TIDMHOC
RNS Number : 2240K
Hochschild Mining PLC
15 April 2015
15 April 2015
2014 Annual Report and 2015 Annual General Meeting ("AGM")
Following the release of the Company's 2014 full year results
announcement on 18 March 2015 (the "Preliminary Announcement"), the
Company announces it has published its Annual Report and Accounts
for the year ended 31 December 2014 (the "2014 Annual Report").
In accordance with LR 9.6.1, the following documents have been
submitted to the National Storage Mechanism and will be available
for inspection at www.Hemscott.com/nsm.do
-- The 2014 Annual Report
-- The 2015 AGM Circular (incorporating the Notice of 2015 AGM)
-- The 2015 AGM Proxy Card (incorporating the Notice of Availability of
the 2014 Annual Report and 2015 AGM Circular)
The 2014 Annual Report and the 2015 AGM Circular are also
available on the Company's website at www.hochschildmining.com
The appendices to this announcement contain the information
required to be disclosed under DTR 6.3.5 which has been reproduced
from the 2014 Annual Report and should be read in conjunction with
the Preliminary Announcement.
All page references and cross-references in the appendices are
to the 2014 Annual Report.
__________________________________________________________________________________
APPENDICES
Appendix 1
Risk Management (reproduced from pages 30 to 35 of the 2014
Annual Report)
As with all businesses, management of the Group's operations and
execution of its growth strategies are subject to a number of
risks, the occurrence of which could adversely affect the
performance of the Group. The Group's risk management framework is
premised on the continued monitoring of the prevailing environment,
the risks posed by it, and the evaluation of potential actions to
mitigate those risks. The Risk Committee is responsible for
implementing the Group's policy on risk management and monitoring
the effectiveness of controls in support of the Group's business
objectives. It meets four times a year and more frequently if
required. The Risk Committee comprises the CEO, the Vice Presidents
and the head of the internal audit function. A 'live' risk matrix
is compiled and updated at each Risk Committee meeting and the most
significant risks as well as potential actions to mitigate those
risks are reported to the Group's Audit Committee, which has
oversight of risk management on behalf of the Board.
The key business risks affecting the Group set out in this
report remain unchanged compared to those disclosed in the 2013
Risk Management report however, as indicated in this report, the
profile of a number of risks has increased relative to 2013
reflecting the ongoing challenges resulting from the lower and more
volatile precious metal price environment.
1. FINANCIAL RISKS
(i) Commodity Price
Change in risk profile vs 2013: HIGHER
Impact
Adverse movements in precious metals' prices could materially
impact the Group in various ways beyond a reduction in the results
of operations. These include impacts on the feasibility of projects
and heightened personnel and sustainability related risks.
Mitigation
-- Constant focus on maintaining low cost base
-- Initiatives identified for implementation in the
event of a low price environment (included within
the Cash Optimisation Plan - see commentary (right))
-- Flexible hedging policy that allows the Company
to approve hedges to mitigate the effect of price
movements taking into account the Group's asset
mix and forecast production
See Market Overview on page 5 for further details
2014 Commentary
The Group maintained the pressure on lowering costs and
improving efficiencies through the Cash Optimisation Plan, with its
focus on conserving capital and optimising cash flow primarily
through:
-- reductions in operating and administrative costs;
-- minimising sustaining capital expenditure; and
-- refocusing the Group's exploration strategy.
Significant progress was made in the Inmaculada project, which
will considerably contribute to reduce average production costs and
will materially dilute fixed costs once in operation.
Financial liquidity was ensured via the issue of $350m Senior
Notes, a $100m credit facility and short term lines available to
the Group.
The Group hedged part of its 2014 silver and gold production to
protect cashflow. For further details see page 19 of the Financial
Review.
(ii) Counterparty credit risk
Change in risk profile vs 2013: UNCHANGED
Impact
The Group may risk financial resources through the failure of
financial institutions.
Mitigation
Surplus cash invested with a diverse list of select highly rated
financial institutions within investment limits set by the
Board
2014 Commentary
Management has continued to operate its policy with oversight by
the Board without any change during the year.
2. OPERATIONAL RISKS
(i) Operational Performance
Change in risk profile vs 2013: HIGHER
Impact
Failure to meet production targets and manage the cost base
could adversely impact the Group's profitability.
