | 22,569 | 36,614 |
(+) Royalties | - | 1,037 | 741 | - | 1,778 | - | - | 1,778 |
Sub-Total | 90,564 | 51,571 | 68,885 | 160,609 | 371,629 | - | 25,751 | 397,380 |
Au Ounces produced | 15,670 | 72,226 | 16,419 | 96,638 | 200,953 | - | - | 200,953 |
Ag Ounces produced (000s) | 5,613 | 1,746 | 3,664 | 6,706 | 17,728 | - | - | 17,728 |
Ounces produced (Ag Eq oz) | 6,772 | 7,090 | 4,879 | 13,857 | 32,599 | - | - | 32,599 |
Sub-total ($/oz) | 13.4 | 7.3 | 14.1 | 11.6 | 11.4 | - | - | 12.2 |
(+) Commercial deductions | 5,144 | 4 | 6,687 | 12,363 | 24,198 | - | - | 24,198 |
(+) Selling expenses | 962 | 12 | 1,048 | 19,707 | 21,729 | - | - | 21,729 |
Sub-total | 6,106 | 16 | 7,735 | 32,070 | 45,927 | - | - | 45,927 |
Au Ounces sold | 15,289 | 67,513 | 15,795 | 88,793 | 187,390 | - | - | 187,390 |
Ag Ounces sold (000s) | 5,653 | 1,638 | 3,632 | 6,340 | 17,263 | - | - | 17,263 |
Ounces sold (Ag Eq oz) | 6,784 | 6,634 | 4,801 | 12,910 | 31,130 | - | - | 31,130 |
Sub-total ($/oz) | 0.9 | - | 1.6 | 2.5 | 1.5 | - | - | 1.5 |
All-in sustaining costs ($/oz Ag Eq) | 14.3 | 7.3 | 15.7 | 14.1 | 12.9 | - | - | 13.7 |
Year ended 31 Dec 2014
$000 unless otherwise indicated | Arcata | Inmac | Pallancata | San José | Main operations | Other operations | Corporate & others | Total |
(+) Production cost excluding depreciation | 62,644 | - | 71,742 | 110,089 | 244,475 | 17,853 | - | 262,328 |
(+) Other items in cost of sales | 1,301 | - | 834 | 1,724 | 3,859 | 546 | - | 4,406 |
(+) Operating and exploration capex for units | 28,867 | - | 34,657 | 51,350 | 114,874 | 1,613 | 116,487 | |
(+) Brownfield exploration expenses | 2,038 | - | 1,728 | 1,003 | 4,769 | 42 | 3,232 | 8,043 |
(+) Administrative expenses (excl depreciation and before exceptional items) | 5,266 | - | 7,317 | 8,270 | 20,853 | 362 | 20,049 | 41,263 |
(+) Royalties | - | - | 1,370 | - | 1,370 | 241 | - | 1,611 |
Sub-Total | 100,116 | - | 117,648 | 172,436 | 390,200 | 19,044 | 24,894 | 434,138 |
Au Ounces produced | 16,892 | - | 24,345 | 94,161 | 135,398 | 11,633 | - | 147,031 |
Ag Ounces produced (000s) | 5,827 | - | 6,527 | 6,469 | 26,947 | 534 | - | 19,357 |
Ounces produced (Ag Eq oz) | 6,841 | - | 7,988 | 12,119 | 26,947 | 1,232 | - | 28,179 |
Sub-total ($/oz) | 14.6 | - | 14.7 | 14.2 | 14.5 | 15.5 | - | 15.4 |
(+) Commercial deductions | 18,016 | - | 13,666 | 17,198 | 48,880 | - | - | 48,880 |
(+) Selling expenses | 1,987 | - | 1,995 | 24,648 | 28,630 | 67 | - | 28,697 |
Sub-total | 20,003 | - | 15,661 | 41,846 | 77,510 | 67 | - | 77,577 |
Au Ounces sold | 15,663 | - | 24,025 | 91,277 | 130,965 | 11,449 | - | 142,770 |
Ag Ounces sold (000s) | 5,621 | - | 6,502 | 6.316 | 18,439 | 540 | - | 18,981 |
Ounces sold (Ag Eq oz) | 6,560 | - | 7,944 | 11,793 | 26,297 | 1,250 | - | 27,547 |
Sub-total ($/oz) | 3.0 | - | 2.0 | 3.5 | 2.9 | 0.1 | - | 2.8 |
All-in sustaining costs ($/oz Ag Eq) | 17.7 | - | 16.7 | 17.8 | 17.4 | 15.5 | - | 18.2 |
Administrative expenses
Administrative expenses before exceptional items decreased by 12% to $38.1 million (2014: $43.3 million) primarily due to the continuing impact of the cashflow optimisation programme.
Exploration expenses
In 2015, pre-exceptional exploration expenses, decreased by 46% to $9.3 million (2014: $17.3 million). In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In 2015, the Company capitalised $2.6 million relating to brownfield exploration compared to $1.5 million in 2014, bringing the total investment in exploration for 2015 to $11.8 million (2014: $18.8 million).
Selling expenses
Selling expenses decreased by 24% versus 2014at $21.7 million (2014: $28.7 million) mainly due to lower prices impacting the export taxes in Argentina and the decision to switch the majority of production from Arcata back to dore. Selling expenses in 2015 consisted of export duties at San Jose (export duties in Argentina were previously levied at 10% of revenue for concentrate and 5% of revenue for dore) and logistic costs for the sale of concentrate.
Other income/expenses
Other income before exceptional items was $8.0 million (2014: $4.1 million) mainly due to incremental revenue from logistic services provided to third parties and an export credit from dore bars in Argentina. Other expenses before exceptional items reached $15.3 million (2014: $17.5 million) mainly due to an increase in mine closure provisions of $7.6 million ($2014: $9.1 million).
Adjusted EBITDA
Adjusted EBITDA increased by 2% over the period to $138.8 million (2014: $135.6 million) driven primarily by the positive effects of the new low cost Inmaculada contribution but largely offset by significantly lower precious metal prices.
Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus non-cash items (depreciation and changes in mine closure provisions) and exploration expenses other than personnel and other exploration related fixed expenses.
$000 unless otherwise indicated | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | % change |
Profit from continuing operations before exceptional items, net finance cost, foreign exchange loss and income tax | (10,886) | (14,374) | 24 |
Depreciation and amortisation in cost of sales | 135,645 | 128,480 | 6 |
Depreciation and amortisation in administrative expenses | 1,534 | 2,072 | (26) |
Exploration expenses | 9,255 | 17,254 | (46) |
Personnel and other exploration related fixed expenses | (4,301) | (6,934) | 38 |
Other non cash expenses | 7,590 | 9,088 | (16) |
Adjusted EBITDA | 138,837 | 135,586 | 2 |
Adjusted EBITDA margin | 30% | 28% |
Finance income
Finance income before exceptional items of $1.9 million reduced slightly from 2014 ($2.2 million) mainly due to lower interest received on deposits, partially offset by income generated from the repurchase of bonds below par value.
Finance costs
Finance costs before exceptional items decreased from $33.1 million in 2014 to $31.4 million in 2015, principally due to the repurchase of $55.2 million of Senior Notes with a coupon rate of 7.75% and the $50.0 million prepayment of the medium term loan, both in the fourth quarter.
Foreign exchange losses
The Group recognised a foreign exchange loss of $5.6 million (2014: $5.0 million loss) as a result of exposures in currencies other than the functional currency specifically the Peruvian Nuevo Sol and Argentinean Peso, both of which depreciated in the year against the US Dollar.
Income tax
The Company's pre-exceptional income tax charge was $20.4 million (2014: $6.5 million). The increase is mainly explained by the impact of local currency devaluation in Peru and Argentina which significantly reduced the tax basis of PP&E and therefore generating a deferred tax liability.
Exceptional items
Exceptional items in 2015 totalled $(173.3) million losses after tax (2014: $(14.1) million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $36.9 million (2014: $3.8 million).
