TIDMHOC
RNS Number : 3409W
Hochschild Mining PLC
22 April 2021
_________________________________________________________________________________
22 April 2021
2020 Annual Financial Report and
2021 Annual General Meeting ("AGM")
Following the release of Hochschild Mining PLC's 2020 full year
results announcement on 18 February 2021 (the "Preliminary
Announcement"), the Company announces it has published its Annual
Report and Accounts for the year ended 31 December 2020 (the "2020
Annual Report").
In accordance with LR 9.6.1 R, the following documents have been
submitted to the National Storage Mechanism and
will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
-- 2020 Annual Report
-- 2021 AGM circular (incorporating the Notice of 2021 AGM)
-- Notice of Availability of the 2020 Annual Report and 2021 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 2020 Annual Report and the 2021 AGM
circular have been
published on the Company's website at www.hochschildmining.com
AGM ARRANGEMENTS
The 2021 AGM will be held at 17 Cavendish Square, London W1G 0PH
on Thursday 27(th) May 2021 at 2.30pm.
Current legislation and government guidance relating to Covid-19
prohibits public gatherings and restricts non-essential travel. In
light of the government's announced Covid roadmap, it appears
highly unlikely that shareholders will be legally able to
physically attend the AGM. The Board has therefore decided to hold
the AGM as a closed meeting with only the requisite Company
personnel attending to enable the formal business of the AGM to be
conducted. Shareholders should therefore not attend the AGM in
person and are strongly encouraged to submit their votes by
appointing the chairman of the meeting as their proxy.
Full details on how to submit proxy votes and the deadline to do
so can be found on page 6 of the Notice of AGM.
The Board regrets not being able to meet with shareholders at
the AGM and so, to facilitate direct engagement, a call has been
arranged to take place immediately after the AGM. Shareholders
wishing to participate in the call are requested to register their
attendance by email or telephone and to submit any questions they
may have in relation to the proposed items of business as detailed
in the Notice of AGM.
In the event circumstances change before the time of the AGM, we
will notify shareholders of any change to the arrangements through
announcements via the London Stock Exchange and by publishing
details on the Company website as early as is possible before the
date of the meeting.
The appendices to this announcement contain the information
required to be disclosed under DTR 6.3.5 which has been reproduced
from the 2020 Annual Report and should be read in conjunction with
the Preliminary Announcement. All page references and
cross-references in the appendices are to the 2020 Annual
Report.
________________________________________________________________________________
Enquiries:
Hochschild Mining PLC
Raj Bhasin +44 (0)7825 533495
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.
LEI: 549300JK10TVQ3CCJQ89
APPICES
Appendix 1
Risk Management
(reproduced from pages 64 to 71 of the 2020 Annual Report)
Successful risk management requires a full understanding of the
environment in which we operate and the commitment of resources in
implementing internal controls that mitigate key risks to within
levels acceptable to the Board.
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 Management Risk Committee ('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 as well as those considered
to be emerging risks. The matrix is updated at each Risk Committee
meeting, and the most significant current and emerging risks, as
well as actions to mitigate them, are reported to the Group's Audit
Committee, and if considered appropriate, also to the Board. In
light of their strategic importance, sustainability risks and their
mitigation plans are monitored by the Sustainability Committee.
The Covid-19 pandemic
Like every business across the world, Hochschild Mining has seen
numerous aspects of its operations impacted by the Covid pandemic.
Peru was initially one of the hardest hit countries in the world
and, as a result, a government-imposed lockdown was mandated
resulting in the suspension of Inmaculada and Pallancata for 11
weeks. Similar action in Argentina resulted in San Jose being
suspended for six weeks. In the second half of the year, a
localised outbreak at Inmaculada meant that the mine had to be
stopped for a further three weeks and activity at San Jose was
stopped for a similar period due to restrictions imposed on mining
operations across the region by the provincial authorities.
Tailored risk matrix
In response to the pandemic, the Risk Committee compiled a
tailored risk matrix which was considered and approved by the Board
which identified the aspects of the business that could be
potentially impacted by the outbreak.