Mitigation
-- Close monitoring by management of operational performance,
costs and capital expenditure
-- Negotiation of long-term supply contracts where
appropriate
-- Exploration to increase high quality resources
2014 Commentary
Administrative expenses and sustaining capex trended
significantly downwards during 2014, primarily as a result of the
cost savings initiatives implemented under the Cash Optimisation
Plan.
Production goals at all operations were met and 2015 mine plans
were thoroughly reviewed to ensure a focus on the extraction of
profitable ounces.
Significant progress was made at the Inmaculada project, which,
when in production, will materially improve the operational
flexibility of the Group.
(ii) Delivery of Projects
Change in risk profile vs 2013: HIGHER
Impact
Unanticipated delays in delivering projects could have negative
consequences including delaying cash inflows and increasing capital
costs, which could ultimately reduce profitability.
Mitigation
-- Teams comprising specialist personnel and world
class consultants and contractors are involved
in all aspects of project planning and execution
-- Project teams meet with senior management on a
weekly basis to monitor ongoing progress against
project schedules
2014 Commentary
During the year, senior management of the Group and the EPC
Contractor met regularly to monitor progress at the Inmaculada
Project against schedule which by the end of the year reached 86%
completion.
Despite a number of delays, the plant is expected to be
commissioned in Q2 2015.
Further details on Inmaculada can be found on page 12
(iii) Business Interruption
Change in risk profile vs 2013: UNCHANGED
Impact
Assets used in operations may break down and insurance policies
may not cover against all forms of risks.
Mitigation
-- Adequate insurance coverage
-- Management reporting systems to support appropriate
levels of inventory
-- Annual inspections by insurance brokers and insurers
with recommendations addressed in order to mitigate
operational risks
-- Availability of contingency power supplies at all
operating units
2014 Commentary
Insurance advisors conducted site visits and completed a full
review of operational risks to ensure that adequate property damage
and business interruption risk management processes and insurance
policies are in place at our operations.
Management reporting systems ensured that an appropriate level
of inventory of critical parts is maintained.
Adequate preventative maintenance programmes, supported by the
SAP Maintenance Module, are in place at the operating units.
(iv) Exploration & Reserve and Resource Replacement
Change in risk profile vs 2013: HIGHER
Impact 1
The Group's operating margins and future profitability depend
upon its ability to find mineral resources and to replenish
reserves.
Mitigation
-- Implementing and maintaining an annual exploration
drilling plan
-- Ongoing evaluation of acquisition and joint venture
opportunities to acquire additional ounces
2014 Commentary
The continued focus on cost reduction in 2014 through the Cash
Optimisation Plan resulted in a refocusing of exploration activity
supported by a budget of over $20 million which targeted brownfield
exploration at current operations, Inmaculada and the resourcing of
activity at select sites in Mexico and Peru.
In 2015, exploration activity will be primarily focused on
brownfield exploration in order to maintain or improve our resource
base. As a direct consequence of the continued low price
environment, the level of greenfield exploration and appraisal of
acquisition/joint venture opportunities has been significantly
reduced.
The substantial reduction in sustaining capital expenditure in
2015 could affect the Group's ability to replace reserves at its
historic rates.
Change in risk profile vs 2013: UNCHANGED
Impact 2
Reserves stated in this Annual Report are estimates
Mitigation
-- Engagement of independent experts to undertake
annual audit of mineral reserve and resource estimates
-- Adherence to the JORC code and guidelines therein
2014 Commentary
The Group engaged P&E Consultants to undertake the annual
audit of mineral reserve and resource estimates.
See page 166 for further details
(v)(a) Personnel: Recruitment and Retention
Change in risk profile vs 2013: HIGHER
Impact
Inability to retain or attract personnel through a shortage of
skilled personnel.
Mitigation
-- The Group's approach to recruitment and retention
provides for the payment of competitive compensation
packages, well defined career plans and training
and development opportunities
2014 Commentary
Due to the low price environment, there has been a significant
headcount reduction during the course of the year, but key
personnel have been retained.
In the case of critical position holders, retention awards have
been granted under the Restricted Share Plan which was approved by
shareholders in December 2014.
Also, the Group has implemented a number of low cost/high impact
initiatives to improve the retention of employees. These include
the use of non-financial benefits (e.g. flexible working
arrangements for Head Office staff).
(v)(b) Personnel: Labour Relations
Change in risk profile vs 2013: UNCHANGED
Impact
Failure to maintain good labour relations with workers and/or
unions may result in work slowdown, stoppage or strike.