2015 negative exceptional items:
Main items | $000 | Description of main items |
Cost of sales | (1,514) | Termination benefits |
Impairment and write-off of non-financial assets (net) | (207,146) | Impairment of: Arcata unit ($72.4 million); Volcan unit ($57.1 million); Pallancata unit ($39.0 million); Crespo project ($14.4 million); Azuca project ($12.8 million); San Felipe project ($10.9 million); PP&E write-off ($0.6 million) |
Finance cost | (1,486) | Interest on disputed tax charge |
Cash flow & balance sheet review
Cash flow:
$000 unless otherwise indicated | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 | Change |
Net cash generated from operating activities | 133,256 | 93,779 | 39,477 |
Net cash used in investing activities | (223,319) | (263,007) | 39,668 |
Cash flows generated in financing activities | 61,027 | 5,039 | 55,988 |
Net decrease in cash and cash equivalents during the period | (29,036) | (164,189) | (135,153) |
Operating cash flow increased from $93.8 million in 2014 to $133.3 million in 2015, mainly due to the maiden cash contribution from the new Inmaculada mine, partially offset by lower prices. Net cash used in investing activities decreased to $(223.3) million in 2015 from $(263.0) million in 2014 mainly due to moderately lower pre-operating capex incurred at the Inmaculada project in 2015 as well as reduced sustaining capex at the other operations. Finally, cash generated from financing activities increased to $61.0 million from $5.0 million in 2014, primarily as a result of the proceeds from the equity rights issue and short term debt raised in Peru ($75 million) offset by the significant repayment of $105 million of debt in the second half of the year. As a result, total cash outflow decreased from $(164.2) million in 2014 to $(29.0) million in 2015 ($135.2 million difference).
Working capital
$000 unless otherwise indicated | Year ended 31 Dec 2015 | Year ended 31 Dec 2014 |
Trade and other receivables | 135,014 | 173,526 |
Inventories | 70,286 | 58,417 |
Net other financial assets | 20,126 | 2,809 |
Net income tax receivable | 17,628 | 20,467 |
Trade and other payables and provisions | (249,788) | (226,603) |
Working capital | (6,734) | 28,616 |
The Group's working capital position improved by $35.4 million to $(6.7) million in 2015 from $28.6 million in 2014. This was primarily explained by: lower trade and other receivables ($(38.5) million) due to higher proportion of dore sales (lower collection period) at Arcata and lower prices; and higher trade and other payables and provisions ($(23.2) million), in line with improved payment terms obtained from vendors. These effects were partially offset by higher net financial assets ($17.4 million) and by higher inventories ($11.9 million), mainly resulting from accumulation of concentrate in Argentina in December 2015.
Net debt
$000 unless otherwise indicated |
Year ended |
Year ended |
Cash and cash equivalents | 84,017 | 115,999 |
Long term borrowings | (339,778) | (440,834) |
Short term borrowings | (94,760) | (27,882) |
Net debt | (350,521) | (352,717) |
The Group reported net debt position was $350.5 million as at 31 December 2015 (2014: ($352.7) million). The reduction includes the net effect of the equity rights issue ($95 million), the prepayment of the Scotiabank medium term loan (($50) million), the repurchase of senior notes (($55) million), the withdrawal of short term pre-shipment loans in Peru ($75 million) and the cash outflow required to complete the construction of Inmaculada.
Capital expenditure
$000 unless otherwise indicated |
Year ended |
Year ended |
Arcata | 14,600 | 28,867 |
Ares | 25 | - |
Selene | 139 | 497 |
Pallancata | 10,683 | 34,160 |
San Jose | 38,451 | 51,350 |
Moris | - | - |
Operations | 63,898 | 114,874 |
Inmaculada | 166,336 | 198,112 |
Crespo | 2,842 | 4,206 |
Volcan | 958 | 1,463 |
Azuca | 211 | 853 |
Other | 3,914 | 1,613 |
Total | 238,159 | 321,121 |
2015 capital expenditure of $238.2 million (2014: $321.1 million) mainly comprised of operational capex of $63.9 million (2014: $114.9 million) and Inmaculada capital expenditure of $166.3 million (2014: $198.1 million).
Forward looking Statements
This announcement contains certain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their contribution to expected production and other plans of Hochschild Mining plc and its current goals, assumptions and expectations relating to its future financial condition, performance and results.
Forward-looking statements include, without limitation, statements typically containing words such as 'intends', 'expects', 'anticipates', 'targets', 'plans', 'estimates' and words of similar import. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements of Hochschild Mining plc may be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences between the actual results, performance or achievements of Hochschild Mining plc and current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, Hochschild Mining plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
- the Management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2015
Year ended 31 December 2015 | Year ended 31 December 2014 | |||||||||||||
Notes | Before exceptional items US$000 | Exceptional items (note 11) US$000 |
Total | Before exceptional items US$000 | Exceptional items (note 11) US$000 |
Total | ||||||||
Continuing operations | ||||||||||||||
Revenue | 3,5 | 469,146 | - | 469,146 | 492,951 | - | 492,951 | |||||||
Cost of sales | 6 | (403,657) | (1,514) | (405,171) | (404,639) | (6,065) | (410,704) | |||||||
Gross profit | 65,489 | (1,514) | 63,975 | 88,312 | (6,065) | 82,247 | ||||||||
Administrative expenses | 7 | (38,148) | - | (38,148) | (43,335) | (2,752) | (46,087) | |||||||
Exploration expenses | 8 | (9,255) | - | (9,255) | (17,254) | (886) | (18,140) | |||||||
Selling expenses | 9 | (21,729) | - | (21,729) | (28,697) | - | (28,697) | |||||||
Other income | 12 | 8,021 | - | 8,021 | 4,112 | - | 4,112 | |||||||
Other expenses | 12 | (15,264) | - | (15,264) | (17,512) | (2,963) | (20,475) | |||||||
Impairment and write-off of assets, net | 11 | - | (207,146) | (207,146) | - | 109 | 109 | |||||||
Loss from continuing operations before net finance income/(cost), foreign exchange loss and income tax | (10,886) | (208,660) | (219,546) | (14,374) | (12,557) | (26,931) | ||||||||
Finance income | 13 | 1,898 | - | 1,898 | 2,215 | 4,061 | 6,276 | |||||||
Finance costs | 13 | (31,414) | (1,486) | (32,900) | (33,074) | (9,491) | (42,565) | |||||||
Foreign exchange loss | (5,627) | - | (5,627) | (4,990) | - | (4,990) | ||||||||
Loss from continuing | (46,029) | (210,146) | (256,175) | (50,223) | (17,987) | (68,210) | ||||||||
Income tax (expense)/benefit | 14 | (20,370) | 36,888 | 16,518 | (6,466) | 3,845 | (2,621) | |||||||
Lossfor the year from continuing operations | (66,399) | (173,258) | (239,657) | (56,689) | (14,142) | (70,831) | ||||||||
Attributable to: | ||||||||||||||
Equity shareholders of the Company | (61,852) | (172,758) | (234,610) | (54,963) | (13,914) | (68,877) | ||||||||
Non-controlling interests | (4,547) | (500) | (5,047) | (1,726) | (228) | (1,954) | ||||||||
(66,399) | (173,258) | (239,657) | (56,689) | (14,142) | (70,831) | |||||||||
Basic and diluted loss per ordinary share from continuing operations for the year (expressed in US dollars per share) | 15 | (0.14) | (0.38) | (0.52) | (0.13) | (0.03) | (0.16) |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2015
Year ended 31 December | ||||||
Notes | 2015 |
2014 | ||||
Lossfor the year | (239,657) | (70,831) | ||||
Other comprehensive incometo be reclassified to profit or loss in subsequent periods: | ||||||
Exchange differences on translating foreign operations | (597) | (1,716) | ||||
Change in fair value of available-for-sale financial assets | 19 | (86) | (3,106) | |||
Recycling of the loss on available-for-sale financial assets | 104 | 2,096 | ||||
