TIDMHOC
RNS Number : 2261Y
Hochschild Mining PLC
07 May 2019
_________________________________________________________________________________
2018 Annual Financial Report and
2019 Annual General Meeting ("AGM")
Following the release of the Hochschild Mining PLC's 2018 full
year results announcement on 20 February 2019 (the "Preliminary
Announcement"), the Company announces it has published its Annual
Report and Accounts for the year ended 31 December 2018 (the "2018
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.morningstar.co.uk/uk/nsm
-- 2018 Annual Report
-- 2019 AGM circular (incorporating the Notice of 2019 AGM)
-- Notice of Availability of the 2018 Annual Report and 2019 AGM circular
The above documents have been posted or otherwise made available
to shareholders and, in accordance with the Disclosure Guidance and
Transparency Rules ("DTR"), the 2018 Annual Report and the 2019 AGM
circular have been published on the Company's website at
www.hochschildmining.com
The 2019 AGM will be held at the offices of Linklaters LLP at
One Silk Street, London EC2Y 8HQ on Thursday 6 June 2019 at
4pm.
The appendices to this announcement contain the information
required to be disclosed under DTR 6.3.5 which has been reproduced
from the 2018 Annual Report and should be read in conjunction with
the Preliminary Announcement. All page references and
cross-references in the appendices are to the 2018 Annual
Report.
________________________________________________________________________________
Enquiries:
Hochschild Mining plc
Raj Bhasin +44 (0)20 3709 3260
Company Secretary
Hudson Sandler
Charlie Jack +44 (0)20 7796 4133
Public Relations
________________________________________________________________________________________________
About Hochschild Mining plc
Hochschild Mining plc is a leading precious metals company
listed on the London Stock Exchange (HOCM.L / HOC LN) with a
primary focus on the exploration, mining, processing and sale of
silver and gold. Hochschild has over fifty years' experience in the
mining of precious metal epithermal vein deposits and currently
operates three underground epithermal vein mines, two located in
southern Peru and one in southern Argentina. Hochschild also has
numerous long-term projects throughout the Americas.
APPICES
Appendix 1
Risk Management (reproduced from pages 50 to 54 of the 2018
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, Country General
Managers and the head of the Internal Audit function. A 'live' risk
matrix is reviewed which maps the significant risks faced by the
business 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.
2018 RISKS
The key business risks affecting the Group set out in this
report remain largely unchanged compared to those disclosed in the
2017 Risk Management report with the exception of a new risk
entitled Commercial Counterparty that has been identified and added
in light of a customer of the Company entering into bankruptcy
during the year.
Reasons for the year-on-year change in the profile of a specific
risk can be found in the commentary section of the relevant risk
which also provides an outlook on the risk for the current
financial year.
1. FINANCIAL RISKS
a) Commodity Price
Change in risk profile vs 2017: UNCHANGED
Impact
Adverse movements in precious metal prices could materially
impact the Group in various ways beyond a reduction in the
financial results of operations. These include impacts on the
feasibility of projects, the economics of mineral resources and
heightened personnel retention and sustainability related
risks.
Mitigation
- Constant focus on maintaining a low all-in sustaining cost of
production and an efficient level of administrative expense.
- Flexible hedging policy that allows the Company to contract
hedges to mitigate the effect of price movements taking into
account the Group's asset mix and forecast production.
- Policy to maintain low levels of leverage to ensure flexibility through price cycles.
See the Market Review on pages 4 to 5 for further details
Commentary
The focus on conserving capital and optimising cash flow
continued in 2018 through:
- debt reduction and refinancing;
- controlling operating and administrative costs;
- optimising sustaining capital expenditure; and
- maintaining low working capital.
In relation to debt reduction and the refinancing of debt, as
previously reported, the Company completed the early redemption of
its bonds in early 2018 thereby reducing debt by approximately $95
million. The balance was replaced with shorter-term debt on
significantly better terms, saving the Group approximately $15m in
interest expenses in 2018. Debt was further reduced in December
2018 by $50 million.
As reported earlier in this report, the Inmaculada mine had
another record year in 2018 in terms of production and, as the
lowest cost operation in the Group's portfolio, it has been key in
reducing overall average production costs.
Even though currently no part of 2019 production has been
hedged, the Group's flexible policy enables the Board to approve
hedging contracts to protect cash flow as and when appropriate.
b) Commercial Counterparty
Change in risk profile vs 2017: NEW
Impact
Insolvency of a customer or other business counterparty (bank,
insurance company, contractor, etc.) could result in the Group's
inability to collect accounts receivable or to receive services
which could adversely impact the Group's profitability.
Mitigation
- Periodic assessment of customers and business counterparts.
- Risk mitigation practices seeking to diversify the Group's
customer base and/or to limit the size of shipments.