This tailored risk matrix formed the basis of management's
mitigation and control plans - the Covid-19 Crisis Plan.
Impact of Covid-19 on principal risks
In light of the events during the year and the resumption of the
Group's operations in the second half of the year, the Directors
have concluded that the Covid pandemic has heightened the Group's
principal risks; in particular those related to Health & Safety
and Operational Performance. The discussion over the following
pages highlights how these risks have become more pronounced in
light of the pandemic and describes the mitigating effects of the
Group's Covid-19 Crisis Plan.
Outlook
At the time of approval of this Annual Report, Peru is
experiencing an increasing number of daily cases of Covid-19 but
the Government has nevertheless confirmed that mining operations
will continue given the importance of the industry to the economy.
In Argentina, like many parts of the world, the infection rate is
volatile and currently appears to be on a reducing trend. Central
government and the local authorities in the Santa Cruz province
(where the San Jose mine is located) acknowledge the significant
role of the mining sector in supporting the national and regional
economies.
The sign of another wave of infections has prompted the Peruvian
Government to announce restrictions in certain regions including
the Lima metropolitan area which may therefore result in disruption
to the transportation of personnel, supplies and finished
goods.
The table below summarises the framework of the Covid-19 risk
matrix:
Category of key Covid Brief description
19 risk
----------------------------- ----------------------------------------------------------
1. Employee Health and Implementing protocols to safeguard employee
Wellbeing wellbeing and to monitor the condition of personnel
affected by Covid 19
----------------------------- ----------------------------------------------------------
2. Talent and Workforce Addressing employees' concerns and impact on
morale resulting from operational disruption
----------------------------- ----------------------------------------------------------
3. Government and Social Impact of governmental regulations and repercussions
Responsibility on community relations. Support our communities
to prevent and treat Covid-19 cases
----------------------------- ----------------------------------------------------------
4. Legal Risk of litigation from suppliers and contractors
and delays in securing permits for operations/exploration
activities
----------------------------- ----------------------------------------------------------
5. Financial Management Impact on the Group's finances and financial
and Reporting reporting systems resulting in the taking of
cash-saving measures (the Cash Optimisation
Plan)
----------------------------- ----------------------------------------------------------
6. Technology and Information Increased reliance on IT support to facilitate
Security remote working, monitor Covid-19 cases and
preventative steps to mitigate the increased
exposure to cyber-attacks/loss of confidential
data
----------------------------- ----------------------------------------------------------
7. Supply Chain and Global Suspension of port operations and other forms
Trade of disruption to critical supplies. Restrictions
in ground transportation of personnel and goods
----------------------------- ----------------------------------------------------------
8. Sales and Customers Inability to fulfil sales due to disruption
to port operations or logistics. Temporary
closure of refining facilities
----------------------------- ----------------------------------------------------------
9. Risk Management Remote working could result in weakened internal
controls and possible fraud
----------------------------- ----------------------------------------------------------
1. FINANCIAL RISKS
a) Commodity Price
Change in risk profile vs 2019: LOWER
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,
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.
- Policy to maintain low levels of financial leverage to ensure
flexibility through price cycles.
- 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
Commentary
The Group's principal strategy to mitigate against commodity
price volatility is focused on conserving capital and optimising
cash flow through:
- Controlling operating and administrative costs;
- Optimising sustaining capital expenditure; and
- Maintaining low working capital.
However, as reported in the Financial Review, the Covid-19
pandemic necessitated higher borrowings in Argentina to finance
working capital during stoppages at the mine. The Group incurred
exceptional costs as a direct result of the pandemic but these were
offset by higher commodity prices, reduced administrative expenses,
deferred capital expenditure and lower exploration costs due to
regional lockdowns.
The Group has ended the year with a net cash position and is
therefore in a robust financial position.
In early February 2021 the Group hedged 4 million ounces of
silver for both 2021 and 2022 at an average price of c.$27 per
ounce to protect cashflows in Peru. This will ensure profitable
production from existing resources at Pallancata while brownfield
exploration efforts continue to add near-term resources
See the Market Review on pages 8 to 11 for further details on
how commodity prices performed in 2020.
b) Commercial Counterparty
Change in risk profile vs 2019: HIGHER
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 access funds or to
receive services which could adversely impact the Group's
profitability.