Change in fair value of cash flow hedges | 35,887 | 18,945 | ||||
Recycling of the gain on cash flow hedges | (18,962) | (14,603) | ||||
Deferred income tax relating to components of other comprehensive income | 14 | (4,739) | (1,216) | |||
Other comprehensivegain for the period, net of tax | 11,607 | 400 | ||||
Total comprehensive expense for the year | (228,050) | (70,431) | ||||
Total comprehensive expense attributable to: | ||||||
Equity shareholders of the Company | (223,003) | (68,477) | ||||
Non-controlling interests | (5,047) | (1,954) | ||||
(228,050) | (70,431) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2015
Notes | As at |
As at | ||||
ASSETS | ||||||
Non-current assets | ||||||
Property, plant and equipment | 16 | 1,045,516 | 1,076,310 | |||
Evaluation and exploration assets | 17 | 138,171 | 207,290 | |||
Intangible assets | 18 | 27,981 | 42,815 | |||
Available-for-sale financial assets | 19 | 366 | 455 | |||
Trade and other receivables | 20 | 10,187 | 6,488 | |||
Income tax receivable | 47 | - | ||||
Deferred income tax assets | 27 | - | 1,574 | |||
1,222,268 | 1,334,932 | |||||
Current assets | ||||||
Inventories | 21 | 70,286 | 58,417 | |||
Trade and other receivables | 20 | 124,827 | 167,038 | |||
Income tax receivable | 20,384 | 25,584 | ||||
Other financial assets | 21,267 | 4,342 | ||||
Cash and cash equivalents | 22 | 84,017 | 115,999 | |||
320,781 | 371,380 | |||||
Total assets | 1,543,049 | 1,706,312 | ||||
EQUITY AND LIABILITIES | ||||||
Capital and reserves attributable to shareholders of the Parent | ||||||
Equity share capital | 223,805 | 170,389 | ||||
Share premium | 438,041 | 396,021 | ||||
Treasury shares | (898) | (898) | ||||
Other reserves | (203,649) | (217,335) | ||||
Retained earnings | 218,093 | 451,047 | ||||
675,392 | 799,224 | |||||
Non-controlling interests | 90,113 | 95,160 | ||||
Total equity | 765,505 | 894,384 | ||||
Non-current liabilities | ||||||
Trade and other payables | 24 | 20,379 | 92 | |||
Borrowings | 25 | 339,778 | 440,834 | |||
Provisions | 26 | 121,402 | 111,751 | |||
Deferred income | 23 | 25,000 | 25,000 | |||
Deferred income tax liabilities | 27 | 64,274 | 84,959 | |||
570,833 | 662,636 | |||||
Current liabilities | ||||||
Trade and other payables | 24 | 101,892 | 111,890 | |||
Other financial liabilities | 1,141 | 1,533 | ||||
Borrowings | 25 | 94,760 | 27,882 | |||
Provisions | 26 | 6,115 | 2,870 | |||
Income tax payable | 2,803 | 5,117 | ||||
206,711 | 149,292 | |||||
Total liabilities | 777,544 | 811,928 | ||||
Total equity and liabilities | 1,543,049 | 1,706,312 |
These financial statements were approved by the Board of Directors on 8 March 2016 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
8 March 2016
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2015
Year ended 31 December | ||||||
Notes | 2015 |
2014 | ||||
Cash flows from operating activities | ||||||
Cash generated from operations | 166,234 | 129,993 | ||||
Interest received | 726 | 1,931 | ||||
Interest paid | (36,445) | (25,585) | ||||
Payment of mine closure costs | 26 | (2,538) | (5,524) | |||
Income tax received/(paid) | 5,279 | (7,036) | ||||
Net cash generated from operating activities | 133,256 | 93,779 | ||||
Cash flows from investing activities | ||||||
Purchase of property, plant and equipment | (216,188) | (309,033) | ||||
Purchase of evaluation and exploration assets | (6,861) | (6,071) | ||||
Purchase of intangibles | (612) | (281) | ||||
Dividends received | - | 494 | ||||
Proceeds from deferred income | 23 | - | 3,223 | |||
Proceeds from sale of available-for-sale financial assets | 3 | 48,097 | ||||
Proceeds from sale of property, plant and equipment | 339 | 564 | ||||
Net cash used in investing activities | (223,319) | (263,007) | ||||
Cash flows from financing activities | ||||||
Proceeds of borrowings | 175,948 | 482,393 | ||||
Repayment of borrowings | (209,173) | (458,132) | ||||
Transaction costs of borrowings | - | (9,166) | ||||
Dividends paid | 28 | (964) | (10,056) | |||
Proceeds from issue of ordinary shares | 95,216 | - | ||||
Cash flows generated in financing activities | 61,027 | 5,039 | ||||
Net decrease in cash and cash equivalents during the year | (29,036) | (164,189) | ||||
Exchange difference | (2,946) | (6,247) | ||||
Cash and cash equivalents at beginning of year | 115,999 | 286,435 | ||||
Cash and cash equivalents at end of year | 22 | 84,017 | 115,999 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year 31 December 2015
Other reserves | |||||||||||||||||||||||||||||||
Notes | Equity share capital US$000 | Share premium US$000 | Treasury shares US$000 |
Unrealised gain/ |
Unrealised gain/ |
Bond | Cumulative translation adjustment US$000 | Merger reserve US$000 | Share- based payment reserve US$000 |
Total | Retained earnings US$000 |
Capital and reserves attributable to shareholders |
Non-controlling interests |
Total | |||||||||||||||||
Balance at | 170,389 | 396,021 | (898) | 1,024 | - | 8,432 | (11,289) | (210,046) | 736 | (211,143) | 511,492 | 865,861 | 104,375 | 970,236 | |||||||||||||||||
Other comprehensive (loss)/income | - | - | - | (1,010) | 3,126 | - | (1,716) | - | - | 400 | - | 400 | - | 400 | |||||||||||||||||
Loss for the year | - | - | - | - | - | - | - | - | - | - | (68,877) | (68,877) | (1,954) | (70,831) | |||||||||||||||||
Total comprehensive income/(loss) | - | - | - | (1,010) | 3,126 | - | (1,716) | - | - | 400 | (68,877) | (68,477) | (1,954) | (70,431) | |||||||||||||||||
Transfer to retained earnings | - | - | - | - | - | (8,432) | - | - | - | (8,432) | 8,432 | - | - | - | |||||||||||||||||
CEO LTIP | - | - | - | - | - | - | - | - | 610 | 610 | - | 610 | - | 610 | |||||||||||||||||
Deferred bonus plan | - | - | - | - | - | - | - | - | 1,230 | 1,230 | - | 1,230 | - | 1,230 | |||||||||||||||||
Dividends declared to non-controlling interests | 28 | - | - | - | - | - | - | - | - | - | - | - | - | (7,261) | (7,261) | ||||||||||||||||
Balance at | 170,389 | 396,021 | (898) | 14 | 3,126 | - | (13,005) | (210,046) | 2,576 | (217,335) | 451,047 | 799,224 | 95,160 | 894,384 | |||||||||||||||||
Other comprehensive(loss)/income | - | - | - | 18 | 12,186 | - | (597) | - | - | 11,607 | - | 11,607 | - | 11,607 | |||||||||||||||||
Lossfor the year | - | - | - | - | - | - | - | - | - | - | (234,610) | (234,610) | (5,047) | (239,657) | |||||||||||||||||
Total comprehensive income/(loss) | - | - | - | 18 | 12,186 | - | (597) | - | - | 11,607 | (234,610) | (223,003) | (5,047) | (228,050) | |||||||||||||||||
Issuance of shares of deferred bonus plan | 220 | - | - | - | - | - | - | - | (1,560) | (1,560) | 1,340 | - | - | - | |||||||||||||||||
Issuance of shares | 53,196 | 46,812 | - | - | - | - | - | - | - | - | - | 100,008 | - | 100,008 | |||||||||||||||||
Transaction costs related to issuance of shares | - | (4,792) | - | - | - | - | - | - | - | - | - | (4,792) | - | (4,792) | |||||||||||||||||
Restricted share plan | - | - | - | - | - | - | - | - | 2,843 | 2,843 | - | 2,843 | - | 2,843 | |||||||||||||||||
Deferred bonus plan | - | - | - | - | - | - | - | - | 469 | 469 | - | 469 | - | 469 | |||||||||||||||||
CEO LTIP | - | - | - | - | - | - | - | - | 327 | 327 | 316 | 643 | - | 643 | |||||||||||||||||
Balance at | 223,805 | 438,041 | (898) | 32 | 15,312 | - | (13,602) | (210,046) | 4,655 | (203,649) | 218,093 | 675,392 | 90,113 | 765,505 | |||||||||||||||||
1 Notes to the consolidated financial statements
For the year ended 31 December 2015
The financial information for the year ended 31 December 2015 and 2014 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 2015 and 2014 have been extracted from the consolidated financial statements of Hochschild Mining plc for the year ended 31 December 2015 which have been approved by the directors on 8 March 2016 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
Changes in accounting policy and disclosures
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statement for the year ended 31 December 2014.
