Hochschild Mining PLC
Annual Report & Accounts 2021
Creating
sustainable value
Strategic Report
At a glance
2
Creating value
4
Market review
10
Chairman’s statement
14
Chief Executive Officer’s review
18
Business model
22
Our strategy
24
Key Performance Indicators
26
Operating review
28
Financial review
36
Stakeholder engagement
45
Sustainability report
50
Task Force on Climate-related
Financial Disclosures (TCFD)
64
Risk management & viability
68
Governance
Board of Directors
78
Senior management
80
Directors’ Report
81
Corporate Governance Report
83
Supplementary information
100
Directors’ Remuneration Report
104
Statement of Directors’
responsibilities
124
Financial Statements
Independent Auditor’s Report
125
Consolidated income statement
133
Consolidated statement
of comprehensive income
133
Consolidated statement of
financial position
134
Consolidated statement of cash flows
135
Consolidated statement
of changes in equity
136
Notes to the consolidated
financial statements
137
Parent company statement
of financial position
184
Parent company statement of
cash flows
185
Parent company statement
of changes in equity
186
Notes to the parent company
financial statements
187
Further Information
Profit by operation
197
Reserves and resources
198
Change in attributable
reserves and resources
200
Shareholder information
201
Creating sustainable
value means more than
extracting ounces from
the ground.
Read more about creating value
PAGES 4-9
It’s about creating value for all of our
stakeholders and core to all of our work
is building and maintaining strong
relationships with our communities
throughout the mining life cycle.
We have always been committed to
collaborating to generate economic
benefits and improve community wellbeing,
and in doing so we hope to enhance our
mutual understanding of their long-term
interests and concerns.
Strategic Report
Governance
Financial Statements
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
5.29
ECO SCORE
2020: 5.74
1.26
LTIFR
2020: 1.38
$383
m
ADJUSTED EBITDA
2020: $271m
$0.14
ADJUSTED BASIC EPS
2020: $0.06
2.3
¢/share
FINAL DIVIDEND
2020: 2.33
$86
m
NET CASH/(DEBT)
2020: ($22m)
$14.4
/oz Ag Eq
AISC
2020: $12.8/oz Ag Eq
221,419
oz
ATTRIB. GOLD PRODUCTION
2020: 175,241oz
12.2
m oz
ATTRIB. SILVER PRODUCTION
2020: 9.8m oz
AT A GLANCE
Who we are and where we operate
We are a leading underground precious metals company,
focusing on the exploration, mining, processing and sale
of gold and silver in the Americas.
2021 Highlights
Mining operations
Hochschild operates three underground epithermal
deposits, two of which are located in the south west
of Peru in our ‘Southern Peru cluster’ and one in the
southern Argentinian province of Santa Cruz.
Operation
Gold
production
Silver
production
All-in
sustaining
costs
Inmaculada
Peru
165,730 oz
6.2m oz
$971/oz Au Eq
Pallancata
Peru
13,045 oz
4.4m oz
$22.8/oz Ag Eq
San Jose
Argentina
83,615 oz
12.4m oz
$16.7/oz Ag Eq
Greenfield prospects
Hochschild has a portfolio of greenfield prospects
across the Americas
Asset
Country
Condor
Peru
Pampamali
Corvinon
Casma
Alto Ruri
Cueva Blanca
Snip
Canada
Cooke Mountain
US
SW Pipe
Currant
Valve House
Timber Butte
Lehman Butte
Speed Goat
Red Rock
Project pipeline
Hochschild currently has a number of projects
in Peru, Canada and Chile. These include an
Advanced Project, former operations that still
have strong geological potential through to our
early-stage opportunities and regional targets
close to our current mines.
Operation
Category
Posse
1
Brazil
Advanced Projects
Ares
Peru
Former operations
Arcata
Peru
Selene
Peru
Azuca
Peru
Early-stage
Crespo
Peru
Volcan
Chile
1 Subject to completion of acquisition of Amarillo Gold due for the
end of Q1 2022.
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Hochschild Mining PLC
Annual Report & Accounts 2021
7
8
6
5
9
4
3
12
13
11
2
1
10
Where we operate
Operational sites
Pallancata
(Peru)
Inmaculada
(Peru)
San Jose
(Argentina)
Advanced Project
Posse
(Brazil)
Exploration sites
Condor (Peru)
Snip (Canada)
Cooke Mountain
(US)
SW Pipe (US)
Others not on map
Currant (US)
Valve House (US)
Timber Butte (US)
Lehman Butte (US)
Speed Goat (US)
Red Rock (US)
Exploration projects
Arcata (Peru)
Ares (Peru)
Azuca (Peru)
Crespo (Peru)
Volcan (Chile)
READ MORE
Operating review
page 28
Strategic Report
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Hochschild Mining PLC
Annual Report & Accounts 2021
Our licence to operate is predicated on
seeing through our social commitments, both
to local communities and the environment
in which we operate.
Creating value for communities
and the environment
READ MORE
ECO Score: A Hochschild innovation,
A key foundation
of our corporate
purpose is a
collective sense
of responsibility.”
Graham Birch,
Chair of Sustainability
Committee
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Hochschild Mining PLC
Annual Report & Accounts 2021
Social commitments
Hochschild has a long-standing history
of collaborating with and supporting
our local communities. Our goal is to
contribute to building an inclusive and
resilient society. To do so, we established
a social engagement strategy that sets
out the five pillars for stakeholder
engagement and our community
investment approach. We also support
our communities directly by tackling
some of the key environmental
challenges, from water shortages and
loss of biodiversity to climate change.
At Hochschild, we are committed to
operate and produce metals with the
smallest possible environmental footprint,
whether through reducing water usage,
taking steps to mitigate greenhouse gas
emissions and adapt to climate change,
or improving our waste and tailings
management. In 2022 and beyond, we will
continue to improve our environmental
performance, measured by our award-
winning ECO Score.
Social engagement strategy
The Hochschild approach to working
with our communities
We strive to promote close long-term
collaboration with local communities,
with full respect for local customs and
social dynamics. Our actions are guided
by our Sustainability, Human Rights and
Community Relations policies which
provide the framework for our engagement
with the communities and other local
stakeholders. Our social engagement
strategy is based on five pillars:
– stakeholder engagement strategy:
– local employment;
– the procurement of local goods
and services;
– community investment in social
programmes; and
– supporting local governments with
capacity building and local investment
projects.
Through the implementation of this
strategy, our intention is to build trust and
a mutually beneficial relationship with the
49 communities in our direct area of
influence – approximately 3,000 families.
$5.4
m
INVESTED IN LOCAL COMMUNITIES
$16.8
m
VALUE OF GOODS AND SERVICES
PROCURED FROM LOCAL PROVIDERS
53
%
REDUCTION IN POTABLE WATER
CONSUMPTION SINCE 2015
Highlights
Strategic Report
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Hochschild Mining PLC
Annual Report & Accounts 2021
At Hochschild we work to embed a
Company-wide safety-first culture as
our people are our most valuable assets.
Our safety transformation programme
continues to evolve through our updated
Safety 2.0 action plan. To meet the
changing needs of our employees
during the Covid-19 pandemic, we
have sharpened our focus on
employee wellbeing, health and safety
by implementing innovative initiatives
and protocols. In addition, our diversity
and inclusion programme, DiverSidad,
enables us to maximise our reach for
talent and provide equal employment
opportunities for all.
Safety performance
We recognise that a more engaged
workforce is one where people actively
look out for their own and others’ safety,
helping us to manage our safety and
health risks. To further embed a
Company-wide safety-first culture,
in 2020 we reviewed the success of
our Safety Culture Transformation Plan,
an initiative first launched in 2017 and
championed across the Company.
To ensure continuous improvement, we
rolled out an updated action plan known
as ‘Safety 2.0’, made up of seven key
attributes covering training, effective
communication, recognition and linking
compensation with safety indicators.
READ MORE
Sustainability report – page 59
Safety HOC app
The ‘Safety HOC app’ was designed
in-house in 2017 and has become the
backbone of Hochschild’s collection and
management of safety data, integrating
a suite of modules used by leaders and
employees to effectively manage safety.
The app played an important role during
the Covid-19 pandemic, when it became
essential to promote the use of
technology to reduce contact.
Hochschild’s success relies on its people. We seek to
promote our Corporate Purpose and provide a positive
and stimulating working environment, where the
development of employees is encouraged.
Creating value
for our employees
9%
REDUCTION IN LOST TIME INJURY FREQUENCY
RATE COMPARED WITH 2020
RANKED
2
nd
OUT OF 21 MINING COMPANIES IN PERU FOR
EMPLOYEE-FRIENDLY POLICIES*
27
CONVERSATION SESSIONS HELD TO SUPPORT
FAMILIES THROUGHOUT THE PANDEMIC
* 2021 Merco Talento Corporate Reputation Business
Monitor rankings
Highlights
We work to embed
a Company-wide
safety-first culture
as our people are
our most valuable
assets”
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Hochschild Mining PLC
Annual Report & Accounts 2021
Strategic Report
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Hochschild Mining PLC
Annual Report & Accounts 2021
Hochschild has made strong strategic progress in 2021
with the execution of three main business development
projects. We expect all of them to deliver significant
value to shareholders in the near future.
2
1
Exploration site
1
Snip (Canada)
Exploration project
2
Aclara (Chile)
3
Amarillo Gold
(Brazil)
Creating value
for shareholders
3
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Hochschild Mining PLC
Annual Report & Accounts 2021
Aclara demerger
In October, we were pleased to announce
the demerger of 80% of our rare earths
business, Aclara Resources Inc (formerly
known as Biolantanidos) as well as the
listing on the Toronto Stock Exchange and
a concurrent initial public offering which
raised approximately $98 million.
Aclara is a development-stage rare
earth mineral resources company with
a strategic land package of mineral
concessions in Chile. It is developing a
project called the Penco Module which
contains ionic clays that are rich in heavy
rare earth elements essential for the
current electric revolution.
Although the project was acquired in
2019, we do believe that the demerger
was the logical next step forward and
that, as two standalone businesses, both
Hochschild and Aclara now have the
greatest potential for delivering long-term
value creation with their own strategic
focus on their respective products, their
own dedicated management teams,
separated access to capital and an
independent valuation.
Furthermore, we have also maintained
a strategic relationship that will allow
Aclara to benefit from our track record
on project execution and ESG. We believe
that current and future Hochschild
shareholders will also benefit from
retaining the 20% stake in a business
that offers an exciting proposition in a
high growth market.
Amarillo purchase
In November, we announced the
acquisition of Amarillo Gold and its
flagship Posse gold project in Brazil for
a net acquisition cost of approximately
C$135 million. The transaction is
expected to close in Q1 2022.
Posse is an open pit gold project
located in Mara Rosa in the mining
friendly jurisdiction of Goiás State.
This brownfield project benefits from
existing infrastructure and attractive
costs with construction of certain other
infrastructure already underway and the
project having received the ‘License to
Install’ from state regulators in February
2021 and approval for the power line in
October 2021.
The acquisition aligns with our core
strengths and long-term strategy of
acquiring and optimising development
stage projects in the Americas. It
enhances our project pipeline and is the
result of a long-term Company review
process of a wide range of growth
opportunities. Posse is an attractive
low-cost project with relatively near-term
production and strong exploration upside
potential. We believe we are ideally placed
to take Posse to the next stage and
generate strong sustainable value for the
Company. In addition, the project has
benefited from a complementary ESG-led
approach with strong local community
and government support and we aim to
continue that focus throughout the
mine cycle.
epuda eperovid.
20
%
HOCHSCHILD’S STAKE IN ACLARA
AFTER THE DEMERGER
~100
Koz AU
POSSE’S AVERAGE ANNUAL PRODUCTION
OVER THE FIRST 4 YEARS
$9
m
SNIP BUDGET FOR 2022
Snip option
In October 2021, we decided to exercise
our option to start earning-in to a 60%
interest in the Snip gold project located in
the Golden Triangle in British Columbia,
Canada. The project is currently held by
Skeena Resources Limited. This delivers
us a high-grade gold project with strong
upside potential in a stable jurisdiction.
Snip consists of approximately 4,546
hectares and is situated in Tahltan Territory.
The former mine produced approximately
one million ounces of gold from 1991 until
1999 at an average gold grade of 27.5
grammes per tonne. Since then, the project
has been improved with the recent
construction of nearby infrastructure and
substantially higher gold prices.
Underground drilling recommenced in late
2017 to explore for additional mineralised
shoots in a large shear structure and a
maiden mineral resource was announced
in July 2020 with a technical report issued
in September 2020.
Subsequent drill campaigns successfully
upgraded areas of existing Inferred
resources from the Mineral Resource
Estimate to the Measured and Indicated
categories as well as expanding the
resource and delineating additional
mineralisation in previously unexplored
areas of the near-mine environment.
In 2022, we are planning on continuing
these drill campaigns and initiating
selected studies and testwork. Under
the terms of the option agreement we will
invest C$100 million over a three-year
period with a minimum of C$7.5 million in
exploration or development expenditures
invested in the project each year. We are
able to end the option at any time.
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Hochschild Mining PLC
Annual Report & Accounts 2021
%
%
Demand
Jewellery
50.7%
Electronics
8.7%
Official Sector
Purchases
8.4%
Private Investment
Demand
29.6%
Dental and Other
2.7%
Supply
Mine Production
71.1%
Secondary Supply
23.8%
Net Exports from
Transitional
Economies
5.1%
Source: CPM Group LLC
MARKET REVIEW
Working in changing markets
Hochschild is subject to external market dynamics associated
with the precious metals industry that inform decision-making and
influence our business performance. In addition, our operations,
located in Peru and Argentina, are exposed to changing country-
specific factors that can impact our business.
Gold market summary
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Hochschild Mining PLC
Annual Report & Accounts 2021
75
80
85
90
95
100
105
110
Gold
Silver
Jan 21
Feb 21
Mar 21
Apr 21
May 21
Jun 21
Jul 21
Aug 21
Sep 21
Oct 21
Nov 21
Dec 21
Gold and silver prices in 2021
Daily settlement of nearby active Comex
futures, indexed to 4 January 2021
Country production
Latin American production rankings
2021
2020
Gold
Silver
Gold
Silver
Peru
7
2
10
2
Argentina
15
11
16
11
Mexico
8
1
8
1
Chile
20
5
21
5
Possible drivers for gold in 2022
Further Covid variants
could continue
to affect world economies. Covid could
continue to push and pull at investor
sentiment towards gold in addition to
all other markets.
Inflation
is increasingly becoming a
concern to global economies and is at
levels not seen since the 1970s. There
are consequent rising pressures on
monetary officials to react and
concerns that loose fiscal policies are
supporting inflation. Gold investment
demand and prices should be
expected to benefit from concerns
about inflation, government spending,
and related economic issues.
Central banks
are expected to
continue to be net buyers of gold in
2022, potentially adding another 11.5
million ounces to their coffers this year.
Most central banks continue to look to
diversify their foreign exchange
holdings, notably seeking to reduce
holdings of the US dollar. However,
the mechanics of global finance have
kept the US dollar as the main form
of foreign exchange holdings at
relatively stable, high proportions
of total reserves.
Investors
are expected to continue to
purchase historically high volumes of
gold in 2022 with 38.2 million ounces
being the initial projection for 2022.
Mine production is expected to rise to
94.4 million ounces this year,
secondary supply to 32.2 million
ounces, and transitional economy
sales to 6.6 million ounces, all totalling
133.1 million ounces in 2022. Total
supply thus would be up from 131.2
million ounces in 2020. Fabrication
demand is expected to rise at a
stronger pace than supplies. Industrial
demand could hold steady at 15.0
million ounces while jewellery demand
could rise to 68.4 million ounces, up
from 66.5 million ounces in 2020.
Following a stellar year in 2020, when
gold gained 24.4% and rose to record
levels, in 2021 gold prices ended the year
slightly lower year-over-year, down 3.5%.
In 2021, prices moved between $1,673.30
and $1,962.50, a $289.20 band, averaging
$1,799.32 for the year. Monetary policy
around the world remains extremely
accommodative with fiscal policy also
remaining loose although it has
tightened in many countries since the
depths of the 2020 economic lockdown
as upward inflationary pressures
continue their trajectory.
Investors are estimated to have
purchased 38.8 million ounces of gold
in 2021, down from 43.6 million ounces
in 2020. While purchases declined, they
remained near decade-high levels and
were more than double the volumes of net
investor demand for physical gold in 2018
and 2019. Investors remained interested
in gold last year and this is expected to
continue in 2022.
The official sector is estimated to have
purchased around 11 million ounces of
gold on a net basis in 2021. This was up
from 8.0 million ounces of net purchases
by central banks and monetary authorities
in 2020, but not as much as the 17.3 million
ounces that was bought in 2019. The major
buyers of gold last year were Thailand,
India, Hungary, and Brazil, each having
purchased between 2 and 3 million
ounces. Singapore, Uzbekistan,
Kazakhstan, and Australia each bought
between 500,000 ounces and 1 million
ounces of gold. There was some selling by
the Philippines, Turkey and a few other
countries, but combined net disposals
totalled around 2.0 million ounces.
Total gold supply was 131.2 million ounces
last year, up from 128.9 million ounces in
2020. Mine production nearly recovered
to pre-pandemic levels last year, following
the relatively steep drop in output in 2020.
Many mining operations operated
normally after the tumultuous 2020 and
this aided the recovery of output in most
gold producing countries. Market mine
production was 93.3 million ounces in
2021, up 3.7% from 90.0 million ounces
in 2020.
Secondary recovery remained stronger at
31.2 million ounces, down just 0.6% from
31.4 million ounces in 2020. Historically
high prices continued to pull gold into the
recovery cycle, especially for those
populations that traditionally hold gold
jewellery as a form of savings and who
were adversely affected economically
by ongoing Covid-related problems
or restrictions.
On the demand side, offtake for gold in
industrial end uses was 15.0 million
ounces last year, up from 14.8 million
ounces in 2020. Demand for gold in
jewellery was 66.5 million ounces in 2021,
surging 6.4% from 62.5 million ounces in
2020. The sharp increase occurred in
developing countries, as many
populations use gold as a form of savings
and hedge against uncertain times.
Strategic Report
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Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
%
%
Silver market summary
Demand
Other Industrial
Uses
50.4%
Jewellery and
Silverware
23.6%
Coin Fabrication
11.9%
Investment Demand
(excl coins)
10.5%
Photography
4.4%
Supply
Mine Production
77.3%
Secondary Supply
22.7%
Source: CPM Group LLC
MARKET REVIEW
CONTINUED
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Hochschild Mining PLC
Annual Report & Accounts 2021
Possible drivers for silver in 2022
The latest Covid-19 variant,
Omicron,
is widespread and causing tighter
restrictions in various countries as of
January 2022. It is unclear what 2022
will bring in terms of any new Covid
variants, but the virus now appears
likely to remain, affecting all aspects of
life, including the silver market.
Tightening monetary policy
now is
expected this year. Rising inflation is
causing sharply increased consumer
and financial market dissatisfaction in
many countries around the world with
policy leaders being pressured to take
steps to curb inflation while not
derailing economic recovery.
Total supply of silver
is expected to be
967.1 million ounces this year, down
from 1.0 billion ounces in 2021. Mine
production could total 754.6 million
ounces, down from 789.3 million
ounces in 2021. Secondary recovery
meanwhile is expected to total 212.5
million ounces, down slightly from
215.5 million ounces. Silver fabrication
demand is expected to reach 903.7
million ounces, up from 885.1 million
ounces last year. Demand is expected
to rise across nearly all sectors except
for photography.
Silver investment demand
is expected
to soften during 2022. On a net basis
investors are expected to add around
63 million ounces of silver to their
holdings during the year. This would
be roughly half the amount added to
investor holdings during 2021.
Silver prices moved between $21.40
and $30.35 in 2021, ending the year at
$23.35, down 11.6% from the close of
$26.41 in 2020.
Silver prices averaged $25.17 on an
annual basis in 2021, up 21.7% from an
annual average price of $20.68 in 2020.
This recovery in the average price was
due to a nearly 50% increase in
investment demand.
Investment demand rose as world
economies continued to battle the Covid
pandemic with the metal benefiting from
increased fabricator and investor interest.
Investment demand was 119.7 million
ounces in 2021, up sharply from 80.1
million ounces in 2020, and a little more
than triple the 39.8 million ounces in 2019.
With Covid vaccination programmes
throughout most countries, the number
and intensity of lockdowns around the
globe in 2021 reduced and in turn silver
mine production and refining facilities
were able to operate with reduced
disruption, albeit still facing other
challenges, notably supply chain and
other logistical issues. Total supply for
silver was 1.0 billion ounces in 2021, up
5.2% from 954.7 million ounces in 2020.
Mine production rose to 789.3 million
ounces last year, up 8.2% from 2020.
Secondary supply was 215.5 million
ounces in 2021, down from 225.0 million
ounces in 2020.
Fabrication demand for silver was 885.1
million ounces in 2021, up from 874.6
million ounces in 2020. Demand for
jewellery and silver, electronics and
batteries, and solar panels rose while
silver use in photography and other
uses fell.
Monetary and fiscal policy remain loose in
most parts of the world, while inflation has
been rising in recent months. Supply
chains remain constrained as Covid
policies and infections continue to hamper
logistics. Interest remains in both gold and
silver as a financial asset. Social and
political friction in many countries of the
world have impacted governments’
abilities to deal with the existing economic,
social, and political issues. This confusion
has been present in the gold and silver
investment markets as well, adding to
investor confusion to an extent.
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Hochschild Mining PLC
Annual Report & Accounts 2021
A strong strategic
position
Eduardo Hochschild
Chairman
I
am very proud of the resilience and dedication
demonstrated by all colleagues in successfully
delivering on our annual targets and ensuring our
commitments to the environment, our stakeholders
and communities remain the utmost priority.
Hochschild is in a strong position strategically
and in 2021 we made a number of changes to our
portfolio that lay the foundations for sustainable
low-cost growth in the near future.
However, I would like to first turn to an event that
severely affected us in June 2021. A tragic traffic
accident took place in southern Peru involving our
transport contractor which claimed the lives of 26
people who worked at our Pallancata operation.
The entire organisation has been deeply upset by
this unprecedented incident and the management
team ensured everything possible was done to
investigate its circumstances and provide a wide
range of support to everyone affected. We have
worked with the local authorities and the contractor
with their respective accident investigations and
have provided whatever support we can with the
aim of avoiding such incidents in the future.
Safety remains our highest priority and in 2021, we
continued with the implementation of the second
stage of our safety plan, known as Safety 2.0. The
plan combines technical and people-focused
approaches and, during the year, we saw our risk
management systems externally reviewed as well as
the development of an all-encompassing safety
indicator – the ‘Seguscore’. This will help us to further
embed a safety-first culture across our organisation.
As reported in the interim results, we regrettably
2021 was a very demanding year for the Company
due to the continued effects of Covid-19 and challenges
resulting from operating in jurisdictions with increased
political, regulatory and social risk.
CHAIRMAN’S STATEMENT
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Hochschild Mining PLC
Annual Report & Accounts 2021
2.3
c/share
FINAL DIVIDEND
suffered a fatal accident at San Jose towards
the end of the first quarter, and in November a
contractor was fatally injured at the Aclara rare
earths project. Further details on these accidents
will be provided in our 2021 Sustainability Report.
I am very proud to report a strong environmental
performance in 2021. For the first time ever, four of
our assets achieved the highest rating under our
internally designed ECO Score. This innovative
indicator distils, in one single number, numerous
facets of environmental management. Furthermore,
in acknowledgement of our responsibilities to our
stakeholders, we sought in 2021 to build on our
environmental reporting practices. Our first
standalone Sustainability Report received external
recognition and we look to build on this success
with numerous initiatives this year including, most
notably, our ambition to achieve carbon neutrality,
which is well advanced and due to be published
later this quarter.
As Covid-19 eased in 2021, our community relations
team was able to resume its focus on our key local
initiatives. In education, we donated almost 300
tablets to elementary schoolchildren close to our
Inmaculada mine to enhance learning. We were
also able to continue implementing our strategy
of establishing digital centres to service the
communities by establishing three more in the
Ayacucho region, in southern Peru. With regards to
health and nutrition, we co-ordinated home visits to
promote early child development and facilitated a
Covid-19 vaccination programme for the elderly.
We also launched a project in a town close to
Inmaculada, which seeks to enhance access to water
by installing equipment to collect and store water for
domestic use. Finally, among the many programmes
promoting economic development, we provided
technical support to community-led agricultural
activities as part of our ‘Impulso Productivo’
programme. You can find further details on our
work in the Sustainability Report.
In November, the Company faced an unprecedented
situation when the Peruvian Head of Cabinet
published minutes of a meeting held in Ayacucho
which arbitrarily provided for the closure and
withdrawal of certain mining projects, including
the Company’s Pallancata and Inmaculada mines.
It was further announced that approvals would no
longer be granted to authorise additional mining,
exploration, or expansion activities in relation to
these mines. However, the Government subsequently
affirmed its commitment to upholding the rule of law
and acknowledged the continued rights of mining
companies to request extensions and modifications
of existing permits for mining and exploration
activities. Whilst we never stopped operating, this
crisis exemplifies the country’s current heightened
political, regulatory and social risk.
2021 was a crucial year for business development.
In the second half, we executed three different
transactions that have reshaped our Company into
one that is focused on delivering mid-term growth
across a wider range of jurisdictions in the Americas.
In September, we exercised our option to start
I am very proud to report a strong
environmental performance in 2021.
For the first time ever, four of our assets
achieved the highest rating under our
internally designed ECO Score.”
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Hochschild Mining PLC
Annual Report & Accounts 2021
earning-in a 60% interest in Skeena Resources’
Snip gold project in British Columbia. In November,
we announced the acquisition of Amarillo Gold with
its Posse gold project in Brazil, which is due to
commence production in 2024. Both projects
complement our current portfolio and, with Canada
and Brazil, we are entering two jurisdictions that have
established and stable mining histories. Finally, we
were pleased to complete the demerger and listing
on the Toronto Stock Exchange of our Chilean rare
earth business, renamed Aclara Resources. With
almost $100 million of capital raised concurrently,
Aclara is in a strong position to advance the Penco
project and our confidence is confirmed by our
decision to retain a 20% stake.
Turning to our operations, we were once again able
to deliver on our annual production and cost targets
despite our stringent Covid protocols remaining in
place throughout the year. In addition, precious
metal prices remained strong, and with our business
continuing to generate robust free cash flow and
the additional liquidity provided by our increased
loan, we are in a comfortable position to finance
the construction of the Posse project over the next
two years and advance Snip through the
development phase.
Our brownfield programme also made excellent
progress this year. The team made significant
discoveries at Inmaculada in the north west of the
deposit which they expect will add further high grade
resources to the mine plan. At San Jose, we have also
added resources near to the current mine whilst at
Pallancata, we have been able to optimise the
long-term mine plan utilising the existing resource
base and have extended the life of the operation for
a further two years whilst we look for additional
near-mine and regional resource opportunities.
Sanjay Sarma stepped down from the Hochschild
Board to join the board of Aclara Resources on
completion of the demerger. I would like to thank
Sanjay for the valuable and unique perspective he
has brought to the Hochschild Board discussions.
I am delighted that Tracey Kerr joined the Hochschild
Board on 10 December. She brings vast experience
in areas of crucial importance to the Company
including geology, safety and sustainability.
The Board and I look forward to working
closely with Tracey.
Outlook
2021 saw precious metal prices in a period of
consolidation. Gold fell slightly by 3.5% in the year
and silver was much more volatile, down 11.5%
although this followed a 47% rise in 2020. However,
the ongoing price strength allied to reliable
operational performance and good cost control has
resulted in high levels of profitability and continued
good cash flow. We have maintained a strong capital
base and have managed the Company’s balance
sheet and liquidity to ensure long-term financial
stability. The Board is therefore pleased to
recommend a final dividend of 2.3 cents per share
($12.0 million).
Our Company is managed with a conviction that
acting responsibly and with integrity is the only way
to build and manage a business over the long term.
We have a clear sense of our social purpose and a
strong belief in our duty to respect the dignity of
everyone who works for us. In addition, we have
always been committed to operating under the
highest standards of corporate citizenship,
environmental and industry best practice whilst
acting as a good and supportive neighbour to the
communities around us and recognising our wider
obligations to society as a whole. The Board and I
would like to thank all of our stakeholders for their
contributions and continued support during such
a momentous period.
Eduardo Hochschild
Chairman
22 February 2022
CHAIRMAN’S STATEMENT
CONTINUED
Our Company is managed with a conviction
that acting responsibly and with integrity
is the only way to build and manage a
business over the long term.”
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Hochschild Mining PLC
Annual Report & Accounts 2021
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Hochschild Mining PLC
Annual Report & Accounts 2021
CHIEF EXECUTIVE OFFICER’S REVIEW
I
continue to be very proud of all our people and their
response to numerous challenges again posed by
the pandemic and also by a volatile political,
economic and social environment in Peru.
Such solid operational delivery provides the
foundation upon which, in the second half of the
year, we announced the acquisition of Amarillo
Gold Corp. in Brazil, exercised our option to start
earning-in a 60% interest in the Snip gold project
in Canada and demerged our rare earths business,
Aclara Resources, and listed it on the Toronto Stock
Exchange. We believe that these strategic steps will
underpin Hochschild’s ability to grow shareholder
value over the next decade.
ESG
The tragic traffic accident of our transport
contractor which the Chairman has discussed in his
statement was a shock for everyone in our Company.
However, our commitment to a broad suite of ESG
initiatives remains absolute as part of our focus on
safety and responsibility towards the environment
and our stakeholders. Given the partially reduced
dominance of Covid-19 in 2021, we were able to
resume our focus on the key pillars of our work with
the local communities with numerous and wide-
ranging initiatives in education, digital strategy,
health and nutrition, access to safe sources of water,
local employment and procurement of local goods
and services. On the environmental front, we again
achieved an excellent ECO Score, enhanced our
reporting by participating in the Carbon Disclosure
Project (‘CDP’) and early-adopting the Task Force
on Climate-related Financial Disclosures (‘TCFD’)
reporting requirements, and we are currently working
hard to complete our first corporate strategy to
become net zero carbon. During the year, we also
continued to invest in our safety risk-management
system which will support and complement the
various programmes in our safety plan.
Our commitment to our suite of
ESG initiatives remains absolute
Ignacio Bustamante
Chief Executive Officer
2021 has been an important year for our Company. We have taken
decisive strategic action to shape Hochschild’s future and delivered
strong operational and financial results whilst continuing to operate
responsibly and focus on the implementation of our ESG strategy.
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Hochschild Mining PLC
Annual Report & Accounts 2021
Developing our presence in
Brazil with our purchase of
Amarillo Gold
The acquisition enhances our
project pipeline and is the result
of a long-term Company review
process of a wide range of
growth opportunities. It is our
first move into Brazil and we are
ideally placed to take the Posse
project to the next stage and
generate strong sustainable
value for the Company and the
project’s local stakeholders.
Building on our potential at
Snip in Canada
Snip represents the first step
in our strategy to add another
high-grade project with strong
upside potential into our
pipeline. Since October 2021,
we have established a positive
dialogue with the Tahltan Nation
and provincial authorities,
designed an ambitious drill
programme for 2022, and built
a team to take over operations
management at the project.