- Ongoing assessment of methods to mitigate collection risk.
Commentary
In November 2018, Republic Metals, a US-based refinery and a
long-standing customer of the Company entered into bankruptcy
protection while owing the Group c. US$2.76m (attributable) for
shipments previously made. The Group is participating in the
bankruptcy proceedings as an unsecured creditor. The likelihood of
recovery is low as the secured creditors have claims that exceed
Republic Metals' assets.
The Group has instigated steps to mitigate the impact of a
reoccurrence of this risk in the future. Such steps include:
- Enhanced Credit Analysis: the enhancement of initial financial
and business quality checks of new customers and business
counterparts and more robust and more frequent evaluations of
existing customers;
- Diversification: consideration of revising terms and
conditions of sale of final product to diversify orders outstanding
at any given time, use several banks for cash deposits, distribute
business among contractors, etc.; and
- Reduce exposure: the receipt of cash advances on sold product
as soon as the product is delivered.
2. OPERATIONAL RISKS
a) Operational Performance
Change in risk profile vs 2017: UNCHANGED
Impact
Failure to meet production targets and manage the cost base
could adversely impact the Group's profitability.
Mitigation
- Close monitoring of operational performance, costs and capital
expenditure as well as the overall profitability at all stages of
the mining value chain.
- Monitoring the adequacy and safety of key mining components
such as tailing dams, waste rock deposits, pipelines to service
ongoing operations, in close liaison between relevant departments
ensures that procurement, construction and any permitting are
undertaken as appropriate.
Commentary
In 2018 the Group exceeded its production target by 0.5m
attributable silver equivalent ounces with particularly strong
performances at Inmaculada and Pallancata.
2018 budgets across the Group continued to focus on maintaining
controlled levels of costs, capex and expenses. As reported in the
Financial review, the all-in sustaining cost from operations was
kept within the positively revised guidance for the year, at $12.6
per silver equivalent ounce.
It was reported in last year's risk report that management was
closely monitoring performance of the high cost Arcata mine.
Despite cost efficiencies and encouraging exploration results in
areas outside the authorised operational area, the combination of
increasingly narrow vein structures with marginal grades and a
volatile and low average silver price prompted the decision to
place the mine on care and maintenance.
b) Business Interruption
Change in risk profile vs 2017: UNCHANGED
Impact
Assets used in the Group's operations may cease to function or
the supply of electricity may be interrupted (e.g. as a result of
technical malfunction or earthquake damage) thereby causing
production stoppages with material effects.
Mitigation
- Insurance coverage to protect against major risks.
- Management reporting systems to support appropriate levels of inventory.
- Annual inspections by insurance brokers and insurers assist
management's efforts to understand and mitigate operational
risks.
- Negotiation of long-term power supply contracts and the
procurement of contingent generators.
Commentary
Mitigating actions during the year include the following:
- Insurance advisers 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 (which has been enhanced following a recent
upgrade), are in place at the operating units;
- Procurement of back-up power transformers; and
- Design of a Business Continuity Plan documenting the
procedures to be implemented on the occurrence of certain
disruptive events. Training and implementation has been scheduled
for 2019.
c) Information security and cybersecurity
Change in risk profile vs 2017: LOWER
Impact
Failure of any of the Group's business critical information
systems as a result of unauthorised access by third parties, may
affect the Group's ability to operate.
Mitigation
- Compliance with ISO 27001, an internationally recognised
certification to evaluate information security management
systems.
- Dedicated team within the IT department focused on preventing cyber-attacks.
- Audits performed by the internal audit department and third
parties to test systems and issue recommendations.
Commentary
During the year a third-party review by a major audit firm was
commissioned to identify areas of vulnerability and to produce
recommendations. This process led to the testing of the
recoverability of operational and financial reporting systems. The
Group was successful in securing the ISO 27001 certification for
its information security management system. Migration to a new
version of the Group's accounting and payments platform (S/4 HANA)
incorporates higher standards of security. Further details are
provided in the Audit Committee Report.
d) Exploration & Reserve and Resource Replacement
(d)(i) Impact
The Group's future operating margins and profitability depend
upon its ability to find mineral resources and to replenish
reserves.
Change in risk profile vs 2017: LOWER
Mitigation
- Implementing and maintaining an annual exploration drilling plan.
- Ongoing evaluation of acquisition and joint venture
opportunities to acquire additional ounces.
Commentary
In 2018, the first drilling campaign at Inmaculada was completed
which confirmed the presence of a considerable number of structures
close to the existing mine infrastructure, adding 1.3 million of
gold equivalent ounces of inferred resources. For further details,
refer to page 32.
Land easements have been secured and other permits have been or
are at an advanced stage of being, secured to facilitate the 2019
brownfield exploration programme.