Standards, interpretations and amendments to existing standards that are not yet effective and have not been previously adopted by the Group
Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2016 or later periods but which the Group has not previously adopted. Those that are applicable to the Group are as follows:
· IAS 1 Disclosure Initiative - Amendments to IAS 1, applicable for annual periods beginning on or after 1 January 2016.
· IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38, applicable for annual periods beginning on or after 1 January 2016.
· AIP IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - Changes in methods of disposal, applicable for annual periods beginning on or after 1 January 2016.
· AIP IFRS 7 Financial Instruments: Disclosures - Servicing contracts, applicable for annual periods beginning on or after 1 January 2016.
· AIP IAS 19 Employee Benefits - Discount rate: regional market issue, applicable for annual periods beginning on or after 1 January 2016.
· IFRS 15 Revenue from Contracts with Customers, applicable for annual periods beginning on or after 1 January 2018.
· IFRS 9 Financial Instruments, applicable for annual periods beginning on or after 1 January 2018.
· IFRS 12 Disclosure of Interests in Other Entities, applicable for annual periods beginning on or after 1 January 2016.
· IFRS 16 Leases, applicable for annual periods beginning on or after 1 Jan 2019.
· IAS 7 Statement of cash flows, applicable for annual periods beginning on or after 1 January 2017.
· IAS 12 Income Taxes, applicable for annual periods beginning on or after 1 January 2017.
The Group is analysing the effect of the standards and plans to adopt the new standard on the required effective date.
3 Segment reporting
The Group's activities are principally related to mining operations which involve the exploration, production and sale of gold and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The Group undertakes a number of activities solely to support mining operations including power generation and services. Transfer prices between segments are set on an arm's length basis in a manner similar to that used for third parties. Segment revenue, segment expense and segment results include transfers between segments at market prices. Those transfers are eliminated on consolidation.
For internal reporting purposes, management takes decisions and assesses the performance of the Group through consideration of the following reporting segments:
· Operating units - Arcata and San Jose, which generate revenue from the sale of gold, silver, dore and concentrate.
· Operating unit - Pallancata, which generates revenue from the sale of concentrate.
· Operating unit - Inmaculada, which will generate revenue from the sale of gold, silver and dore.
· Operating unit - Ares, in suspension, which generated revenue from the sale of gold and silver, disclosed as a segment until 31 December 2014. This operation did not meet the quantitative thresholds to be a separate reportable segment in 2015 and accordingly has been included in 'Other'. The comparative segment information has been restated to reflect these changes.
· 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 Callalli S.A.C. (a power transmission company), HMX, S.A. de C.V. (a service company in Mexico), Empresa de Transmisión Aymaraes S.A.C. (a power transmission company), Ares unit, Moris unit and the Selene plant (used to process some of the Group's production).
The Group's administration, financing, other activities (including other income and expense), and income taxes are managed at a corporate level and are not allocated to operating segments.
Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial information based on International Financial Reporting Standards (IFRS) as adopted for use in the European Union.
The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit, selling expenses and exploration expenses.
Segment assets include items that could be allocated directly to the segment.
(a) Reportable segment information
Arcata US$000 | Pallancata US$000 | San Jose US$000 | Inmaculada US$000 |
Exploration | Other1 US$000 | Adjustment |
Total | |||||||||
Year ended | ||||||||||||||||
Revenue from | 107,425 | 73,045 | 186,097 | 102,303 | - | 276 | - | 469,146 | ||||||||
Inter segment revenue | - | - | - | - | - | 2,437 | (2,437) | - | ||||||||
Total revenue | 107,425 | 73,045 | 186,097 | 102,303 | - | 2,713 | (2,437) | 469,146 | ||||||||
Segment profit/(loss) | (1,340) | (17,002) | 13,297 | 49,759 | (10,710) | 384 | (1,397) | 32,991 | ||||||||
Others2 | (289,166) | |||||||||||||||
Loss from continuing operations before | (256,175) | |||||||||||||||
Other segment information | ||||||||||||||||
Depreciation3 | (33,506) | (35,415) | (45,286) | (32,093) | (1,496) | (2,816) | - | (150,612) | ||||||||
Amortisation | - | - | (1,013) | - | (457) | (34) | - | (1,504) | ||||||||
Impairment and write-off of assets, net | (72,718) | (39,245) | (57) | - | (95,113) | (13) | - | (207,146) | ||||||||
Assets | ||||||||||||||||
Capital expenditure | 14,600 | 10,683 | 38,451 | 166,336 | 4,011 | 4,078 | - | 238,159 | ||||||||
Current assets | 17,456 | 13,818 | 63,941 | 31,958 | 30 | 5,435 | - | 132,638 | ||||||||
Other non-current assets | 53,458 | 50,591 | 220,307 | 633,169 | 181,662 | 72,481 | - | 1,211,668 | ||||||||
Total segment assets | 70,914 | 64,409 | 284,248 | 665,127 | 181,692 | 77,916 | - | 1,344,306 | ||||||||
Not reportable assets4 | - | - | - | - | - | 198,743 | - | 198,743 | ||||||||
Total assets | 70,914 | 64,409 | 284,248 | 665,127 | 181,692 | 276,659 | - | 1,543,049 |
1 'Other' revenue relates to revenues earned by Empresa de Transmisión Callalli S.A.C.and Empresa de Transmisión Aymaraes S.A.C.
2 Comprised of administrative expenses of US$38,148,000, other income of US$8,021,000, other expenses of US$15,264,000, impairment and write-off of assets of US$207,146,000, finance income of US$1,898,000, finance expense of US$32,900,000, and foreign exchange loss of US$5,627,000.
3 Includes US$1,793,000 and US$6,077,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.
4 Not reportable assets are comprised of available-for-sale financial assets of US$366,000, other receivables of US$72,662,000, income tax receivable of US$20,431,000, other financial assets of US$21,267,000 and cash and cash equivalents of US$84,017,000.