Creating value for shareholders
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Hochschild Mining PLC
Annual Report & Accounts 2021
Operations
Hochschild’s output in 2021 continued our
good record in meeting annual guidance. Overall
production was 362,972 gold equivalent ounces
(31.2 million silver equivalent ounces) which was
understandably substantially higher than the
Covid-impacted 2020 figure of 289,293 gold
equivalent ounces (24.9 million silver equivalent
ounces). This was produced at an all-in sustaining
cost of $1,241 per gold equivalent ounce ($14.4 per
silver equivalent ounce) which was slightly higher
than 2020 reflecting increased development capital
expenditure. Hochschild’s flagship mine, Inmaculada,
had another strong year producing 238,238 gold
equivalent ounces (2020: 176,086 ounces) at $971
per gold equivalent ounce.
At Pallancata, production in 2021 reflected the
current focus on mine development and brownfield
exploration to extend the mine life but still had a
steady year delivering 4.4 million silver equivalent
ounces (2020: 4.8 million ounces) at a cost of $22.8
per silver equivalent ounce. In Argentina, San Jose
operated throughout the year but continued to
experience Covid-related restrictions on labour
availability in the country limiting the Company’s
ability to access certain planned mining zones and
impacting grades. Production was 12.4 million silver
equivalent ounces (2020: 9.7 million ounces) with
costs at $16.7 per silver equivalent ounce.
Business development
In October, we decided to exercise our option to
start earning-in a 60% interest in Skeena Resources’
Snip project in Tahltan Territory of British Columbia.
This represented the first step in our strategy to
add another high-grade project with strong upside
potential into our pipeline. Since October, we have
established a positive dialogue with the Tahltan
Nation and provincial authorities, designed an
ambitious drill programme for 2022, and built a team
to take over operations management at the project.
It is an exciting time for Hochschild as we build out
our Canadian presence.
Also in October, we announced the demerger of our
rare earths business, Aclara Resources, and its listing
on the Toronto Stock Exchange. We believe that it
was the logical next step forward and that, as two
standalone businesses, both Hochschild and Aclara
will have the greatest potential for delivering long-
term value creation. Each will have their own
strategic focus on their respective products, their
own dedicated management teams, separated
access to capital and an independent valuation whilst
maintaining a strategic relationship that will allow
Aclara to benefit from Hochschild’s track record on
project execution and ESG. Furthermore, we felt that
current and future Hochschild shareholders will also
benefit from retaining a meaningful stake in a
business that offers an exciting proposition in a high
growth market. We were pleased that the demerger
and IPO were completed in December with almost
$100 million raised.
In November, we announced a definitive agreement
to acquire Amarillo Gold for a net acquisition cost of
C$135 million ($106 million) with the key asset being
the flagship Posse gold project located in Goiás
State, Brazil. The acquisition enhances our project
pipeline and is the result of a long-term Company
review process of a wide range of growth
opportunities. Posse is an attractive low-cost project
with relatively near-term production and strong
exploration upside potential. With our significant
experience in developing precious metal deposits
in the Americas, Hochschild is ideally placed to
take Posse to its next stage and generate strong
sustainable value for the Company and the project’s
local stakeholders as well as widening our focus in
stable mining jurisdictions in the Americas.
Exploration
Once again the brownfield programme focused
on the surrounding areas of all three of our mines
and I am pleased to report that our team have had
a successful campaign and delivered resource
increases at both Inmaculada and San Jose.
At Inmaculada, drilling in the Angela North and
surrounding veins yielded just over 850,000 gold
equivalent ounces at higher grades than current
reserve grade whilst at San Jose we have added
almost 13 million silver equivalent ounces close
to current operations.
1
At Pallancata, the team
completed a revised mine plan that incorporates the
existing resource base and therefore has been able
to guarantee the mine’s future for the next two years
at least. There remain some promising brownfield
drill targets close to the current mine and in the
district as a whole which could secure the long-term
supply for the nearby Selene plant.
Financial position
A reliable production performance and strong price
environment have resulted in our balance sheet
remaining in an enviable position with cash and cash
equivalents of $386.8 million at the end of December
(2020: $231.9 million). This is before the estimated net
CHIEF EXECUTIVE OFFICER’S REVIEW
CONTINUED
Posse is an attractive low-cost project
with relatively near-term production and
strong exploration upside potential.”
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Hochschild Mining PLC
Annual Report & Accounts 2021
payment of C$135 million for Amarillo Gold (due
by the end of Q1 2022) and includes an additional
$100 million medium-term loan (drawn down in
December 2021) and a $20 million investment in
the Aclara Resources Inc IPO. This has led to a net
cash position of $86.3 million (31 December 2020:
$21.6 million net cash).
Financial results
Total Group production was significantly higher
versus 2020, which was impacted by the Covid-
related stoppages, and consequently, combined
with a 12% rise in the silver price received, revenue
increased to $811.4 million (2020: $621.8 million).
All-in sustaining costs were in line with guidance
at $14.4 per silver equivalent ounce (2020: $12.8
per ounce). Adjusted EBITDA of $382.8 million
(2020: $270.9 million) mostly reflects the increased
production levels and is partially offset by increased
cost of sales and administrative costs. Pre-
exceptional earnings per share of $0.14 (2020:
$0.06 per share) includes the impact of an increase
in finance costs in Argentina and also of income tax
arising from the impact of local currency devaluation
in Peru and Argentina and the increased income tax
rate in Argentina. Post-exceptional earnings per
share was higher at $0.15 (2020: $0.03 earnings per
share) mainly due to the exceptional gain on Aclara
demerger of $37.5 million, partially offset by a $24.9
million impairment of Pallancata and $24.1 million of
Covid-19 response initiatives which are also deemed
to be exceptional as they were incremental to the
Group’s regular business. The net after-tax effect
of exceptional items is $3.7 million.
Outlook
We expect attributable production in 2022 of
between 360,000-375,000 gold equivalent ounces
(26.0 to 27.0.0 million silver equivalent ounces)
assuming the silver to gold ratio of 72:1 (the average
ratio for 2021). This will be driven by: 218,000-
222,000 gold equivalent ounces from Inmaculada;
an attributable contribution of 5.7 to 6.1 million silver
equivalent ounces from San Jose; and 4.6-4.9 million
ounces from Pallancata. All-in sustaining costs for
operations are expected at between $1,330 and
$1,370 per gold equivalent ounce ($18.5 to $18.9 per
silver equivalent ounce). This forecast includes
lower grades at Inmaculada due to the inclusion
into the mine plan of veins discovered between
2018 and 2020. It also includes a rise in mine
development costs at Inmaculada and San Jose
to access veins discovered in 2021 and increase
reserves at San Jose.
The budget for brownfield exploration is at
approximately $34 million with the greenfield
and advanced project budget set at approximately
$11 million. In addition, a budget of approximately
$9 million has been allocated to advancing the
Snip project in Canada with a project capex budget
of $120 million assigned to the Posse project in Brazil.
We have also recently begun to re-establish
operations in Chile at our 100%-owned Volcan
gold project. In 2022, we expect to complete a work
programme to optimise the business case for this
substantial gold asset. In parallel, the project is
expected to be restructured into a newly established
Canadian company, named Tiernan Gold. Tiernan
will be run by newly appointed CEO, Greg McCunn,
and during the year, we will be evaluating different
strategic alternatives.
2022 promises to be another year of volatility and
the world is not free from the pandemic yet. However,
throughout our history, Hochschild has shown an
ability to withstand operational, political and social
challenges and we believe that we have the correct
long-term strategy to generate value for our
shareholders today while we transition the Company
for the future. Finally, our commitment to a broad
suite of ESG initiatives remains absolute as part
of our focus on safety and responsibility.
Ignacio Bustamante
Chief Executive Officer
22 February 2022
1 Equivalent resource figures calculated using the gold/silver ratio of 72x.
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Hochschild Mining PLC
Annual Report & Accounts 2021
BUSINESS MODEL
Benefiting all our stakeholders
Our well-established and resilient business model reflects our long-term
commitment to our employees, communities and society as a whole
as well as providing an attractive investment proposition.
These inputs are key in
consistently achieving
productive, safe and
environmentally sound
operations.
Technical expertise is the key attribute
underpinning our business model
Responsibility
We are focused on: operating a safe
workplace to enable our employees
to thrive; seeking to generate social
value within our surrounding
communities; and minimising
our environmental impact.
Governance
We maintain high standards of
controls and processes to protect
and enhance stakeholder interests.
Expertise
We have specific expertise in mining
a variety of deposit types in complex
geological conditions throughout
the Americas.
Experience
We have steadily built an enviable
track record in managing mines,
developing projects, identifying
growth options and utilising
best practice social and
environmental policies.
Discipline
We deploy capital in a disciplined
manner underpinned by our
long-standing financial relationships
and a focus on value accretive
opportunities.
Innovation
We are dedicated to the
development of more efficient
business practices through the
adoption of new technologies.
How we create value
Environment
Community
1.
Discover
We have strong expertise in
discovering and developing long-term
geological districts. Our highly
experienced exploration team
believes that there is strong potential
across all our properties to continue
to generate strong returns from the
Company’s existing resource base.
Furthermore, our greenfield and
project development strategy
involves a significant number of
drilling campaigns at premium
precious metal prospects across the
Americas. These can be executed
in-house or in partnership with a
variety of reputable exploration
companies with attached earn-in or
joint venture options if successful.
2.
Develop
We are able to progress our projects
efficiently in a short space of time and the
ability to operate in remote locations and
high altitudes remains a core competitive
advantage. We have unrivalled knowledge
of the key mining jurisdictions throughout
the Americas and believe our experience
in managing all project requirements
including permitting, local community and
government support places us in a strong
position with regards to the execution of
precious metal opportunities.
Inputs
Our core activities
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Hochschild Mining PLC
Annual Report & Accounts 2021
The efficacy and resilience of our business model
allows us to invest in the future of our employees,
redistribute profit to our host communities through
a wide variety of collaborative programmes and
deliver long-term value for all our shareholders.
Health & Safety
Sustainability
3.
Extract
We have developed an extensive in-house
knowledge base of the challenges inherent
in a range of different ore bodies, varying
metals as well as in a variety of
environments throughout our regions. This
has resulted in us consistently meeting
annual operational targets, implementing
significant cost efficiency programmes
and replacing and adding to our resource
base. In addition, our growing commitment
to innovation is allowing us to incorporate
key technological advances and apply
them to our business.
Communities
Over many decades, Hochschild has been able to
invest in a number of local programmes focusing on our
core themes of education, health and socio-economic
development and allowing us to operate collaboratively
with communities across our regions. We have also been
able to deliver a range of innovative employment and
business opportunities whilst retaining our respect for
the environment and cultural traditions. Many of these
initiatives continued during the 2020/2021 pandemic.
15
%
Employees
The success of our business model helps us to provide
personal development, competitive compensation and
proper working conditions. We aim to empower our
employees with learning opportunities and new
challenges in a positive, healthy and safe work
environment. In addition, there is an ongoing recognition
that all should have opportunities to contribute and
develop their capabilities through volunteer work as
well as direct initiatives.
2
nd
Shareholders
We are committed to our aims of profitable and safe
operations, a strong local and international reputation
and stability. We believe that if we can deliver
sustainable low-cost growth and consequently generate
solid free cash flow, we can use that to repay all our
stakeholders. Since the middle of 2016 we have paid out
$104 million in equity dividends and we have announced
a further 2021 final dividend of $12 million despite the
significant disruption to our operations from the global
pandemic and the Peruvian political situation.
$12
m
Outputs
* 2021 Merco Talento Corporate Reputation Business Monitor rankings compiled with
views from HR students, HR professionals and labour unions with reference to, among
other things, companies’ employment policies, benefits and diversity
WORKFORCE
FROM LOCAL
COMMUNITIES
OUT OF 21 MINING
COMPANIES IN PERU*
DIVIDEND
ANNOUNCED FOR
FULL YEAR 2021
Strategic Report
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Hochschild Mining PLC
Annual Report & Accounts 2021
OUR STRATEGY
Strategic development and growth
Our strategy focuses on four key paths
to secure low-cost growth.
Brownfield
Life-of-mine increases
Improve quality of resources
Spare capacity available
Greenfield
Streamlining portfolio
Staking properties
Progressing drill-ready projects
2021 activities
2021 activities
–
Resources up 17% at Inmaculada vs 2020
–
Additional 61m high-grade silver
equivalent resource ounces added from
Angela North vein at Inmaculada
–
Reserves at San Jose up 30% versus 2020
–
Pallancata mine plan remodelled to
incorporate previously uneconomic ounces
allowing the mine to continue feeding
Selene plant into 2024
–
Snip project optioned from Skeena Resources
–
Drilling executed at Condor (Peru),
Cooke Mountain (US), SW Pipeline (US)
& Currant (US)
–
Illipah (US), Los Cuarenta (Mexico), Sarape
(Mexico) discarded
–
5 further US projects optioned: Valve
House, Timber Butte, Lehman Butte &
Speed Goat from EMX Royalties in Idaho;
Red Rock from Atoka in Nevada
2022 priorities
2022 priorities
–
2022 budget of $34 million
–
Key targets at Inmaculada: Inmaculada
North (Juliana NE, Huarmapata and
Lineamiento 3); Inmaculada West
(Minascucho area); Inmaculada East
(Melissa and Jimena)
–
Aiming to add resources from several
targets surrounding Pallancata and Pablo
veins whilst continuing regional drilling at
Corina, Palca and Cochaloma
–
Main targets at San Jose for 2022 are
Saavedra and San Jose West
–
Snip budget for 2022 at $9 million
–
Snip exploration includes: recognising
areas without geological information;
exploring parallel structures to the twin
zones; exploring for the north extension
of 312 belt; mapping, geochemistry
and geophysics programme
–
2022 greenfield exploration budget
expected to be $11 million
–
Focused on the US and Peru
–
Drilling set to continue at Condor, Cooke
Mountain, SW Pipeline, Currant
–
Drilling to start at 5 new projects in Idaho
and Nevada
Risks
Risks
–
Political, legal and regulatory
–
Community relations
–
Personnel: recruitment and retention
–
Political, legal and regulatory
–
Community relations
–
Personnel: recruitment and retention
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Hochschild Mining PLC
Annual Report & Accounts 2021
Project pipeline
Advancing Posse project
Optimising early-stage projects
Further drilling
Strategic alliances
Early/development stage
Control (acquisition/JVs)
Geological upside
ROIC: 12-15%
2021 activities
2021 activities
–
Demerged Aclara Resources and executed
IPO on Toronto Stock Exchange raising
approximately $100 million
–
Appointed new CEO of Volcan project
–
Permitting on a number of drill targets
including former operations, early-stage
projects and regional exploration targets
–
Announced acquisition of Amarillo Gold
–
Exercised option on Snip project in Canada
from Skeena Resources
–
Appointed VP North America
2022 priorities
2022 priorities
–
Advance development of Posse project
in Brazil
–
Advance Volcan project opportunities
–
Drilling at Crespo and Azuca
–
Further options/JVs being considered
in Americas
–
Larger acquisitions also being assessed
with shares
Risks
Risks
–
Political, legal and regulatory
–
Community relations
–
Personnel: recruitment and retention
–
Political, legal and regulatory
–
Commodity prices
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Measuring our progress
Production
Revenue
Adjusted EBITDA
Basic earnings
per share
Dividend per share
31.2
m oz
M oz Ag equivalent
$811
m
$383
m
$0.14
Pre-exceptional
¢4.3
Financial measures
Definition
Silver equivalent production
equals total attributable gold
production multiplied by a
gold/silver ratio for 2022 of
72x, 2019-2021 of 86x, 2018 of
81x, 2017 of 74x and added to
the total attributable silver
production
Definition
Revenue presented in the
financial statements is
disclosed as net revenue
and is calculated as gross
revenue less commercial
discounts
Definition
Calculated as profit from
continuing operations before
exceptional items, net finance
costs, foreign exchange loss
and income tax plus
depreciation, and exploration
expenses other than
personnel and other
exploration related fixed
expenses and other
non-cash (income)/expenses
Definition
The per-share (using the
weighted average number
of shares outstanding for
the period) profit available
to equity shareholders of the
Company from continuing
operations before
exceptional items
Definition
The per-share (using the
weighted average number
of shares outstanding for
the period) dividend paid to
equity shareholders of the
Company as recommended
by the Board
Performance
Total silver equivalent
production increased by 25%
versus 2020 due to the
rebound from production
stoppages caused by the
Covid-19 pandemic in 2020
Performance
Total revenue increased by
30% versus 2020 due to
rebound in production
versus the Covid-related
stoppages in 2020
Performance
Adjusted EBITDA
increased by 41% to $382.8
million (2020: $270.9 million)
mainly due to the increase in
revenue resulting from the
rebound in production
following 2020 operational
stoppages resulting from
the Covid-19 crisis
Performance
Pre-exceptional earnings
per share rose 133% to $0.14
due to the strong rise in the
2021 EBITDA and includes
the impact of an increase in
finance costs in Argentina
and also of income tax
arising from the impact of
local currency devaluation in
Peru and Argentina and the
increased income tax rate
in Argentina
Performance
Dividend per share
increased by 7%
Outlook
Total silver equivalent
production is forecast to be
between 26.0 and 27.0 million
silver equivalent ounces in
2022 assuming a gold/silver
conversion ratio of 72x
Outlook
Total silver equivalent
production is forecast to be
between 26.0 and 27.0 million
silver equivalent ounces in
2022 assuming a gold/silver
conversion ratio of 72x
Outlook
Adjusted EBITDA result for
2022 will depend on precious
metal prices and cost and
expenses performance
along with the ability of
the operations to
operate normally
Outlook
Pre-exceptional earnings per
share will depend on EBITDA
performance and the
effective tax rate which may
be impacted if local
currencies including the
Peruvian sol and Argentinian
peso continue to depreciate
Outlook
Dividend per share for 2022
will depend on the level of
profitability of the Company
and the available uses of
cash and is at the discretion
of the Board
Risk
Operational performance
Risk
Operational performance
and precious metal prices
Risk
Operational performance,
precious metal prices
and costs
Risk
Operational performance,
precious metal prices, costs,
levels of financial costs and
income, tax charge
Risk
Company profitability
Links to remuneration
Yes
Links to remuneration
Yes
Links to remuneration
Yes
Links to remuneration
No
Links to remuneration
No
Links to strategy
Links to strategy
Links to strategy
Links to strategy
Links to strategy
811
622
756
704
723
20
1
9
1
8
1
7
2
1
383
271
343
268
300
20
1
9
1
8
1
7
2
1
0.14
0.06
0.09
0.05
0.08
20
1
9
1
8
1
7
21
4.3
4.0
2.0
3.92
3.35
20
1
9
1
8
1
7
2
1
31.2
24.9
40.0
41.0
38.0
20
1
9
1
8
1
7
2
1
KEY PERFORMANCE INDICATORS
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Hochschild Mining PLC
Annual Report & Accounts 2021
All-in sustaining
costs
Total silver cash
costs
Accident Severity
Index
LTIFR
Attributable
resource base
$14.4
oz
$/oz Ag equivalent
$11.0
oz
$/oz Ag equivalent
676
1.26
1,525
M oz Ag equivalent
Financial measures
Non-financial measures
Brownfield
Greenfield
Early-stage
projects
Strategic
alliances
Definition
Calculated before
exceptional items and
includes cost of sales less
depreciation and change in
inventories, administrative
expenses, brownfield
exploration, operating capex
and royalties divided by
silver equivalent ounces
produced using a gold/silver
ratio of 72:1
Definition
Cash costs are calculated
based on pre-exceptional
figures. Co-product cash
cost per ounce is the cash
cost allocated to the primary
metal (allocation based on
proportion of revenue),
divided by the ounces sold
of the primary metal
Definition
Calculated as total number
of days lost per million
labour hours
Definition
Calculated as total number
of accidents per million
labour hours
Definition
Total attributable silver
equivalent metal resources
as at 31 December 2021
Performance
All-in sustaining costs
from operations rose
versus 2021 mainly as a
result of returning to a full
production rate versus the
2020 Covid stoppages
Performance
Total silver cash costs for the
Company increased by 18%
versus 2020 due to increases
in unit costs in Peru and
some decreases in grade
across the Group
Performance
The Accident Severity Index
increased to 676 in 2021 due
to the fatalities at San Jose
and Aclara
Performance
LTIFR decreased by 9%
and remains low relative to
the industry
Performance
Total attributable silver
equivalent metal resources
increased by 7% in 2021 due
to new resources discovered
at Inmaculada and San Jose
Outlook
The all-in sustaining cost
from operations in 2022 is
expected to be between
$18.5 and $19.0 per silver
equivalent ounce
Outlook
Cash costs performance in
2022 is expected to be
dependent on operational
performance, levels of local
cost inflation and levels of
local currency devaluation in
Argentina and Peru
Outlook
The Company remains
focused on its ‘Safety
2.0 Hochschild Safety
Transformation’ plan, and,
during 2021, achieved
Level 7 certification of its
management information
system from DNV
(7th edition)
Outlook
The Company remains
focused on its ‘Safety 2.0
Hochschild Safety
Transformation’ plan, and,
during 2021, achieved Level 7
certification of its
management information
system from DNV (7th edition)
Outlook
Resource increases in 2022
will depend on the level of
ongoing success in finding
potential resources and the
ability to turn these
resources into the inferred
and measured and
indicated categories
through drilling
Risk
Operational performance,
local cost inflation, increases
in brownfield exploration
investment
Risk
Operational performance
including dilution, grade
and tonnage control and
local inflation
Risk
Health and safety risks
Risk
Health and safety risks
Risk
Implementing and
maintaining the annual
exploration drilling
programme
Links to remuneration
Yes
Links to remuneration
No
Links to remuneration
Yes
Links to remuneration
Yes
Links to remuneration
Yes
Links to strategy
Links to strategy
Links to strategy
Links to strategy
Links to strategy
14.4
12.9
11.9
12.0
12.3
20
1
9
1
8
1
7
2
1
11.0
9.3
7.8
8.3
8.8
20
1
9
1
8
1
7
2
1
1.26
1.38
1.05
1.74
2.69
20
1
9
1
8
1
7
2
1
676
474
54
930
1,264
20
1
9
1
8
1
7
2
1
1,525
1,425
1,446
1,453
1,340
20
1
9
1
8
1
7
2
1
Strategic Report
Financial Statements
Governance
Further Information
27
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Hochschild Mining PLC
Annual Report & Accounts 2021
14,746
koz
TOTAL GROUP PRODUCTION OF SILVER
2020: 11,821koz
262.39
koz
TOTAL GROUP PRODUCTION OF GOLD
2020: 207.08koz
14,712
koz
TOTAL GROUP SILVER PRODUCTION SOLD
2020: 11,846koz
260.71
koz
TOTAL GROUP GOLD PRODUCTION SOLD
2020: 207.78koz
2021 Highlights
Delivering strong
operational performance
OPERATING REVIEW
Note: 2021 and 2020 equivalent figures
calculated using the previous Company
gold/silver ratio of 86x. All 2022 forecasts
assume the average gold/silver ratio for
2021 of 72x.
Production
In 2021, Hochschild delivered attributable
production of 362,972 gold equivalent
ounces or 31.2 million silver equivalent
ounces, in line with the Company’s
forecasts but with the increase versus
2020 reflecting the impact in 2020 from
Covid-related disruptions throughout
the year.
The overall attributable production
target for 2022 is 360,000-375,000 gold
equivalent ounces or 26.0-27.0 million
silver equivalent ounces.
Costs
All-in sustaining cost from operations in
2021 was $1,241 per gold equivalent
ounce or $14.4 per silver equivalent ounce
(2020: $1,098 per gold equivalent ounce
or $12.8 per silver equivalent ounce),
higher than 2020 mainly as a result of
lower grades at Pallancata and San Jose
and higher costs and capital expenditure.
Additional capital expenditure was also
allocated to Pallancata and Inmaculada
to develop resources for increasing life
of mine. These figures do not include
unabsorbed fixed costs from workers that
were unable to work during the Covid 19
crisis of $8.7 million (2020: $44.7 million;
includes fixed costs without depreciation
from stoppages and operating at
reduced capacity), as well as $22.5 million
(2020: $27.6 million) of exceptional
Covid-19 response initiatives.
The all-in sustaining cost from operations
in 2022 is expected to be between $1,330
and $1,370 per gold equivalent ounce
(or $18.5 and $19.0 per silver equivalent
ounce). Grades at Inmaculada are
expected to be lower due to the inclusion
into the mine plan of veins discovered
between 2018 and 2020. It also includes
a rise in mine development costs at
Inmaculada and San Jose to access
veins discovered in 2021 and increase
reserves at San Jose.
Attributable 2021 Group production
Year ended
31 Dec 2021
Year ended
31 Dec 2020
Silver production
(koz)
12,174
9,808
Gold production
(koz)
221.42
175.24
Silver equivalent
(koz)
31,216
24,879
Gold equivalent
(koz)
362.97
289.29
Attributable production includes 100% of all production
from Inmaculada, Pallancata and 51% from San Jose.
Total 2021 Group production
Year ended
31 Dec 2021
Year ended
31 Dec 2020
Silver production
(koz)
14,746
11,821
Gold production
(koz)
262.39
207.08
Total silver
equivalent (koz)
37,311
29,631
Total gold
equivalent (koz)
433.85
344.54
Silver sold (koz)
14,712
11,846
Gold sold (koz)
260.71
207.78
Total production includes 100% of all production,
including production attributable to Hochschild’s
minority shareholder at San Jose.
Attributable 2022 production
forecast split
Operation
Oz Au Eq
Moz Ag Eq
Inmaculada
218,000-222,000
15.7-16.0
Pallancata
64,000-68,000
4.6-4.9
San Jose
79,000-85,000
5.7-6.1
Total
360,000-375,000
26.0-27.0
2022 AISC forecast split
Operation
$/oz Au Eq
$/oz Ag Eq
Inmaculada
1,180-1,210
16.4-16.8
Pallancata
1,760-1,800
24.4-25.0
San Jose
1,370-1,410
19.0-19.6
Total from operations
1,330-1,370
18.5-19.0
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Hochschild Mining PLC
Annual Report & Accounts 2021
Operational sites
1
Pallancata
(Peru)
2
Inmaculada
(Peru)
3
San Jose
(Argentina)
Where we operate
1
2
3
Strategic Report
Governance
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Further Information
29
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Hochschild Mining PLC
Annual Report & Accounts 2021
OPERATING REVIEW
CONTINUED
1
Inmaculada
Peru
The 100% owned Inmaculada gold/silver
underground operation is located in the
Department of Ayacucho in southern Peru.
It commenced operations in June 2015.
6,236
koz
SILVER PRODUCED
165.73
koz
GOLD PRODUCED
Inmaculada summary
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Ore production (tonnes)
1,349,892
948,937
42
Average silver grade (g/t)
174
154
13
Average gold grade (g/t)
4.05
4.33
(6)
Silver produced (koz)
6,236
4,034
55
Gold produced (koz)
165.73
129.17
28
Silver equivalent produced (koz)
20,488
15,143
35
Gold equivalent produced (koz)
238.24
176.09
35
Silver sold (koz)
6,216
4,020
55
Gold sold (koz)
165.86
129.70
28
Unit cost ($/t)
99.2
95.1
4
Total cash cost ($/oz Au co-product)
557
576
(3)
All-in sustaining cost ($/oz Au Eq)
971
922
5
Production
The Inmaculada mine
delivered gold equivalent
production of 238,238
ounces (2020: 176,086
ounces) in 2021, with the
increase versus 2020 due to
the impact of two Covid-19
related stoppages during
2020. Grades and gold
recoveries have proved
to be higher than
originally budgeted.
Costs
All-in sustaining costs were
$971 per gold equivalent
ounce (2020: $922 per ounce)
with the increase versus 2020
due to a considerable portion
of capital expenditure being
deferred, including the
tailings dam expansion, due
to the stoppages and also
due to lower scheduled gold
grades partially offset by
higher silver grades.
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Hochschild Mining PLC
Annual Report & Accounts 2021
2
Pallancata
Peru
The 100% owned Pallancata silver/gold property
is located in the Department of Ayacucho in
southern Peru. Pallancata commenced production
in 2007. Ore from Pallancata is transported 22
kilometres to the Selene plant for processing.
Pallancata summary
Year ended
31 Dec 2021
Year ended
31 Dec 2020
%
change
Ore production (tonnes)
530,681
519,611
2
Average silver grade (g/t)
212
247
(14)
Average gold grade (g/t)
0.84
0.87
(3)
Silver produced (koz)
3,261
3,679
(11)
Gold produced (koz)
13.05
12.93
1
Silver equivalent produced (koz)
4,382
4,790
(9)
Gold equivalent produced (koz)
50.96
55.70
(9)
Silver sold (koz)
3,263
3,654
(11)
Gold sold (koz)
13.03
12.80
2
Unit cost ($/t)
124.8
101.2
23
Total cash cost ($/oz Ag co-product)
19.2
13.1
47
All-in sustaining cost ($/oz Ag Eq)
22.8
15.6
46
Production
In 2021, Pallancata
produced 4.4 million
silver equivalent ounces
(2020: 4.8 million ounces)
with the reduction versus
the original forecast
(5.4-5.6 million ounces)
due to the effects of
lower-than-budgeted
grades in line with the
current declining
production profile.
Costs
All-in sustaining costs were
at $22.8 per silver equivalent
ounce (2020: $15.6 per ounce).
Costs were increased versus
2020 mainly due to the use
of more conventional mining
methods in 2021 and
lower grades. The figure
also included new capital
expenditure for development
work to access newly
economic resources.
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31
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Hochschild Mining PLC
Annual Report & Accounts 2021
3
San Jose
Argentina
5,250
koz
SILVER PRODUCED
83.62
koz
GOLD PRODUCED
The San Jose silver/gold mine is located in
Argentina, in the province of Santa Cruz,
1,750 kilometres south west of Buenos Aires.
San Jose commenced production in 2007.
Hochschild holds a controlling interest of
51% and is the mine operator. The
remaining 49% is owned by McEwen
Mining Inc.
Production
San Jose’s 2021 total
production was 12.4
million silver equivalent
ounces (2020: 9.7 million
ounces) with the
increase versus 2020
reflecting Covid-related
stoppages, which
impacted the 2020
result. Grades were
lower than budgeted for
the year but practically
offset by higher than
expected tonnage.
Costs
All-in sustaining costs were
at $16.7 per silver equivalent
ounce (2020: $14.6 per
ounce) with the rise driven
by higher production
costs, increased mine
development capex, higher
exploration expenses
and the purchase of
new mining equipment.