Mitigation
- Active assessment of customers and business counterparties.
- 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
During the year, the Group undertook the following:
- Annual counterparty analysis: The annual review of existing
customers incorporated analysis of corporate governance, balance
sheet strength and other aspects of credit quality. As a result of
the review, a number of customer relationships were terminated and
risk mitigation was achieved through the requirement to make
advance payments, delaying the passing of title of sold goods until
full payment and obtaining parent guarantees;
- Review of financial counterparties: The Group has implemented
policies to identifying suitable financial counterparties to
support the Group's treasury and insurance needs. On an ongoing
basis, the Group has adopted a number of practices such as the
placing of limits on cash balances invested with financial
institutions, monitoring of advanced payments from customers and
ensuring diversification.
Impact of Covid-19
During the year, the Group closely monitored the impact of the
Covid-19 pandemic on the creditworthiness of its financial
counterparties.
2. OPERATIONAL RISKS
a) Operational Performance
Change in risk profile vs 2019: HIGHER
Impact
Failure to meet production targets and manage the cost base
could adversely impact the Group's profitability. Failure in
handling and storing tailings could result in environmental
liabilities including fines, corrective measures and stoppage.
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 and pipelines in close
liaison with relevant departments ensuring that procurement,
construction and permitting are undertaken appropriately.
- A specific tailings management framework is in place,
including an independent third-party review of Tailings Storage
Facilities (TSFs).
Commentary
The Group met its targeted production range which was revised
downwards as a result of the Covid-19 pandemic.
In setting budgets for the year, the Group continued to focus on
maintaining controlled levels of costs, capital expenditure and
expenses. As reported in the Financial Review from page 36, the
all-in sustaining cost from operations was below the revised
guidance for the year, at $12.8 per silver equivalent ounce.
The Group has published information on its website regarding its
TSFs, including their construction method and risk profile. It also
continues to commission independent third-party reviews of all such
facilities and monitors on an ongoing basis their stability, with
particular emphasis on older TSFs such as the Ares facility which
is in the process of being closed.
Impact of Covid-19
Mitigation: Covid-19 Crisis Plan which, among other things,
established the Covid-19 Crisis Committee led by the Group's most
senior physician.
Commentary: The Covid-19 Crisis Committee oversaw the
implementation of a number of actions in Q1 2020 across operations
in Peru and Argentina including:
- The establishment of strict health protocols which, in Peru,
were more stringent than those mandated by law. These covered
employee re-allocation and testing and, in relation to the
operations, oversaw:
- the adaptation of physical sites and changes to operational
procedures to facilitate social distancing and to treat suspected
cases; and
- a reinforced presence of Health teams.
- Installation of increased IT infrastructure with enhanced
security.
Following a localised outbreak at Inmaculada in July 2020, the
Group suspended the mine and instigated actions including the
following:
- Engagement of a specialist contractor to undertake a
deep-clean of the mine site.
- Working shift patterns were changed to reduce risks associated
with the transportation of workers.
- Developed technology-based systems to (a) report, in real
time, suspected cases and to provide daily updates on treatment and
(b) ensure that working shift changes are undertaken in a
Covid-secure manner through planning hotel room allocations, lab
test results and transportation planning.
- Established a programme of testing.
Similar actions were taken following the detection of a number
of Covid cases at San Jose in November 2020.
Given the significant costs associated with the above, the Group
put in place a Cash Optimisation Plan which resulted in the
cancellation/ postponement of certain operational, administrative
and exploration expenditure and the deferral of the proposed 2019
final dividend.
b) Business Interruption
Change in risk profile vs 2019: UNCHANGED
Impact
Assets used in the Group's operations may cease to function or
the provision of supplies or of electricity may be disrupted (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.