Arcata US$000 | Pallancata US$000 | San Jose US$000 |
Inmaculada |
Exploration | Other1 US$000 | Adjustment |
Total | |||||||||
Year ended | ||||||||||||||||
Revenue from | 106,061 | 147,360 | 213,013 | - | - | 26,517 | - | 492,951 | ||||||||
Inter segment revenue | - | - | - | - | - | 2,857 | (2,857) | - | ||||||||
Total revenue | 106,061 | 147,360 | 213,013 | - | - | 29,374 | (2,857) | 492,951 | ||||||||
Segment profit/(loss) | 5,054 | 20,894 | 28,429 | - | (18,662) | 447 | (752) | 35,410 | ||||||||
Others2 | (103,620) | |||||||||||||||
Loss from continuing operations before | (68,210) | |||||||||||||||
Other segment information | ||||||||||||||||
Depreciation3 | (31,348) | (48,008) | (46,820) | (7,558) | (930) | (3,014) | - | (137,678) | ||||||||
Amortisation | - | - | (1,181) | - | (458) | - | - | (1,639) | ||||||||
Impairment and write-off of assets, net | (499) | (31) | (717) | (85) | 1,580 | (139) | - | 109 | ||||||||
Assets | ||||||||||||||||
Capital expenditure | 28,867 | 34,160 | 51,350 | 193,445 | 6,522 | 6,777 | - | 321,121 | ||||||||
Current assets | 27,993 | 21,174 | 66,995 | 5,877 | 35 | 9,161 | - | 131,235 | ||||||||
Other non-current assets | 143,524 | 112,365 | 223,295 | 497,771 | 277,829 | 71,631 | - | 1,326,415 | ||||||||
Total segment assets | 171,517 | 133,539 | 290,290 | 503,648 | 277,864 | 80,792 | - | 1,457,650 | ||||||||
Not reportable assets4 | - | - | - | - | - | 248,662 | - | 248,662 | ||||||||
Total assets | 171,517 | 133,539 | 290,290 | 503,648 | 277,864 | 329,454 | - | 1,706,312 |
1 'Other' revenue relates to revenue for the sale of gold and silver generated by the Ares and Moris mine, revenues earned by Empresa de Transmisión Callalli S.A.C., and revenues earned by HMX S.A. de C.V. for services provided to the Moris mine and the Mexican exploration activities.
2 Comprised of administrative expenses of US$46,087,000, other income of US$4,112,000, other expenses of US$20,475,000, gain on the reversal of impairment net of write-off of assets of US$109,000, finance income of US$6,276,000, finance expense of US$42,565,000, and foreign exchange loss of US$4,990,000.
3 Includes US$967,000 and US$7,558,000 of depreciation capitalised in the Crespo and the Inmaculada projects respectively.
4 Not reportable assets are comprised of available-for-sale financial assets of US$455,000, other receivables of US$100,708,000, income tax receivable of US$25,584,000, deferred income tax assets of US$1,574,000, other financial assets of US$4,342,000 and cash and cash equivalents of US$115,999,000.
(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 | ||||
2015 |
2014 | |||
External customer | ||||
USA | 229,229 | 96,427 | ||
Peru | 63,328 | 178,217 | ||
Canada | 58,154 | 36,421 | ||
Germany | 7,428 | 10,987 | ||
Switzerland | 12,174 | 45,020 | ||
United Kingdom | 17,273 | 2,450 | ||
Korea | 81,580 | 121,868 | ||
Japan | (20) | 1,561 | ||
Total | 469,146 | 492,951 | ||
Inter-segment | ||||
Peru | 2,437 | 1,804 | ||
Mexico | - | 1,053 | ||
Total | 471,583 | 495,808 |
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 2015 | Year ended 31 December 2014 | |||||||||||
US$000 | % Revenue | Segment | US$000 | % Revenue | Segment | |||||||
Republic Metals Corporation | 106,339 | 23% | Arcata, Inmaculada and San Jose | 44,725 | 9% | San Jose | ||||||
LS Nikko | 81,580 | 17% | Pallancata and San Jose | 121,868 | 25% | Arcata, Pallancata and San Jose | ||||||
Glencore Perú S.A.C. | 38,502 | 8% | Arcata and Pallancata | 114,192 | 23% | Arcata and Pallancata |
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 | ||||
2015 |
2014 | |||
Peru | 897,824 | 942,411 | ||
Argentina | 220,307 | 223,295 | ||
Mexico | 31,005 | 41,944 | ||
Chile | 62,532 | 118,765 | ||
Total non-current segment assets | 1,211,668 | 1,326,415 | ||
Available-for-sale financial assets | 366 | 455 | ||
Trade and other receivables | 10,187 | 6,488 | ||
Income tax receivable | 47 | - | ||
Deferred income tax assets | - | 1,574 | ||
Total non-current assets | 1,222,268 | 1,334,932 |
4 Acquisitions and disposals
(a) Sale of subsidiary
In 2015 there were no acquisitions or disposals undertaken by the Group.
Minas Santa María de Moris, S.A. de C.V.
On 28 February 2014 the Group sold its interest in Minas Santa María de Moris, S.A. de C.V. ('Moris') to Exploraciones y Desarrollos Regiomontanos, S.A. de C.V. ('EDR') and Arturo Préstamo Elizondo ('APE') for consideration with a fair value of nil. The terms of the transaction stipulate that:
· the Group was entitled to a 1% net smelter return over the Moris concessions once production reaches 50,000 ounces of gold equivalent following the sale; and
· EDR and APE would assume all costs associated with the mine and plant rehabilitation obligations.
The carrying value of the net assets disposed was US$2,963,000 and the transaction resulted in a loss of US$2,963,000.
5 Revenue
Year ended 31 December | ||||
2015 |
2014 | |||
Gold (from dore bars) | 142,077 | 62,911 | ||
Silver (from dore bars) | 142,397 | 67,418 | ||
Gold (from concentrate) | 68,414 | 109,045 | ||
Silver (from concentrate) | 115,982 | 253,420 | ||
Services | 276 | 157 | ||
Total | 469,146 | 492,951 |
Included within revenue is a loss of US$7,275,000 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2014: loss of US$16,518,000) arising on sales of concentrates and dore (refer to note 2(p).
The realised gain on gold and silver swaps contracts in the period recognised within revenue was US$18,962,000 (gold: US$7,012,000, silver: US$11,950,000) (2014: US$14,603,000, gold: US$2,451,000, silver: US$12,152,000).
6 Cost of sales
Included in cost of sales are:
Year ended 31 December | ||||
2015 |
2014 | |||
Depreciation and amortisation | 142,712 | 128,720 | ||
Personnel expenses (notes 10 and 11) | 107,823 | 114,322 | ||
Mining royalty (note 30) | 5,968 | 6,581 | ||
Change in products in process and finished goods | (10,255) | 8,641 |
7 Administrative expenses
Year ended 31 December | ||||
2015 |
2014 | |||
Personnel expenses (notes 10and 11) | 22,427 | 24,206 | ||
Professional fees | 3,095 | 3,846 | ||
Social and community welfare expenses1 | 597 | 1,943 | ||
Lease rentals | 1,415 | 1,442 | ||
Travel expenses | 576 | 865 | ||
Communications | 560 | 579 | ||
Indirect taxes | 2,147 | 2,678 | ||
Depreciation and amortisation | 1,534 | 2,072 | ||
Technology and systems | 745 | 718 | ||
Security | 790 | 951 | ||
Supplies | 134 | 188 | ||
Other | 4,128 | 6,599 | ||
Total | 38,148 | 46,087 |
1 Represents amounts expended by the Group on social and community welfare activities surrounding its mining units.
8 Exploration expenses
Year ended 31 December | ||||
2015 |
2014 | |||
Mine site exploration1 | ||||
Arcata | 62 | 2,038 | ||
Ares | 50 | 42 | ||
Selene | - | 58 | ||
Inmaculada | 6 | - | ||
Pallancata | 2,457 | 1,728 | ||
San Jose | 1,463 | 1,003 | ||
4,038 | 4,869 | |||
Prospects2 | ||||
Peru | 303 | 788 | ||
Argentina | 43 | 73 | ||
Mexico | - | 195 | ||
Chile | 71 | 237 | ||
417 | 1,293 | |||
Generative3 | ||||
Peru | 499 | 1,180 | ||
Argentina | - | 11 | ||
Mexico | - | 2,588 | ||
Chile | - | 379 | ||
499 | 4,158 | |||
Personnel (notes 10and 11(1)) | 2,967 | 7,412 | ||
Others | 1,334 | 408 | ||
Total | 9,255 | 18,140 |
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 very 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 practivable to separate the liabilities related to the exploration activities of these companies from their operating liabilities.
Cash outflows on exploration activities were US$1,190,000 in 2015 (2014: US$3,362,000).