San Jose summary
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Ore production (tonnes)
539,229
401,202
34
Average silver grade (g/t)
344
357
(4)
Average gold grade (g/t)
5.47
5.63
(3)
Silver produced (koz)
5,250
4,108
28
Gold produced (koz)
83.62
64.99
29
Silver equivalent produced (koz)
12,440
9,697
28
Gold equivalent produced (koz)
144.66
112.76
28
Silver sold (koz)
5,233
4,172
25
Gold sold (koz)
81.83
65.28
25
Unit cost ($/t)
229.0
199.4
15
Total cash cost ($/oz Ag co-product)
13.3
11.1
20
All-in sustaining cost ($/oz Ag Eq)
16.7
14.6
14
OPERATING REVIEW
CONTINUED
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Hochschild Mining PLC
Annual Report & Accounts 2021
EXPLORATION
Inmaculada
In 2021, the exploration team carried out 9,169m of potential
drilling and 39,424m of resource drilling mostly testing the newly
discovered Angela North, Juliana North East and Josefa
structures. The key results are below:
Vein
Results (potential/resource drilling)
Angela North
IMS21-056: 5.9m @ 2.5g/t Au & 99g/t Ag
IMS21-062: 9.7m @ 91.7g/t Au & 3,013g/t Ag
IMS21-063: 2.1m @ 6.5g/t Au & 217g/t Ag
IMS21-065: 7.0m @ 3.7g/t Au & 198g/t Ag
IMS21-066: 2.4m @ 4.3g/t Au & 386g/t Ag
IMS21-067: 1.0m @ 2.4g/t Au & 234g/t Ag
IMS21-070: 1.5m @ 2.1g/t Au & 156g/t Ag
IMS21-071: 1.4m @ 3.6g/t Au & 123g/t Ag
IMS21-072: 2.0m @ 1.8g/t Au & 109g/t Ag
IMS21-075: 3.1m @ 5.5g/t Au & 341g/t Ag
IMS21-077: 2.7m @ 1.4g/t Au & 103g/t Ag
IMS21-078: 9.1m @ 14.1g/t Au & 424g/t Ag
IMS21-087: 5.6m @ 12.6g/t Au & 494g/t Ag
IMS21-069: 1.2m @ 7.1g/t Au & 533g/t Ag
IMS21-078: 9.7m @ 14.1g/t Au & 424g/t Ag
IMS21-085: 3.5m @ 5.2g/t Au & 149g/t Ag
IMS21-088: 3.7m @ 5.9g/t Au & 304g/t Ag
IMS21-089: 2.1m @ 1.9g/t Au & 109g/t Ag
IMS21-100: 1.4m @ 3.2g/t Au & 171g/t Ag
Juliana
IMS21-079: 2.0m @ 12.8g/t Au & 527g/t Ag
IMS21-088: 1.4m @ 6.8g/t Au & 292g/t Ag
IMS21-174: 4.9m @ 11.3g/t Au & 33g/t Ag
IMS21-182: 1.2m @ 50.8g/t Au & 81g/t Ag
IMS21-184: 3.5m @ 18.0g/t Au & 977g/t Ag
IMS21-127: 1.0m @ 1.8g/t Au & 259g/t Ag
IMS21-127: 2.8m @ 2.2g/t Au & 115g/t Ag
IMS21-127: 0.9m @ 2.8g/t Au & 196g/t Ag
IMS21-149: 1.5m @ 8.7g/t Au & 62g/t Ag
IMS21-149: 0.9m @ 3.6g/t Au & 111g/t Ag
IMS21-155: 3.2m @ 7.5g/t Au & 774g/t Ag
IMS21-156: 1.6m @ 3.2g/t Au & 33g/t Ag
IMS21-156: 1.6m @ 3.2g/t Au & 31g/t Ag
IMS21-156: 2.1m @ 13.8g/t Au & 316g/t Ag
IMS21-150: 2.4m @ 20.7g/t Au & 1,255g/t Ag
IMS21-151: 1.9m @ 2.0g/t Au & 141g/t Ag
IMS21-058: 2.4m @ 1.3g/t Au & 119g/t Ag
IMS21-174: 1.3m @ 3.3g/t Au & 172g/t Ag
Josefa
IMS21-155: 1.1m @ 17.6g/t Au & 1,149g/t Ag
IMS21-155: 1.2m @ 4.3g/t Au & 70g/t Ag
IMS21-155: 7.8m @ 2.0g/t Au & 70g/t Ag
IMS21-155: 1.0m @ 3.6g/t Au & 114g/t Ag
IMS21-198: 2.3m @ 2.3g/t Au & 312g/t Ag
IMS21-200: 4.9m @ 3.8g/t Au & 311g/t Ag
In 2021, 852,000 gold equivalent ounces have been added to the
Inmaculada inferred resource base at a gold equivalent grade of
7.5 grams per tonne.
During the first quarter of 2022, the programme will focus on
2,100m of potential drilling in the west of the Angela North vein
and in the north of the Eduardo vein zone. Other key targets for
2022 are Josefa, Juliana NE, Minascucho, Anomalia III and
Anomalia IV.
Pallancata
At Pallancata, 19,390m of potential drilling was carried out at
the Pallancata vein, the Falla NW, Pablo, Pablo Piso and Marco
vein structures and then later in the year at the Mirian, San
Javier and the continuation of the Pallancata vein to the north
west. In addition, there was drilling at the Pablo II target which
intercepted quartz veins with grade and in the final quarter
there were intercepts in quartz-sulphide veins, Laura and
Demian. Key results are below:
Vein
Results (potential/resource drilling)
Pablo II
DLEP-A64: 2.7m @ 0.4g/t Au & 93g/t Ag
DLEP-A65: 0.9m @ 0.7g/t Au & 222g/t Ag
Mirian
DLVC-A62: 3.4m @ 1.4g/t Au & 314g/t Ag
Norca
DLVC-A62: 1.0m @ 1.0g/t Au & 475g/t Ag
San Javier
DLVC-A62: 1.1m @ 0.6g/t Au & 473g/t Ag
Pallancata NW
DLPL-A969: 0.9m @ 1.6g/t Au & 181g/t Ag
Laura
DLLAU-A01: 1.9m @ 1.5g/t Au & 473g/t Ag
Including : 1.2m @ 2.1g/t Au & 655g/t Ag
DLLAU-A03: 2.5m @ 0.8g/t Au & 332g/t Ag
Including : 1.1m @ 1.1g/t Au & 537g/t Ag
DLLOL-A01: 6.9m @ 0.7g/t Au & 208g/t Ag
Including : 1.5m @ 1.2g/t Au & 336g/t Ag
Demian
DLEP-A66: 1.3m @ 2.6g/t Au & 696g/t Ag
DLLAU-A03: 2.6m @ 1.0g/t Au & 307g/t Ag
Including : 1.1m @ 1.8g/t Au & 602g/t Ag
In Q1 2022, the schedule consists of 5,000m of potential
drilling in the Laura-Demian veins as well as the Paola, Rina 4,
Stockwork Veta Juliet, Stockwork Pallancata Central and Gracia
veins. Other main targets for the year are expected to be Pablo
West, Escarpa and Luisa.
San Jose
During 2021, the team carried out 11,455m of potential
drilling around the Saavedra area in the Escondida, Betania,
Isabel, Jimena, Agostina and Lucy veins as well as the North
Telken area close to Cerro Negro, 6,673m of resource drilling
was also executed targeting Escondida, and also in the area
close to the current mine in the Amelia, Huevos Verdes, Olivia
and Karina veins.
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33
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Hochschild Mining PLC
Annual Report & Accounts 2021
Vein
Results (potential drilling)
Isabel
SJD-2210: 1.2m @ 4.9g/t Au & 552g/t Ag
SJD-2211: 1.0m @ 3.7g/t Au & 376g/t Ag
SJD-2241: 1.0m @ 8.2g/t Au & 499g/t Ag
SJM-179: 1.3m @ 3.7g/t Au & 586g/t Ag
Ramal Isabel 1
SJD-2210: 0.8m @ 2.2g/t Au & 772g/t Ag
SJD-2241: 0.8m @ 1.6g/t Au & 337g/t Ag
Ramal Isabel 2
SJD-2241: 2.0m @ 1.1g/t Au & 309g/t Ag
Escondida
SJM-529: 2.0m @ 62.5g/t Au & 5,571g/t Ag
SJD-2267: 1.4m @ 18.4g/t Au & 1,879g/t Ag
SJD-2273: 1.9m @ 2.5g/t Au & 284g/t Ag
SJD-2280: 1.2m @ 2.4g/t Au & 317g/t Ag
SJD-2280: 2.4m @ 2.7g/t Au & 305g/t Ag
Betania
SJD-2328: 2.0m @ 5.5g/t Au & 6g/t Ag
SJD-2351: 1.1m @ 12.6g/t Au & 7g/t Ag
SJD-2371: 6.3m @ 44.4g/t Au & 34g/t Ag
SJD-2378: 1.9m @ 7.3g/t Au & 81g/t Ag
SJD-2408: 2.6m @ 5.4g/t Au & 10g/t Ag
SJD-2414: 3.4m @ 6.9g/t Au & 36g/t Ag
Sig Betania
SJD-2408: 1.0m @ 6.1g/t Au & 11g/t Ag
Jimena
SJD-2353: 2.4m @ 3.8g/t Au & 40g/t Ag
SJD-2372: 1.9m @ 14.5g/t Au & 342g/t Ag
SJD-2378: 2.0m @ 8.5g/t Au & 24g/t Ag
SJD-2399: 1.4m @ 3.1g/t Au & 157g/t Ag
SJD-2406: 0.8m @ 2.6g/t Au & 482g/t Ag
SJD-2410: 6.4m @ 7.1g/t Au & 56g/t Ag
SJD-2418: 2.6m @ 3.1g/t Au & 12g/t Ag
Agostina
SJD-2378: 2.8m @ 5.1g/t Au & 13g/t Ag
Amelia
SJD-2329: 3.0m @ 13.0g/t Au & 1,740g/t Ag
SJD-2342: 4.3m @ 14.9g/t Au & 1,381g/t Ag
SJD-2361: 0.9m @ 3.4g/t Au & 323g/t Ag
Tensional Huevos
Verdes N
SJD-2346: 1.8m @ 6.7g/t Au & 582g/t Ag
Olivia
SJD-2385: 0.8m @ 2.6g/t Au & 196g/t Ag
SJM-547: 2.0m @ 7.8g/t Au & 366g/t Ag
In 2021 as a whole 12.7 million silver equivalent ounces have
been added to the San Jose resource base at a silver equivalent
grade of 881 grams per tonne.
The drilling plan for the first quarter of 2022 will focus on the
western zone of the mine in the Olivia NW and Olivia NS
structures. At Saavedra, an environmental permit is due before
the programme can resume.
GREENFIELD
Hochschild’s strategy with regards to its greenfield exploration
programme is to maintain and drill a balanced portfolio of
early-stage to advanced opportunities using a combination of
earn-in joint ventures, private placements with junior exploration
companies and the staking of properties.
Drilling in 2021 was carried out at: the Sarape project owned
by Orogen in Mexico; the Cooke Mountain gold project owned
by Adamera Minerals Corp in Washington, United States; the
Condor project owned by a private company in Peru; and the
Currant project owned by Da Venda Gold in Nevada, United
States. Sarape was subsequently discarded. In addition,
permitting work to drill in the near future is also being completed
at the SW Pipe project owned by NV Gold Corp also in Nevada
with drilling set to begin before the end of H1 2022. Permitting
work has also continued at the Corvinon and Pampamali
projects in Peru.
Given the increased political risk in Peru and Chile, the
greenfield team has focused its exploration strategy primarily
in North America to diversify geographic risk. Four new projects
have been optioned during the year from EMX Royalties in Idaho
and Nevada as well as the Red Rock prospect in Nevada from a
private owner.
SNIP
Project description
Snip was acquired by Skeena from Barrick Gold Corp. in July
2017 and consists of one mining lease and eight mineral claims
totalling approximately 4,546 hectares in the Liard Mining
Division and is situated in Tahltan Territory. The former Snip
mine produced approximately one million ounces of gold from
1991 until 1999 at an average gold grade of 27.5 g/t. Since then,
the project has been improved with the recent construction of
nearby infrastructure (paved highway, hydro-electric facilities
and ocean port facilities) and substantially higher gold prices.
Underground drilling recommenced in late 2017 to explore
for additional mineralised shoots in a large shear structure.
A maiden mineral resource was announced in July 2020
including 244,000 ounces of gold in the indicated category at
an average grade of 14.0 g/t and 402,000 ounces of gold in the
inferred category at an average grade of 13.3 g/t. A Technical
Report was issued in September 2020.
Subsequent drill campaigns, totalling approximately 32,000
metres, successfully:
– upgraded areas of existing Inferred resources from the Mineral
Resource Estimate to the Measured and Indicated categories;
– expanded the resource; and
– delineated additional mineralisation in previously unexplored
areas of the near-mine environment.
In September 2018, Skeena granted Hochschild an option to
earn a 60% interest in Snip over three years by spending twice
the amount Skeena had spent since it originally optioned the
property from Barrick in March 2016. Up until the exercise of the
option, Skeena estimated that it had incurred approximately
C$50 million of expenditure on the project.
Terms of the option
The exercise of the HOC Option was also subject to the
following terms:
– Hochschild must incur no less than C$7.5 million in exploration
or development expenditures on Snip in each year of the
Option Period (which, provided that Hochschild has incurred
at least C$22.5 million on the project, can be extended by a
further year on payment of US$1 million to Skeena);
– On complying with the above, Hochschild must provide 60% of
the financial assurance required by governmental authorities
for the Snip mining properties; and
– Hochschild can terminate the HOC Option at any time (with no
liability to complete the aggregate spending requirement), but
must make a cash payment for any shortfall in the minimum
annual spend (or pro-rated minimum annual spend if
terminated after the first anniversary of the notice exercising
the HOC Option).
EXPLORATION
CONTINUED
34
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Hochschild Mining PLC
Annual Report & Accounts 2021
2022 plans
In 2022, Hochschild plans on continuing the drill campaigns
and initiating selected studies and testwork. The Company
plans on drilling approximately 10,000 metres from surface and
underground during the year. Approximately 70% of planned
metres will be for infill and twin holes, and 30% for exploration.
A Pre-Feasibility Study will be undertaken during the year,
using existing resources and results from the 2022 programme,
to trade-off a series of mining and mineral processing
opportunities identified at the project, and assess a potential
project development route to move to a Feasibility Study.
AMARILLO GOLD
On 30 November 2021, Hochschild announced that it
had entered into a definitive agreement to acquire Amarillo
Gold Corporation at a net acquisition cost of an estimated
C$135 million.
The Transaction constitutes a Class 1 Transaction under
the UK Listing Rules due to the level of Posse’s Proven and
Probable Reserves relative to those of Hochschild. As such, the
Transaction is subject to Hochschild shareholder approval as
well as the approvals of Amarillo shareholders, the Canadian
court, regulatory authorities and the satisfaction of certain
other customary conditions. The Transaction has been
unanimously recommended by the board of directors of
Amarillo and has the full support of Amarillo’s major
shareholders, Baccarat Trade Investments Ltd. and Eric Sprott.
The Hochschild Board believes the Transaction is in the best
interests of Hochschild and unanimously intends to recommend
that shareholders vote in favour of the Transaction. Completion
is expected to occur towards the end of this quarter.
Posse overview
Posse is an open pit gold project located in Mara Rosa in the
mining friendly jurisdiction of Goiás State, Brazil. The brownfield
project benefits from existing infrastructure and attractive
costs. Construction of certain infrastructure is underway, with
the project having received several of the necessary installation
licences from state authorities in Goias during 2021 and 2022,
including the licences to install the power line and several mine
components (e.g. waste piles, low grade deposit). Hochschild has
revised the Posse mine plan contained in the August 2020
Definitive Feasibility Study, and will include further details in a
mineral expert’s report to be incorporated in the shareholder
circular to be issued in the next few weeks.
Hochschild’s Posse mine plan forecasts
Initial Mine Life
10 years
Average Annual
Production
~80koz Au (~100koz Au over the first four years)
Average Annual AISC
US$750/oz Au – US$850/oz Au
Initial Capex
US$180m – US$200m
Sustaining Capex
~US$40m
After-Tax NPV5% at
US$1,600/oz Au
US$150m – US$160m
After-Tax IRR at
US$1,600/oz Au
18% – 20%
After-Tax NPV5% at
US$1,800/oz Au
US$200m – US$240m
After-Tax IRR at
US$1,800/oz Au
24% – 26%
Posse NI 43-101 Proven and Probable Reserves
Tonnes
(Mt)
Au
(g/t)
Au
(koz)
Proven
11.8
1.20
456
Probable
12.0
1.16
446
Proven and Probable
23.8
1.18
902
Posse NI 43-101 Measured, Indicated and Inferred Resources
Tonnes
(Mt)
Au
(g/t)
Au
(koz)
Measured
14
1.2
510
Indicated
19
1.1
640
Measured and Indicated
32
1.1
1,200
Inferred
1
0.1
0.6
1.7
Exploration potential overview
Hochschild has identified compelling near-mine and regional
exploration opportunities for Posse and the Mara Rosa property.
Posse is open down plunge to the southwest, providing potential
to extend the mine life near the existing pit shell. There is also an
opportunity to define multiple satellite deposits along the 10km
Posse structural trend including the Araras, Speti 24 and
Pastinho priority targets. Recent drilling has identified Pastinho
as a promising target with similar geological characteristics to
Posse and multiple parallel gold structures extending from the
surface to approximately 200m of vertical depth while
remaining open. In addition to the 2,500 hectares of mining
concessions containing the Posse deposit and the 6,000
hectares of exploration concessions on the Posse structural
trend, Hochschild will acquire an additional 59,000 hectares of
regional exploration concessions on the Mara Rosa property.
VOLCAN
On 7 December 2021, Hochschild announced the appointment
of Greg McCunn as CEO of the Volcan gold project in Chile.
Concurrently, the Board has approved a work programme for
2022 which includes re-establishing operations in the Copiapo
province, updating the mineral resource estimate and exploring
ways of optimising the project development plan which are
expected to be outlined in a new technical report.
Hochschild is also expected to restructure the project into a
newly incorporated Canadian company (100%-owned by the
Company) named ‘Tiernan Gold’. In parallel with completion of
the technical report, the Company will be evaluating strategic
alternatives for Tiernan Gold.
1
Based on limited drilling at depth.
Strategic Report
Financial Statements
Governance
Further Information
35
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Hochschild Mining PLC
Annual Report & Accounts 2021
T
he reporting currency of Hochschild Mining
PLC is US dollars. In discussions of financial
performance, the Group removes the effect
of exceptional items, unless otherwise
indicated, and in the income statement results are
shown both pre and post such exceptional items.
Exceptional items are those items which, due to their
nature or the expected infrequency of the events
giving rise to them, need to be disclosed separately
on the face of the income statement to enable a
better understanding of the financial performance
of the Group and to facilitate comparison with
prior years.
A strong financial
performance in 2021
Eduardo Noriega
Chief Financial Officer
$811
m
2021 REVENUE
$383
m
ADJUSTED EBITDA
$67
m
NET PROFIT
Adjusted EBITDA
increased by 41% to
$382.8 million mainly
due to the increase
in revenue resulting
from the rebound in
production following
2020 operational
stoppages...”
FINANCIAL REVIEW
36
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Hochschild Mining PLC
Annual Report &
Accounts 2021
1
Includes revenue from services.
Revenue
Gross revenue
1
Gross revenue from continuing operations increased by 29% to $831.0 million in 2021 (2020: $641.5 million) mainly due to the
rebound to a normal year of operation following the production stoppages during 2020 resulting from the Covid-19 crisis. In
addition, there was a strong rise in the average realised silver price.
In February 2021, the Company hedged 4 million ounces of 2021 silver production at $27.10 per ounce and 4 million ounces
of 2022 silver production at $26.86 per ounce. On 10 November 2021, the Company hedged 3.3 million ounces of 2023 silver
production at $25.00 per ounce. During the year ended 31 December 2021, 4.0 million silver ounces were hedged at $27.10
per ounce, boosting the realised price.
Gold
Gross revenue from gold in 2021 increased to $464.3 million (2020: $376.9 million) due to the 25% rise in gold sales resulting from the
rebound of production versus the Covid-19 impacted 2020. This was partially offset by a 2% fall in the average realised gold price.
Silver
Gross revenue from silver increased in 2021 to $366.2 million (2020: $264.5 million) due to a 24% rise in silver sales resulting from the
rebound of production versus the Covid-19 impacted 2020. This was significantly augmented by a 12% rise in the average realised
silver price.
Gross average realised sales prices
The following table provides figures for average realised prices (before the deduction of commercial discounts) and ounces sold for
2021 and 2020:
Average realised prices
Year ended
31 Dec 2021
Year ended
31 Dec 2020
Silver ounces sold (koz)
14,712
11,846
Avg. realised silver price ($/oz)
24.9
22.3
Gold ounces sold (koz)
260.71
207.77
Avg. realised gold price ($/oz)
1,781
1,814
Commercial discounts
Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrate, and
are deducted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of
gross revenue (payable deductions). In 2021, the Group recorded commercial discounts of $19.6 million (2020: $19.7 million) in line
with 2020. The ratio of commercial discounts to gross revenue in 2021 was 2% (2020: 3%).
Net revenue
Net revenue was $811.4 million (2020: $621.8 million), comprising net gold revenue of $457.8 million (2020: $370.1 million) and net
silver revenue of $353.1 million (2020: $251.6 million). In 2021, gold accounted for 56% and silver 44% of the Company’s consolidated
net revenue (2020: gold 60% and silver 40%).
Reconciliation of gross revenue by mine to Group net revenue
$000
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Silver revenue
Inmaculada
156,675
84,651
85
Pallancata
82,727
83,405
(1)
San Jose
126,790
96,472
31
Commercial discounts
(13,088)
(12,932)
1
Net silver revenue
353,104
251,596
40
Gold revenue
Inmaculada
296,160
230,255
29
Pallancata
22,989
24,154
(5)
San Jose
145,187
122,483
19
Commercial discounts
(6,517)
(6,810)
(4)
Net gold revenue
457,819
370,082
24
Other revenue
464
149
211
Net revenue
811,387
621,827
30
Strategic Report
Financial Statements
Governance
Further Information
37
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Hochschild Mining PLC
Annual Report & Accounts 2021
Cost of sales
Total cost of sales before exceptional items was $487.8 million in 2021 (2020: $397.8 million). The direct production cost excluding
depreciation was higher at $323.4 million (2020: $218.2 million) mainly due to the Covid-19 related stoppages affecting 2020. Abnormal
costs during the phases of reduced production capacity were $8.7 million (2020: $46.5 million). Depreciation in production cost
increased to $148.8 million (2020: $113.1 million) due to higher extracted volumes across all operations, again mainly due to the
stoppages affecting 2020. Unallocated fixed costs from workers that were unable to work during the Covid-19 crisis were $8.7 million
(2020: $46.5 million; includes fixed costs from stoppages and operating at reduced capacity), and are shown separately below.
$000
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Direct production cost excluding depreciation
323,418
218,212
48
Depreciation in production cost
148,842
113,146
32
Other items and workers’ profit sharing
6,512
2,632
147
Fixed costs during operational stoppages and reduced capacity
8,680
46,480
(81)
Change in inventories
320
17,323
(98)
Cost of sales
487,772
397,793
23
Fixed costs during operational stoppages and reduced capacity
$000
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Personnel
7,607
32,117
(76)
Third-party services
995
8,948
(89)
Supplies
–
1,698
–
Depreciation and amortisation
–
1,818
–
Others
78
1,899
(96)
Cost of sales
8,680
46,480
(81)
Unit cost per tonne
The Company reported unit cost per tonne at its operations of $133.5 per tonne in 2021, an 11% increase versus 2020 ($119.9
per tonne). This was due to: higher costs at Inmaculada resulting from using more semi-mechanised mining methods with a higher
extraction cost; higher costs at Pallancata due to the use of more conventional mining methods; and higher costs at San Jose from
expenditure related to the accessing and mining of incremental resources.
Unit cost per tonne by operation (including royalties)
2
Operating unit ($/tonne)
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Peru
106.5
97.5
9
Inmaculada
99.2
95.1
4
Pallancata
124.8
101.2
23
Argentina
San Jose
229.0
199.4
15
Total
133.5
119.9
11
Cash costs
Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included
in cost of sales.
2
Unit cost per tonne is calculated by dividing mine and treatment production costs (excluding depreciation) by extracted and treated tonnage respectively.
FINANCIAL REVIEW
CONTINUED
38
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Hochschild Mining PLC
Annual Report & Accounts 2021
Cash cost reconciliation
3
Year ended 31 Dec 2021
$000 unless otherwise indicated
Inmaculada
Pallancata
San Jose
Total
Group cash cost
141,316
80,354
150,663
372,333
(+) Cost of sales
4
213,812
93,049
172,231
479,092
(-) Depreciation and amortisation in cost of sales
(76,372)
(19,915)
(49,195)
(145,482)
(+) Selling expenses
616
620
14,195
15,431
(+) Commercial deductions
5
3,260
6,600
13,432
23,292
Gold
2,164
1,034
5,717
8,915
Silver
1,096
5,566
7,715
14,377
Revenue
452,835
99,116
258,972
810,923
Gold
296,160
21,955
139,704
457,819
Silver
156,675
77,161
119,268
353,104
Ounces sold
Gold
165.9
13.0
81.8
260.7
Silver
6,216
3,263
5,233
14,712
Group cash cost ($/oz)
Co product Au
557
1,366
993
806
Co product Ag
7.9
19.2
13.3
11.0
By product Au
(99)
(182)
289
19
By product Ag
(25.3)
17.6
1.0
(6.4)
Year ended 31 Dec 2020
$000 unless otherwise indicated
Inmaculada
Pallancata
San Jose
Total
Group cash cost
102,135
62,181
107,119
271,435
(+) Cost of sales
6
154,950
83,272
113,091
351,313
(-) Depreciation and amortisation in cost of sales
(55,338)
(28,608)
(30,716)
(114,662)
(+) Selling expenses
417
632
11,705
12,754
(+) Commercial deductions
7
2,106
6,885
13,039
22,030
Gold
117
1,102
5,715
6,934
Silver
1,989
5,783
7,324
15,096
Revenue
314,906
100,674
206,098
621,678
Gold
230,255
23,052
116,775
370,082
Silver
84,651
77,622
89,323
251,596
Ounces sold
Gold
129.7
12.8
65.3
207.8
Silver
4,020
3,654
4,172
11,846
Group cash cost ($/oz)
Co product Au
576
1,112
930
778
Co product Ag
6.8
13.1
11.1
9.3
By product Au
119
(1,658)
160
23
By product Ag
(31.9)
10.4
(3.7)
(8.9)
Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided
by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial
discounts of the by-product divided by the ounces sold of the primary metal.
3
Cash costs are calculated to include cost of sales, commercial discounts and selling expenses items less depreciation included in cost of sales.
4 Does not include fixed costs during operational stoppages and reduced capacity of $8.7 million.
5
Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore.
6 Does not include fixed costs during operational stoppages and reduced capacity of $46.5 million.
7
Includes commercial discounts (from the sales of concentrate) and commercial discounts from the sale of dore.
Strategic Report
Financial Statements
Governance
Further Information
39
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Hochschild Mining PLC
Annual Report & Accounts 2021
All-in sustaining cost reconciliation
8
All-in sustaining cash costs per silver equivalent ounce
Year ended 31 Dec 2021
$000 unless otherwise indicated
Inmaculada
Pallancata
San Jose
Main
operations
Corporate &
others
Total
(+) Direct production cost excluding depreciation
134,110
66,859
122,449
323,418
–
323,418
(+) Other items and workers’ profit sharing in cost of sales
3,489
3,023
–
6,512
–
6,512
(+) Operating and exploration capex for units
9
76,512
14,526
41,325
132,363
1,735
134,098
(+) Brownfield exploration expenses
3,276
5,993
9,653
18,923
3,658
22,581
(+) Administrative expenses (excl depreciation)
10
4,909
1,074
6,104
12,087
38,782
50,870
(+) Royalties and special mining tax
11
5,190
1,136
–
6,326
5,916
12,242
Sub-total
227,486
92,612
179,532
499,629
50,092
549,721
Au ounces produced
165,730
13,045
83,615
262,390
–
262,390
Ag ounces produced (000s)
6,236
3,261
5,250
14,746
14,746
Ounces produced (Ag Eq 000s oz)
20,488
4,382
12,440
37,311
–
37,311
Sub-total ($/oz Ag Eq)
11.1
21.1
14.4
13.4
–
14.7
(+) Commercial deductions
3,260
6,600
13,432
23,292
–
23,292
(+) Selling expenses
616
620
14,195
15,431
–
15,431
Sub-total
3,876
7,220
27,627
38,723
–
38,723
Au ounces sold
165,857
13,027
81,831
260,714
–
260,714
Ag ounces sold (000s)
6,216
3,263
5,233
14,712
–
14,712
Ounces sold (Ag Eq 000s oz)
20,480
4,383
12,270
37,133
–
37,133
Sub-total ($/oz Ag Eq)
0.2
1.6
2.3
1.0
–
1.0
All-in sustaining costs ($/oz Ag Eq)
11.3
22.8
16.7
14.4
1.3
15.8
All-in sustaining costs ($/oz Au Eq)
971
1,959
1,435
1,241
115
1,357
Not included in the figure are unabsorbed fixed costs from workers that were unable to work during the Covid 19 crisis of $8.7 million
(2020: $44.7 million; includes fixed costs without depreciation from stoppages and operating at reduced capacity), as well as $22.5
million (2020: $27.6 million) of exceptional Covid-19 response initiatives. These effects would have an impact on the AISC from main
operations of $0.2/oz Ag Eq and $0.6/oz Ag Eq respectively (2020: $1.5/oz Ag Eq and $0.9/oz Ag Eq respectively).
Year ended 31 Dec 2020
$000 unless otherwise indicated
Inmaculada
Pallancata
San Jose
Main
operations
Corporate &
others
Total
(+) Direct production cost excluding depreciation
86,874
51,534
79,804
218,212
–
218,212
(+) Other items and workers’ profit sharing in cost of sales
1,383
1,249
–
2,632
–
2,632
(+) Operating and exploration capex for units
12
62,128
7,506
21,681
91,315
447
91,762
(+) Brownfield exploration expenses
2,526
4,652
9,720
16,898
3,745
20,643
(+) Administrative expenses (excl depreciation)
3,768
1,205
5,590
10,563
30,533
41,096
(+) Royalties and special mining tax
13
3,098
990
–
4,088
3,119
7,206
Sub-total
159,777
67,136
116,795
343,707
37,592
381,299
Au ounces produced
129,173
12,925
64,987
207,085
–
207,085
Ag ounces produced (000s)
4,034
3,679
4,108
11,821
–
11,821
Ounces produced (Ag Eq 000s oz)
15,143
4,790
9,697
29,631
–
29,631
Sub-total ($/oz Ag Eq)
10.6
14.0
12.0
11.6
–
12.9
(+) Commercial deductions
2,106
6,885
13,039
22,030
–
22,030
(+) Selling expenses
417
632
11,705
12,754
–
12,754
Sub-total
2,523
7,517
24,744
34,784
–
34,784
Au ounces sold
129,697
12,798
65,280
207,776
–
207,776
Ag ounces sold (000s)
4,020
3,654
4,172
11,846
–
11,846
Ounces sold (Ag Eq 000s oz)
15,174
4,754
9,786
29,715
–
29,715
Sub-total ($/oz Ag Eq)
0.2
1.6
2.5
1.2
–
1.2
All-in sustaining costs ($/oz Ag Eq)
10.7
15.6
14.6
12.8
1.3
14.0
All-in sustaining costs ($/oz Au Eq)
922
1,341
1,253
1,098
109
1,208
8 Calculated using a gold/silver ratio of 86:1 in line with 2020.
9 Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments.