- Inspections every 18 months (to co-incide with renewal) 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
In addition to maintaining insurance policies covering machinery
breakdown, mitigating actions during the year include the
following:
- A thorough review of critical supplies and inventory was
performed with data uploaded onto the Maintenance Module of SAP
HANA;
- Maintaining back-up equipment to ensure power supply in Peru
and Argentina; and
- A Crisis Response Plan ('CRP') was developed in 2019 with the
support of external consultants. Management received training on
the CRP in Q1 2020 on how to mount a co-ordinated response to
unforeseen disruption.
Impact of Covid-19
Although government-mandated restrictions within Peru resulted
in delays in the transportation of mine supplies, these were
overcome through raising inventory levels and agreeing expedited
deliveries with individual suppliers.
c) Information security and cybersecurity
Change in risk profile vs 2019: UNCHANGED
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.
- Primary information processing supported by SAP Hana which has best-in class security features.
Commentary
Security of the Group's network infrastructure is assured
through the following means:
- Industrial networks have been incorporated into the Group's IS
Management System ('ISMS') with associated security enhancements
implemented;
- ISMS received BSI certification; and
- the principal recommendations arising from an ethical hacking
assessment have been implemented.
Impact of Covid-19
To counter the heightened risks as a result of the widespread
use of remote working, the Group adopted use of VPN software,
enhanced security monitoring efforts and upgraded anti-spam
software for use with corporate email services. In addition,
internal communication campaigns were launched to ensure best
practices in remote working.
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 2019: HIGHER
Mitigation
- Implementing and maintaining an annual exploration drilling plan.
- Ongoing evaluation of acquisition and joint venture
opportunities to acquire additional ounces.
- Implementation of a comprehensive permitting strategy led by a Permitting Committee.
Commentary
For details on the results of the Group's 2020 brownfield
exploration programme, refer to page 33.
The Group has an internal Permitting Committee led by two Vice
Presidents to co-ordinate efforts with a view to streamlining the
permitting process for exploration and operational requirements.
Senior executives actively participate in industry initiatives to
simplify the permitting process.
Greenfield exploration is primarily conducted through the
negotiation of earn-in/joint venture opportunities. 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 34.
Impact of Covid-19
The Group's exploration programme was significantly disrupted
during the year due to government mandated lockdowns to contain the
spread of coronavirus and, in the initial stages, due to the
closure of governmental offices charged with permit
administration.
Social and economic conditions in Peru have worsened leading to
higher social demands and social conflicts involving mining
projects. This has led to delays in securing permits from the
communities to access new explorations areas which could impact the
exploration programme.
The Group has worked closely with relevant government
departments to expedite permit approvals of prioritised projects
and targets.
(d)(ii) Impact
Reserves stated in this Annual Report are estimates.
Change in risk profile vs 2019: 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 188 for further details
(e) Personnel: Recruitment and Retention
Change in risk profile vs 2019: UNCHANGED
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
The Group has undertaken a number of initiatives to improve the
retention of employees. These include the use of non-financial
benefits (e.g. flexible working arrangements for office-based
staff) and tailored personal development plans. In addition to the
five-year Leadership programme implemented at all operations, a new
Leadership model aligned with the Company's culture is being
deployed. The Group actively works to enhance the Group's employee
value proposition. This includes the launching of initiatives
related to causes that are valued by employees; providing them with
the opportunity to contribute to the relaunched purpose of the
Company which includes innovation, community relations and
environmental performance.
To assist retention of key personnel, the Company has a
Long-Term Incentive Plan.
Impact of Covid-19
The Group's training programme for supervisors and hourly
workers was suspended in Q1 2020 due to the pandemic.
Due to a shortage of adequately qualified medical staff to
support the operations, one-off bonuses were offered to facilitate
recruitment and retention.
The need to isolate employees identified as vulnerable and those
presenting symptoms resulted in challenges in ensuring that the
mines were adequately staffed to oversee operations.
In-house developed software was used to track various aspects
including test-results, and each patient's health condition in
order to facilitate the planning of logistics involved in managing
shifts, transportation and accommodation.