9 Selling expenses
Year ended 31 December | ||||
2015 |
2014 | |||
Transportation of dore, concentrate and maritime freight | 3,548 | 6,020 | ||
Sales commissions | 200 | 429 | ||
Personnel expenses (note 10) | 254 | 249 | ||
Warehouse services | 1,610 | 2,930 | ||
Taxes | 12,994 | 15,609 | ||
Other | 3,123 | 3,460 | ||
Total | 21,729 | 28,697 |
10 Personnel expenses1
Year ended 31 December | ||||
2015 |
2014 | |||
Salaries and wages | 103,433 | 115,770 | ||
Workers' profit sharing | - | (34) | ||
Other legal contributions | 20,735 | 22,168 | ||
Statutory holiday payments | 6,534 | 7,074 | ||
Long Term Incentive Plan | 1,013 | (657) | ||
Restricted share plan | 2,843 | - | ||
Termination benefits | 3,623 | 11,570 | ||
Other | 1,584 | 1,805 | ||
Total | 139,765 | 157,696 |
1 Personnel expenses are distributed in cost of sales, administrative expenses, exploration expenses, selling expenses, other expenses and capitalised as property plant and equipment amounting to US$107,823,000 (2014: US$114,322,000), US$22,427,000 (2014: US$24,206,000), US$2,967,000 (2014: US$7,412,000), US$254,000 (2014: US$249,000), US$1,218,000 (2014: US$1,642,000) and US$5,076,000 (2014: US$9,865,000) respectively.
Average number of employees for 2015 and 2014 were as follows:
Year ended 31 December | ||||
2015 | 2014 | |||
Peru | 2,575 | 2,852 | ||
Argentina | 1,129 | 1,179 | ||
Mexico | - | 19 | ||
Chile | 3 | 11 | ||
United Kingdom | 10 | 9 | ||
Total | 3,717 | 4,070 |
11 Pre-tax 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.
Year ended 31 December | ||||
2015 |
2014 | |||
Cost of sales | ||||
Termination benefits1 | (1,514) | (1,327) | ||
Termination benefits Ares mine unit2 | - | (3,511) | ||
Work stoppage at Arcata mine unit | - | (1,227) | ||
Total | (1,514) | (6,065) | ||
Administrative expenses | ||||
Termination benefits1 | - | (2,752) | ||
Total | - | (2,752) | ||
Exploration expenses | ||||
Termination benefits1 | - | (886) | ||
Total | - | (886) | ||
Other expenses | ||||
Loss on sale of subsidiary3 | - | (2,963) | ||
Total | - | (2,963) | ||
Impairment and write-off of assets (net) | ||||
Impairment and write-off of assets4 | (207,146) | (1,534) | ||
Reversal of impairment of assets5 | - | 1,643 | ||
Total | (207,146) | 109 | ||
Finance income | ||||
Gain on sale of available-for-sale financial assets6 | - | 4,061 | ||
Total | - | 4,061 | ||
Finance costs | ||||
Amortisation of transaction costs on secure bank loans7 | - | (3,336) | ||
Loss from changes in the fair value of financial instruments8 | - | (6,155) | ||
Interest on disputed tax charges9 | (1,486) | - | ||
Total | (1,486) | (9,491) | ||
Income tax benefit | 36,888 | 3,845 | ||
Total | 36,888 | 3,845 |
1 Termination benefits paid to workers following the cashflow optimisation programme approved by management, amounting to US$1,514,000 (2014:US$4,965,000).
2 Termination benefits generated in connection with the suspension of the Ares mine unit.
3 Loss generated by the sale of the Group´s interest in Moris (refer to note 4(a)).
4 As at 31 December 2015 corresponds to the impairment of the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the Azuca project of US$12,766,000, the Volcan project of US$57,070,000 and the San Felipe project of US$10,927,000, and to the write-off of assets of US$583,000. As at 31 December 2014 corresponds to the write-off of assets of US$1,534,000.
5 Corresponds to a reversal of previously recorded impairment at the San Felipe property of US$1,643,000 (note 17).
6 Corresponds to the gain on sale of the Group´s holding in Gold Resource Corp ('GRC') of US$2,642,000, Chaparral Gold of US$842,000, Mirasol Resources Ltd of US$556,000 and Northern Superior Resources Inc of US$21,000.
7 Corresponds to the attributable issue cost of the syndicated US$270,000,000 loan, granted in 2013 and repaid in January 2014, to Compañía Minera Ares S.A.C., disclosed as an exceptional item as a significant one-off expense.
8 As at 31 December 2014 corresponds to the impairment of the investments in Pembrook Mining Corp of US$6,000,000, Brionor Resources of US$54,000, Revelo Resources Corp (formerly Iron Creek Capital Corp) of US$53,000, Northern Superior Resources Inc of US$45,000 and Empire Petroleum Corp of US$3,000.
9 Interest on overdue tax charges owed by the Group following a change in circumstances surrounding a tax dispute with the Peruvian tax authority, resulting in the exposure now being assessed as 'probable', rather than 'possible'.
12 Other income and other expenses before exceptional items
Year ended |
Year ended | |||
Before |
Before | |||
Other Income | ||||
Export credit | 2,743 | 1,386 | ||
Lease rentals | 443 | 586 | ||
Logistic services | 3,699 | - | ||
Other | 1,136 | 2,140 | ||
8,021 | 4,112 | |||
Other expenses | ||||
Increase in provision for mine closure (note 26(4)) | (7,590) | (9,088) | ||
Tax on mining reserves in Argentina (note 30) | (441) | (3,453) | ||
Provision of obsolescence of supplies | (1,046) | 945 | ||
Contingencies | (108) | (1,680) | ||
Write off of value added tax | (795) | (37) | ||
Other | (5,284) | (4,199) | ||
Total | (15,264) | (17,512) |
13 Finance income and finance costs before exceptional items
Year ended |
Year ended | |||
Before |
Before | |||
Finance income | ||||
Interest on deposits and liquidity funds | 648 | 1,567 | ||
Interest income | 648 | 1,567 | ||
Dividends | - | 525 | ||
Gain on repurchase of bonds | 856 | - | ||
Other | 394 | 123 | ||
Total | 1,898 | 2,215 | ||
Finance costs | ||||
Interest on secured bank loans (note 25) | (5,842) | (5,027) | ||
Interest on convertible bond1 | - | (5,364) | ||
Other interest | (1,657) | - | ||
Interest on bond (note 25) | (22,096) | (20,302) | ||
Interest expense | (29,595) | (30,693) | ||
Unwind of discount | (505) | (1,865) | ||
Loss from changes in the fair value of financial instruments | (116) | (90) | ||
Other | (1,198) | (426) | ||
Total | (31,414) | (33,074) |
1 Relates to US$115,000,000 of senior unsecured convertible bonds, due in 2014, which were convertible into ordinary shares of Hochschild Mining plc. The Group settled the convertible bonds in cash upon their maturity in October 2014. The bonds had a coupon of 5.75% per annum payable semi-annually on 28 January and 28 July of each year.
14 Income tax expense
Year ended 31 December 2015 | Year ended 31 December 2014 | |||||||||||
Before |
Exceptional items |
Total |
Before |
Exceptional |
Total | |||||||
Current corporate income tax from | ||||||||||||
Current corporate income tax charge | 5,200 | (259) | 4,941 | 10,082 | (251) | 9,831 | ||||||
Current mining royalty charge (note 30) | 1,778 | - | 1,778 | 1,611 | - | 1,611 | ||||||
Current special mining tax charge (note 30) | 755 | - | 755 | 375 | - | 375 | ||||||
Withholding taxes | (142) | - | (142) | (343) | - | (343) | ||||||
7,591 | (259) | 7,332 | 11,725 | (251) | 11,474 | |||||||
Deferred taxation | ||||||||||||
Origination and reversal of temporary differences from continuing operations (note27) | 12,637 | (36,629) | (23,992) | (457) | (3,851) | (4,308) | ||||||
Effect of change in tax rate | 142 | - | 142 | (4,802) | 257 | (4,545) | ||||||
12,779 | (36,629) | (23,850) | (5,259) | (3,594) | (8,853) | |||||||
Total taxation charge/(credit) in the income statement | 20,370 | (36,888) | (16,518) | 6,466 | (3,845) | 2,621 |
The weighted average statutory income tax rate was 25.4% for 2015 and 28.7% for 2014. 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.