Mitigation
Development of a tailored labour relations strategy focusing on
profit sharing, working conditions, management style, development
opportunities, motivation and communication
2014 Commentary
The reduction in profitability due to lower precious metal
prices has resulted in no statutory profit sharing for Peruvian
mineworkers.
Management has conducted monthly meetings with mineworkers and
unions during 2014 to ensure complete understanding of their
requirements and concerns and to keep all parties updated on the
Group's financial performance with the aim of preparing the
groundwork for the 2015 union negotiations.
3. MACROECONOMIC RISKS
(i) Political, Legal and Regulatory Risks
Change in risk profile vs 2013: HIGHER
Impact
Changes in the legal, tax and regulatory landscape could result
in significant additional expense, restrictions on or suspensions
of operations and may lead to delays in the development of current
operations and projects.
Implementation of exchange controls could impede the Group's
ability to convert or remit hard currency out of its operating
countries.
Mitigation
-- Local specialised personnel continually monitor
and react, as necessary, to policy changes
-- Active dialogue with governmental authorities
-- Participation in local industry organisations
2014 Commentary
During the year, the authorities in Peru and Argentina either
adopted new measures or revised their approach with respect to
certain aspects which impact the mining sector.
Of these, key developments are:
-- new environmental regulations which have increased
the powers of, and the scale of fines levied by,
the relevant regulators;
-- new permitting requirements which will lead to
longer permitting periods and costs;
-- the continued consultation on the law requiring
the prior consultation with indigenous communities,
which is expected to be implemented in the first
half of 2015.
By the virtue of the fact that 2015 is a pre-electoral year in
Peru, the mining sector is expected to be subject to heightened
political debate with consequences for, amongst other things,
labour and community relations and the regulatory regime.
In Argentina:
-- at a national Federal Government level, foreign
exchange controls were tightened during the year
as a result of the country's sovereign debt default;
-- following the implementation of a new regional
tax on mining companies' reserves in 2013, the
Company launched a challenge regarding its constitutionality
of the provincial law. The Supreme Court has decided
to hear the case;
-- increased requirements on the import of spare parts
has placed more pressure on the Group's San Jose
operation; and
-- the Province of Santa Cruz recently increased the
yearly fee for maintaining certain mining concessions
by almost 400%.
4. SUSTAINABILITY RISKS
(i) Health and Safety
Change in risk profile vs 2013: UNCHANGED
Impact
Group employees working in the mines may be exposed to health
and safety risks.
Failure to manage these risks may result in occupational
illness, accidents, a work slowdown, stoppage or strike and/or may
damage the reputation of the Group and hence its ability to
operate
Mitigation
-- Health & Safety operational policies and procedures
reflect the Group's zero tolerance approach to
accidents
-- Use of world class DNV safety management systems
-- Dedicated personnel to ensure the safety of employees
at the operations via stringent controls, training
and prevention programmes
-- Rolling programme of training, communication campaigns
and other initiatives promoting safe working practices
-- Use of reporting and management information systems
to monitor the incidence of accidents and enable
preventative measures to be implemented
2014 Commentary
For the first time since the Company's IPO in 2006, the Group
achieved its on-going objective of Zero Fatalities in 2014. This is
reflected in the year-on-year reduction in the accident severity
index for the year, of c. 75% from 598 to 149.
However, the year-on-year accident frequency rate has increased
by c. 48% (from 2.08 to 3.07) primarily due to the fact that
accident monitoring has been extended to cover the main contractor
and sub-contractors at the Inmaculada project which entered into
the higher-risk construction phase.
The Group's DNV safety management information systems at the
operating units have been given a 7 rating under the International
System Rating System (v6) with Inmaculada achieving a 6 rating.
As previously reported, a behaviour-based safety tool has been
developed and implemented at all units.
(ii) Environmental
Change in risk profile vs 2013: HIGHER
Impact
The Group may be liable for losses arising from environmental
hazards associated with the Group's activities and production
methods, ageing infrastructure, or may be required to undertake
corrective actions or extensive remedial clean-up action or pay for
governmental remedial clean-up actions or be subject to fines
and/or penalties.