Greenfield exploration in 2018 was driven by a number of
earn-in/ joint venture opportunities being secured in 2018. These
provide the Group with a balanced portfolio of advanced and early
stage opportunities in stable jurisdictions in the Americas.
Further details are provided on page 33.
From an operational perspective, the Group implemented a new
technological platform, Deswik, for the provision of software to
support mine planning so that mineable areas are optimised and
mineral losses are reduced. See page 15 for further details.
(d)(ii) Impact
Reserves stated in this Annual Report are estimates.
Change in risk profile vs 2017: UNCHANGED
Mitigation
-- Engagement of independent experts to undertake annual audit
of mineral reserve and resource estimates
-- Adherence to the JORC Code and guidelines therein
Commentary
The Group has engaged P&E Consultants to undertake the
annual audit of mineral reserve and resource estimates.
See page 164 for further details
(a) Personnel: Recruitment and Retention
Change in risk profile vs 2017: HIGHER
Impact
Inability to attract or retain 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.
Commentary
Turnover in 2018 was higher than in previous years due to
competition for personnel from other mining companies and
projects.
To counter this risk, the Group has continued with a number of
initiatives to improve the retention of employees. These include
the use of non-financial benefits (e.g. flexible working
arrangements for Head Office staff) and tailored personal
development plans. In addition, a three-year Leadership programme
has been implemented at all levels of the organisation. The Group
has also started a training programme for supervisors and hourly
workers, and intends to enhance the Group's employee value
proposition. These include the launching of initiatives related to
causes that are valued by potential employees; providing them with
the opportunity to contribute to innovation, community relations
and environmental performance.
Retention plans for senior executives in the form of the
Company's Long-Term Incentive Plan and Restricted Share Plan are
also in place.
(b) Personnel: Labour Relations
Change in risk profile vs 2017: 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
- Monthly meetings with mineworkers and unions to ensure a
complete understanding of expectations and to keep all parties
updated on the Group's financial performance
Commentary
Given the level of investment at the Inmaculada mine, the
Group's Peruvian operation does not generate taxable income and
therefore there is no entitlement to statutory profit sharing for
Peruvian mineworkers. The Company has, however, implemented an
additional bonus to compensate for this situation.
As part of the salary increases agreed with the Peruvian labour
unions, a new bonus framework was put in place to promote safety
and productivity.
The uncertainty with regards to the ongoing viability of the
Arcata mine impacted morale among workers at the operation. During
2018, the situation of Arcata did not improve and, therefore,
regular meetings were scheduled and held with union representatives
to understand concerns. As has been previously announced, the mine
will be placed on care and maintenance with personnel redeployed
where possible.
3. MACRO-ECONOMIC RISKS
Political, Legal and Regulatory
Change in risk profile vs 2017: LOWER
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.
Mitigation
-- Local specialist personnel continually monitor and react, as necessary, to policy changes
-- Participation in local industry organisations
Commentary
President Kuczynsky resigned from office in Peru and was
replaced by Vice President Vizcarra who maintains a pro-business
attitude and a supportive policy line towards the mining sector.
However, mining continues to be a highly regulated industry where
multiple permits are required leading to increased delays and
costs. The Government is working with the industry to simplify the
permitting process but progress has been limited.
At the legislative level, the Peruvian Congress, which comprises
a majority from the non-governing parties, continues to evaluate
measures that could adversely affect the mining industry.
In terms of social conflicts, the governmental authorities
remain sensitive to conflicts between communities and mining
companies and typically take a cautious approach by establishing a
dialogue between parties.
Regional and local elections in October and December 2018
resulted in the election of a number of anti-mining officials in
several key mining areas of Peru.
In Argentina, 2018 was marked by a declining popularity of the
Government, primarily caused by the higher cost of living and the
devaluation of the Peso. The Government has sought to promote
investment but material results are yet to consolidate.
4. SUSTAINABILITY RISKS
Health and Safety
Change in risk profile vs 2017: LOWER
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.
- Systematic 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
Commentary
The Group has sadly reported three fatalities during 2018, which
resulted from two separate accidents, one at Pallancata and one at
Arcata. Further details of these accidents are provided in the
Sustainability Report on page 40.
As reported in last year's report, management established the
Safety Culture Transformation Plan (the "SCTP") to materially
reinforce the Group's commitment to safety.
The Plan comprises the following pillars:
- Leadership, with senior management involved in a full review of all high-risk activities
- Communications, focusing on initiatives to motivate and incentivise safe working practices
- Training, with all personnel receiving five hours of on-site learning every week
- Technical, with the migration to the latest version of risk
information management systems and a review of the Company's
procedures
As previously reported, the Group's overall safety performance
indicators showed year-on-year improvements with the accident
frequency rate falling by 35% and the number of High Potential
Events falling by 46%.