In December 2014, the Peruvian government approved a schedule for the gradual reduction of the statutory income tax rate, from its current level of 30% to 26% by 2019.
The tax related to items charged or credited to equity is as follows:
As at 31 December | ||||
2015 |
2014 | |||
Deferred taxation: | ||||
Deferred income tax relating to fair value gains on cash flow hedges | 4,739 | 1,216 | ||
Total tax charge in the statement of other comprehensive income | 4,739 | 1,216 |
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 | ||||
2015 |
2014 | |||
Loss from continuing operations before income tax | (256,175) | (68,210) | ||
At average statutory income tax rate of 25.4% (2014: 28.7%) | (65,017) | (19,547) | ||
Expenses not deductible for tax purposes | 1,040 | 3,058 | ||
Non-taxable income1 | - | (851) | ||
Deferred tax recognised on special investment regime | (691) | (780) | ||
Movement in unrecognised deferred tax | 16,565 | 6,700 | ||
Change in statutory income tax rate | 142 | (4,545) | ||
Withholding tax | (142) | (343) | ||
Special mining tax and mining royalty3 | 2,533 | 1,986 | ||
Derecognition of deferred tax asset | 1,251 | - | ||
Foreign exchange rate effect4 | 24,964 | 14,473 | ||
Other | 2,837 | 2,470 | ||
At average effective income tax rate of 6.4% (2014: -3.8%) | (16,518) | 2,621 | ||
Taxation charge attributable to continuing operations | (16,518) | 2,621 | ||
Total taxation charge in the income statement | (16,518) | 2,621 |
1 2014: Mainly corresponds to the gain on sale of Gold Resource Corp shares.
2 Includes the effect of the impairment of Volcan and San Felipe projects of US$11,414,000 and US$3,278,000 respectively.
3 Corresponds to the impact of a mining royalty and special mining tax in Peru (note 30).
4 Mainly corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the functional currency.
15 Basic and diluted earnings per share
Earnings per share ('EPS') is calculated by dividing profit/(loss) for the year attributable to equity shareholders of the Company by the weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As a result of the rights issue being at a discounted price, the number of ordinary shares outstanding has increased due to the bonus element resulting in the calculation of basic and diluted earnings per share for all periods presented having been adjusted retrospectively.
As at 31 December 2015 and 2014, EPS has been calculated as follows:
As at 31 December | ||||
2015 | 2014 | |||
Basicloss per share from continuing operations | ||||
Before exceptional items (US$) | (0.14) | (0.13) | ||
Exceptional items (US$) | (0.38) | (0.03) | ||
Total for the year and from continuing operations (US$) | (0.52) | (0.16) | ||
Diluted loss per share from continuing operations | ||||
Before exceptional items (US$) | (0.14) | (0.13) | ||
Exceptional items (US$) | (0.38) | (0.03) | ||
Total for the year and from continuing operations (US$) | (0.52) | (0.16) |
Net loss from continuing operations before exceptional items and attributable to equity holders of the parent is derived
as follows:
As at 31 December | ||||
2015 | 2014 | |||
Loss attributable to equity holders of the parent - continuing operations (US$000) | (234,610) | (68,877) | ||
Exceptional items after tax - attributable to equity holders of the parent (US$000) | 172,758 | 13,914 | ||
Loss from continuing operations before exceptional items attributable to equity holders | (61,852) | (54,963) | ||
Diluted loss from continuing operations before exceptional items attributable to equity | (61,852) | (54,963) |
The following reflects the share data used in the basic and diluted loss per share computations:
As at 31 December | ||||
2015 | 2014 | |||
Basic weighted average number of ordinary shares in issue (thousands) | 449,511 | 421,783 | ||
Dilutive potential ordinary shares related to contingently issuable shares (thousands)1 | - | - | ||
Diluted weighted average number of ordinary shares in issue and dilutive potential | 449,511 | 421,783 |
1 The potential ordinary shares related to the contingently issuable shares under the Enhanced Long Term Incentive Plan and Restricted Share Plan' have not been included in the calculation of diluted EPS for 2015 and 2014 as they have an antidilutive effect.
16 Property, plant and equipment
Mining properties and development | Land and buildings US$000 |
Plant and equipment | Vehicles US$000 |
Mine | Construction in progress and capital advances US$000 |
Total | ||||||||
Year ended 31 December 2015 | ||||||||||||||
Cost | ||||||||||||||
At 1January 2015 | 999,777 | 257,171 | 389,042 | 6,030 | 96,213 | 237,308 | 1,985,541 | |||||||
Additions | 91,862 | 632 | 31,455 | - | - | 106,737 | 230,686 | |||||||
Change in discount rate | - | - | - | - | (755) | - | (755) | |||||||
Change in mine closure estimate | - | - | - | - | 7,928 | - | 7,928 | |||||||
Disposals | - | (195) | (952) | (196) | - | - | (1,343) | |||||||
Write-offs | (2,382) | (118) | (5) | (2,505) | ||||||||||
Transfer from intangibles | 582 | - | - | - | - | - | 582 | |||||||
Transfers and other movements2 | 4,886 | 214,485 | 63,584 | 435 | - | (281,648) | 1,742 | |||||||
At 31 December 2015 | 1,097,107 | 472,093 | 480,747 | 6,151 | 103,386 | 62,392 | 2,221,876 | |||||||
Accumulated depreciation | ||||||||||||||
At 1January 2015 | 526,824 | 134,638 | 193,210 | 3,663 | 49,486 | 1,410 | 909,231 | |||||||
Depreciation for the year | 91,129 | 23,333 | 32,053 | 913 | 3,184 | - | 150,612 | |||||||
Disposals | - | (179) | (223) | (124) | - | - | (526) | |||||||
Impairment | 60,259 | 20,752 | 30,451 | 71 | 7,120 | - | 118,653 | |||||||
Write-offs | - | - | (1,839) | (83) | - | - | (1,922) | |||||||
Transfers and other movements2 | 335 | 492 | (264) | 7 | - | (258) | 312 | |||||||
At 31 December 2015 | 678,547 | 179,036 | 253,388 | 4,447 | 59,790 | 1,152 | 1,176,360 | |||||||
Net book amount at 31 December 2015 | 418,560 | 293,057 | 227,359 | 1,704 | 43,596 | 61,240 | 1,045,516 |
There were borrowing costs capitalised in property, plant and equipment amounting to US$8,252,000 (2014: US$9,904,000). The capitalisation rate used was 6.79% (2014: 8.83%).
1 Mining properties and development costs related to Azuca, Crespo and Volcan projects are not currently being depreciated.
2 Net of transfers and other movements of US$1,430,000 were transferred from evaluation and exploration assets.
At the end of 2015, given the continued challenging environment for the mining sector, the Group carried out an impairment review of all of its operating mines (Arcata, Pallancata, Inmaculada and San Jose), and its growth projects (Crespo, Azuca, San Felipe and Volcan). As a result of this review the Group recognised an impairment charge in the Pallancata mine unit of US$39,026,000, the Arcata mine unit of US$72,424,000, the Crespo project of US$14,350,000, the Azuca project of US$12,766,000, San Felipe project of US$10,927,000 and the Vocan project of US$57,070,000. The impairment recognised in property plant and equipment was US$118,653,000, in evaluation and exploration assets was US$74,550,000 and in intangibles was US$13,360,000 (refer to note 17 and 18).
The recoverable values of these CGUs were determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD was determined using a combination of level 2 and level 3 inputs to construct a discounted cash flow model to estimate the amount that would be paid by a willing third party in an arm's length transaction. The key assumptions on which management has based its determination of FVLCD, and the associated recoverable values calculated are presented below.