10 Administrative expenses does not include expenses from Aclara Resources Inc ($179,000).
11 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line.
12 Operating capex from San Jose does not include capitalised DD&A resulting from mine equipment utilised for mine developments.
13 Royalties arising from revised royalty tax schemes introduced in 2011 and included in income tax line.
FINANCIAL REVIEW
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40
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Hochschild Mining PLC
Annual Report & Accounts 2021
Administrative expenses
Administrative expenses were increased by 20% to $51.9 million (2020: $43.3 million) due to increased professional fees of $3.7
million mainly linked to M&A transactions, tax penalties of $1.5 million and higher legal workers’ profit sharing provisions in Peru
of $1.3 million.
Exploration expenses
In 2021, exploration expenses increased to $39.9 million (2020: $32.8 million) due to the 2020 reduced execution of the greenfield
and brownfield programme as a result of the Covid-19 lockdown.
In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential
resource to the Inferred or Measured and Indicated categories. In 2021, the Company capitalised $6.1 million relating to
brownfield exploration compared to $1.7 million in 2020, bringing the total investment in exploration for 2021 to $46.0 million
(2020: $34.5 million).
Selling expenses
Selling expenses were increased to $15.4 million (2020: $12.8 million) mainly due to higher volume sold and higher prices, principally
due to the fact that in Argentina, which levies export taxes, the San Jose operation was affected by production stoppages in 2020.
Other income/expenses
Other income before exceptional items was higher at $8.4 million (2020: $3.6 million) mainly due to increased gains on the sale of
equipment ($3.3 million) and $1.0 million of higher income on the recovery of expenses and provisions.
Other expenses before exceptional items were higher at $44.6 million (2020: $28.9 million) with the increase mainly due to: a
voluntary redundancy programme in Argentina of $8.3 million; mine provision increases of $22.1 million (2020: $16.1 million); and
higher corporate social responsibility contribution in Argentina of $3.9 million (2020: $2.7 million).
Adjusted EBITDA
Adjusted EBITDA increased by 41% to $382.8 million (2020: $270.9 million) mainly due to the increase in revenue resulting from the
rebound in production following 2020 operational stoppages due to the Covid-19 crisis. In addition, there was a significant increase
in the average realised silver price. These effects were partially offset by higher production costs and lower gold prices.
Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs, foreign exchange
losses and income tax plus non-cash items (depreciation and amortisation and changes in mine closure provisions) and exploration
expenses other than personnel and other exploration related fixed expenses.
$000 unless otherwise indicated
Year ended
31 Dec 2021
Year ended
31 Dec 2020
% change
Profit from continuing operations before exceptional items, net finance income/(cost), foreign exchange
loss and income tax
179,438
107,837
66
Depreciation and amortisation in cost of sales
145,482
116,480
25
Depreciation and amortisation in administrative expenses and other expenses
2,184
2,158
1
Exploration expenses
39,848
32,795
22
Personnel and other exploration related fixed expenses
(7,099)
(6,486)
9
Other non-cash income, net
14
22,958
18,134
27
Adjusted EBITDA
382,811
270,918
41
Adjusted EBITDA margin
47%
44%
14
Adjusted EBITDA has been presented before the effect of significant non-cash (income)/expenses related to changes in mine closure provisions which were $22.1 million in 2021
and $16.1 million in 2020, and the write-off of property, plant and equipment.
Strategic Report
Financial Statements
Governance
Further Information
41
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Hochschild Mining PLC
Annual Report & Accounts 2021
Finance income
Finance income before exceptional items of $3.9 million decreased from 2020 ($4.2 million) mainly due to the net effect of: a
decrease of $1.1 million due to change in the fair value of the Group’s holding in Americas Gold & Silver Corporation shares received
as payment for the San Felipe project; lower interest on deposits of $0.3 million; and lower income on discount of credits of $0.3
million. This was partially offset by higher income due to the unwinding of the discount on mine rehabilitation of $1.6 million.
Finance costs
Finance costs before exceptional items increased from $23.6 million in 2020 to $32.1 million in 2021, principally due to: the
cancellation of the Libor rate swap of the refinanced $200 million medium-term loan ($3.8 million); the refinancing cost of the
medium-term loan ($1.8 million); and foreign exchange transaction costs to acquire $18.1 million dollars in Argentina, which resulted
in a loss of $15.3 million (2020: $12.8 million).
Foreign exchange (losses)/gains
The Group recognised a foreign exchange loss of $2.4 million (2020: $2.6 million loss) as a result of exposures in currencies other
than the functional currency – the Peruvian sol and the Argentinean peso, which both depreciated in 2021.
Income tax
The Company’s pre-exceptional income tax charge was $81.3 million (2020: $49.6 million). The significant rise in the charge is
explained by the rebound in profitability versus the Covid-impacted 2020. In addition, there was an increase in the tax rate in
Argentina to 35% impacting deferred income tax by $12.5 million.
The effective tax rate (pre-exceptional) for the period was 54.7% (2020: 57.8%), compared to the weighted average statutory income
tax rate of 30.9% (2020: 30.8%). The high effective tax rate in 2021 versus the average statutory rate is mainly explained by the
impact of a higher income tax rate in Argentina increasing the effective rate by 8.4%, royalties and the Special Mining Tax which
increased the effective rate by 8.2%, local currency devaluation in Peru increasing the rate by 5.0%, and the impact of non-
deductible expenses related to buying US dollars in Argentina increasing the rate by 3.4%.
Exceptional items
Exceptional items in 2021 totalled a $3.7 million gain after tax (2020: $15.8 million loss after tax). Exceptional items in 2021 included:
a gain on the demerger of Aclara Resources of $37.5 million (non-taxable); impairment of the Pallancata mining unit of $24.9 million;
and $24.1 million of Covid-19 response initiatives distributed between cost of sales and other expenses (2020: $31.2 million).
Covid-19 response initiatives include: incremental personnel expenses; Covid tests; accommodation whilst testing all workers for
active Covid-19 cases prior to travelling to mine units; and additional transportation costs to facilitate social distancing. These
items are presented as exceptional as they are incremental to the Group’s regular business, resulting from initiatives to respond to
the impact from Covid-19. Given the current progress of the pandemic, the response expenses are not expected to be recorded as
exceptional items in the future.
Covid-19 response initiatives
15
$000
Peru
Argentina
Total
Personnel
2,743
2
2,745
Donations
1
3
4
Third-party services
8,236
11,421
19,657
Others
1,381
227
1,680
Total
12,361
11,653
24,014
The tax effect of these exceptional items was a $15.1 million tax gain (2020: $7.2 million tax gain). The total effective tax rate was
48.2% (2020: 68.0%). The net attributable profit of exceptional items was $7.4 million.
15
Covid-19 response initiatives are distributed between cost of sales and other expenses. Cost of sales mainly includes the expenses related to the operating mine units
(Inmaculada, Pallancata, San Jose) of $22.5 million. Other expenses includes corporate expenses and expenses from non-operating units of $1.5 million.
FINANCIAL REVIEW
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Hochschild Mining PLC
Annual Report & Accounts 2021
Cash flow and balance sheet review
Cash flow
$000
Year ended
31 Dec 2021
Year ended
31 Dec 2020
change
Net cash generated from operating activities
282,520
195,374
86,137
Net cash used in investing activities
(183,434)
(112,229)
(71,205)
Cash flows generated from/(used in) financing activities
59,307
(12,411)
71,718
Foreign exchange adjustment
(3,487)
(5,208)
2,730
Net increase in cash and cash equivalents during the year
154,906
65,526
89,380
Net cash generated from operating activities increased from $195.4 million in 2020 to $282.5 million in 2021 mainly due to higher
Adjusted EBITDA of $382.8 million (2020: $270.9 million).
Net cash used in investing activities increased from $112.2 million in 2020 to $183.4 million in 2021 mainly due to higher purchases
of property, plant and equipment, and evaluation and exploration assets; and the purchase of Aclara shares for $20.0 million.
Cash from financing activities increased to an inflow of $59.3 million from an outflow of $12.4 million in 2020, primarily due to the
additional medium-term loan of $100.0 million, partially offset by higher dividends to non-controlling interest of $9.8 million (2020:
$0.3 million) and lower repayment of borrowings of $14.8 million (2020: $37.7 million).
Working capital
$000
As at
31 December
2021
As at
31 December
2020
Trade and other receivables
69,749
78,196
Inventories
49,184
42,362
Derivative financial assets/(liabilities)
14,073
(1,500)
Income tax payable, net
(22,322)
(20,709)
Trade and other payables
(133,482)
(114,415)
Provisions
(32,058)
(25,504)
Working capital
(54,856)
(41,570)
The Group’s working capital position declined in 2021 from $(41.6) million to $(54.9) million. The key drivers were: higher trade and
other payables of $19.1 million; lower trade and other receivables of $8.5 million; and higher provisions of $6.6 million. These effects
were partially offset by: higher derivative financial assets of $15.6 million mainly comprised of the position on the Company’s silver
hedges; and higher inventories of $6.9 million.
Net cash
$000 unless otherwise indicated
As at
31 December
2021
As at
31 December
2020
Cash and cash equivalents
386,789
231,883
Non-current borrowings
(300,000)
(199,554)
Current borrowings
16
(499)
(10,778)
Net cash/(debt)
86,290
21,551
The Group’s reported net cash position was $86.3 million as at 31 December 2021 (31 December 2020: net cash of $21.6 million).
The Group benefited from strong cash flow generation resulting from the high precious metal prices. In 2021, the Company
recorded an increase in borrowings resulting from the drawing down of a further $100 million of the Company’s revised
medium-term loan.
16
Includes pre-shipment loans and short-term interest payables.
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Capital expenditure
17
$000
Year ended
31 Dec 2021
Year ended
31 Dec 2020
Pallancata
14,250
7,506
San Jose
43,666
23,030
Inmaculada
76,512
62,128
Operations
134,428
92,664
Aclara
11,476
8,650
Other
7,957
6,610
Total
153,861
107,924
2021 capital expenditure of $153.9 million (2020: $107.9 million) mainly comprised operational capex of $134.4 million (2020: $92.8
million) with the increase versus 2020 resulting from deferred capex at all operations in 2020 due to the impact of the Covid-19
pandemic and higher capex for development work at Pallancata to access newly economic resources which have further
extended the mine life.
17
Includes additions in property, plant and equipment and evaluation and exploration assets (confirmation of resources) and excludes increases in the expected closure costs
of mine asset.
FINANCIAL REVIEW
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Hochschild Mining PLC
Annual Report & Accounts 2021
Shareholders
Government/
Regulators
Employees
Suppliers/
Lenders
Social
Customers
We are focused on driving long-term sustainable
performance for the benefit of our customers,
shareholders and wider stakeholders.
STAKEHOLDER ENGAGEMENT
Our six key stakeholder groups
Section 172
On these pages, we describe our key stakeholders and summarise
the engagement that has been undertaken across the business.
How the Board develops an understanding of the interests of
stakeholders, and how it considers stakeholders’ interests in its
principal decisions and the section 172(1) statement can be found
in the Corporate Governance Report on pages 88 and 89.
Strategic Report
Governance
Financial Statements
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Shareholders
Employees
Social
Why are they important to us?
Engagement activities
Our shareholders are investors and
owners of the business. We seek to
establish and maintain constructive
relations with all shareholders through
open dialogue and an ongoing
programme of engagement.
Our people are key to the success of
our business. We seek to attract, retain
and develop our people through
competitive remuneration, a positive
and safe working environment and
developmental opportunities.
We recognise our social
commitments to (a) produce the
smallest environmental footprint
possible and (b) understand the
needs and expectations of our local
communities. Through close
collaboration we implement social
investment programmes in our
areas of focus.
We interact with our shareholders
through various methods throughout
the year with the participation of the
CEO, CFO, members of the Board, the
Company Secretary and the Head of
Investor Relations.
Examples of shareholder engagement in
2021 include discussions with investors,
led by the Remuneration Committee, on
executive Remuneration Policy and
feedback on the 2020 Remuneration
Report, and the Capital Markets
presentation on the Group’s rare earths
business (Aclara Resources).
Employee engagement generally
takes many forms and includes the use
of surveys, presentations and Q&A
sessions with management. Our 2021
programme included:
– workshops hosted by senior
management and external specialists
facilitating discussions themed around
the Group’s cultural attributes;
– sessions led by the Country General
Managers with managers of the mining
units; and
– regular meetings with labour unions to
negotiate collective agreements and
discuss matters of interest.
We adopt a varied approach to engaging
with local communities including:
– direct interaction with local mayors and
residents;
– our Permanent Information Office
(which re-opened for in-person service
in 2021) and town hall meetings;
– community surveys;
– collaborative activities, for example
environmental monitoring; and
– the implementation of local purchasing
and hiring protocols.
STAKEHOLDER ENGAGEMENT
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Hochschild Mining PLC
Annual Report & Accounts 2021
Additional information
READ MORE
Corporate Governance Report
(Shareholder Engagement)
– page 87
Directors’ Remuneration Report
– page 104
READ MORE
Sustainability Report (Our people)
– page 61
Risk Management (Personnel risks)
– page 71
READ MORE
Sustainability Report (Environment
Management & Communities)
– from page 54
Risk Management (Environmental risks)
– page 74
Risk Management (Community relations)
– page 75
Issues raised in 2021
– Impact of safety events on
executive remuneration
– Progress at Aclara’s rare earths project
– Various issues relating to ESG
(environmental, social and governance)
including environmental management,
safety and relations with communities
– Growth strategy
For further information on the actions taken by
the Company in response to investor feedback on
executive remuneration, please refer to the
Directors’ Remuneration Report.
– Covid-19 health protocols and information
on vaccines
– Adaptations prompted by the pandemic such as
working shift changes and changes in catering
provision due to contractor staff shortages
– Remuneration retention plans for
health personnel
– Environmental issues
– Local hiring and purchasing
– Provision of education to children and others
returning from cities
– Covid vaccinations
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Customers
Due to the nature of what we produce,
Hochschild has relatively few
customers. As a result, successful
relations with our customers are of
critical importance to our business.
Our sales and logistics teams oversee
a relationship of co-operation and
constant dialogue.
In addition to usual relationship
management, customer engagement
during 2021 took place virtually including
during London Metals Exchange week.
Suppliers/
Lenders
As a key influence on how we operate
our business, we seek a relationship of
mutual benefit while requiring high
standards of conduct.
The General Managers of our Peruvian
and Argentinian operations maintain
ongoing dialogue with suppliers to the
mine sites. Other suppliers are managed
by the relevant functional department
such as IT, Group Finance, etc.
Government /
Regulators
It is our aim to maintain a constructive
relationship and open dialogue with the
various governmental authorities we
interact with in each of the countries
where we operate.
The Vice President of Corporate Affairs
oversees regular interaction with relevant
authorities and regulators, both at a
Company level but also through the
National Mining Association. Various
teams also regularly interact with public
officials and regulators as part of their
operational functions.
The equivalent role in our Argentinian
joint venture is undertaken by the General
Manager and General Counsel. We also
play an active role through the National
Mining Association.
In 2021, management engaged directly
with members of the Peruvian Government
in response to actions by the Prime Minister
in the Coracora district For further details,
please refer to the commentary on Political,
Legal and Regulatory risks in the Risk
Management report.
Why are they important to us?
Engagement activities
STAKEHOLDER ENGAGEMENT
CONTINUED
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Hochschild Mining PLC
Annual Report & Accounts 2021
READ MORE
Risk Management (Commercial
Counterparty risk) – page 70
– Shipping schedules due to the impact
of delays in global logistics
– Adjustments to standard logistics protocols
to avoid shipping delays
– Discussions on the provision of additional
information/guarantees in light of HOC’s
procedures to mitigate counterparty risk
READ MORE
Risk Management (Business Interruption/
Supply Chain risks) – page 70
– Ongoing application of Covid-19 health
protocols for onsite suppliers (such as
catering contractors)
– The maintenance of stocks of critical
consumables to mitigate supply chain risks
– Ongoing discussions to anticipate price
variations due to rising freight costs
– With regards to its lenders, the Group provides
information on an ongoing basis on relevant
developments including operational, social
and political matters
READ MORE
Risk Management (Political, Legal &
Regulatory risks) – from page 72
– Ongoing implementation of Covid-19
health protocols
– Health & Safety and environmental
performance and compliance
– Contribution to regional development such as
through local job creation and investment in
social programmes/infrastructure
– Discussions with representatives of the Tahltan
Central Government on Hochschild’s planned
activities at the Snip project
Additional information
Issues raised in 2021
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
SUSTAINABILITY REPORT
Responsible and
innovative mining
committed to a
better world
Since the Company’s inception, we have
endeavoured to maintain and reinforce our
corporate values of respecting the wellbeing of
our employees, the environment, and the
communities in which we operate.
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Hochschild Mining PLC
Annual Report & Accounts 2021
Dear shareholder
A key foundation of Hochschild’s corporate
purpose is our collective sense of responsibility.
I am pleased to report on our key Environmental,
Social and Governance (ESG) activities and
achievements for 2021. We will also publish our
stand-alone Sustainability Report in Q2 2022
outlining our efforts in greater detail.
Serving our communities
Our Community Relations team has continued to
support our local communities during the ongoing
Covid-19 pandemic. We invested $5.4m in our local
communities, we provided employment to over 1,000
people from our surrounding communities in Peru,
Argentina and Chile, and procured goods and
services worth over $16m from local providers.
Protecting the environment
From an environmental perspective, I would like to
highlight two aspects in particular. For the first time
since we launched our ECO Score framework in 2015,
we ended the year with four mining units with perfect
scores of 6 out of 6. Also, over the last year we have
embarked on an ambitious journey to develop our
first corporate carbon strategy to become net zero,
which will be ready by the end of Q1 2022 for
adoption in Q2 2022.
Health and safety
Our people’s safety and wellbeing continue to be
our highest priority.
Our Health and Safety Risk Information Management
System was certified by DNV
1
to Level 7 a year ahead
of schedule and is the culmination of three years of
progressive improvement. Despite our continued
focus on safety, I am very saddened to report that
two fatal incidents occurred in 2021. Two of our
contractors were fatally injured while working at
our San Jose and Aclara mining projects. As always,
whenever such accidents occur at our mine sites, a
full investigation is carried out and we take whatever
steps are necessary to achieve our aim of zero harm.
As previously reported, an unprecedented
tragic traffic accident occurred in June 2021
involving our transport contractor which claimed
the lives of 26 colleagues. The entire organisation
was deeply affected by this accident and we
provided support to the families of the victims and
supported the local authorities and contractor
with their respective investigations.
Our people
Diversity, particularly with regards to gender,
continues to be a focus area for Hochschild. We have
achieved 33% female representation on the Board
compared to the average score of 24.6% across
World Gold Council members
2
. During the year we
also continued with our initiatives across the
organisation to promote diversity and inclusion.
Ensuring we are a responsible business
It is important for us that we always operate in
an ethical manner. In 2021, we achieved the Zero
Corruption Certification of Entrepreneurs for
integrity. Furthermore, we were recognised with the
EMIN award (Mining Excellence of the South Macro
Region), by the Peruvian National Society of
Industries and the Arequipa Chamber of
Commerce in Peru.
Looking forward, we have a comprehensive work
plan to drive continuous improvement including:
continue rolling out internal training on our Human
Rights Policy, implementing a human rights due
diligence process, strengthening our environmental
culture, and carefully managing our climate-related
risks and their potential impacts.
We welcome your comments and feedback on our
sustainability activities, which can be shared via
Graham Birch
Chair, Sustainability Committee
22 February 2022
1
Independent certification body
2
According to the latest data available published in 2020
$16.8
m
VALUE OF GOODS AND
SERVICES PROCURED FROM
LOCAL PROVIDERS
33
%
FEMALE BOARD
COMPOSITION
$5.4
m
INVESTED IN
LOCAL COMMUNITIES
Strategic Report
Governance
Financial Statements
Further Information
51
|
Hochschild Mining PLC
Annual Report & Accounts 2021
Best in class
Robust culture
Transparency
Maximise innovation
Minimal footprint
Sustainability Strategy
SUSTAINABILITY REPORT
CONTINUED
Our approach to sustainability
Hochschild’s approach to sustainability
Our long-term business model has
been developed to not only offer an
attractive investment proposition for
our shareholders, but also as part of our
commitment to making a better world
for our workforce, communities and
society as a whole.
To ensure these values continue to be
met, we have operationalised our policies
to be able to showcase our commitment
to areas in which we can impact the most,
underpinned by our recognition of the
United Nations Sustainability
Development Goals (UN SDGs).
Our areas
of focus
Protecting the
environment
PAGE 56
Serving our
communities
PAGE 54
Health and
safety
PAGE 59
Ensuring we are
a responsible
business
PAGE 63
Our
people
PAGE 61
Refreshed materiality assessment
In 2021, we completed a materiality
assessment refresh, which identified
14 material ESG topics critical for
Hochschild to manage. The process
included an external trends analysis,
engagement with internal and external
stakeholders, and an in-depth topic
analysis and prioritisation. We are
planning to refresh our materiality
assessment every two years.
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Governance
Strong sustainability governance is critical
for Hochschild to maintain its social licence
to operate, requiring leadership from the
very top of the organisation. Our Board of
Directors has ultimate responsibility for
establishing Group policies relating to
sustainability and employee matters, and
ensuring that international and national
standards are met.
In December 2021, Tracey Kerr
was appointed to the Board as an
Independent Non-Executive Director.
Tracey joins the Company having spent
a considerable part of her career with
Anglo American and she brings with her
a breadth of sustainability experience
from her previous roles as a senior mining
executive with ESG responsibilities.
The Sustainability Committee, a formal
committee of the Board, has been
delegated responsibility for various
sustainability issues, focusing on
compliance and ensuring that
appropriate systems and practices
are in place Group-wide to ensure the
effective management of ESG-related
risks and opportunities.
Graham Birch, who chairs the Committee,
has Board-level responsibility for ESG
issues and is the Designated Non-
Executive Director for Workforce
Engagement. The Vice Presidents of
Operations, Legal & Corporate Affairs,
and Human Resources report to
Graham Birch as chair of the
Sustainability Committee.
Committee membership and attendance
at Committee meetings are detailed in
the table below.
Members
Independent
Maximum
possible
attendance
Actual
attendance
Graham Birch, Non-Executive Director (Chair)
Yes
4
4
Ignacio Bustamante, Chief Executive Officer
No
4
4
Eileen Kamerick, Non-Executive Director*
Yes
3
3
Michael Rawlinson, Non-Executive Director
Yes
4
4
Sanjay Sarma, Non-Executive Director**
Yes
4
4
* Eileen Kamerick was appointed a member of the Committee on 1 May 2021
** Sanjay Sarma stepped down from the Committee on his retirement from the Board on 10 December 2021
Tracey Kerr will join the Committee as a
member on 1 March 2022 and, following
Graham Birch’s retirement from the
Board at the 2022 AGM, will become
Committee Chair.
The Committee conducted the following
key activities during 2021:
– Approved the 2020 Sustainability
Report for inclusion in the 2020
Annual Report;
– Monitored the execution of the
annual plan in our key areas of focus:
Serving our communities, Protecting
the environment, Health and safety
and our people;
– Received updates on the Company’s
initiatives supporting employees and
local communities through the ongoing
Covid-19 pandemic;
– Oversight of the ongoing rollout of the
Environment Culture Transformation
Plan to assure a robust environmental
culture across the organisation;
– Reviewed the ICMM’s Global Standard
on Tailings Management and adopted
a Tailings Storage Facility Policy;
– Considered the investigations into the
two workplace fatalities that occurred
during the year as well as the traffic
accident involving a bus operated by
one of our transport contractors;
– Reviewed the key sustainability-related
risks to which the Company is exposed
as well as assessing the adequacy of
the mitigation measures that have
been adopted.
Sustainability reporting
In 2021, we completed the Climate, Forest
and Water Security Carbon Disclosure
Project (CDP) disclosures and aligned
climate reporting with the Task Force on
Climate-related Financial Disclosures
(TCFD) framework. The 2021 TCFD report
can be found from page 64.
To provide stakeholders with a
transparent account of the sustainability
topics of most importance to our business
and the steps we are continually taking to
better measure our impact and improve
our sustainability performance, we will
publish a standalone Sustainability
Report, aligned with GRI core-level
requirements in Q2 2022. Going forward
we will publish a standalone Sustainability
Report every other year and continue to
provide stakeholders with our progress
on ESG related topics within our
Annual Report.
Strategic Report
Financial Statements
Governance
Further Information
53
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Hochschild Mining PLC
Annual Report & Accounts 2021
Serving our
communities
Our approach to serving our
communities
The Hochschild way is to promote close
collaboration with our local communities
with full respect for local customs and
social dynamics. Our actions are guided
by our Community Relations Policy and
our active engagement strategy, which
set out our intention to build trust, provide
clear communication and actively listen
to and understand community concerns.
Key achievements 2021
–
Digital inclusion:
As part of our
Conexion Futuro (‘Future Connection’)
programme to keep communities
connected during the Covid-19
pandemic, we installed three new
digital centres in the communities of
Quilcaccasa, Belen and Pacapausa.
–
Education:
Our educational programme
Aprender Para Triunfar (‘Learn to
Succeed’) provided academic support
in mathematical reasoning and reading
comprehension for elementary students
as well as focusing on emotional and
entrepreneurial skills for secondary
students. In 2021, we were able to
support almost 200 students and over
80 teachers across 11 communities.
We also donated over 300 tablets to
schoolchildren, which facilitated the
delivery of educational programmes
developed by the government. This
allowed students to have access to
learning experiences during school shut
down due to the pandemic, aligned with
Peru’s national curriculum. Alongside
this, we trained 65 teachers in the use
of technological tools and wellbeing
techniques.
Finally, in 2021, 13 women from our
communities graduated as plant
and infrastructure assistants through
our scholarship programme Becas
Futuro Mujer (‘Women of the Future
Scholarship’). Five of these graduates
have since been employed by
Hochschild to work at the Inmaculada
mine. The programme, launched in
2020, offers the opportunity for higher
studies in technical careers, equipping
students with skills that are sought after
in the mining industry.
1,057
COMMUNITY MEMBERS EMPLOYED ACROSS NINE
OF OUR SITES IN PERU, ARGENTINA AND CHILE
$16.8
m
WORTH OF GOODS AND SERVICES PROCURED
FROM COMMUNITY-RUN BUSINESSES
$5.4
m
SPENT OR DONATED TO BENEFIT
LOCAL COMMUNITIES (2020: $5.5M)
Alignment to UN SDGs
Highlights
Hochschild recognises its responsibilities to support
communities working together with governmental
authorities, investing significant resources to understand
their needs and expectations. We have identified the
following material topics related to this pillar: positively
impacting local communities and respecting human rights.
SUSTAINABILITY REPORT
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Hochschild Mining PLC
Annual Report & Accounts 2021
–
Health and nutrition:
Through the
Siempre Sanos (‘Always Healthy’)
programme implemented in
collaboration with the Peruvian Health
Ministry, we are providing medical care
for our communities. In addition, the
programme facilitates workshops on
health prevention and health education,
particularly providing support to
new parents on early childhood
development and child nutrition.
In 2021, 92 mothers and 100 children
benefited from this programme. We
also carried out over 100 home visits to
families through our health promoters
to improve parents’ understanding and
knowledge of early child development.
–
Economic development:
Hochschild’s
Impulso Productivo (‘Boosting
Productivity’) programme seeks
to strengthen local entrepreneurs’
business management, as well as
providing access to markets. In 2021, we
worked with 229 agricultural producers,
who achieved sales of over $40,000 in
local produce.
Additionally, through our Orgullo
Pecuario (‘Pride in our Livestock’)
programme we provided 215 livestock
producers with technical assistance on
genetic improvement of livestock and
animal health to improve the wellbeing
and development of their livestock.
Material topics in serving
our communities
Positively impacting local communities
At Hochschild, we are proud of the work
we do to support our local communities.
We invest our resources to understand
the needs and expectations of our
communities and governments, with
a particular focus on education, health
and socio-economic development.
Where possible, we look for
opportunities for community and
governmental collaboration to ensure
that our social investment strategies
are implemented successfully and have
a long-lasting impact.
Respecting human rights
Hochschild is committed to upholding
and respecting human rights within the
Company and throughout our value
chain. We seek to apply relevant
international standards to understand,
control and mitigate our impact. In 2020,
we published a standalone Human
Rights Policy. In 2021 we commenced
training for our managers and staff
across the business.
The Hochschild
way is to promote
close collaboration
with our local
communities with
full respect for
local customs and
social dynamics.”
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Protecting the
environment
Our approach to protecting
the environment
Hochschild is committed to protecting
the environment through applying
best-in-class environmental management
practices. All our activities are guided by
the principles set out in our Environmental
Policy, continually seeking ways to
produce metals with the least possible
environmental footprint. Such efforts
include improving our consumption of
resources, whether through reducing
water usage, improving energy efficiency,
or increasing the amount of waste that
is recycled.
Key achievements 2021
–
Environment Culture Transformation
Plan:
We continue to work on our
Environment Culture Transformation
Plan. The plan’s objective is to strengthen
and embed an environmentally
conscious culture across our business
and assure long-term environmental
performance. In 2021, we launched
the following initiatives:
•
Environmental Ambassadors:
We
established Hochschild’s first group of
85 ambassadors across Peru (46) and
Argentina (39). These ambassadors are
tasked with promoting a key aspect of
the Group’s corporate purpose: a sense
of environmental responsibility in all
that we do.
•
Environmental Processes
Optimisation Programme:
This
programme enables us to assess
our environmental risks across our
operations and establish the most
appropriate environmental controls.
•
Innova Campaign to improve water
and waste management:
Of the 43
proposals that were submitted via
our innovative projects portal in 2021,
15 innovative projects have been
selected for implementation. To date,
six projects have been completed and
five are in progress.
–
ECO Score: A Hochschild innovation:
To achieve a best-in-class environmental
footprint, Hochschild created an
innovative programme that allows us
to quantify and distil our environmental
performance in a single number,
expressing intangible environmental
management in a way that is universally
understood. The ECO Score is an
effective and innovative tool used to
manage environmental matters, hold
employees accountable and create value
for all stakeholders. In 2021, our overall
ECO Score was 5.29 out of 6 (2020: 5.74)
Among the 2021 results, Hochschild
achieved the highest environmental
culture compliance score since
2015 (96.4%).
Highlights
5.29
2021 ECO SCORE (VS TARGET OF 5.00)
48
%
DECREASE IN DOMESTIC SOLID WASTE
GENERATION SINCE 2015
Alignment to UN SDGs
Hochschild is committed to contribute to a
sustainable future, always acting with responsibility
and environmental excellence. We have identified the
following material topics related to this pillar: Climate
change resilience, Water management, Responsible
management of waste and tailings and Safeguarding
biodiversity natural resources through effective land use.