(f) Personnel: Labour Relations
Change in risk profile vs 2019: 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
The Group's Peruvian operation generated sufficient taxable
income to give rise to an entitlement to statutory profit sharing
for Peruvian mineworkers.
As part of the salary increases agreed with the Peruvian labour
unions, the Company has approved an additional bonus plan
incorporating safety and productivity goals.
In Argentina the Company maintains constructive relations with
the labour unions through ongoing and regular dialogue.
Impact of Covid-19
Mitigation : Covid-19 Crisis Plan.
Commentary : As previously discussed, one of the actions taken
to mitigate the impact of Covid-19 was to temporarily increase the
working shift cycles to reduce the frequency of transportation of
workers to and from the mine sites in Peru. This measure was
negotiated with the labour unions and will end in Q1 2021.
In Argentina, health protocols were implemented in Q4 2020 due
to the rising level of cases detected in the Santa Cruz province in
coordination with the union and local authorities.
3. MACRO-ECONOMIC RISKS
Political, Legal and Regulatory
Change in risk profile vs 2019: HIGHER
Impact
Changes in the political, 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
In the midst of dealing with the severe impact of the Covid-19
pandemic, Peru had a politically turbulent year with the
impeachment of President Vizcarra and the resignation of his
successor within a very short period. An interim President has been
appointed and will remain in office until the new Presidential term
starts in July 2021. This situation led to increased political risk
and reductions in public and private investment in an already
severe economic downturn caused by the effects of Covid-19.
The Congress elected in January 2020 adopted a very populist
agenda which has further impacted the economy and led at least one
international rating agency to lower Peru's credit rating.
Mining continues to be a very highly regulated industry where
multiple permits are required leading to increased delays and
costs. While President Vizcarra's government implemented some
deregulatory policies, the mining sector continues to suffer the
negative effects of permitting delays. Moreover, the prior
consultation process for indigenous communities continues to cause
substantial delays in the permitting process for exploration and
operational activities.
In terms of social conflicts, protests relating to the Las
Bambas and Antapaccay, among others, have increased social demands
and expectations, and have led to wider social unrest. Governmental
authorities remain sensitive to conflicts between communities and
mining companies and typically take a cautious approach by
prioritising dialogue between parties. In addition, with the
economic downturn caused by Covid-19, there has been a large inflow
of people who have migrated from the cities to their hometowns.
This has resulted in higher demands from mining companies and an
increased risk of conflict.
Congress is expected to continue to push ahead with a populist
anti-private sector agenda, which could lead to further tensions
between the Executive and Legislative branches, increased political
and economic risk and overall social conflict. Presidential
elections are underway and several candidates have expressed their
support for a new constitution, which would create further
uncertainty and delay public and private investment. Several
historically anti-mining candidates have already announced their
candidacy for the presidency with election in April 2021.
In Argentina, President Fernandez's administration has been very
cautious in supporting and promoting the mining industry. Covid-19
and certain populist measures have negatively impacted the overall
investment climate in Argentina including in the extractive
industry sector.
4. SUSTAINABILITY RISKS
(a) Health and Safety
Change in risk profile vs 2019: HIGHER
Impact
Group employees working in the mines may be exposed to severe
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 reported one fatality during 2020 which occurred at
the Pallancata mine. Further details are provided in the
Sustainability Report on page 53.
Management continued the implementation of 'Safety 2.0', an
action plan to reinforce a safety-first culture. The Plan comprises
seven key attributes covering training, effective communication,
recognition and aligning compensation with measurable safety
performance.
In addition, during the year:
- A significant reduction in the number of High Potential Events
('HPEs') was achieved with 4 HPEs in 2020 (2019: 14);
- Progress was made to certify 8 of the remaining 17 elements of
the Group's safety risk information management system to DNV GL
Level 7;
For further details on the above, please refer to the safety
section of the Sustainability Report on pages 53 to 55.
Impact of Covid-19
Mitigation: Covid-19 Crisis Plan
Commentary:
Operational safety
The Group adapted the delivery of Safety 2.0 due to the pandemic
by replacing face-to-face training with online sessions.