Mitigation
-- The Group has a team responsible for environmental
management
-- The Group has adopted a number of policies and
procedures to limit and monitor its environmental
impact
-- Use of leading environmental management information
systems
-- The Group conducts annual reviews of its mine closure
plans for its operating units
2014 Commentary
During the year, the environmental regulator (OEFA) increased
its oversight activities leading to a significant increase in fines
and administrative actions. In addition, there has been an overall
increase in the trend of criminal actions pursued by rural
communities and third-parties in respect of environmental
issues.
The Cash Optimisation Plan has also affected the environmental
budget resulting in the postponement of capital expenditure for
infrastructure improvements.
During the year, the Group:
-- succeeded in recertifying the operations in Peru
and Argentina as compliant with ISO 14001 for the
next 3 years; and
-- restructured its Environmental team following the
appointment of a new Corporate Environmental Manager.
(iii) Community Relations
Change in risk profile vs 2013: HIGHER
Impact
Communities living in the areas surrounding Hochschild's
operations may oppose the activities carried out by the Group at
existing mines or, with respect to development projects and
prospects, may invoke their rights to be consulted under new laws.
These actions may result in longer lead times and additional costs
for exploration and in bringing assets into production and lead to
an adverse impact on the Group's ability to obtain the relevant
permissions for current or future projects.
Mitigation
-- Constructive engagement with local communities
-- Community Relations strategy focuses on promoting
education, health and nutrition, and sustainable
development
-- Allocation of budget and personnel for the provision
of community support activities
-- Policy to actively recruit workers from local communities
2014 Commentary
Despite the reduction of budgets for the Group's community
welfare activities as part of the Cash Optimisation Plan, the Group
continued to pursue a number of initiatives benefiting the
communities including:
-- the establishment of local co-operatives to promote
sustainable economic development by enabling communities
to trade in local produce; and
-- building on the successes of the Travelling Doctor
programme by extending its reach and the scope
of its services, and of the award-winning Digital
Chalhuanca project.
Further details on the Group's activities to mitigate
sustainability risks can be found in the Sustainability report on
pages 20 to 29
Appendix 2
Related-Party Transactions (reproduced from pages 136 and 137 of
the 2014 Annual Report)
32 Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and
transactions during the years ended 31 December 2014 and 2013. The
related parties are companies owned or controlled by the main
shareholder of the parent company or associates.
Accounts receivable Accounts payable
as at 31 December as at 31 December
--------------------- --------------------
2014 2013 2014 2013
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related
party balances
Cementos Pacasmayo
S.A.A.(1) 45 111 49 16
Total 45 111 49 16
------------------- ---------- --------- --------- ---------
(1 The account receivable relates to reimbursement of expenses
paid by the Group on behalf of Cementos Pacasmayo S.A.A. The
account payable relates to the payment of rentals.)
As at 31 December 2014 and 2013 all other accounts are, or were,
non-interest bearing.
No security has been granted or guarantees given by the Group in
respect of these related party balances.
Principal transactions between affiliates are as follows:
Year ended
--------------
2014 2013
US$000 US$000
------ ------
Income
Dividend recognised for Gold
Resource Corp. investment
(note 19) - 2,633
Expenses
Expense recognised for the
rental paid to Cementos Pacasmayo
S.A.A. (185) (164)
(b) Compensation of key management personnel of the Group
As at 31 December
-----------------
Compensation of key management 2014 2013
personnel (including directors) US$000 US$000
----------------- -------
Short-term employee benefits 5,369 5,781
Termination benefits - 77
Long Term Incentive Plan 679 (434)
Others 1
Total compensation paid to
key management personnel 6,048 5,425
--------------------------------- ----------------- -------
This amount includes the remuneration paid to the Directors of
the parent company of the Group of US$4,005,780 (2013
US$4,410,956), out of which US$160,462 (2013: US$193,831) relates
to pension payments.
(c) Participation in placing by Inversiones Pacasmayo S.A.
("IPSA")
IPSA, a company controlled by Eduardo Hochschild, participated
in a placing of the Company's Ordinary Shares ('Shares') in October
2013 by subscribing for 16,905,066 Shares at a price of 155p per
Share.
Appendix 3
Statement of Directors' Responsibilities (reproduced from page
39 of the 2014 Annual Report)
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 of the Company and
the undertakings included in the consolidation
taken as a whole
-- the Management report (which comprises the Strategic
report, this Directors' report and the other parts
of this Annual Report incorporated therein by reference)
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.
On behalf of the Board
Raj Bhasin
Company Secretary
17 March 2015
This information is provided by RNS
The company news service from the London Stock Exchange
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