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Moreover, our performance has inspired
the voluntary take up of the ECO Score
framework by our suppliers, which will
help us improve our business practices
across our supply chain. For instance, our
waste management contractor in Peru
adapted the ECO Score for their
operations in Peru, focusing on water
consumption, waste segregation and
energy use.
The ECO Score has received external
recognition since its launch in 2015.
For details on how the ECO Score
is calculated, visit
responsibility/environment
Material topics in protecting
the environment
Climate change resilience
We understand the global importance
of climate change and are committed
to taking the necessary measures to
continually reduce our greenhouse gas
(GHG) footprint. Our low-carbon grid-
based electricity supply is 78% sourced
from renewable sources. On the other
hand, the nature of the underground
mining of narrow high-grade veins in
both Peru and Argentina allows us to
have a low GHG intensity.
We are in the process of developing a
climate risk assessment and carbon
strategy to become net zero, which will be
ready by end of Q1 2022 for adoption in Q2.
We will be launching reduction targets,
increasing our energy procurement from
renewable sources and improving our
operational energy efficiency.
Climate change-related risks are reported
to the Risk Committee and Sustainability
Committee. To provide our stakeholders
with greater transparency and
understanding of the impacts of climate
change on our business, Hochschild
commenced participating in CDP in 2021
and reporting under the TCFD framework
voluntarily with respect to 2020. With
regards to the former, Hochschild scored
a C rating in line with the sector average.
Details on our approach to manage climate
risks and opportunities, including our
governance approach, strategy, and risk
management, can be found in our TCFD
report from page 64.
53
%
DECREASE IN POTABLE
WATER CONSUMPTION
SINCE 2015
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Greenhouse gas emissions
data
1, 2
(tonnes of CO
2
e)
2021
2020
3
2019
2018
2017
2016
2015
2014
Emissions from combustion of fuel
and operation of facilities (tCO
2
e)
4
46,628
40,647
39,341
38,939
47,265
46,033
46,8923
73,244
Emissions from purchased electricity
(tCO
2
e)
4
53,802
5
41,254
5
82,833
3
85,084
3
94,249
91,893
78,163
69,933
Total Scope 1 & Scope 2 emissions
(tCO
2
e)
4
100,430
81,901
122,174
124,023
141,514
137,926
125,055
143,178
Energy consumption used to
calculate above emissions
464,221,143
366,955,382
446,288,131
n/a
n/a
n/a
n/a
n/a
From combustion of fuel (kWh)
6
164,307,150
132,414,133
143,763,206
n/a
n/a
n/a
n/a
n/a
From purchased electricity (kWh)
299,913,993
234,541,249
302,524,925
n/a
n/a
n/a
n/a
n/a
Emissions intensity, per thousand
ounces of total silver equivalent
produced (CO
2
e/k oz)
4,5
2.69
2.76
2.64
2.60
3.16
3.27
3.70
5.08
1
Method used based on ISO 14064-1 Standard and GHG Protocol Corporate Accounting and Reporting Standard, using IPCC and Peruvian emission factors.
2
Includes data for the whole year for Peru (former and current operating assets, Azuca, Crespo, warehouses and office locations) and San Jose.
3 Restated following a review of underlying data and external verification of the emissions from Inmaculada, Pallancata, Selene and San José.
4 Emissions (and intensity) reflect combustion of fuel and operation of facilities (Scope 1) and purchased electricity (Scope 2).
5 Location based emissions.
6 Collected information has been converted to kWh from gallons of fuel using net calorific values obtained from the Peruvian Ministry of Environment.
7 Total production includes 100% of all production, including that attributable to the joint venture partner at San Jose.
Note: The Group’s UK operations consist of a single office with an occupancy of three. Its total Scope 1 and Scope 2 emissions and energy consumption represent less than 0.01% of the
Group’s reported totals
Our 2021 carbon footprint for operations will be externally assured by an independent third party.
Water management
In 2021, 85% of all water used in processing was re-used water, predominantly from water
recovery plants from tailing storage facilities. At the Inmaculada mine, 75% of water was
re-used (2020: 73%), 99.3% at Selene mine (2020: 100%) and 77.1% in the San Jose mine
(2020: 75%).
Potable water consumption decreased by 16.4% in 2021 compared to 2020 levels. This is
the result of the successful implementation of initiatives focused on responsible water
management. This includes installing electro-valves to improve water use and control,
running a communication campaign around the efficient use of water and ensuring high
quality maintenance of water lines.
Water consumption (litres/person/day)
2021
2020
2019
2018
2017
2016
2015
192.83
230.67
206.01
224.78
214.08
293.71
408.35
Safeguarding biodiversity and natural resources through effective land use
Peru sits within the top 10 of the most biodiverse countries and several of our sites are
located adjacent to a legally recognised national protected area. To maintain and
protect the biodiversity of our surroundings, monitoring is conducted by a specialised
consulting firm across each mine unit twice a year (both in the rainy and dry seasons).
The results of these surveys in 2021 confirmed the overall health of the ecosystem.
Responsible management of waste and tailings
In 2021, domestic waste generated across all our sites decreased by 15.3% from 2020
levels. Since the implementation of the ECO Score in 2015, domestic waste generation
has decreased by 48.5%.
Domestic waste generation
(Kg/person/day)
2021
2020
2019
2018
2017
2016
2015
1.00
1.18
1.04
1.13
1.13
1.33
1.94
Hochschild has 11 tailings storage facilities
in total, nine of which are downstream with
rock buttresses and nine are classified as
low risk. We currently have four operating
facilities, two in Peru and two in Argentina.
We commission external inspections of
operational facilities every two years.
The last audit took place in 2021 and
concluded that all dams are stable,
with any observations being minor and
related to care and maintenance. An
action plan is being developed to
address all observations.
Hochschild fully supports the need for
greater transparency in the mining sector
and discloses full details on each of its
TSFs and how they are managed.
READ MORE
See
hochschildmining.com
for further
details on the Group’s TSFs
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Given the inherently high-risk profile of mining and
recognising that our people are our most valuable asset,
ensuring employee safety is a key measure for our
corporate success. Occupational health, safety and
wellbeing was identified as a priority topic in our
materiality assessment.
Our approach to health and safety
We recognise that a more engaged
workforce is one where people actively
look out for their own and others’ safety,
helping us to manage our safety and
health risks. To further embed a
Company-wide safety culture, we
updated our Safety Plan in 2020, known
as Safety 2.0. Our Safety 2.0 action plan is
made up of seven key attributes covering
training, effective communication,
recognition, and linking compensation
with safety indicators.
Key achievements in 2021
– Achieved Level 7 certification by
DNV for operating Health & Safety
Management Systems at all
mining units.
– Successfully continued implementation
of our updated action plan known as
‘Safety 2.0’.
– We released the Seguscore, a new
integrated safety performance tool
which incorporates proactive safety
indicators (such as internal inspection
results) to the traditional indicators
(such as frequency, severity, and high
potential indices).
– A weekly safety and leadership training
programme is in place at all sites with a
90% attendance rate.
– We developed an integrated GPS and
on-board video system programme
with artificial intelligence which will be
implemented in early 2022. This will give
our drivers more control and safety. The
system can identify fatigue signals and
detects the use of the seat belt.
– We developed an in-house tailored
risk perception tool to improve our
employees’ understanding of safety-
related risks. This tool will help
employees identify and control triggers
connected to incidents and accidents.
Additionally, throughout 2021 we
continued to protect our people from
the ongoing impacts of the pandemic.
We provided ongoing reinforcement of
responsible behaviours at the mine sites
and administrative offices. We also
co-ordinated with regional and local
authorities to roll out vaccination
campaigns in Peruvian sites.
Investigating and learning from
safety incidents
With deep regret we reported an accident
at our San Jose mine towards the end of
the first quarter that claimed the life of
one of our contractors during the
preparation of scheduled electrical
maintenance work. The victim was being
transported in a mobile elevating work
Highlights
Alignment to UN SDGs
Health and Safety
9
%
REDUCTION IN LOST
TIME INJURY
FREQUENCY RATE
COMPARED WITH 2020
4.5
m
MORE LABOUR-HOURS
IN 2021 THAN 2020 DUE
TO THE RESUMPTION
OF OPERATIONS
FOLLOWING THE
PANDEMIC
27
CONVERSATION
SESSIONS HELD TO
SUPPORT FAMILIES
THROUGHOUT THE
PANDEMIC
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platform when, during its operation,
the platform impacted the ground at
force causing severe injury. A detailed
investigation was carried out following the
incident and findings were reported to the
Board. An action plan comprising internal
communications and changes to
operating procedures were subsequently
implemented across all operations.
In November, a worker of a local
contractor at Aclara’s Penco project
sustained fatal injuries. The victim was
not on active duty but was found, by
his colleagues, at the foot of a nearby
embankment, together with the
road roller he was operating. Local
authorities were notified and we
provided support to the worker’s
family through the contractor.
As part of Hochschild’s ongoing efforts
to reduce the occurrence of these events,
in-depth training is provided to staff
members. In 2021, workers received
training in accident investigation through
a comprehensive 20-hour course. The
contents were co-designed with leading
independent risk and assurance firm
DNV to standardise the investigation
techniques and improve the preparation
of action plans.
High Potential Events
Since 2017, we have monitored the
occurrence of High Potential Events
(HPEs). HPEs are events which could have
caused serious injury and encompass
near misses as well as lost time events.
Each time an HPE occurs, our CEO
convenes a meeting where the accident is
analysed in detail as well as the proposed
corrective action plan.
0.28
0.74
2.28
1.23
‘19
‘18
‘17
‘20
0.47
‘21
Material topic in Health and Safety
Occupational health, safety
and wellbeing
We strive to ensure that the health,
safety and wellbeing of employees
and contractors is central to our
processes and business practices.
We adopt practical measures to
avoid workplace fatalities, eliminate
occupational health hazards and
support employee wellbeing.
Systematically managing risks is at the
centre of our approach to safety and is
underpinned by our Occupational Health
& Safety Management System. This
management system is aligned with
recognised international practices and is
externally certified to ensure compliance
amongst mining units. In 2021, our Health
and Safety Management System
operating at all units achieved Level 7
certification by DNV (Level 6 in 2020).
Safety performance
474
112
138
54
1,264
930
‘16
‘17
‘18
‘20
‘19
‘15
676
‘21
1
2
Nil
Nil
Nil
4
3
‘16
‘17
‘18
‘20
‘21
3
‘19
‘15
1.38
1.85
2.20
1.05
2.69
1.74
‘16
‘17
‘18
‘20
‘21
‘19
‘15
1.26
Fatal accidents
Lost Time Injury Frequency Rate (LTIFR)
Accident Severity Index
1
After extensive consideration by senior management and the Sustainability Committee on the HOC 2018 Parameters (with reference to the ICMM’s Health and Safety
Guidance), it was decided that the Pallancata bus highway accident would not be reportable by Hochschild in its safety KPIs as it took place outside of Hochschild
Mining’s operation and involved third-party transportation.
Systematically
managing risks is
at the centre of our
approach to safety
and is underpinned
by our Occupational
Health & Safety
Management System.”
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Our approach to supporting our people
Underpinning the importance we place on
our people and their wellbeing, we commit
to providing an integrated approach to
employee welfare, supporting our
people’s health and wellbeing and
ultimately, improving employee
motivation and productivity.
Key achievements in 2021
–
Creating a diverse talent pool:
Hochschild’s Siembra (‘Providing for
the Future’) programme is part of our
external efforts to reduce the barriers
and stereotypes that women face in
the mining sector. By running training
sessions on unconscious bias and
gender equality, we provide participants
with the knowledge they need to
become agents of change when they
eventually enter the workforce. In 2021,
over 90 leaders of the Company were
trained through this programme, along
with 17 women from the Women in
Mining Peru programme (a non-profit
association promoting the personal
and professional growth of women
in the mining sector).
In addition, we trained 30 members
of Amautas Mineros, a civil society
association of university students which
showcases modern mining practices to
students in Peru. Through this training,
we have built a programme that has
impacted more than 2,700 students
in Arequipa and Cusco.
–
Internship programme:
Eleven women
completed the Mujeres de Oro (‘Golden
Women’) internship programme and
were hired as assistants at the
Inmaculada mine. Each intern
undertook 38 hours of training and
developed improvement projects in the
mines under the guidance of mentors.
–
Sexual harassment campaign:
It is a
priority for Hochschild to provide a
workplace that is free of harassment.
As part of Hochschild’s 2021
#LibreDeAcoso (‘#Free from
harassment’) campaign, 1,564
employees completed online training
and obtained a certificate of completion.
Alignment to UN SDGs
Highlights
Our people
15
%
WORKFORCE FROM
LOCAL COMMUNITIES
(2020: 13%)
53
%
WORKFORCE
REPRESENTED BY A
TRADE UNION OR
SIMILAR BODY
(2020: 54%)
33
%
FEMALE REPRESENTATION
AT BOARD LEVEL (COMPARED
TO 24% ACROSS WGC
MEMBERS IN 2020)
Hochschild’s success relies on its people. We seek to
promote our corporate purpose and provide a positive
and stimulating working environment, where the
development of employees is encouraged. We have
identified the following material topics related to
this pillar: Labour relations, Diversity and inclusion,
Recruitment, retention, engagement and Innovation
through technological solutions.
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–
Leadership:
Hochschild continued
with our multi-year leadership
programme Lideres HOC (‘HOC
Leaders’), focused on promoting our
safety and environmental culture. A
third group of 65 participants
completed the programme in 2021,
which included 84 hours of training.
In addition, Hochschild has continued
promoting a female leadership
development programme called Mujer
Integral (‘Integral Woman’), with 23
participants completing it successfully
in 2021. The programme seeks to train
our female workers with the objective of
promoting their development and
growth within the Company.
–
Recognition:
72% of personnel interacted
with the Brilla HOC online platform and
31% of workers were acknowledged at
least once during 2021. The platform
allows workers to acknowledge
extraordinary behaviours that reflect our
cultural attributes and that are aligned
with the Company’s purpose. The
cultural attributes include: showing
innovation, always acting responsibly,
inspiring and promoting talent and
always searching for efficiency.
Material topics in our people
Labour relations
Our Code of Conduct sets out our
undertakings to treat all employees fairly
and work in a safe and collaborative
working culture. As a foundation of
everything that we do, we recognise and
uphold freedom of association, collective
representation, just compensation, job
security and development opportunities.
In 2021, approximately 54% of our total
workforce was represented by a trade
union or similar body. We did not record
any strikes or lockouts during 2021.
Diversity and inclusion
At Hochschild we are committed
to providing equal employment
opportunities for all, regardless of race,
gender or religion. We believe diversity
brings new and innovative ideas that
contribute to our overall business success.
Diversity, particularly gender, continues to
be an area of focus, with our commitment
to promoting the participation, education,
and development of women outlined in
our Diversity and Inclusion Policy. By the
end oft 2021, 33% of our Board of
Directors are women.
Recruitment, retention and engagement
Our people are key to the success of the
business. We are therefore committed to
attracting and retaining high quality
talent by providing an attractive and
innovative place to work. In 2021, we
ranked second within the mining sector in
the Merco Talento rankings (increased by
one place compared to 2020), and 23rd
out of the top 100 companies (increased
by four places compared to 2020), ranked
according to practices of attracting and
retaining talent in Peru.
Promoting innovation
We are dedicated to the development
of more efficient business practices
through the adoption of new technologies.
This enables us to enhance and improve
day-to-day mining operations in a safe
and secure way. We strive to promote
innovation in all aspects of our business
to drive business performance and
identify opportunities for greater
resource efficiency.
Our dedication to innovation allows us to
incorporate key technological advances
and apply them to our business. In 2021,
we launched a state-of-the-art reverse
osmosis treatment plant at our Ares mine
site to dewater its tailing storage facility
and we put into operation the eighth
leach tank in Inmaculada, increasing the
residence time and the recovery of gold
and silver.
In 2021, we carried out three
innovation campaigns through our
Innova programme. We received more
than 130 project proposals, 22 of which
are being implemented. We have also held
innovation talks to inspire and encourage
creativity. Led by subject matter experts,
the topics range from bioremediation to
mining robots, the latter drawing on a
research project led by Stanford and
UTEC universities. The talks reached an
audience of over 100 people.
People indicators
Gender diversity*
2021
2020
2019
2018
2017
2016
Number of employees
Male
3,347
3,155
3,024
3,894
3,849
3,859
Female
316
275
218
245
235
222
Number of senior managers
Male
43
41
37
37
36
35
Female
2
1
1
1
1
1
Number of Board members
Male
6
7
7
7
7
8
Female
3
2
1
1
1
1
* as at 31 December
We believe diversity brings
new and innovative ideas
that contribute to our
overall business.”
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At Hochschild, we firmly believe that the sustainability
of our business can only be built by doing the right thing –
always acting honestly and ethically. We have identified the
following material topics related to this pillar: Responsible
business conduct and ethics, Advocacy for positive change
and Responsible supply chain management.
Our approach to responsible business
We comply with codes, policies and
procedures designed to ensure
responsible, honest, innovative, and
sustainable business management based
on ethical standards. As a foundation of
everything we do, all employees must
comply with our Code of Conduct. The
Code is supported by various policies,
which cover a broad range of issues
including anti-corruption and money
laundering prevention.
Key achievements in 2021
– Achieved the Zero Corruption
Certification of Entrepreneurs
for Integrity.
– Recognised by the EMIN award (Mining
Excellence of the South Macro Region)
by the Peruvian National Society of
Industries and the Arequipa Chamber
of Commerce in Peru.
– In line with the Company’s commitment
to diversity and inclusion, the Board
achieved its target of 33% female Board
representation with the appointment
Tracey Kerr as an independent Non-
Executive Director in December 2021.
– Reviewed and updated the following
governance policies:
•
Prevention and Criminal
Compliance Manual
•
Anti-Corruption and Anti-Bribery Policy
•
Interaction with Public Officials Policy
Material topics in Ensuring we are a
responsible business
Responsible business conduct and ethics
We are dedicated to maintaining the
highest levels of ethical standards in
the conduct of both our and our
suppliers’ operations and ensuring that
robust corporate governance systems
are in place to promote better economic,
social and environmental outcomes.
This is supported by Anti-bribery and
Anti-Corruption policies. The Code of
Conduct and supporting policies apply
to every individual who acts on behalf
of the Company.
Breaches are treated very seriously and
to facilitate anonymous reporting, the
Company has a long-established
Whistleblowing Policy. The Whistleblowing
Portal is online, designed to provide
employees with a mechanism to raise
(anonymously if preferred) concerns and
other matters of concern. The platform is
aligned with our zero-tolerance policy of
behaviours that are inconsistent with the
values that underpin our corporate
culture as set out in our Code of Conduct.
Advocacy for positive change
We responsibly engage with policy
makers, practitioners and civil society to
participate in policy and rule-making
procedures to craft and approve new
initiatives to enhance applicable mining
and environmental regulations. We also
Alignment to UN SDGs
Highlights
Ensuring we are a
responsible business
Zero
corruption
CERTIFICATE AWARDED BY
ENTREPENEURS FOR INTEGRITY
participate in various industry and
professional forums to promote ESG
guidelines and practices.
Responsible supply chain management
At Hochschild, we work closely with our
suppliers to ensure we are part of a value
chain that protects human rights and
promotes sustainability outcomes. We
prioritise ethical decision-making when
purchasing goods and services and
promote the safe production, use,
recycling and disposal of metals and
their products to ensure responsible
production. We also ensure we meet
all regulatory obligations, whilst also
responding to the increasing demand
from our customers for assurance
that the metals they buy are
produced responsibly.
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TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD)
Climate change is one of the greatest
challenges facing society. The mining
sector has a key role to play in helping
the world transition to net zero and
Hochschild Mining is committed to
playing its part.
Below we have provided information
(or cross-referred to other parts of
this Annual Report to find such
information) consistent with the
TCFD’s recommendations and
recommended disclosures.
Pillar 1 – Governance:
Disclose the organisation’s
governance around climate-related
risks and opportunities
Recommended Disclosure 1:
Describe the board’s oversight of
climate-related risks and opportunities
Hochschild Mining PLC’s Board of
Directors engages with senior
management on strategic planning
and risk management and reviews
management’s performance in
consistently achieving productive, safe
and environmentally sound operations.
Sustainability and ESG topics, like climate
change, are becoming an increasingly
important aspect of Hochschild’s
operations for stakeholders.
Sustainability Committee
Since 2006, the Sustainability Committee
has been delegated authority from the
Board in overseeing the implementation
of systems dealing with, amongst other
things, environmental matters as well as
compliance with the Company’s
environmental commitments.
Given the scope of the Sustainability
Committee’s responsibilities, it is tasked
with making the necessary
recommendations to the Board of
Directors in connection with matters such
as climate change and greenhouse gas
(GHG) emissions that are material to the
organisation operationally and financially.
For details on the composition of the
Sustainability Committee, its terms of
reference and its workings, please refer
to page 53.
Recommended Disclosure 2:
Describe management’s role in
assessing and managing climate-
related risks and opportunities
Managing risk
The monitoring of climate-related risks
and opportunities ultimately resides with
the management Risk Committee, which
is responsible for implementing
Hochschild’s policy on risk management
and monitoring the effectiveness of
controls in support of Hochschild’s
business objectives.
For further details on the composition
of the Group’s approach to risk
management and the workings of the
Risk Committee, please refer to page 68
(Risk Management report)
Environmental Corporate Manager
The Environmental Corporate Manager
reports to the VP, Legal and Corporate
Affairs and to the CEO. Management
reports to the Sustainability Committee,
which is responsible for overseeing efforts
to incorporate sustainability into
Hochschild’s business practices and the
setting of environmental sustainability
objectives. The Environmental team, led by
the Environmental Corporate Manager,
collects and reports on ESG data such as
energy, GHG emissions, water consumption,
waste generation, etc. and oversees the
development of corporate sustainability
disclosures and communications with
external stakeholders on Hochschild’s ESG
performance.
Pillar 2 – Strategy:
Disclose the actual and potential
impacts of climate-related risks and
opportunities on the organisation’s
businesses, strategy, and financial
planning where such information is
material
Recommended Disclosure 3:
Describe the climate-related risks and
opportunities the organisation has
identified over the short, medium,
and long term
Hochschild is committed to assessing and
reducing its exposure to climate-related
financial risks, which is why the
organisation is in the process of
completing a Climate Risk Assessment
(‘CRA’) and strategy and developing an
action plan to continually reduce
operational energy, GHG emissions and
water consumption, with the ultimate aim
of reaching net zero GHG emissions. This
risk assessment and strategy (which will
comprise commitments and targets) are
expected to be completed in Q1 2022 for
adoption in Q2 2022.
Climate-related risks and opportunities
that could have a potential impact to
business over short (1–3 years), medium
(3–5 years) and long-term (5+ years) time
horizons are as follows:
Climate risks
–
Current regulations
Many of Hochschild’s customers are
taking regulatory and/or voluntary
positions to reduce energy and GHG
emissions in their operations. Those more
mature organisations are now requiring
and pushing for GHG emission reductions
in the value chain. While Hochschild is
not yet exposed to these requirements,
it is understood that this will happen,
and as such, Hochschild has committed
investment and demonstrated leadership
in technology for future growth in
alignment with intersecting global
industry megatrends – including
electrification, software and more.
–
Emerging regulations
Mining continues to be a highly
regulated industry where multiple
permits are required leading to
increased delays and costs. 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. Carbon regulations, like
those being established in the UK (net
zero by 2050), Peru (reducing GHG
emissions by 30% by 2030), and
Argentina (absolute, economy-wide
and unconditional goal of limiting
greenhouse gas emissions to 313
MtCO
2
e (excl. LULUCF) by 2030) are
likely to directly increase future capital
costs as Hochschild integrates and
adopts more energy efficient and lower
emissions technologies in mining
operations. Emerging carbon
regulations will also impact
operational costs as renewable portfolio
standards, renewable fuel requirements
and carbon taxes will directly and
indirectly increase the cost of fuels
and energy sources.
–
Technology
Technological advancements have the
ability to impact both operational
competitiveness as well as demand
for Hochschild’s products. For example,
the increased adoption of renewable
energy technologies and electric
vehicles will likely play a role on the path
to achieving carbon neutrality and
increase the demand for Hochschild’s
metal products. However, operationally,
off-road vehicle and engine
manufacturers can be slow to adopt to
low / no-carbon products and as such,
there is only a handful of market players
offering these products. Much like the
electric light duty vehicle market, this is
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a short-term transition that will be
mitigated as more manufacturers enter
the market and the market matures.
Adopting these technologies has the
potential to hinder Hochschild’s
competitiveness in the short term (i.e.
increase costs and reduce EBITDA) but
would improve Hochschild’s social
licence to operate and move the
organisation towards its climate goals.
Renewable energy technologies and
electric vehicles will also likely require
increased battery demand for energy
storage which is also a risk in the short
term as battery storage is relatively
new; over time, this risk will dissipate.
–
Legal
If no action is taken on climate change
and GHG emissions, Hochschild could
be at risk to climate-related legal action,
reputational issues (social licence to
operate) and investor risk which could
materialise as increased costs, longer
permitting delays, higher interest loans,
or reduced access to capital. Given
what is occurring in jurisdictions such as
Canada and the US where lawsuits have
been filed against oil and gas
companies for climate-related impacts,
over the medium to long term, should no
action be taken to reduce / eliminate
Hochschild’s carbon footprint, there
could be carbon legal-related risks. To
date, Hochschild has not experienced
legal issues regarding climate change
related issues.
–
Market
Hochschild is currently evaluating the
risk of changing demand for its metal
products under a low- carbon economy.
Under a 2-degree scenario, it is likely
that there will be an increase in the
uptake of battery powered vehicles and
5G networks which increase the
demand for silver. Gold demand could
also play out well under a 2-degree
scenario as the metal can be used in
nanomaterial technologies (e.g.,
enhance hydrogen fuel cell
performance and solar PV) that can
help facilitate the transition to a
low-carbon economy. In light of these
opportunities, Hochschild sees
a downside of not managing its own
carbon, environmental and social
footprint, as under a 2-degree scenario
customers and investors will expect
higher ESG performance as part of their
procurement and investment criteria.
As previously stated, Hochschild is
mitigating these risks by developing a
carbon neutral strategy, a climate risk
assessment, and continually striving to
improve organisational ESG
performance.
–
Reputation
Poor performance with respect to
managing the risks and opportunities of
climate change could result in
reputational impairment. This could
lead to public and regulatory opposition
to Hochschild’s projects and/or
operations or lead to a potential
increase in cost-of-capital and
perceived risk amongst the investor
community. For example, Hochschild
may suffer from reputational risk and
may be liable for losses arising from
environmental hazards associated with
its mining activities and production
methods. In Peru, protests relating to
mining projects have increased social
demands and expectations and have
led to wider social unrest. Communities
living in the areas surrounding
Hochschild’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
relevant laws. For details on the actions
taken by the Company to maximise its
ability to work with partner
communities, please refer to page 54.
–
Physical (acute and chronic)
With respect to Hochschild’s operations,
climate change will likely result in the
following risks to operations:
•
Intense rainfall/long duration rainfall
may result in increased risk of erosion,
road washouts, overtopping of existing
tailings dams and flooding in the mines.
•
Chronic drought at some locations may
result in water shortages for operations
and the drinking water supply.
Hochschild has taken water
conservation measures to address
these long-term conditions and related
impacts, such as the use of dry stacked
tailings and enhancing water recovery
at its San Jose mine.
•
High winds, snow and ice, and
electrical storms can damage
the power transmission system
supplying the operations. Voltage
spikes in the power system may cause
damage to electrical equipment,
substations, pumps, compressors
and other equipment.
•
Free-thaw cycles and increasing
extreme cold temperatures can cause
water pipes to freeze and ice to form on
bearing surfaces like roads and ramps.
•
Hochschild is adapting to the physical
impacts of climate change and
increasing the resilience of operations
by incorporating climate scenarios into
project design and mine closure
planning. Many of the climate risks
identified are being addressed through
policy changes and new monitoring
programmes at mine sites to track the
impacts of climate change to
operations and develop proactive
policies and operating procedures to
minimise the impacts to the operations.
For example, Hochschild has an active
programme to reduce water
consumption that enables mines to
continue to operate in a more water
scarce environment.
Climate opportunities
–
Increased revenues resulting
from increased demand for
products and services
The demand for Hochschild’s products
may increase as a consequence of
regulatory or market curtailments. For
example, under a 2- degree scenario,
there will likely be an increase in the
uptake of battery powered vehicles and
5G networks which incorporate silver
and gold in the manufacture of their
hardware components. Bloomberg
estimates that by 2040, 55% of vehicles
on the road will be electric which means
more demand for silver. Gold will also
play out well under a 2-degree scenario
as the metal can be used in
nanomaterial technologies (e.g.,
enhance hydrogen fuel cell
performance and solar PV) that can
help facilitate the transition to a
low-carbon economy.
–
Improved market capitalisation
Investors are demanding that
companies improve their long-term
sustainability / ESG performance to
reduce climatic and climate-related
risks while improving shareholder value
and social and environmental well-
being. Current market and shareholder
pressures with regards to ‘sustainable
investments’ and consideration of
climate change in investment could
potentially impact Hochschild’s share
price over the medium to long term
simply on the basis of its ESG rating.
Hochschild is heavily focused on
improving its ESG performance. This is
evidenced by its significantly increased
reporting on ESG matters, ECO Score
programme, the commitment to rolling
out internal training on relevant
matters; continuing to scale initiatives
to improve gender diversity across the
business; strengthening the
environmental culture; and carefully
managing climate-related risks and
their impacts by completing a CRA
and strategy, and the development
of a carbon strategy to continually
reduce its GHG emissions through
target-setting.
Strategic Report
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–
Fuel-switching/energy-
saving technologies
Hochschild’s carbon emissions primarily
result from electricity use in mining and
processing operations. Operations in
both Peru and Argentina have a
favourable GHG emissions intensity
compared to other gold and silver mines
globally (2.69 tCO
2
e/koz Ag eq). This is
due to the underground nature of the
mining operations – high grade narrow
vein mines (which generally have lower
GHG emissions than larger open pit
mines which require significantly more
processing of material) and the
low-carbon, grid-based electricity
supply which is around 78% sourced
from hydro or wind power. However,
acknowledging the global significance
of climate change, Hochschild is
committed to taking the necessary
measures to continually reduce its
GHG footprint by evaluating additional
low-carbon energy options and
improving the operational energy
efficiency, which also helps to deliver
valuable cost savings to the business.
Recommended Disclosure 4:
Describe the impact of climate-related
risks and opportunities on the
organisation’s businesses, strategy,
and financial planning
As noted above, both physical and
transitional risks are impacting and
will continue to impact Hochschild’s
operations, businesses, strategy, and
financial planning. Many of the climate
risks identified are being addressed
through policy changes and new
monitoring programmes at mine sites
to track the impacts of climate on the
operations and develop proactive policies
and operating procedures to minimise
the impacts to operations. For example,
climate-related risks such as prolonged
droughts have been identified in
Hochschild’s risk management tools and
have triggered precise plans and budget
allocations to implement the necessary
actions to minimise the risk. Dedicated
teams have been established and time
schedules set, both of which are
monitored to assure success.