Focusing on employee welfare
The Group took decisive action to prioritise employee wellbeing
at the onset of the pandemic by:
- Transporting workers to hometowns for medical examination;
- Facilitating remote working in Peru, Argentina and London
before the imposition of formal lockdowns;
- Invoking strict health protocols which, among other
things:
- identified high-risk employees for re-allocation of duties on
a remote working basis; and
- designed a testing programme for all workers for active
Covid-19 infection prior to travelling to mine units. Those tested
remained in quarantine pending the results. Testing was also
carried out on the presentation of symptoms with immediate
transportation to the nearest medical facilities.
Following the localised outbreak at Inmaculada in H2 2020, the
Health team worked together with the operations and, among other
things, implemented:
- The use of rapid Covid tests in conjunction with molecular
tests (designed to detect active cases of Covid) for all workers
prior to transportation to the mine site; and
- Organised Health brigades to ensure compliance with the
Group's Covid-19 protocols
(b) Environmental
Change in risk profile vs 2019:
(a) In relation to those risks arising from the Group's
environmental performance/ infrastructure: UNCHANGED
(b) In relation to those risks arising from the increased
oversight of the environmental regulator: UNCHANGED
Impact
The Group may suffer from reputational risk and 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
manage its environmental footprint.
- The Group has developed a tool which allows it to measure and
manage environmental performance.
- The Group continues to adopt measures to minimise natural
resource use, with particular emphasis on water consumption in its
operations.
- A specific tailings management framework is in place for TSFs,
including independent third-party review
Commentary
With regards to the countries where the Group operates,
environmental permitting and agency oversight in Peru in particular
remained rigorous during the year.
In 2020, the Group performed highly in its ECO Score (with a
score of 5.74 out of 6 (2019:4.82)), which quantifies, in a single
score, 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;
- Efficient water consumption; and
- Minimising domestic waste generation and maximising recycling of industrial waste.
In addition, during the year, the Environmental team:
- launched the Environment Culture Transformation Plan with the
support of Dupont to further embed an environmentally conscious
culture across the Company;
- received recognition from the Peruvian Water Authority for the
Group's water reduction plan and associated programmes with local
communities; and
- continued with the progressive closure of certain discontinued
mining components including the revegetation of a waste rock
deposit at Arcata.
For further details on the above as well as the Group's approach
to climate change, please refer to the environmental section of the
Sustainability Report on pages 60 to 62.
Impact of Covid-19
As previously stated, the pandemic has resulted in delays in the
processing of permits and licences by governmental authorities.
Such permits include the requisite amended Environmental Impact
Assessments in order to extend the operating areas of existing
mines such as Inmaculada and Arcata.
(c) Community Relations
Change in risk profile vs 2019: HIGHER
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 in loss of production, 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.
- The Group has also engaged with local governments to support
public investment initiatives through technical assistance and
direct investment.
Commentary
In Southern Peru, there has been considerable tension between
mining companies and local communities due to ongoing conflicts
relating to mines in Apurimac, Cusco and Arequipa.
In recognition of its responsibilities to host communities, the
Group invested significant resources to understand the needs and
expectations of local communities and governments.
During the year:
- the Group spent or donated $5.5m to benefit local communities
and supported local community-run businesses;
- we continued to engage with communities although adjusting our
approach (see below for more details);
- the Community Relations team continued to support the
business, for example, by successfully securing surface rights and
concluding prior consultation processes to facilitate exploration
activities.
Impact of Covid-19
Mitigation: Covid-19 Crisis Plan
Commentary:
As a result of the Covid-19 pandemic, the Group's Community
Relations strategy refocused on health and education. Initiatives
included:
- Delivery of over 2,500 hygiene and food packs to employees and
local communities;
- Donations of medical equipment, oxygen and other medical
supplies to local hospitals and medical centres; and
- Donations of Covid-19 tests to local medical centres and
contributed to the donation of Covid-19 tests made by the Mining
Industry Association to the Government.
The Group launched the Keeping Connected project which provided
6,500 people across 13 communities with free access to the internet
- an invaluable resource during the pandemic.