A third-party audit of the Group's safety procedures was
commissioned during the year which highlighted a number of positive
aspects and identified areas of improvements which, among others,
featured the inclusion of contractors within the SCTP and
enhancements to the mine-site emergency communications plan. The
report's recommendations will be fully implemented during the first
half of 2019.
For further details on the above, including on a training
programme designed for the Group's emergency brigades,
please refer to the safety section of the Sustainability Report on pages 42 and 43.
Environmental
Change in risk profile vs 2017:
(a) In relation to those risks arising from the Group's
environmental performance/ infrastructure: LOWER
(b) In relation to those risks arising from the increased
oversight of the environmental regulator: LOWER
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 dedicated team responsible for environmental management
- The Group has adopted a number of policies and procedures to
limit and monitor its environmental impact
Commentary
Environmental permitting and agency oversight in Peru remained
rigorous during the year.
In 2018, the Group performed highly in its ECO score (with a
score of 5.37 out of 6), which recognises the following aspects of
environmental management:
- compliance with discharge regulatory limits;
- minimising the number of environmental incidents;
- minimising the number of findings from regulatory audits; and
- efficient water consumption and minimising waste generation.
For further details, please refer to the environmental section
of the Sustainability report on page 48.
In addition, during the year, the Environmental team:
- completed the design of a management information system
tailored for use by the Group for roll-out in 2019;
- secured environmental permits to support the Group's
exploration programme and operational requirements; and
- made significant progress with the closure of historic mine
components and legacy exploration projects where environmental
conditions were restored and the process of revegetation
completed.
Community Relations
Change in risk profile vs 2017: UNCHANGED
Impact
Communities living in the areas surrounding the Group's
operations may oppose the activities carried out 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 loss of productions, increased costs
and decreased revenues, longer lead times, additional costs for
exploration and have an adverse impact on the Group's ability to
obtain the relevant permits.
Mitigation
- The Group has a dedicated team responsible for Community Relations
- Constructive engagement with local communities based on several years of positive relations
- Community Relations strategy focuses on promoting education,
health and nutrition, and sustainable development
- Policy to actively recruit workers from local communities
- Policy of hiring service providers from local communities
Commentary
Despite the regional elections in Peru in October, the overall
climate of social relations remained stable during the year.
A number of actions were taken during the year to maximise the
Group's ability to work with partner communities which
included:
- restructuring and strengthening of the Community Relations function;
- the launch of a technology partnership at all mines to
facilitate the monitoring of community objectives; and
- the establishment of social committees at each mining unit and
an external advisory committee to help assess and address risks
related to the Group's social licence.
Further details on the Group's activities to mitigate
sustainability risks can be found in the Sustainability report on
pages 42 to 49.
Appendix 2
Related-Party Balances and Transactions, and Compensation of key
management personnel of the Group (reproduced from page 142 of the
2018 Annual Report)
(a) Related-party accounts receivable and payable
The Group had the following related-party balances and
transactions during the years ended 31 December 2018 and 2017. 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
--------------------- --------------------
2018 2017 2018 2017
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related party
balances
Cementos Pacasmayo S.A.A.(1) 76 160 7 149
Total 76 160 7 149
----------------------------- ---------- --------- --------- ---------
(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 2018 and 2017, 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
--------------
2018 2017
US$000 US$000
------ ------
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A. (200) (200)
--------------------------------------------------------------------- ------ ------
Transactions between the Group and these companies are on an
arm's length basis.
(b) Compensation of key management personnel of the Group
As at 31 December
-------------------
Compensation of key management personnel 2018 2017
(including directors) US$000 US$000
--------- --------
Short-term employee benefits 6,619 6,086
Long Term Incentive Plan, Deferred
Bonus Plan and Restricted Share Plan 2,899 5,446
Total compensation paid to key management
personnel 9,518 11,532
------------------------------------------ --------- --------
This amount includes the remuneration paid to the Directors of
the parent company of the Group of US$4,601,000 (2017:
US$5,439,000).
Appendix 3
Statements of Directors' Responsibilities
A) Reproduced from page 60 of the 2018 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; 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.
On behalf of the Board
Raj Bhasin
Company Secretary
19 February 2019
B) Reproduced from page 90 of the 2018 Annual Report
The Directors are responsible for preparing the Annual Report
and the Group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that
law the Directors have prepared the financial statements in
accordance with International Financial Reporting Standards
('IFRS') as adopted by the EU.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the parent company
and of their profit or loss for that period. In preparing those
financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently
- make judgements and estimates that are reasonable and prudent;
- state whether applicable IFRS have been followed, subject to
any material departures disclosed and explained in the financial
statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities. Under
applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors' Report, Directors'
remuneration report and Corporate governance statement that comply
with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS, the news service of the
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END
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