Hochschild is in the process of completing
a climate change risk assessment and a
carbon strategy to put the organisation
on a path towards net zero operations
through target-setting. While the
Company’s approach to mine-planning
already takes weather patterns into
account, the completion of a climate risk
and vulnerability assessment will be used
to inform the risks to the operations,
enable the Company to better assess the
possible financial impacts, and develop
appropriate mitigation measures to
mitigate those risks. At this stage,
however, it can be stated that climate
change risks are expected, over time, to
result in increased capital expenditure
and production costs. Again, over time,
climate change could also impact the
average life of mine with consequences
for the calculations of impairments,
deferred tax and depreciation. In
summary, the Company is not yet able
to quantify the total financial impact of
climate change on the 2021 financial
statements but it is not expected to
be material.
With regards to future years, the impact
of climate change is expected to be
limited as (a) the Group’s approach to
mine planning already takes into account
weather patterns, and (b) the Group’s
average life of mine is no greater than
8 years whereas climate change risks
have a longer time horizon.
Recommended Disclosure 5:
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario
The Company is not yet able to
definitively state the resilience of its
strategy until completion of the CRA.
However, the modelling in the CRA uses
various greenhouse gas (GHG) emissions
scenarios, known as Representative
Concentration Pathways (RCPs), to
project future climate variables under
different concentrations and rates of
release of GHGs to the atmosphere, as
well as different global energy balances.
RCP 8.5 is being used to assess the
impacts that climate change would have
on Hochschild’s operations and
infrastructure. The time horizon has been
set in alignment with Hochschild’s mines’
current operational lives and
decommissioning phases.
RCP 2.6 is being used as the <2°C
Scenario to align with the mid-century
goals of the Paris Agreement and is being
used to assess Hochschild’s market
(electric vehicles), regulatory (e.g., carbon
pricing), technology and renewable
energy risks / opportunities (e.g.,
increased adoption of renewables
resulting in improved ROI) as part of the
carbon strategy to put the organisation
on a path towards net zero operations.
Pillar 3 – Risk Management:
Disclose how the organisation
identifies, assesses, and manages
climate-related risks
Recommended Disclosures:
– 6. Describe the organisation’s processes
for identifying and assessing climate-
related risk
– 7. Describe the organisation’s processes
for managing climate-related risks
– 8. Describe how processes for identifying,
assessing, and managing climate-
related risks are integrated into the
organisation’s overall risk management
Risk management
Climate change risk has been identified
by the Company as one of the principal
risks facing the business. As such, the risk
is monitored on an ongoing basis by
management and its status as well as
mitigating actions are reported to the
Audit Committee and the Board on a
quarterly basis. For details on Hochschild
Mining’s general approach to risk
management and mitigating actions
taken in 2021, please refer to page 68
(Risk Management report).
The organisation is in the process
of completing a climate change risk
assessment and developing an action
plan to continually reduce operational
energy, GHG emissions and water
consumption, with the ultimate aim
of reaching net zero GHG emissions.
This risk assessment and strategy are
expected to be completed in the first
quarter of 2022 for adoption in Q2 2022.
In general terms, with regards to physical
(chronic and acute) risks, climate change
may, among other things, cause or result
in atypical precipitation patterns which
could lead to overtopping, prolonged
drought resulting in water shortages for
operations, and extreme weather events
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD)
CONTINUED
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(winds) and disruptions to upstream and
downstream operations. Hochschild is
adapting to these risks by increasing the
resilience of operations by incorporating
climate assessments into project design
planning as needed. Risks or losses from
climate change or other natural events
are being continuously monitored and
reviewed as part of ongoing operations.
Where an unacceptable risk is identified,
asset level mitigation plans are developed
and are the responsibility of local
management.
Pillar 4 – Metrics & Targets:
Disclose the metrics and targets
used to assess and manage relevant
climate-related risks and
opportunities where such
information is material.
Recommended Disclosures:
– 9. Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management process
– 10. Describe the targets used by the
organisation to manage climate-related
risks and opportunities and
performance against targets
The Sustainability Committee is charged
with making sure the organisation is
meeting sustainability and ESG targets.
To form a link between the organisation
and environmental performance and
risks, the ECO Score programme was
established in 2015, which brings together
the management/mitigation of
environment and climate change risks.
The ECO Score programme incorporates
quantitative and qualitative indicators
directly related to environmental
management, including water
consumption and waste generation.
Performance against the annual ECO
Score objective determines the extent of
annual bonus pay-outs to eligible
employees, thereby aligning interests to
reduce the Company’s environmental
footprint. The results are shared across
the Company on a monthly basis.
In 2021, Hochschild’s ECO Score was 5.29
out of 6, exceeding the stretch target of
5.00. The 2021 results are independently
verified by Ernst & Young (‘EY’) following
the International Standard on Related
Services (ISRS) 4400.
Since 2015, the ECO Score has improved
by 59%, reflecting a significantly higher
level of environmental efficiency.
Hochschild has set a target of 5 out
of 6 for 2022.
Due to the importance of water and
climate-related risks, Hochschild
minimises water consumption as much as
possible and has set a target of 250 litres
per person per day of potable water.
Between 2015 and 2021 the Company
reduced the consumption of potable
water by almost 53%.
Another key indicator that forms part
of the ECO Score is waste generation,
with a target of 1.5 kg per person per day
of domestic waste generation. Between
2015 and 2021 the Company reduced
its waste generation by 49%.
Energy and GHG emission reduction
targets, that align with the Science Based
Targets initiative (SBTi), will be established
in the carbon strategy that will put the
organisation on a path towards net
zero operations.
Please refer to page 56 on the
ongoing implementation, in 2021, of the
Environment Culture Transformation Plan
which was launched to further embed an
environmentally conscious culture across
the Company and assure the long-term
environmental performance.
Recommended Disclosure 11:
Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks
Please refer to page 58 (Environmental
section of the Sustainability Report) for
details on the Company’s Scope 1, Scope
2 and Scope 3 GHG emissions.
For the purposes of Listing Rule 9.8.6R (8),
we have concluded that, through this
report (and the parts cross-referred to
which are incorporated herein by
reference), the Company has complied
with the Listing Rules requirements with
regards to the TCFD Recommendations
and Recommended Disclosures with the
exceptions in the table below.
TCFD Elements
TCFD Recommended
Disclosures
Cross-reference/reason
for non-compliance
Next steps/other
comments
Pillar 2
Recommended
disclosure 3
As the Company is in
the process of finalising
its CRA, climate-related
risks are described in
general terms only.
To be progressed on
completion of the CRA
in Q1 2022.
Recommended
disclosure 5
As the Company is in
the process of finalising
its CRA, the Company
is unable to definitively
state the resilience of
its strategy taking into
consideration different
climate-related
scenarios.
Pillar 4
Recommended
disclosures 9 & 10
Partial disclosure of
the metrics and targets
used by the Company
to assess/manage
climate-related risks
and performance
against targets
Strategic Report
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Further Information
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RISK MANAGEMENT
Hochschild’s system of risk management is designed to
give the Board full visibility of the risks associated with
the business and the ability to allocate resources to
take risks within tolerable levels.
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 a management
committee tasked with 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.
Risk appetite
Defining risk appetite is crucial in
ensuring that a risk management
system is embedded into Hochschild’s
organisational culture. Our risk appetite
approach is to minimise our exposure to
reputational, compliance and excessive
financial risk, whilst accepting a certain
level of risk to achieve our strategic goals.
As part of setting risk appetite, the Board
will consider and monitor the level of
acceptable risk it is willing to take in
each of the principal risk areas.
Appetite for risk will vary according to the
activity undertaken, and is predicated on
the fact that a risk will only be tolerated
after a full understanding of the potential
benefits and its implications before
proceeding with a course of action, and
that sensible mitigation measures are
identified and implemented.
Covid-19
As reported in the 2020 Annual Report,
in response to the Covid-19 pandemic,
Hochschild Mining established a Crisis
Committee which oversaw the
implementation of the Covid-19 Crisis
Plan. This plan resulted in the instigation
of, among other things, enhanced health
protocols designed to prioritise employee
welfare. In 2021 the protocols on testing
and social distancing measures at the
operations remained in place to control
the spread of the virus among employees.
2021 Risks
Details of the principal and emerging risks
affecting the Group and the associated
mitigating actions are provided on the
following pages. The risks differ from
those reported in the 2020 Annual Report
in the following respects:
– Acknowledging the reduced impact of
Covid-19 on the Group’s principal risks
in 2021, Covid-19 has this year been
presented as a separate risk; and
– The inclusion of Climate Change as
a new risk which, as described later,
discusses both the impact on the
business of the physical aspects of
climate change, as well as the impact
on the Group in light of the transition
to a low–carbon economy which may
include increased costs of compliance
and governance.
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.
Outlook
At the time of approval of this Annual
Report, the number of new daily cases in
Peru and Argentina is falling from a
recent peak due to the Omicron variant
which, although more transmissible, is
resulting in a much lower proportion of
severe illness.
The Company continues to monitor
the situation and, as described later
in this report, is able to scale up the
implementation of the Covid-19 Crisis
Plan as required.
Identify
Measure
Manage
Monitor
Report
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|
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Annual Report & Accounts 2021
Probability
High
Low
Low
Impact
High
1
9
5
10
12
11
13
14
3
2
8
7
6
4
2
To assist the reader in assessing the relative
significance of each risk discussed in this section,
the heat map (right) indicates the Board’s
assessment of the likelihood of the unmitigated
risk occurring as well as the extent of the impact
on the Group.
The key to the map indicates how the profile of a
risk has changed (whether in terms of impact or
probability) relative to the prior year.
1.
Commodity price
2.
Commercial counterparty
3.
Operational performance
4.
Business interruption/supply chain
5.
Information security
and cybersecurity
6.
Exploration and reserve and resource
replacement
7.
Personnel: recruitment
and retention
8.
Personnel: labour relations
9.
Political, legal and regulatory
10.
Health and safety
11.
Covid-19
12 .
Environmental
13.
N
Climate change
14.
Community relations
Risk heat map
2021 risk assessment
Unchanged
Higher
Lower
N
New
Strategic Report
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Further Information
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Annual Report & Accounts 2021
RISK MANAGEMENT
CONTINUED
Risk
Impact
Mitigation
Commentary
1
Commodity
price
See the Market
Review on pages
10 to 13 for further
details on how
commodity prices
performed in 2021
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.
– 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.
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.
As reported in the Financial Review, the Group increased borrowing by
an additional $100m under its medium-term facility.
The Group has ended the year with a net cash position and is therefore
in a robust financial position.
As previously reported, 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 cash flows in Peru. In addition, in November
2021, the Group hedged 3.3 million ounces of silver for 2023 at $25 per
ounce. These hedges will ensure profitable production from existing
resources mainly at Pallancata while brownfield exploration efforts
continue to add near-term resources.
2
Commercial
counterparty
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.
– 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.
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. Although the
counterparty risk analysis did not raise any material issues, we
continue to require customers to make advance payments for 90%
- 98% of the amount sold. We also obtained 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.
Operational risks
Risk
Impact
Mitigation
Commentary
3
Operational
performance
Failure to meet production
targets and manage the
cost base could adversely
impact the Group’s
profitability.
– 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.
In 2021 the Group benefited from a year of uninterrupted operations
enabling it to meet its production target for the year of 31.2m silver
equivalent ounces.
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 in line with guidance for the year, at $14.4
per silver equivalent ounce (excluding exceptional items including
Covid costs).
4
Business
interruption/
supply chain
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.
– Insurance coverage to protect
against major risks.
– Management reporting
systems to support appropriate
levels of inventory.
– Inspections every 18 months
(to coincide 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.
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.
Specifically with regards to supply chain risks, the Company:
– has identified alternative suppliers;
– has increased its stocks of critical consumables and strategic spare
parts; and
– maintains ongoing dialogue with vendors and shippers.
Financial risks
Change in risk profile vs 2020
Unchanged
Higher
Lower
N
New
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Risk
Impact
Mitigation
Commentary
5
Information
security and
cybersecurity
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.
– 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
Security of the Group’s network infrastructure is assured through the
following means:
– The inclusion of industrial networks into the Group’s IS Management
System (‘ISMS’) which accordingly benefit from associated security
enhancements;
– SMS received BSI certification; and
– The implementation of the principal recommendations arising from
an ethical hacking assessment.
To counter the heightened risks as a result of the widespread use of
remote working, the Group has 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.
6
Exploration
and reserve
and resource
replacement
The Group’s future operating
margins and profitability
depend upon its ability to find
mineral resources and to
replenish reserves.
– 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.
– Comprehensive engagement
activities with communities and
governmental authorities (see
later sections on
Macroeconomic and
Sustainability risks).
General
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.
Developments during the year
As described elsewhere in the Annual Report, social 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, impacting the Group’s exploration programme.
Following events in southern Ayacucho in November 2021 (as described in
the commentary of Political, legal and regulatory risks), the risk of delay in
the granting of environmental permits for exploration in Ayacucho, where
Pallancata and Inmaculada are located, has increased substantially.
Further details on brownfield exploration are provided on pages 33 and
34 and in relation to greenfield projects, on page 34.
Reserves stated in this Annual
Report are estimates.
– Engagement of independent
experts to undertake annual
audit of mineral reserve and
resource estimates.
– Adherence to the JORC Code
and guidelines therein.
The Group has engaged P&E Consultants to undertake the annual audit
of mineral reserve and resource estimates.
See page 198 for further details.
7
Personnel:
recruitment
and retention
For further details
see the Directors’
Remuneration
Report on
page 104
Inability to attract or retain
personnel through a shortage
of skilled personnel.
– The Group’s approach to
recruitment and retention
provides for the payment of
competitive compensation
packages, well defined career
plans, training and development
opportunities and the overall
employee value proposition.
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.
Training programmes for supervisors and hourly workers continued to
be delivered virtually during 2021.
Enhancing the Group’s employee value proposition includes the
launching of initiatives related to causes that are valued by employees;
providing employees 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.
8
Personnel:
labour
relations
Failure to maintain good
labour relations with workers
and/or unions may result in
work slowdown, stoppage
or strike.
– 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.
Peru
The Group’s Peruvian operation generated sufficient taxable income to
give rise to an entitlement to statutory profit sharing for Peruvian
mineworkers.
In keeping with recent practice, 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.
The left-wing Castillo administration, elected in July 2021, has expressed
its support for the country’s labour unions and the right for employees
to strike. This has resulted in an increased risk in labour relations overall
relative to 2020.
Argentina
In Argentina the Company maintains constructive relations with the
labour unions through ongoing and regular dialogue.
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Macro-economic risks
Risk
Impact
Mitigation
Commentary
9
Political, legal
and regulatory
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.
Delays in granting/securing
the necessary environmental
permits for exploration or
operations could affect future
production and financial
results of the Group.
– Local specialist personnel
continually monitor and react,
as necessary, to policy changes.
In addition, political, social and
communications advisers have
been engaged to support the
Group in responding to
developments.
– Participation in local industry
organisations.
Peru
General
After suffering from the devastating impact of the Covid-19 pandemic in
2020, the first half of the year saw political uncertainty in Peru in the lead
up to the Presidential elections. The second round of voting in June
polarised the country along political lines and saw a contested victory
by Pedro Castillo of the left-wing Free Peru party who was inaugurated
in late July 2021.
On assuming office, President Castillo announced his government’s
intentions to increase state participation in the economy and to form
a constituent assembly to oversee constitutional reform. The
government’s stated focus with regards to the mining sector was to
implement a policy of enhancing ‘social profitability’ which would see
mining companies facilitating the promotion of local development,
increasing State revenues and facilitating the redistribution of wealth.
President Castillo has appointed four successive Prime Ministers who
have been vocal proponents of the government’s stated objectives.
With the arrival of the new administration, mining has become highly
politicised and has prompted many social conflicts with local
communities seeking to capitalise on the Government’s commitments
during the presidential campaign and election (see commentary on
Community relations risks for further details). In line with its election
campaign pledge, the Executive sought to increase taxes on the mining
industry but failed to seek the requisite authority from Congress.
The Coracora Act
As announced by the Company, in November 2021, a meeting by
the Head of Cabinet and certain vice-ministers in a town in southern
Ayacucho resulted in the publication of minutes (the ‘Coracora Act’)
which (a) alleged undisclosed environmental complaints, and (b)
established a commission (the ‘Executive Commission’) to negotiate
the timetable and terms for the closure and withdrawal of certain
mining projects in southern Ayacucho including the Company’s
Pallancata and Inmaculada mines. It was further announced that
approvals would no longer be granted to authorise additional mining,
exploration, or expansion activities in relation to these mines.
In response to protests from the industry, the business community
in general and other organisations, official statements were issued
expressing the Government’s commitment to upholding the rule of
law and acknowledging the continued rights of mining companies to
request extensions and modifications of existing permits for mining
and exploration activities.
In mid-December 2021, the Government announced its intention to
issue, before the end of the year, a decree formalising the Executive
Commission. In mid-January 2022, a temporary working group for
the development of certain provinces in southern Ayacucho was
established to oversee the implementation of the Coracora Act.
Environmental permits
With regards to environmental permits for operating activities,
the Group was expecting to hold the virtual townhall in mid-
December 2021 in connection with the second modification of the
detailed Environmental Impact Study (‘EIS’) for Inmaculada. Less
than 24 hours prior to the scheduled time of the event, the Company
was notified by the relevant authority (SENACE) of its cancellation
citing safety concerns. The Company believes that this decision was
premature and unfounded and it made its position known to the
relevant officials and authorities.
As a result, the virtual townhall had to be rescheduled and was held
on 12 February 2022 which, in turn, will cause the EIS approval process
to be delayed, potentially impacting future mine developments and
production at Inmaculada. The virtual townhall was held successfully
and the EIS approval process continues to advance, with approval
expected during H2 2022.
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.
Mid-term congressional elections in November 2021 saw the ruling
Peronist Government lose its majority in Congress as well as the key
stronghold of Buenos Aires province.
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Risk
Impact
Mitigation
Commentary
9
Political, legal
and regulatory
continued
2022 Outlook
Peru
The political outlook for 2022 in Peru remains uncertain with
opponents to mining accusing the Castillo Government of reneging on
its commitments in the Coracora Act and calling for strikes and other
action. Accordingly, the risk of stoppage has increased substantially,
as well as the granting of new permits for explorations and operations
under complex social conditions. In addition, with regional and local
elections scheduled for October 2022, the risk of further political turmoil
and polarisation remains high.
The Government has announced that it plans to submit a legislative bill
to Congress to increase taxes on the mining sector during the first
quarter of 2022.
Argentina
President Fernandez’s administration is expected to continue cautiously
supporting mining activity, however its approach will be influenced by
the dynamics within the coalition government and the general state of
the economy which is expected to be dominated by high rates of
inflation and limited growth.
Sustainability risks
Risk
Impact
Mitigation
Commentary
10
Health and
safety
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.
– 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.
The Group reported two fatalities at its operations during 2021 which
occurred at the San Jose and Aclara sites. For further details on the
investigation of these accidents, please refer to the Sustainability Report
on pages 59 and 60.
During the year, there was a particularly tragic traffic accident involving
a bus operated by one of our contractors resulting in the loss of 26 lives.
The Group worked together with the contractor in question and the
relevant authorities to take all necessary measures to collectively
mitigate the risk of such a tragic accident from recurring.
Management continued with the implementation of ‘Safety 2.0’, an
action plan to reinforce a safety-first culture. The plan, which combines
technical and people-led approaches, comprises seven key attributes
covering training, effective communication, recognition and aligning
compensation with measurable safety performance.
In addition, during the year:
– a new internal safety indicator, the Seguscore, was developed for
roll-out in 2023; and
– the Health team partnered with the Community Relations team to visit
local families to promote early childhood development.
For further details on the above, please refer to the safety section of the
Sustainability Report on pages 59 and 60.
11
Covid-19
Another wave of infections,
whether in general in Peru/
Argentina, or localised at the
Group’s operations, could
result in a) operational
disruption or stoppages (e.g.
due to personnel shortage,
disruption in the supply chain
etc), b) increased costs and c)
reputational risks.
Secondary Covid-19 risks
include legal risks (e.g.
litigation from suppliers/
contractors), permitting
delays, IT risks (in light of
increased reliance on IT
systems) and fraud risk
due to increased use of
remote working.
– Covid-19 Crisis Plan
Management designed and implemented the Covid-19 Crisis Plan
following the outbreaks in 2020 (further details of which can be found in
the 2020 Annual Report). The protocols in the Crisis Plan continue to be
largely in place and can be scaled up at short notice on the signs of an
increase in the level of infections. In summary, these protocols include:
– a comprehensive testing programme;
– the increased presence of medical personnel and availability of
medical facilities;
– the redeployment of high-risk employees;
– the adaptation of working areas and transportation;
– the use of technology-based systems to monitor cases and support
the logistics related to shift changes; and
– adapting the focus and style of delivery of our Community
Relations programmes.
As reported in the 2020 Annual Report, a tailored Covid-19 risk matrix
was compiled which, in addition to forming the basis of the operating
protocols referred to above, also established mitigating actions with
regards to secondary Covid-19 risks.
During 2021, the Company took a number of steps to increase its level of
preparedness through:
– the commissioning of an audit of its biosecurity protocols which were
certified by Bureau Veritas; and
– the procurement of stocks of medication, personal protective
equipment and testing kits.
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Sustainability risks
continued
Risk
Impact
Mitigation
Commentary
12
Environmental
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.
– 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.
In 2021, the Group performed highly in its ECO Score (with a score of 5.29
out of 6 (2020: 5.74)), reflecting the following notable achievements:
– Four operations achieving a perfect score of 6 out of 6 (Inmaculada,
San Jose, Pallancata and Arcata);
– The lowest water consumption since 2015;
– The lowest amount of waste generated since 2015 (0.98 kg/person/day);
– The highest level of environmental culture compliance (using an
internal scoring system).
In addition, during the year:
– the Environmental team had an unprecedented year in terms of
reporting on the Group’s environmental performance by participating
in numerous reporting initiatives;
– there was continued progress with the implementation of the
Environment Culture Transformation Plan (ECTP) which, in 2021,
focused on people, innovation and technology; and
– as part of the ECTP, 85 environmental ambassadors were appointed
across the operations in Peru and Argentina tasked with promoting a
robust environmental culture across the organisation.
As disclosed in the Operational risks, 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.
The independent review conducted in 2021 did not identify any
material issues.
For further details, please refer to the environmental section of the
Sustainability Report on pages 56 to 58.
13
Climate
change
N
Read our
2021 TCFD Report
from page 64.
Changes in climate and
weather patterns, including
the occurrence of extreme
weather events such as
higher rainfall, droughts, and
storm conditions, may cause
operational disruption and, at
worse, could result in a
suspension of operations.
Failure to comply with
climate-related laws and
regulations could result in
reputational risks for the
Group, increased costs and
longer permitting delays.
Lack of climate change
actions could result in
restricted access to capital.
– Enhanced management
oversight and operating
protocols to:
– maximise the use of natural
resources and minimise
energy consumption.
– monitor weather projections
for operations, incorporating
weather assessments in
operating applications.
– Promoting transparency with
regards to the Group’s
performance through
participation in investor-led
reporting initiatives.
Actions taken in 2021 include:
– The recognition of climate-change related risks on the Group
Risk Register resulting in the monitoring of mitigating actions by
the Risk Committee, Sustainability Committee and, as appropriate,
by the Board;
– Increasing the percentage of recycled water used in processing
plants at Inmaculada and San Jose;
– Assessing purchasing increased levels of energy from
renewable sources.
Reporting of the Group’s performance has been enhanced through:
– external assurance of the calculation of the Group’s carbon footprint
at operations;
– participation in CDP information request; and
– voluntary TCFD disclosure in respect of 2020.
The 2022 Action Plan includes, most notably, the launch of Hochschild’s
Carbon Neutral strategy.
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Risk
Impact
Mitigation
Commentary
14
Community
relations
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.
– 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.
Overall
The overall social climate has become markedly hostile to mining
since July 2021 as the promises made by the governing party during
the presidential campaign resulted in increased and unrealistic
expectations. Social conflicts have led to the temporary stoppage
of major mining operations such as Las Bambas and Antamina. In
addition, in October 2021, violent protests against the Apumayo mining
unit in Southern Ayacucho led to the attack and burning down of
Apumayo’s camp and certain mining infrastructure.
The Group experienced brief stoppages at Pallancata and Inmaculada
but they did not affect production during the year. However, social
conflicts have led to the stoppage of certain of the Group’s exploration
projects in Peru, such as Corina and Huacullo.
As described earlier (in relation to political, legal and regulatory risks),
given the actions of the Government in Southern Ayacucho since
November 2021, the political and social risks have increased
substantially as the Government has further raised expectations which,
if not met, could lead to further acts of violence and attempts to disrupt
mining operations in general.
Governmental authorities remain very sensitive to conflicts between
communities and mining companies and typically take a cautious
approach by prioritising dialogue between parties and supporting
social demands regardless of their merit.
Hochschild developments
The Group continues to implement its social engagement strategy 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 $5.4m to benefit local communities and
supported local community-run businesses;
– we continued to support the communities with a wide range of
programmes covering our areas of focus: education, health and
nutrition, and sustainable development;
– 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.
Further details can be found in the Sustainability Report from page 54.
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– the suspension of exploration
expenditure and dividends (from 2023
onwards) until the end of the three-year
period; and
– in the cases where a scenario envisages
a mine or plant stoppage which results
in a delay in production, production will
be recovered once plant capacity
becomes available, albeit after the
three-year time horizon.
Inmaculada, which is the Group’s biggest
asset, represents over 75% of the Group’s
cash flows. The application of the
scenarios at the Group’s other operations
would have a significantly reduced
impact on the Group.
The following scenarios were analysed:
Scenario 1: A community-led protest
blocks a principal road to/from the mine
A protest by a local community
obstructs the access road to
Inmaculada for two months. The impact
analysis takes into account the cost of
negotiating a settlement and other
associated expenses.
Scenario 2: A significant increase in the
level of Covid-19 infections
Peru faces a significant increase in
Covid-19 infections and a severe
outbreak at Inmaculada results in a
one-month stoppage of operations and
Covid-related expenses being incurred.
Scenario 3: A strike by mineworkers
A widespread mineworkers’ strike
results in a suspension of operations
for one month. The impact analysis
takes into account the cost of
negotiating a settlement and other
associated expenses.
Scenario 4: The occurrence of a material
safety accident
A severe fatal accident occurs
which results in a one-month stoppage
of operations.
The impact analysis takes into account
other financial liabilities that may result
including the cost of remedial work and
regulatory fines.
Scenario 5: The occurrence of a material
environmental incident
A key part of Inmaculada’s plant
infrastructure is compromised
which results in a major spillage
of contaminants. The impact analysis
assumes a suspension of operations
of one month and takes into account
the cost of repairs, remediation and
regulatory fines and other
associated expenses.
Scenario 6: The failure of the mill or other
critical plant component
A major failure of one of the mills at
Inmaculada’s plant causes a stoppage
of six months which requires civil works,
repairs and the acquisition of spare
equipment. The impact analysis takes
into account the cost of the works
and replacement costs as well as
contributions from relevant
insurance policies.
In their assessment of the financial
impact of each of the above scenarios,
the Directors concluded that upon the
occurrence of one of the scenarios, the
Company would be viable. Taking into
account the causes of operational
stoppages in the past and the extent of
the disruption caused, the Directors are of
the opinion that a combination of two or
more of the above scenarios taking place
concurrently is remote.
Should prices fall further than the
Assumed Prices or the scenarios in reality
are more severe than those modelled or a
combination of scenarios occurs, the
Board would oversee the implementation
of mitigating actions which include:
– reducing operating and capital
expenditure by more than 10% (including
through delaying construction of the
Posse Gold Mine subject to completion
of the Company’s acquisition of Amarillo
Gold Corporation);
– the use of lines of credit with
relationship banks noting that over
$200m of working capital credit lines
were already available;
– refinancing the $300m medium-term
facility in 2024; and
– other measures such as pay-outs under
insurance policies, working capital
management, asset sales and
commodity price hedging.
For examples of the mitigating actions
taken by the Board during the year
under review, please refer to the
commentary in the Risk Management
section of this report.
In accordance with provision 31 of
the UK Corporate Governance Code,
the Directors have assessed the
viability of the Group taking into
account the Group’s current position
and principal risks.
Period of Viability Statement
The Directors have reviewed the length
of time to be covered by the Viability
Statement, particularly given its primary
purpose of providing investors with a view
of financial viability that goes beyond the
period of the Going Concern statement.
It has been concluded that three years is
the appropriate time horizon in light of:
– the inherent uncertainty of longer-term
forecasting in a cyclical industry which,
in the case of precious metals, is largely
driven by global macro-economic
factors; and
– the large number of external variables
that need to be taken into account in
establishing any meaningful forecast of
the Group’s business.
Approach to assessing viability
In assessing the Group’s viability, the
Directors have considered a number
of scenarios affecting the Inmaculada
mine which are within reasonable
contemplation taking into account the
principal risks to which the Group is
exposed (as set out in the earlier part
of this report).
In their assessment of the financial
impact of each of the above scenarios,
the Directors made the same
assumptions as those used for the
Remote Scenario in the Going Concern
analysis, namely:
– conservative prices of Au: $1,396/oz
and Ag: $18.6/oz (the ‘Assumed Prices’);
– operational forecasts are in line with
the life of mine plans which incorporate
planned 10% reductions in operating
and capital expenditure in response to
low precious metal prices;
– debt repayments in 2022 and 2023 will
proceed as planned;
– all necessary operational permits will
be obtained such that operations
can continue without limitation;
– that the Group will incur incremental
Covid-related expenses in 2022 as part
of business as usual operations;
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Conclusion
While it is always possible that
combinations of weak precious metal
prices and the occurrence of more than
one of the above referenced scenarios
could threaten the solvency and liquidity
of the Company over the next three years,
such combinations are considered to be
remote. The Directors have therefore
assessed the impact of each scenario,
using the Assumed Prices and other
factors considered to be reasonable, and,
accordingly, can confirm that they have
a reasonable expectation that the
Company will be able to continue in
operation and meet its obligations
over the next three years.
Non-financial information regulation
Under sections 414CA and 414CB of the
Companies Act 2006, as amended by The
Companies, Partnerships and Groups
(Accounts and Non-Financial Reporting)
Regulations 2016, the Strategic Report
must contain a non-financial information
statement. This can be found in the
Supplementary Information section
on page 103.
The Strategic Report, as set out from
pages 2 to 77, has been reviewed and
approved by the Board of Directors and
signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
22 February 2022
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Audit Committee
Nomination Committee
Remuneration Committee
Sustainability Committee
Chair
BOARD OF DIRECTORS
Eduardo Hochschild
Chairman
Ignacio Bustamante
Chief Executive Officer
Dr Graham Birch
Independent
Non-Executive Director
Jorge Born Jr.