Our Permanent Information Office near Inmaculada and Pallancata
was adapted during the period of Covid restrictions into a virtual
office providing information and responses to queries through
various channels including social media.
Further details can be found in the Sustainability Report from
page 63.
Appendix 2
Related-Party Balances and Transactions, and
Compensation of key management personnel of the Group
(reproduced from pages 167 and 168 of the 2020 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 2020 and 2019. The
related parties are companies owned or controlled by the main
shareholder of the Parent Company or associates.
Accounts receivable Accounts payable
as at 31 December as at 31 December
--------------------- --------------------
2020 2019 2020 2019
US$000 US$000 US$000 US$000
---------- --------- --------- ---------
Current related party
balances
Cementos Pacasmayo S.A.A.(1) 387 569 146 56
Tecsup(2) 1 - 120 41
Universidad UTEC(2) - - - 95
Total 388 569 266 192
----------------------------- ---------- --------- --------- ---------
(1) The account receivable relates to reimbursement of expenses
paid by the Group on behalf of Cementos Pacasmayo S.A.A., an entity
controlled by Eduardo Hochschild. The account payable relates to
the payment of rentals.
(2) Peruvian not for profit educational institutions controlled
by Eduardo Hochschild.
As at 31 December 2020 and 2019, all 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
--------------
2020 2019
US$000 US$000
------ ------
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A. (469) (200)
Expense recognised for the interests generated by the short-term loan from Banco de Credito
del Peru - (480)
Expense donations to Tecsup (505) -
Expense donations to Universidad UTEC (875) (240)
-------------------------------------------------------------------------------------------- ------ ------
The Group entered in 2019 into transactions with Banco de
Credito del Peru at arm's length such as short-term loan and
deposits which are undertaken in the normal course of a
banker-customer relationship. This bank is controlled by Dionisio
Romero who is a Non-Executive Director of the Group.
Transactions between the Group and these companies are on an
arm's length basis.
(b) Compensation of key management personnel of the Group
Year ended 31 December
------------------------
Compensation of key management personnel 2020 2019
(including directors) US$000 US$000
----------- -----------
Short-term employee benefits 7,330 7,911
Long Term Incentive Plans and Restricted
Share Plan 808 1,184
Total compensation paid to key management
personnel 8,138 9,095
------------------------------------------ ----------- -----------
This amount includes the remuneration paid to the Directors of
the Parent Company of the Group of US$3,821,000 (2019:
US$4,238,000).
Appendix 3
Statements of Directors' Responsibilities
A) Reproduced from page 79 of the 2020 Annual Report
The Directors confirm that to the best of their knowledge:
- the consolidated financial statements, prepared in accordance
with IFRSs in conformity with the Companies Act 2006 (and IFRSs
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union), 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 Annual Report, including the Strategic 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; and
- that they consider the Annual Report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position,
performance, business model and strategy.
B) Reproduced from page 120 of the 2020 Annual Report
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in accordance
with applicable United Kingdom 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 elected to prepare the Group and Parent
Company financial statements in accordance with International
Financial Reporting Standards ('IFRS') in conformity with the
Companies Act 2006. 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.
Under the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules, group financial statements are required to be
prepared in accordance with IFRSs adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
In preparing those financial statements, the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
- make judgements and accounting estimates that are reasonable
and prudent;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance;
- in respect of the Group financial statements, state whether
IFRS in conformity with the Companies Act 2006 (and IFRSs adopted
pursuant to Regulation(EC) No 1606/2002 as it applies in the
European Union) have been followed, subject to any material
departures disclosed and explained in the financial statements;
- in respect of the Parent Company financial statements, state
whether IFRSs in conformity with the Companies Act 2006, 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 appropriate to presume that the Parent Company and/ or
the Group will not continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's and Group's transactions and disclose with reasonable
accuracy at any time the financial position of the Parent Company
and the Group and enable them to ensure that the Parent Company and
the Group financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Parent
Company and the Group and hence for taking reasonable steps for the
prevention and detection of 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.
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