Gold and silver prices
US$ per oz. | 2016 | 2017 | 2018 | 2019 | Long-term | |||||
Gold | 1,175 | 1,200 | 1,213 | 1,240 | 1,224 | |||||
Silver | 16 | 17 | 18 | 19 | 18 |
Other key assumptions
Arcata | Pallancata | San Jose | Inmaculada | Crespo | Azuca | San Felipe | Volcan | |||||||||
Discount rate (post tax) | 6.3% | 6.3% | 9.7% | 6.3% | 7.8% | n/a | n/a | n/a | ||||||||
Value per in-situ ounce (per tonne in the case of San Felipe) | n/a | n/a | n/a | n/a | n/a | 0.25 | 16.21 | 6.55 |
1 With respect to the Azuca, Volcan and San Felipe growth projects, given their early stage, the Group applied a value in-situ methodology, which applies a realisable 'enterprise value' to unprocessed mineral resources. The methodology is used to determine the fair value less costs of disposal of the Azuca, Volcan which includes the water permits held by the Group, and San Felipe CGUs. The enterprise value used in the calculation performed at 31 December 2015 was US$6.55 per gold equivalent ounce of resources (Volcan), $0.25 per silver equivalent ounce of resources (Azuca) and US$16.21 per zinc equivalent tonne of resources (San Felipe). The enterprise value figures are based on observable external market information.
Current carrying value of CGU, net of deferred tax (US$000) | Arcata | Pallancata | San Jose | Inmaculada | Crespo | Azuca | San Felipe | Volcan | ||||||||
31 December 2015 | 42,956 | 49,331 | 160,055 | 587,208 | 46,275 | 26,102 | 4,218 | 62,512 |
Crespo, Azuca and San Felipe projects correspond to the exploration segment.
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount.
The estimated recoverable amounts of the following of the Group's CGUs are equal to, or not materially greater than, their carrying values; consequently, any adverse change in the following key assumptions would, in isolation, cause an impairment loss to be recognised:
Approximate impairment resulting from the following changes (US$000) | Arcata | Pallancata | San Jose | Inmaculada | Crespo | Azuca | San Felipe | Volcan | ||||||
Prices (10% decrease) | (42,956) | (14,892) | (89,961) | (86,439) | (16,308) | n/a | n/a | n/a | ||||||
Post tax discount rate (3% increase) | (5,354) | (3,525) | (28,570) | (50,812) | (12,348) | n/a | n/a | n/a | ||||||
Production costs (10% increase) | (42,956) | (8,082) | (48,914) | (20,495) | (7,397) | n/a | n/a | n/a | ||||||
Value per in-situ ounce (per tonne in the case of San Felipe) (10% decrease) | n/a | n/a | n/a | n/a | n/a | (2,610) | (422) | (6,251) |
Mining properties and development | Land and buildings US$000 |
Plant and equipment | Vehicles US$000 |
Mine | Construction in progress and capital advances US$000 |
Total | ||||||||
Year ended 31 December 2014 | ||||||||||||||
Cost | ||||||||||||||
At 1January 2014 | 869,780 | 220,083 | 371,079 | 6,511 | 74,362 | 136,383 | 1,678,198 | |||||||
Additions | 136,742 | 1,913 | 20,281 | 46 | - | 157,192 | 316,174 | |||||||
Change in discount rate | - | - | - | - | 4,357 | - | 4,357 | |||||||
Change in mine closure estimate | - | - | - | - | 18,741 | - | 18,741 | |||||||
Disposals | - | (178) | (2,657) | (309) | - | (61) | (3,205) | |||||||
Write-offs | (114) | (276) | (3,943) | (308) | - | - | (4,641) | |||||||
Disposal of subsidiary (note 4(a)) | (11,015) | (7,851) | (6,972) | (355) | (1,247) | - | (27,440) | |||||||
Transfers and other movements1 | 4,384 | 43,480 | 11,254 | 445 | - | (56,206) | 3,357 | |||||||
At 31 December 2014 | 999,777 | 257,171 | 389,042 | 6,030 | 96,213 | 237,308 | 1,985,541 | |||||||
Accumulated depreciation | ||||||||||||||
At 1January 2014 | 452,777 | 120,923 | 175,453 | 3,645 | 48,425 | 3,498 | 804,721 | |||||||
Depreciation for the year | 84,928 | 19,836 | 29,854 | 752 | 2,308 | - | 137,678 | |||||||
Disposals | - | (178) | (2,385) | (256) | - | - | (2,819) | |||||||
Write-offs | (51) | (184) | (2,677) | (195) | - | - | (3,107) | |||||||
Disposal of subsidiary (note 4(a)) | (11,015) | (7,851) | (6,969) | (345) | (1,247) | - | (27,427) | |||||||
Transfers and other movements1 | 185 | 2,092 | (66) | 62 | - | (2,088) | 185 | |||||||
At 31 December 2014 | 526,824 | 134,638 | 193,210 | 3,663 | 49,486 | 1,410 | 909,231 | |||||||
Net book amount at 31 December 2014 | 472,953 | 122,533 | 195,832 | 2,367 | 46,727 | 235,898 | 1,076,310 |
1 Net of transfers and other movements of US$3,172,000 were transferred from evaluation and exploration assets.
17 Evaluation and exploration assets
Azuca |
Crespo | San Felipe US$000 | Volcan US$000 |
Others |
Total | |||||||
Cost | ||||||||||||
Balance at 1January 2014 | 75,540 | 29,176 | 55,950 | 90,575 | 10,684 | 261,925 | ||||||
Additions | 821 | - | - | 1,463 | 2,382 | 4,666 | ||||||
Transfers from/( to) property, plant and equipment | 3,593 | (3,620) | - | (3) | (3,822) | (3,852) | ||||||
Balance at 31December 2014 | 79,954 | 25,556 | 55,950 | 92,035 | 9,244 | 262,739 | ||||||
Additions | 211 | 224 | - | 958 | 5,468 | 6,861 | ||||||
Transfers from/(to) property plant and equipment | - | - | - | - | (1,742) | (1,742) | ||||||
Balance at 31 December 2015 | 80,165 | 25,780 | 55,950 | 92,993 | 12,970 | 267,858 | ||||||
Accumulated impairment | ||||||||||||
Balance at 1January 2014 | 29,862 | 9,130 | 16,550 | - | 1,740 | 57,282 | ||||||
Impairment1 | - | - | (1,643) | - | - | (1,643) | ||||||
Transfers from/(to) property, plant and equipment | 3,430 | (3,620) | - | - | - | (190) | ||||||
Balance at 31 December2014 | 33,292 | 5,510 | 14,907 | - | 1,740 | 55,449 | ||||||
Impairment1 | 12,584 | 4,368 | 10,927 | 44,381 | 2,290 | 74,550 | ||||||
Transfers from/(to) property, plant and equipment | - | - | - | - | (312) | (312) | ||||||
Balance at 31 December 2015 | 45,876 | 9,878 | 25,834 | 44,381 | 3,718 | 129,687 | ||||||
Net book value as at 31December 2014 | 46,662 | 20,046 | 41,043 | 92,035 | 7,504 | 207,290 | ||||||
Net book value as at 31 December 2015 | 34,289 | 15,902 | 30,116 | 48,612 | 9,252 | 138,171 |
There were no borrowing costs capitalised in evaluation and exploration assets.
1 In 2015 the Group recognised an impairment charge of US$74,550,000, mainly related to the Volcan project (refer to note 16). The FVLCD calculation is detailed in note 16. In 2014, the Group partially reversed the impairment of the San Felipe project of US$1,643,000.
18 Intangible assets
Hochschild Mining plc issued this content on 09 March 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 09 March 2016 07:29:38 UTC
Original Document: http://phx.corporate-ir.net/phoenix.zhtml?c=204920&p=irol-newsArticle_Print&ID=2147051