Independent
Non-Executive Director
Jill Gardiner
Independent
Non-Executive Director
†
Joined the Group in 1987 and
appointed Chairman in 2006.
Key skills and competencies
– Over 30 years’ involvement
with the Group
– Extensive board
experience of companies
in Latin America
– Proven ability to implement
long-term strategies in both
the non-profit and
corporate sectors
Current external
appointments
Commercial:
Cementos
Pacasmayo S.A.A. (Chairman).
Non-profit:
UTEC (Chairman),
TECSUP, Museum of
Contemporary Art, Lima
(Chairman), Conferencia
Episcopal Peruana.
Previous experience
Eduardo joined the
Hochschild Group in 1987 as
Safety Assistant at the Arcata
unit, becoming Head of the
Hochschild Mining Group
in 1998.
Eduardo is the Company’s
largest shareholder with a
c.38% interest.
Appointed to the Board
in 2010.
Key skills and competencies
– Significant operational
experience
– Extensive knowledge of
financial and general
management
– Strong leadership skills
Current external
appointments
Commercial:
Non-Executive
Director of Profuturo AFP and
Scotiabank Peru S.A.A.
Previous experience
Ignacio previously served as
Chief Operating Officer and
General Manager of the
Group’s Peruvian operations.
Prior to that, Ignacio worked
for Zemex Corporation
between 2003 and 2007, first
as Chief Financial Officer and
Vice President of Business
Development, and later as
President. Between 1998 and
2003 Ignacio served as Chief
Financial Officer of Cementos
Pacasmayo S.A.A.
Appointed to the Board in
July 2011 and will retire at the
2022 AGM. Designated
Non-Executive Director for
workforce engagement.
Key skills and competencies
– Geology (PhD from the
Royal School of Mines,
Imperial College, London)
– Extensive knowledge of the
operational and technical
aspects of mining
– In-depth knowledge of the
precious metals sector
Current external
appointments
Commercial:
Non-Executive
Director of Sprott Inc.
Non-profit:
Lawes
Agricultural Trust.
Previous experience
Graham started his 25-year
career as a mining equity
analyst and then as a
portfolio manager in the
mining and gold sectors. He
was subsequently appointed
a Director of BlackRock
Commodities Investment
Trust plc and acted as
manager of BlackRock’s
World Mining Trust and Gold
and General Unit Trust.
Appointed to the Board
in 2006.
Key skills and competencies
– Extensive experience of
managing international
businesses
– Deep understanding of
socio-political issues in
Latin America
– Corporate finance
Current external
appointments
Commercial:
Consult & Co.
(President and CEO),
Caldenes S.A., Dufry AG
(Deputy Chairman).
Non-profit:
Bunge and Born
Charitable Foundation
(President).
Previous experience
Jorge served as a Director
and Deputy Chairman of
international agribusiness
Bunge between 2001 and
2010. He previously served
as Head of European
operations and Head
of the UK operations.
Appointed to the Board
in August 2020.
Key skills and competencies
– Longstanding career in
investment banking in
Canada focusing on
strategy and M&A
– Significant experience on
listed company boards
– In-depth knowledge of
corporate governance/
finance
Current external
appointments
Commercial:
Trevali Mining
Corporation (Chair), Capital
Power Corporation (Chair)
Non-profit:
ARC Foundation
Previous experience
Jill spent over 20 years in the
investment banking industry
having served in a number of
senior leadership roles at
RBC Capital Markets. She
provided strategic advice to
and helped raise capital for
companies with a focus on
the power, pipeline,
infrastructure, and certain
commodity related industries.
† On 1 March 2022, Tracey Kerr will join the Remuneration and Sustainability Committees, Eileen Kamerick will retire from the Remuneration Committee and Michael
Rawlinson will retire from the Sustainability Committee. At the conclusion of the 2022 AGM, Tracey Kerr will become the Chair of the Sustainability Committee and
the Designated Non-Executive Director for workforce engagement.
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0-3 years
2/6
3-6 years
1/6
6+ years
3/6
Tenure of Independent
Non-Executive Directors
Male
6
Female
3
Gender of Directors
on the Board
Eileen Kamerick
Independent
Non-Executive Director
Tracey Kerr
Independent
Non-Executive Director
Michael Rawlinson
Senior Independent
Director
Dionisio Romero
Paoletti
Non-Executive Director
Raj Bhasin
Company Secretary
†
†
†
†
Appointed to the Board in
November 2016.
Key skills and competencies
– Strong background in audit
and financial reporting
– Extensive experience on
listed company boards
– In-depth knowledge of
corporate governance/
finance
Current external
appointments
Commercial:
Associated
Banc-Corp. (Chair of the
Corporate Governance
and Social Responsibility
Committee), Legg Mason
Closed End Mutual Funds
(Chair of the Audit
Committee), ACV Auctions
Inc (Chair of the Audit
Committee).
Non-profit:
Alzheimer’s
Association
Previous experience
Eileen spent the majority of
her career in senior financial
roles and as CFO in the oil &
gas and mining sectors. She
has an MBA in Finance and
International Business and
the Directorship Certification
of the US National
Association of Corporate
Directors (‘NACD’). Eileen is a
Board Leadership Fellow of
the NACD.
Appointed to the Board in
December 2021.
Key skills and competencies
– Extensive experience of
managing sustainability
in mining
– Geology, having overseen
global exploration activities
– UK listed company
governance
Current external
appointments
Commercial:
Non-Executive
Director of Polymetal
International plc (Chair of
Safety and Sustainability
Committee)
Previous experience
Tracey spent almost 10 years
working for Anglo American
plc, most recently as the
Group Head of Sustainable
Development having
previously also been
accountable for safety,
operational risk management
and sustainable
development. Prior to working
in sustainability, Tracey
worked as a geologist where
she oversaw Vale’s
exploration activities in the
Americas and subsequently
joined Anglo American as
Group Head of Exploration.
Appointed to the Board in
2016 and as Senior
Independent Director in
January 2018.
Key skills and competencies
– Significant knowledge of
the mining sector
– Corporate finance, strategy
and M&A
– Listed company
governance
Current external
appointments
Commercial:
Adriatic
Metals plc (Chairman) and
Non-Executive Director of
Capital Drilling Limited and
Afritin Mining Limited
Previous experience
Michael’s career of over 20
years culminated in his role
as Global Co-Head of Mining
and Metals at Barclays
Investment Bank. Before that,
he was one of the co-
founding directors at
boutique investment bank
Liberum Capital, having
worked as a corporate
financier and equity research
analyst covering the mining
sector at JP Morgan,
Cazenove and Flemings.
Appointed to the Board in
January 2018, and will retire
at the 2022 AGM.
Key skills and competencies
– Extensive experience of
managing international
businesses in Latin America
– In-depth knowledge of
regional macro-
economic issues
– Corporate finance
Current external
appointments
Commercial:
Chairman of
Alicorp S.A.A, and Inversiones
Centenario S.A.A and
Non-Executive Director
of Sierra Metals Inc.
Dionisio sits on the boards of
numerous Credicorp Group
and Grupo Romero controlled
companies as well as
TSX-listed Sierra Metals Inc.
Non-profit:
Fundacion
Romero, ASBANC and
APESEG
Previous experience
Dionisio previously served as
the Chief Executive Officer,
and subsequently Chairman,
of financial holding company,
Credicorp and as a Director
of its subsidiary, Banco de
Crédito del Peru, Peru’s
largest bank.
Joined the Group and
appointed Company
Secretary in 2007.
Key skills and competencies
Raj is a solicitor and
Chartered Secretary with
over 23 years’ experience in
FTSE-listed companies. He
has significant experience
in corporate and
commercial law.
Previous experience
Raj previously served as
Deputy Company Secretary
and Commercial Counsel at
Burberry Group plc.
Strategic Report
Financial Statements
Governance
Further Information
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SENIOR MANAGEMENT
Eduardo Noriega
Chief Financial Officer
Isac Burstein
Vice President, Exploration
& Business Development
Tom Elliott
Vice President,
North America
Oscar Garcia
Vice President,
Brownfield Exploration
Experience
Eduardo Noriega was
appointed Chief Financial Officer
of Hochschild Mining on 10
December 2021 having joined the
Company in March 2007. Eduardo
previously served as Head of
Group Finance with responsibility
for financial planning and controls,
treasury, corporate finance, tax
and accounting. Prior to joining
Hochschild, Eduardo worked in
various finance roles for Dell Inc.,
Union de Cervecerías Peruana
Backus & Johnston and Del Mar
Fishing Company. Eduardo
is a graduate in Business
Administration from Universidad
del Pacifico and holds an MBA
from the University of Texas.
Experience
Isac Burstein joined the Group
as a geologist in 1995. Prior to his
current position, Isac served as
Manager for Project Evaluation,
Exploration Manager for Mexico,
and Exploration Geologist. Isac
assumed responsibility for the
Group’s exploration activities in
February 2014. Isac holds a BSc
in Geological Engineering from
the Universidad Nacional de
Ingeniería, an MSc in Geology from
the University of Missouri and an
MBA from Krannert School of
Management, Purdue University.
Experience
Tom Elliott joined Hochschild
Mining in July 2021. Before that,
he was Senior Vice President –
Investor Relations and Corporate
Development at Kinross Gold
Corporation. Prior to that, he
was Executive Director in UBS
Investment Bank’s Mining & Metals
team in London, England and
Toronto, Canada. He also worked
at Deutsche Bank Securities in
Mining & Metals Equity Research
and began his career in the
mining & metals industry in
Vancouver, Canada and Hamar,
Norway. He holds a B.Sc (Honours)
in Chemistry from Queen’s
University and an MBA from
the University of Toronto.
Experience
Oscar Garcia was promoted to
the position of VP, Brownfield
Exploration on 1 January 2019
having joined Hochschild Mining
in 2007 as an Ore Control
geologist. He has previously
worked at Hochschild as
Corporate Manager for
Underground Geology, Ore Control
and Brownfield Exploration. Prior
to Hochschild Mining, Oscar
worked as a geologist at Barrick
Gold, Lonrho Mining Group and
Compañia Minera Aguilar. Oscar
qualified as a geologist at the
Universidad Nacional de
Cordoba in 1981.
Eduardo Landin
Chief Operating Officer
José Augusto Palma
Vice President, Legal
& Corporate Affairs
Eduardo Villar
Vice President,
Human Resources
Experience
Eduardo Landin was appointed
COO of Hochschild Mining in
March 2013. Eduardo joined
Hochschild in January 2008
as General Manager of the
Company’s operations in
Argentina. In 2011 he became
General Manager of Projects with
direct responsibility over the
development of the Inmaculada
and Crespo Advanced Projects.
Before joining Hochschild,
Eduardo held the position of
Corporate Development Manager
at Cementos Pacasmayo and,
prior to that, he worked in the
Peruvian Ministry of Energy and
Mines. Eduardo began his career
at Repsol S.A. where he worked for
over 10 years in England, Spain
and Peru. Eduardo is a Chartered
Mechanical Engineer and holds a
B.Eng (Honours) in Mechanical
Engineering from Imperial College,
London and an Executive MBA
from the Universidad de Piura,
Peru. He is a Fellow of the
Institution of Mechanical
Engineers.
Experience
José Augusto Palma has more
than 12 years of professional
experience in the mining sector
and has served in various positions
in Hochschild. José has also been
very active in the mining industry
association and recently
concluded a two-year term as
President of the Mining Sector
in the Mining, Electricity and
Petroleum Industry Association
of Peru. Before joining Hochschild,
José had a successful career in
private practice in the United
States, where he was a partner at
the law firm of Swidler Berlin, and
later worked at the World Bank.
José also served two years in the
Government of Peru. He holds law
degrees from Georgetown
University and the Universidad
Iberoamericana in Mexico.
Experience
Eduardo Villar has been with
the Group since 1996. Prior to his
current position, he served as
Human Resources Manager,
Deputy HR Manager and Legal
Counsel. Eduardo holds a law
degree from the Universidad
de Lima and an MBA from the
Universidad Peruana de Ciencias
Aplicadas. In addition, Eduardo
has postgraduate qualifications
in Business from IESE Business
School and Harvard Business
School and in Human Resources
from London Business School and
the University of Michigan.
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The Directors present their report for the
year ended 31 December 2021.
Information in Directors’ Report
The Directors’ Report comprises the
Corporate Governance Report from
pages 83 to 99, this Report on pages 81
to 82, and the Supplementary Information
on pages 100 to 103. Other information
that is relevant to the Directors’ Report,
and which is incorporated by
reference, comprises:
– Greenhouse gas emissions data and
the steps taken by the Company to
increase its energy efficiency, included
in the Sustainability Report from page
50; and
– Policy on financial risk management
in note 38 to the consolidated
financial statements.
For the purposes of compliance with
Disclosure Guidance and Transparency
Rules 4.1.5R(2) and 4.1.8R, the Strategic
Report and this Directors’ Report
(including the other sections of the
Annual Report incorporated by reference)
comprise the Management Report.
Dividend
The Directors declared an interim
dividend totalling $10 million (1.95 US
cents per ordinary share) in the year
ended 31 December 2021 and are
recommending a final dividend of $12
million (2.335 US cents per ordinary share)
subject to approval at the forthcoming
Annual General Meeting (‘AGM’), making
a total dividend of $22 million (2020 total
dividend: $32.6 million).
The Company effected the demerger of
its rare-earths project by way of
Distribution in Specie pursuant to
shareholder approval granted at an
Extraordinary General Meeting held on
5 November 2021.
In August 2021, the Board became aware
of an issue concerning technical
compliance with the Companies Act 2006
in relation to the 2017 final dividend, the
2018 interim and final dividends, the 2019
interim dividend, and the 2020 interim
and final dividends (the ‘Relevant
Dividends’). In particular, the Relevant
Dividends were paid to shareholders
when the Company did not have
adequate distributable reserves.
Significant corrective transactions
(namely, a capital reduction and dividend
distribution by the Company’s wholly-
owned subsidiary, Hochschild Mining
Holdings Limited) were implemented by
the Company in September 2021, shortly
after discovery of the issue. Had these
internal corporate transactions been
implemented prior to the payment of the
2017 final dividend, adequate
distributable reserves would have been
available to the Company.
As previously reported, the Board intends
to put resolutions to shareholders at a
General Meeting to i) complete the
rectification of this past issue and ii)
increase further, to the extent practicable,
the level of distributable reserves
available to the Company.
Dividend waiver
The trustee of the Hochschild Mining
Employee Share Trust (‘the Employee
Trust’) has waived, on an ongoing basis,
the right to dividend payments on shares
held by the Employee Trust.
Directors
The names, functions and biographical
details of the Directors serving at the date
of this report are given on page 78 and 79.
Other than Tracey Kerr, who was
appointed on 10 December 2021, all of
the Directors were in office for the
duration of the year under review. Sanjay
Sarma resigned from the Board on 10
December 2021.
With the exception of Graham Birch
and Dionisio Romero, who will be retiring
at the conclusion of the forthcoming
AGM, each of the Directors will be retiring
and seeking re-election (or, in the case
of Tracey Kerr, election) by shareholders
in line with the UK Corporate
Governance Code.
Directors’ and officers’ liability insurance
The Company’s Articles of Association
(the ‘Articles’) contain a provision whereby
each of the Directors may be indemnified
by the Company in respect of liability in
relation to: (i) any negligence, default,
breach of duty or breach of trust relating
to the Company or any associated
company; (ii) execution of his/her duties
as Director of the Company; and (iii) the
activities of the Company or any
associated company as trustee of an
occupational pension scheme. For these
purposes, associated company has the
meaning given to it by Section 256 of the
Companies Act 2006.
However, a Director will not be indemnified
for any liability incurred by him/her to the
Company or Group companies; any
criminal or regulatory fines; the costs of
defending any criminal proceedings in
which he/she is convicted; or the costs of
defending any civil proceedings brought
by the Company in which judgment is
given against him/her.
The Company has purchased and
maintains liability insurance for its
Directors and officers as permitted by
law and Deeds of Indemnity on terms
consistent with the Articles have been
executed by the Company in favour of
the Directors.
Political and charitable donations
The Company does not make political
donations. During the year, the Group
spent or donated a total of $5.4 million
to benefit local communities (2020:
$5.5 million).
Relationship Agreement
Pelham Investment Corporation (the
‘Major Shareholder’), Eduardo Hochschild
(who together with the Major Shareholder
are collectively referred to as the
‘Controlling Shareholders’) and the
Company entered into a relationship
agreement (‘the Relationship Agreement’)
in preparation for the Company’s IPO in
2006 and which was amended and
restated during 2014.
The principal purpose of the Relationship
Agreement is to ensure that the Group is
capable of carrying on its business for the
benefit of the shareholders of the
Company as a whole, and that
transactions and relationships with the
Controlling Shareholders and any of their
respective associates are at arm’s length
and on normal commercial terms.
Further details of the Relationship
Agreement with regard to the conduct of
the Major Shareholder are set out in the
Corporate Governance Report on page
89 and, with regard to the right to appoint
Directors to the Board, are set out on
page 90.
As required by the Listing Rules, the
Directors confirm that, with respect to
the year under review:
– the Company has complied with the
independence provisions included in
the Relationship Agreement; and
– so far as the Company is aware:
•
the independence provisions
included in the Relationship
Agreement have been complied with
by the Controlling Shareholders or
any of their associates; and
•
the procurement obligation included in
the Relationship Agreement has been
complied with by the Controlling
Shareholders.
DIRECTORS’ REPORT
Strategic Report
Financial Statements
Governance
Further Information
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DIRECTORS’ REPORT
CONTINUED
Conflicts of interest
The Companies Act 2006 allows directors
of public companies to authorise conflicts
and potential conflicts of interest of
directors where the Company’s Articles
of Association contain a provision to that
effect. Amendments to the Company’s
Articles of Association were approved by
shareholders in 2008, which included
provisions giving the Directors authority
to authorise matters which may result in
the Directors breaching their duty to
avoid a conflict of interest.
The Board has established effective
procedures to enable the Directors to
notify the Company of any actual or
potential conflict situations and for
those situations to be reviewed and,
if appropriate, to be authorised by the
Board, subject to any conditions that
may be considered necessary. In keeping
with the approach agreed by the Board,
Directors’ conflicts were reviewed during
the year under review.
Directors of the Company who have an
interest in matters under discussion at
Board meetings are required to declare
this interest and to abstain from voting
on the relevant matters.
Any related party transactions are
approved by a committee of the Board
consisting solely of Independent Directors.
In addition, the Directors will be able
to impose limits or conditions when
giving any authorisation, if they think
this is appropriate.
See note 32(c) to the consolidated
financial statements on page 175 for
details of the Major Shareholder’s
participation in the initial public offering
of Aclara Resources Inc. and the purchase
of additional Aclara shares following that
company’s demerger from the Hochschild
Mining Group.
Going concern
After their thorough review of Group
liquidity and covenant forecasts, the
Directors have a reasonable expectation
that the Group and the Company have
adequate resources to continue in
operational existence for the period to
31 March 2023 which is at least 12
months from the date of these financial
statements. Accordingly, they continue
to adopt the going concern basis of
accounting in preparing the annual
financial statements. Full details are
included in note 2(d) to the consolidated
financial statements.
AGM
The 16th AGM of the Company will be
held at 9am on 26 May 2022. The
shareholder circular incorporating the
Notice of AGM will be sent separately
to shareholders or, for those who
have elected to receive electronic
communications, will be available for
viewing at www.hochschildmining.com
The shareholder circular contains
details of the business to be considered
at the meeting.
Auditor
A resolution to reappoint Ernst & Young
LLP as Auditor will be put to shareholders
at the forthcoming AGM.
Statement on disclosure of information
to Auditor
Having made enquiries of fellow Directors
and of the Company’s Auditor, each
Director confirms that, to the best of his/
her knowledge and belief, there is no
relevant audit information of which the
Company’s Auditor is unaware.
Furthermore, each Director has taken
all the steps that he/she ought to have
taken as a Director in order to make
himself/herself aware of any relevant
audit information and to establish
that the Company’s Auditor is aware
of that information.
This confirmation is given, and should
be interpreted, in accordance with the
provisions of Section 418(2) of the
Companies Act 2006.
Statement of Directors’ responsibilities
The Directors confirm that to the best of
their knowledge:
– that the consolidated financial
statements, prepared in accordance
with UK-adopted international
accounting standards give a true
and fair view of the assets, liabilities,
financial position and profit of the
parent company and 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.
Disclaimer
Neither the Company nor the Directors
accept any liability to any person in
relation to this Annual Report except to
the extent that such liability could arise
under English law. Accordingly, any
liability to a person who has
demonstrated reliance on any untrue or
misleading statement or omission shall be
determined in accordance with Section
90A of the Financial Services and Markets
Act 2000.
On behalf of the Board
Raj Bhasin
Company Secretary
22 February 2022
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CORPORATE GOVERNANCE REPORT
diversity across the workforce which, particularly
with regards to gender, has been lacking in the
mining sector. We are happy that the Board is able
to set the tone from the top since, with Tracey’s
appointment, we will have achieved our target of
one-third female representation.
Board development
As referenced in last year’s Annual Report, the Board
committed to undertaking an externally facilitated
Board evaluation. Following a selection process led
by the Senior Independent Director, Independent
Audit Limited was appointed to carry out the annual
evaluation of the Board and the Committees. This
resulted in a comprehensive report which saw the
Board conclude, based on the evaluation, that it had
a number of strengths in addition to agreeing there
are areas for further development over the short and
medium term. The Board is committed to continued
development and I look forward to reporting on our
progress in due course.
If you should have any queries arising from this
report, please do not hesitate to contact me at
Eduardo Hochschild
Chair
Dear Shareholder
I am pleased to present the Corporate Governance
Report for 2021.
In this section of the Annual Report, we report on the
Company’s compliance with the provisions of the
2018 edition of the UK Corporate Governance Code
(the ‘Code’) and the application of its principles.
As you will have read, 2021 was an extremely
eventful year with the Board exercising its
oversight responsibilities not only with respect to
operational matters, but also on the execution of
key strategic developments. Through the corporate
governance activities described in this report, the
Board is well-positioned to focus on the Company’s
key priorities.
Strengthening of the Board
In December we were able to announce the
appointment of Tracey Kerr to the Board as an
Independent Non-Executive Director. This was the
result of an externally-led search which was overseen
by the Nomination Committee tasked with bolstering
the skills around the Board table to facilitate the
delivery of the Company’s strategic goals. We look
forward to working with Tracey and benefiting from
her expertise in safety, sustainability and geology.
As you will have read in the Sustainability Report,
the Company has focused on the area of promoting
In an eventful year for the Company, the Board
exercised its oversight responsibilities diligently and,
through the activities described in this report, is
well-positioned to focus on our key priorities.”
Eduardo Hochschild
Chair
Strategic Report
Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
Introduction
This report, together with the Directors’
Remuneration Report, describes how the
Company has applied the Principles of
the UK Corporate Governance Code (‘the
Code’) (2018 edition) in respect of the
year ended 31 December 2021. A copy of
the Code is available on the website of the
Financial Reporting Council (‘FRC’) at
Provision
Explanation
The Chairman has been in post beyond nine
years from the date of his first appointment
to the Board
As a major shareholder of the Company and given his significant experience of mining in Peru,
the Directors consider Mr Hochschild’s continued chairmanship to be in the best interests of the
Company. As described later in this report, there are checks and balances in place to ensure ongoing
objectivity and that Mr Hochschild does not exercise undue influence.
The Company’s remuneration schemes and
policies should include provisions that would
enable the Company to recover sums or share
awards (i.e. clawback)
In order to overcome the legal difficulties in enforcing clawback in Peru, the Group’s policy wording
relating to the events which may lead to the application of malus has been clarified so as to include
references to misconduct, reputational damage, error in calculation and any material breach of an
individual’s employment contract.
Our governance structure
Disclosures to be included in the
Corporate Governance Report in
relation to share structure, shareholder
agreements and the Company’s
constitutional provisions pursuant to the
Disclosure Guidance and Transparency
Rules are provided in the Supplementary
Information section on pages 100 to 102.
Statement of Compliance
The Board confirms that, in respect of
the year under review, the Group has
complied with the provisions contained in
the Code with the exceptions noted below:
1
Terms of reference are available at www.hochschildmining.com (see pages 53, 93 to 99, and 106 for further details on the Committees’ activities during 2021).
Board
3
Non-Independent Directors
6
Independent Directors
Audit
Committee
1
Sustainability Committee
1
Nomination
Committee
1
Remuneration Committee
1
Chair
Eileen Kamerick
Chair
Eduardo Hochschild
Chair
Eduardo Hochschild
Chair
Michael Rawlinson
Chair
Dr Graham Birch
READ MORE
Page 93
READ MORE
Page 51
READ MORE
Page 98
READ MORE
Page 104
Exploration
Working Group
A working group consisting of
management and Non-Executive
Directors which reviews detailed reports
on, and progress against, brownfield
and greenfield exploration programmes.
CORPORATE GOVERNANCE REPORT
CONTINUED
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Leadership & purpose
The Board
The Board is responsible for approving
the Company’s strategy and monitoring
its implementation, for overseeing the
management of operations and for
providing leadership and support to the
senior management team in achieving
sustainable added value for shareholders.
It is also responsible for enabling the
efficient operation of the Group by
providing adequate financial and human
resources and an appropriate system of
financial control to ensure these
resources are fully monitored and utilised.
There is an agreed schedule of matters
reserved for the Board which includes the
approval of annual and half-yearly results,
the Group’s strategy, the annual budget
and major items of capital expenditure.
2021 Board meetings
15 Board meetings were held during the
year, of which four were scheduled
meetings. The ad-hoc meetings were
convened to consider the following:
– the Company’s distributable reserves
(see page 81 for further details);
– various matters relating to the
demerger of Aclara Resources Inc
(formerly Biolantanidos);
– interim updates on operational matters;
– business development projects
including the Posse gold project in Brazil
and the Snip project in British Columbia;
– updates on the political situation in
Peru and related developments (see
pages 72 and 73 for further details).
Attendance at the scheduled Board
meetings convened during 2021 is
summarised in the table below;
Director
Attendance (Maximum)
Mr E Hochschild
4 (4)
Mr G Birch
4 (4)
Mr J Born
4 (4)
Mr I Bustamante
4 (4)
Ms J Gardiner
4 (4)
Ms T Kerr*
0 (0)
Ms E Kamerick
4 (4)
Mr M Rawlinson
4 (4)
Mr D Romero
4 (4)
Mr S Sarma**
4 (4)
*
Ms Kerr was appointed to the Board on
10 December 2021
** Mr Sarma retired from the Board on 10 December 2021
In addition to the regular updates from across the business, the principal matters
considered by the Board during 2021 are detailed below. In keeping with Board
practice, meetings incorporate reports from each of the Committee Chairs on the
business considered at their respective meetings. Any significant matters arising from
those meetings are discussed by the full Board and feature among the matters
described below.
Health & Safety
–
Updates on the impact of Covid-19 on the operations.
–
Updates on the ongoing implementation of Safety 2.0, the second
iteration of the Company’s Safety Culture Transformation Plan (see
page 59 for further details);
–
The investigation into the fatal accidents involving contractors at the
San Jose mine and Aclara’s Penco project (see page 59); and
–
The Company’s own investigation into the tragic traffic accident in June
2021 involving a bus operated by a contractor.
Financial
–
The stress-tested scenarios and the underlying assumptions used in the
going concern and viability statements in support of the 2020 annual
financial statements and 2021 half-yearly financial statements;
–
Considered recommendations of the Audit Committee to adopt the
2020 Annual Report and Accounts and the 2021 Half-Yearly Report;
–
The Group’s ongoing financial position;
–
The 2020 final dividend;
–
The refinancing of, and additional borrowing under, the Group’s
Medium-Term Debt Facility;
–
The level of the Company’s distributable reserves and the rectification
steps to be taken in connection with certain past dividends (see page 81);
–
The 2021 interim dividend; and
–
The 2022 budget.
Strategy
–
Strategic options to facilitate the Group’s growth including the
appointment of project CEO for the Volcan project in Chile;
–
Updates on progress in the development of Aclara’s rare-earths project;
–
The demerger of Aclara and its listing on the Toronto Stock Exchange†;
–
Business development projects, including:
–
Exercising the option to start earning-in a 60% interest in the Snip
Project in British Columbia†; and
–
Acquisition of the Posse gold project in Brazil†;
–
Updates on the Group’s operational innovation projects; and
–
The Group’s strategic plan†.
Business
performance
–
Detailed updates on the operational and financial performance;
–
Unbudgeted strategic initiatives; and
–
Presentations on progress against the annual brownfield exploration
programme.
Risk
–
Political developments in the Company’s countries of operation.
In particular, the Board considered the outcome of the Presidential
elections in Peru and convened emergency meetings to consider the
Company’s response to the Peruvian Prime Minister’s actions in
Coracora (see page 72 for further details);
–
The Group’s Risk Register detailing the significant and emerging
risks faced by the Group and their corresponding mitigation plans.
As reported in the Risk Management report, Climate Change and
Supply Chain risks were considered following their entry on the
Group Risk Register;
–
Renewal of the Group’s Directors’ and Officers’ Liability Insurance; and
–
A review of the market fundamentals and outlook for precious metals.
Governance
–
The appointment of Tracey Kerr as an Independent Non-
Executive Director;
–
Updates from the Company Secretary on governance developments
affecting the Company and Directors’ responsibilities including with
respect to the UK Government’s consultation on reforms to audit and
governance;
–
An update on the implementation of the 2020 Board evaluation
recommendations;
–
The appointment of Independent Audit Limited as the external Board
Reviewer, and the findings of the review; and
–
The annual reviews of Directors’ conflicts of interest and independence
of Non-Executive Directors.
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Further Information
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Our corporate values
Sustainability
–
Reviews of the social climate in Peru, Argentina and Chile and their
potential impact on the Group as well as the Company’s social
engagement strategy;
–
The adoption of a TSF Policy and updates on reviews of the Group’s
Tailing Storage Facilities (‘TSFs’), assessments of the viability of
implementing, on a voluntary basis, certain aspects of the ICMM’s
Global Standard on Tailings Management; and
–
Performance of the Group against the internally-designed
environmental corporate scorecard (the ECO Score) and updates on the
Company’s implementation of the Environmental Cultural
Transformation Plan.
Investors’ views
–
Regular reports on investors’ views as part of the Group’s
comprehensive engagement schedule (see section headed Shareholder
engagement in 2021 for further details);
–
Feedback from investors and proxy agencies on 2021 AGM business,
both before and after the meeting; and
–
Feedback from investors following the open engagement initiated by the
Remuneration Committee in light of the voting outcome on the 2020
Directors’ Remuneration Report.
See Directors’ Remuneration Report from page 104 for more details
† See page 88 and 89 on how wider stakeholders’ interests were considered in relation to these key Board decisions
Senior executives of the organisation are
invited to attend Board meetings and to
make presentations on their areas of
responsibility. In the event a Director is
unable to attend a Board or Committee
meeting, comments are encouraged to be
fed back to the Chairman of the relevant
meeting who ensures that the absent
Director’s views are represented.
In between Board meetings, Directors
are kept informed of latest developments
through monthly management reports
on the Company’s operations, safety
performance, exploration activity and
financial position. In addition, Update
Meetings are diarised to take place
monthly which provide an opportunity for
both the Board and the CEO to consider
matters and developments between
scheduled meetings.
Purpose & culture
The Group was established over a
hundred years ago and over time it has
characterised itself not only through
sound operations but also in striving to
achieve the highest standards of safety
and with regard to its social impact. This
approach is reflected and described in
Setting the tone
The Board sets the tone from the top,
reflecting these values in its deliberations
and decision-making. The Chief Executive
Officer (‘CEO’) is the crucial conduit
through which the tone is cascaded
throughout the organisation. By way
of example, during the year, the CEO
communicated with all employees on
a number of matters including:
– Hochschild’s environmental
commitments;
– Results of the ‘Green Challenge’ which
encourages the operating units to
compete on the basis of their
environmental performance;
– The International Day for the Elimination
of Violence against Women; and
– Initiatives relating to compliance and
ethical behaviour.
In addition, the CEO also communicated on
matters of particular importance to
employees in Peru such as the
unprecedented traffic accident involving a
bus operated by one of the Company’s
contractors and the Company’s response
to the actions of the Peruvian Prime
Minister in November 2021 (see page 72
for further details).
further detail in the Code of Conduct,
adopted in 2010, which sets out the
standards and behaviours expected from
all levels within the Company as well as
our partners: professionalism, honesty,
integrity, respect for our stakeholders and
a commitment to safety, our communities
and the environment. These are further
reiterated in the Group’s anti-bribery and
corruption policies.
The Company launched its reformulated
corporate purpose in 2019 as part of a
rebranding – ‘Responsible and Innovative
Mining Committed to a Better World’
– and, in tandem, set out the values which
create a culture that is aligned with the
purpose (see diagram below).
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Inspiring others
Innovation
Demonstrating responsibility
Recognising talent
Seeking efficiencies
These values not only represent key inputs in our business model in the
performance of our core activities but they also inform our approach to our
four-pronged growth strategy. See the Strategy section on pages 24 and 25.
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Assessing and monitoring culture
The Board assessed and monitored the
Company’s culture using a dashboard
of measures, some of which are reported
on a monthly basis.
Responsibility
Safety – Accident Frequency Index
(LTIFR), Accident Severity Index,
High Potential Event rate, SeguScore
(an internally designed safety score
combining lagging and leading
safety indicators) See page 59 for
further details
Environmental
ECO Score
Ethical practices/Integrity
Whistleblowing reports (online and
offline channels), internal audit reports
Innovation
Submissions of operational efficiency
projects via the Innova platform
Inspiring others and promoting talent
Team and individual development
plans, staff turnover/retention rates
Efficiency
Operational KPIs including AISC,
Production and Brownfield Exploration
results, Financial KPIs including
Adjusted EBITDA, Working Capital,
Cash Balance, Debt Covenant ratios
An organisational climate survey, which
was scheduled to take place in 2021, was
postponed until H2 2022 due to a
combination of factors including the use
of remote-working as a result of Covid-19.
Action plans to address key areas
identified in the last survey conducted in
2019 continue to be implemented,
tailored by each department focusing on
the following general themes:
– Recognising others’ achievements;
– Improving training programmes;
– Reflecting the corporate culture in the
style of management; and
– Improving the employee value
proposition.
Date
Event
January
(and April,
July,
October)
Conference calls following
the Quarterly Production
Report
Continuation of shareholder
engagement on proposed
revised Remuneration Policy
February
BMO Global Metals & Mining
Conference
2020 Annual Results
presentation
UK Roadshow (virtual)
May
BoA Merrill Lynch Global
Metals, Mining and Steel
Conference
Post-AGM shareholder
conference call (arranged
due to restrictions on AGM
attendance)
July
Publication of standalone
Sustainability Report
August
2021 Half-Yearly Results
presentation
September
UK Roadshow (virtual)
Denver Gold Forum
Aclara Capital Markets
presentation
November
Open shareholder
engagement on
remuneration matters
Pro-active engagement
with top 20 shareholders in
response to actions of
Peruvian Prime Minister
December
Scotia Capital Conference
An extensive Investor Relations schedule
resulted in management holding over 100
investor meetings during the year.
In addition to the above, the Non-
Executive Directors are available to meet
shareholders on request. During the year,
the Remuneration Committee initiated an
engagement process with the Company’s
largest shareholders in the second half of
2020 which continued through to the
2021 AGM on the proposed revised
Remuneration Policy. As reported in the
Directors’ Remuneration Report, the
revised Policy was supported by 86% of
the votes cast.
2021 AGM
Due to the Covid-related restrictions in
place at the time, shareholders were not
permitted to attend physically the 2021
AGM. In order to facilitate direct
Engagement
The Directors receive briefings from the
Company Secretary and legal advisers on
their duties under English law to promote
the success of the Company. As in other
large companies, these duties are, in part,
discharged through a framework of
delegated authorities.
The Board ensures there is regular and
sustained engagement with its
shareholders and other stakeholders
which is fed back to the Board and taken
into consideration in discussions and
decision-making. This section of the
report includes the s172(1) statement
and, by cross-referencing other parts of
this report, summarises how engagement
was undertaken and how stakeholders
were considered in the key decisions
taken during the year.
Shareholders
Our approach
The Chairman, with the support of the
Senior Independent Director and the
Company Secretary, is available to
engage with major shareholders on
matters of governance and performance
against strategy.
The Chief Executive Officer is responsible
for discussing strategy and business
performance with the Company’s
shareholders and conveying their views
to the other members of the Board. He
is supported in this regard by the Chief
Financial Officer and the Head of Investor
Relations who is based in the London
corporate office.
In addition to the direct means of contact
as detailed in the table below, Directors
are kept informed of major shareholders’
views through copies of (i) relevant
analysts’ and brokers’ briefings, (ii) voting
recommendation reports issued by
institutional investor agencies, and (iii)
significant correspondence from
shareholders with respect to the
business to be put to shareholder
vote at General Meetings.
Shareholder engagement in 2021
The following table summarises the
shareholder engagement initiatives
and events during the year:
Strategic Report
Financial Statements
Governance
Further Information
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engagement, a shareholder call was
arranged to take place immediately after
the AGM with shareholders required to
pre-register. The Company did not receive
any pre-registration requests.
At the 2021 AGM, the resolutions seeking
the re-election of Dionisio Romero
Paoletti and the approval of the 2020
Directors’ Remuneration Report were
opposed by 33% and 39% of the votes
cast respectively.
Investor feedback confirmed that the
results reflected concerns with:
(a) Mr Romero’s time commitment due
to the number of directorships that he
held; and
The Directors are aware of their duty
under English company law (the ‘section
172 duties’) to act in the way he or she
considers, in good faith, would most likely
promote the success of the Company for
the benefit of its shareholders and other
factors. These include the likely
consequences of any decisions in the long
term, the interests of the Company’s
employees, the need to foster the
Company’s business relationships with all
stakeholders, the impact of the
Company’s operations on the community
and environment, and the desire to
maintain a reputation for high standards
of business conduct.
By understanding stakeholders’ views
and expectations, the Board is able to
successfully steer the Company towards
achieving its strategic goals in a
sustainable manner and which
acknowledges its licence to operate.
(b) Several aspects relating to the annual
bonus including the restatement of bonus
objectives in the latter part of 2020, and
the quantum of the bonus paid to the
CEO, both overall and in light of the
fatality that occurred during the year.
For further information, please refer to
the Remuneration Committee Chair’s
statement from page 104.
With regards to the re-election of Mr
Romero, the Board (a) received
reassurances from Mr Romero on his
ongoing availability and commitment to
the Company and (b) noted the fact that
Mr Romero acts as a nominee director of
the Company’s largest shareholder under
the Relationship Agreement.
Other stakeholders
On pages 45 to 49 of the Strategic Report,
we have identified our key stakeholder
groups, how the Company engages with
them and an indication of the issues
raised by each group during the year.
Impact on wider stakeholder group of key
decisions in 2021
In discharging their section 172 duties the
Directors have regard to the factors set
out above as well as other factors which
are considered relevant to the decision
being made. It is acknowledged that
every decision we make will not
necessarily result in a positive outcome
for all our stakeholders. By considering
the Company’s purpose together with its
strategic priorities, and having a process
in place for decision-making, the aim is to
make sure that decisions reflect the
Group’s corporate values.
For details on how our Board operates and
the matters we discussed and debated
during the year, please see page 85 and
86. We set out below examples of how the
Directors had regard to the matters set
out in section 172(1)(a)-(f) when
discharging their section 172 duties on
certain decisions taken during the year.
(a) Aclara demerger and listing on the
Toronto Stock Exchange
In deciding to demerge Aclara from the
Hochschild Mining Group, the Board
considered:
–
shareholders
’ expectations for the
Company to maximise the value of its
assets and, in turn, shareholder return.
In the Board’s view this was achieved
through the creation of a separate
entity with its own dedicated
management team and access to
capital. Moreover, by effecting a
demerger through an in-kind
distribution, shareholders would be able
to benefit directly from any potential
re-rating of Aclara; and
– the minimal impact on Hochschild’s
employees, customers, suppliers and
communities
in light of the limited
number of the early-stage nature of
Aclara’s asset (and therefore limited
resourcing requirements from the
Company’s own personnel) and its
location in Chile.
(b) Annual Strategy Review
As it does each year, the Board carried
out a review of the Group’s strategy. The
discussion in 2021 focused on how the
Group could best position itself vis-à-vis
its stakeholders and capitalise on the key
sources of growth while remaining true to
the Company’s purpose. Alternative
operating and financial scenarios were
reviewed by the Board and, in light of their
critical importance, sub-strategies to
ensure the achievement of the
Company’s social commitments were
developed. By taking this approach, the
Board has mandated that every strategic
business decision should promote
sustainability for all stakeholders.
Below, we have summarised how the Board receives feedback from its key stakeholder groups:
Employees
Social
Government / Regulators
Suppliers/Lenders
Customers
Graham Birch, as Chair
of the Sustainability
Committee, is our
designated Director
to oversee workforce
engagement who
receives quarterly
updates from the Vice
President of Human
Resources on discussions
with trade unions
and other employee
group meetings.
Reported to the
Sustainability Committee,
which feeds back to
the Board.
Reported to the Board as
part of its consideration
of the quarterly Risk
Management updates
on the political/
regulatory climate.
Reported to the Board as
part of its consideration
of the quarterly Risk
Management updates in
relation to Business
Interruption & Supply
Chain risks.
Material matters are
reported to the Board by
the Chief Financial
Officer who is responsible
for managing the sales
and logistics department.
There were no material
matters raised during
the year.
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(c) Exercising the option to start earning-
in a 60% interest in the Snip Project in
British Columbia
In its decision to exercise the option to
start earning into the project, the Board
took into account:
–
shareholders’
concerns on the limited
scope for growth from the Company’s
existing portfolio of operating assets
and its impact on shareholder returns;
– a commitment to establish
constructive
relations
with the Tahltan First Nation;
– the interests of
employees
who
would benefit from the addition
of a high-grade asset into the
Company’s pipeline;
– the neutral impact on
customers
and suppliers
as the decision would
result primarily in exploration activities
in British Columbia, Canada, for at
least three years.
(d) The acquisition of the Posse gold
project in Brazil (subject to completion
in Q1 2022)
In its decision to acquire the project,
the Board considered:
–
Shareholders’
concerns (a) on the
limited scope for growth from the
Company’s existing portfolio of
operating assets and its impact on
shareholder returns, and (b) on the
lack of the Company’s geographic
diversification;
– the project’s current owner’s
complementary ESG-led approach
with strong
local community and
government
support;
– the interests of
employees
who would
benefit from the addition of a high-
grade asset into the Company’s
portfolio; and
– the neutral impact on the
Company’s
customers and suppliers.
Division of responsibilities
Board composition
Throughout the year the Board
comprised the Chairman, the Chief
Executive Officer and seven Non-
Executive Directors, of whom six are
considered, by the Board, to be of
independent judgement and character.
On 10 December 2021, Sanjay Sarma
stepped down from the Board as an
Independent Non-Executive Director and
Tracey Kerr’s appointment (in that same
role) took effect.
As a result, at all times during the year,
the Board comprised a majority of
Independent Non-Executive Directors.
Dionisio Romero Paoletti is the only
Listing Rules’), contains undertakings
from each of Eduardo Hochschild and
Pelham Investment Corporation (being
the entity through which Mr Hochschild
holds his shares in the Company) (the
‘Significant Shareholder’) that:
– all transactions with the Company
(and its subsidiaries) will be conducted
at arm’s length and on normal
commercial terms;
– neither of them (nor their associates)
(the ‘Relevant Parties’) will take any
action that would have the effect of
preventing the Company from
complying with its obligations under
the UK Listing Rules;
– the Relevant Parties will not propose,
and neither will they procure the
proposal of, a shareholder resolution
intended or which appears to be
intended to circumvent the proper
application of the UK Listing Rules; and
– the Relevant Parties will not take any
action that would preclude or inhibit
any member of the Group from carrying
on its business independently of any
of them.
Certain confirmations are required to be
given by the Board under the 2014 Listing
Rules with regards to the Company’s
compliance with the independence
provisions which can be found in the
Directors’ Report on page 81.
Senior Independent Director
Michael Rawlinson is the Senior
Independent Director. Mr Rawlinson’s role
is not only to act as a central point of
contact for the Non-Executive Directors
as a group but to also act as a conduit
between the Non-Executive Directors and
the executive management team. To
facilitate this, Mr Rawlinson chairs
meetings of the Non-Executive Directors
and of the Independent Non-Executive
Directors immediately after each Board
meeting. This provides the opportunity to
gather feedback and thoughts on Board
discussions which are subsequently
relayed to the Chairman and/or the
executive team as appropriate. A crucial
part of the role of the Senior Independent
Director is to meet with major
shareholders if concerns have not been
addressed by the executive team. No
such meetings were requested, however,
Mr Rawlinson did engage with a number
of major investors during the year.
Non-Executive Directors
The Company’s Non-Executive Directors
hold, or have held, senior positions in the
corporate sector. Sanjay Sarma, who
served on the Board until 10 December
2021, has a background in academia in
non-independent Non-Executive Director
as he has been nominated to the Board
by the Company’s major shareholder
under its rights pursuant to the
Relationship Agreement (further details
of which can be found on page 102 of
the Directors’ Report).
Chairman and Chief Executive
The Board is led by the Chairman,
Eduardo Hochschild, who is also the
largest shareholder of the Company
with a c.38% holding.
The Board has approved a document
which sets out the division of
responsibilities between the Chairman
and Chief Executive Officer.
As Chairman, Eduardo Hochschild is
responsible for leading the Board of
Directors and ensuring that the Board is
enabled to play a full and constructive
part in the development and
determination of the Group’s strategy
and overall commercial objectives.
Ignacio Bustamante, as the Chief
Executive Officer, is responsible for the
formulation of the vision and long-term
corporate strategy of the Group, the
approval of which is a matter for the
full Board.
The Chief Executive Officer is
responsible for leading the executive
team in the day-to-day management
of the Group’s business.
Status of the Chairman
In light of his significant shareholding,
the Chairman is not considered to be
independent. However, the other Directors
of the Board continue to assert that Mr
Hochschild chairs the Board in an
objective manner and encourages open
and full debate. The Directors are
satisfied that the composition of the
Board and the implementation of certain
contractual arrangements act as
additional measures which prevent
the exercise of undue influence by
Mr Hochschild.
Firstly, the significant presence of
Independent Directors and the active role
of the Senior Independent Director ensure
that the views of minority shareholders
are well represented.
Secondly, the undertakings provided in
the Relationship Agreement (as described
below) ensure that the Company and its
subsidiaries are capable of carrying on
their business independently of Eduardo
Hochschild and his associates.
The Relationship Agreement, which was
revised in 2014 in light of new rules
governing such agreements (the ‘2014
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Further Information
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Lima Head office
the field of mechanical engineering and
technology. Each Director brings their
experience and independent perspective
to enhance the Board’s capacity to help
develop proposals on strategy and to
oversee and grow the operations within
a sound framework of corporate
governance.
Details of the tenure of appointment of
Non-Executive Directors are provided in
the Directors’ Remuneration Report.
Independence of Non-Executive Directors
In keeping with its usual practice, the
Board considered the independence of
the Non-Executive Directors during the
year. As part of its assessment, the Board
took into account the circumstances set
out in Provision 10 of the Code. In
particular, the Board noted:
– the fact that Jorge Born and Graham
Birch had both served on the Board for
over nine years; and
– Sanjay Sarma’s position as a director
of Top Flight Technologies, a company
in which Eduardo Hochschild has a
shareholding and a convertible
note investment.
The Board assessed, among other things,
each of the above-named Director’s
individual approach and contribution to
Board discussions. It was concluded that
each Director demonstrated ongoing
objectivity which, at times, included
appropriate challenges of matters under
deliberation as well as of management.
Accordingly, the Board was of the opinion
that the above circumstances did not
interfere with the relevant Director’s
ability to act in the best interests of the
Company and are therefore considered
to be independent for the purposes of
the Code.
Company Secretary
The Company Secretary is appointed and
removed by the Board and is responsible
for advising the Board on governance
matters and the provision of
administrative and other services to the
Board. All the Directors have access to
the Company Secretary.
Composition, succession and evaluation
Appointments and re-election
of Directors
The Board has established a Nomination
Committee which recommends
nominations to the Board. The report of
the Nomination Committee appears on
pages 98 and 99.
The Company has adopted the practice
of requiring Directors to seek annual
re-election by shareholders in keeping
with the UK Corporate Governance Code.
The biographies of the Directors can be
found on pages 78 and 79 which, in
addition to specifying other positions,
also highlight the key skills and experience
of each Board member.
Under the terms of the Relationship
Agreement, the Significant Shareholder
has (i) the right to appoint up to two
Non-Executive Directors to the Board for
so long as the Significant Shareholder
holds an interest of 30% or more in the
Company and (ii) the right to appoint one
Non-Executive Director for so long as it
has an interest of 15% or more in the
Company, and in each case to remove
any such Director(s) previously appointed.
The Relationship Agreement continues
for so long as the Company’s shares are
traded on the London Stock Exchange
or until such time as the Controlling
Shareholders (including Eduardo
Hochschild) cease to own or control in
aggregate a minimum of 15% of the
issued share capital or voting rights
of the Company.
The Significant Shareholder exercised
this right for the first time with the
appointment of Dionisio Romero Paoletti
who joined the Board on 1 January 2018.
CORPORATE GOVERNANCE REPORT
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Board development
It is the responsibility of the Chairman
to ensure that the Directors update
their knowledge and their skills and are
provided with the necessary resources
to continue to do so. This is achieved
through the various means described
as follows.
Induction
New Board appointees are offered
the opportunity to meet with key
management personnel and the
Company’s principal advisers as well
as undertaking visits to the Group’s
operations. In addition, where
appointees will serve on any of the Board
Committees, sessions with the relevant
Committee Chair are organised.
In light of the Covid-19 related
restrictions, the above induction
programme was facilitated virtually in
connection with the appointment of
Tracey Kerr. Site visits will be arranged
once international travel resumes.
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Tracey Kerr selection and
induction process
Selection:
Search firm, London Search
Associates, engaged to compile a
long-list of candidates with the skills
and experience sought by the
Nomination Committee
The Nomination Committee compiles a
short-list of candidates
Interviews:
Chairman and designated
members of the Nomination
Committee
Conflicts of Interest:
Nomination
Committee considers and approves
any conflicts of interest and
recommends Tracey Kerr’s
appointment to the Board
Provision of Key Documentation:
on
Governance, Corporate Policies,
Directors’ & Officers’ Liability
Insurance Policy and other information
The Board Perspective:
Meets with all
Board members
The Operational Perspective:
Meetings with the CEO, CFO and COO
Briefings:
Vice Presidents, Head of
Internal Audit, Head of Investor
Relations and Company Secretary
Hochschild’s Approach to
Sustainability:
Meets with the
functional heads, in Peru of Health,
Safety, Environmental Management,
Community Relations and Permitting
Full Perspective:
Attends, as a guest,
meetings of the Board Committees
and the Exploration Working Group
– the use of a search firm to support the
Nomination Committee’s efforts in
identifying suitable candidates for
Board appointments in light of the
commitment to achieve 33% female
representation on the Board by the end
of 2021;
– the holding of monthly ‘Update
Meetings’ to keep the Board apprised
of developments between scheduled
Board meetings;
– a mid-term review of the Company’s
growth strategy; and
– promoting the Company’s visibility in
North America resulting in the creation
of the role of VP, North America.
External Board evaluation
In line with the Board’s intention reported
last year, an externally-facilitated Board
and Committee evaluation was carried
out in H2 2021. Following a tender process
led by the Company Secretary and the
Senior Independent Director, Independent
Audit Limited was selected as the Board
Reviewer. Independent Audit Limited had
not previously undertaken any work for
the Company. As a result of the worldwide
travel restrictions, the evaluation was
carried out virtually and took place as
described right.
Briefings
The Directors receive regular briefings
from the Company Secretary on
developments in the areas of corporate
law and corporate governance that
affect their roles as Directors of a UK
listed company. In addition, the Directors
have ongoing access to the Company’s
officers and advisers with presentations
arranged periodically.
Advice
The Company has procedures by
which members of the Board may take
independent professional advice at the
Company’s expense in the furtherance
of their duties.
Board effectiveness
The Board is committed to the process
of continuous improvement and in 2021,
the Board engaged Independent Audit
Limited as an external Board Reviewer to
evaluate the workings of the Board and its
Committees. See the following page for a
description of the process and outcome
of the 2021 Board evaluation.
Implementation of 2020 Board evaluation
A number of actions were taken during
the year in light of the findings of the
internally-led 2020 Board evaluation
process. These included:
– the holding of pre-Audit Committee
meetings enabling Audit Committee
members to receive updates from the
CFO and the external Auditor,
particularly in relation to half-yearly
and annual results;
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Financial Statements
Governance
Further Information
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2021 External Board evaluation
Evaluation of the Board and
Committees
The findings arising from the evaluation
were considered collectively by the
Chairman and Michael Rawlinson as
the Senior Independent Director and
the resulting recommendations were
discussed and, where appropriate,
approved by the Board.
In terms of implementation:
– a sub-Committee of the Board has
been established to oversee the
implementation of those
recommendations of benefit to the
full Board; and
– in the case of recommendations which
relate directly to the terms of reference
of a Board Committee, that
Committee has been tasked with
considering, and implementing the
necessary course of action.
Evaluation of the Chairman
The evaluation of the Chairman’s
performance was considered by the
Non-Executive Directors led by the
Senior Independent Director.
The interviews were wide-ranging and
covered a number of areas including:
– the role and effectiveness of the Board
and Committees;
– the Directors’ insight into the business;
– the information provided to the
Directors; and
– matters such as risk, culture and
people issues.
2021 Board evaluation findings
The Board has concluded that, based on
the evaluation, it has a good number of
strengths, such as:
– a constructive relationship between
the Board and management team;
– an evident emphasis on maintaining
and promoting an ethical corporate
culture;
– a strong strategic focus across
discussions;
– the depth of experience of the Non-
Executive Directors and its value to
management; and
– strong leadership of Board Committees
which are supported well by
management.
The principal recommendations arising
from the 2021 Board evaluation process
include the following:
Area of focus
Action
Risk
management
reporting
Reviewing risk management
reporting and the findings of
internal audit
Enabling
deeper
strategic
discussions
Optimising the balance
between management
reporting and discussions
on strategic matters, and
considering key strategic
themes over longer time
horizons
External
perspectives
Incorporating, in a more
structured way, the views of
external stakeholders to
enhance strategic planning
Continuing the
momentum on
ESG matters
Considering wider use
of ESG related indicators
for performance monitoring,
and supporting management’s
efforts in reporting on
ESG matters
People &
culture
Enhancing the Board’s visibility
of people issues and the
embedding of the target
organisational culture
Board
meeting
effectiveness
Reformatting Board material
to enhance discussion and
optimising the holding of
virtual meetings
July 21:
Short-list of Board review
firms considered by Chairman and
Senior Independent Director
resulting in selection of
Independent Audit Limited
August 21:
Scope of review agreed
with Company Secretary and
Senior Independent Director
Aug/Sept 21:
Board Reviewer
reviews past Board and
Committee meeting papers and
attends Board & Committee
meetings
Sept 21:
Interviews with Board
members, Company Secretary,
External Audit Partner, Head
of Internal Audit and senior
management
Oct 21:
Report considered
by Senior Independent
Director & Chairman
Nov 21:
Board discusses findings
for implementation
Feb 22:
Action plan for
implementation agreed
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AUDIT COMMITTEE REPORT
2021 Meeting attendance
Members
Independent
Maximum
possible
attendance
Actual
attendance
Eileen Kamerick, Non-Executive Director (Chair)
Yes
4
4
Michael Rawlinson, Non-Executive Director
Yes
4
4
Jill Gardiner, Non-Executive Director
Yes
4
4
Dear Shareholder
I am pleased to present the Audit
Committee report for the year ended
31 December 2021.
We have set out in this section of the
Annual Report details of how the Audit
Committee has supported the Board
through its primary responsibilities
focused on financial reporting, internal
controls and risk management.
2021 saw management focus not only on
ensuring the safe continuity of operations
despite the ongoing risks posed by Covid
but also the execution of a number of
strategic transactions including the
demerger of Hochschild’s rare-earths
business, Aclara Resources. As described
later in this report, the Audit Committee
played its part in reviewing Aclara’s
internal audit and compliance initiatives
in preparation for its separation from
the Group.
The year was also notable for the
socio-political developments in Peru,
Argentina and Chile where the Group has
its principal assets, which have had an
impact on the recurring issues that the
Audit Committee considers in the
preparation of the annual accounts. In
particular, the uncertainty caused by
domestic politics and government action
and their knock-on effects can affect the
valuation of the Company’s assets. The
Committee has reviewed management’s
assessment which is discussed further
from page 95. Such considerations
also have repercussions for our going
concern statement which the
Committee has reviewed through
scrutiny of management’s analysis and
the assumptions used in the scenarios
modelled to test the robustness of the
Company’s financial health.
In order to be fully prepared to meet
new requirements, the Committee has
been kept informed of developments
that can impact the work that it
does, such as the UK Government’s
consultation on proposed reforms
to various aspects of audit and
governance. While the outcome of
the consultation has not yet been
published, we will continue to monitor
this and other relevant initiatives.
Finally, I am pleased that our first
externally-facilitated Board/
Committee evaluation recognised
a number of positive aspects of the
workings of the Committee alongside
areas for improvement. We are
committed to continuous improvement
and so we will be considering
recommendations in relation to risk
and internal audit reporting which
could further enhance how the
Committee performs its role.
Eileen Kamerick
Committee Chair
2021 was an active year for the Company
which saw the Audit Committee support the
Board on many fronts.”
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Financial Statements
Governance
Further Information
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Key roles and responsibilities
– To monitor the integrity and material
accuracy of the Company’s financial
statements and related disclosures;
– To monitor the effectiveness of the
Company’s internal controls and risk
management systems and review the
preparation of the going concern and
viability statements;
– To review, on behalf of the Board, the
Company’s procedures for detecting
fraud, the Company’s systems and
controls for the prevention of bribery
and to review and conclude on non-
compliance;
– Oversight of the Internal Audit
function, review of its annual work
plan and its findings;
– To oversee the relationship with the
Company’s external Auditor;
– To review the effectiveness of the
external audit process; and
– To report to shareholders annually on
the Committee’s activities including
details of the significant audit issues
encountered during the year and how
they have been addressed.
Membership
Eileen Kamerick was, during the year
under review, and currently serves as, the
chair of the Audit Committee. Eileen was
formerly a Chief Financial Officer of a
number of US-based companies
operating in the mining, oil and gas,
investment banking and recruitment
sectors. Eileen currently chairs the audit
committees of the Legg Mason Closed
End Mutual Funds and NASDAQ-listed
ACV Auctions Inc. Eileen holds the
Directorship Certification of the US
National Association of Corporate
Directors (‘NACD’) and is a Board
Leadership Fellow of the NACD.
Michael Rawlinson’s career in banking
specialised in the mining sector, having
initially worked as an analyst and
corporate financier, serving most recently
as Global Co-Head of Mining and Metals
at Barclays Investment Bank from 2013
until his retirement from that role in June
2017. Michael currently serves on the
audit committees of London-listed
Capital Limited and AIM-listed AfriTin
Mining Limited.
Activity during the year
The Committee considered the following
principal matters during the year:
Financial reporting
– The 2020 Annual
Report and Accounts and the 2021
Half-Yearly Report were reviewed by the
Committee before recommending that
they be adopted by the Board. In its
review of these financial reports, the Audit
Committee reviewed accounting policies,
estimates and judgements applied in
preparing the relevant statements and
the transparency and clarity of
disclosures contained within them.
Review of audit plans
– In line with its
usual practice, the Committee considered
reports from the external Auditor on the
scope and structure of the review of the
half-yearly results and audit of the annual
results and any recommendations on the
Company’s processes and controls.
During the year, the Committee members
held meetings with the external Auditor
without executive management to discuss
matters relating to the 2020 annual audit
and the 2021 Half-Yearly Report.
Jill Gardiner was formerly an investment
banker at RBC Capital Markets with a
focus on certain commodity and energy
related industries. She has served on and
chaired numerous audit committees and
currently serves as Chair of Trevali
Mining Corporation and Capital Power
Corporation both of which are listed
on the Toronto Stock Exchange.
The Committee members are considered
to be Independent Directors and the
Board is satisfied that at least one
member has recent and relevant financial
experience and that the Committee, as a
whole, has competence relevant to the
sector in which the Company operates.
For further details on the skills and
experience of the Committee members,
please refer to the biographical details on
pages 78 and 79. The performance of the
Committee was considered as part of the
annual Board evaluation process which
was considered by the whole Board.
Attendees
The lead partner of the external Auditor,
EY, the Chair of the Company, the Chief
Executive Officer, the Chief Financial
Officer, the Vice President of Legal &
Corporate Affairs and the Head of
Internal Audit attend each Audit
Committee meeting by invitation. The
Company Secretary acts as Secretary
to the Committee.
Aclara Resources
As part of the preparation for the
demerger of Aclara Resources from the
Hochschild Mining Group, the Audit
Committee considered the work
undertaken by the Internal Audit
function. In particular, the Audit
Committee received updates on:
–
the establishment of a compliance
function and a related training
programme covering the behaviours
expected by the Code of Conduct;
and
–
the implementation of the
recommendations arising from a risk
assessment covering fraud
prevention and conflicts of interest in
the procurement process.
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Risk management
– Consideration
and challenge of risk management
assessments which incorporate a risk
matrix detailing (i) the most significant
and emerging risks facing the Group, (ii)
an evaluation reflecting the likelihood of
the occurrence of the risk and the extent
of the potential impact on the Group, and
(iii) commentary on the steps taken to
manage each specific risk. See page 68
for a description of the process by which
the Group’s principal and emerging risks
are identified and monitored, and the
actions taken during the year to
mitigate them.
Internal audit
– The Audit Committee
continued to oversee and challenge
the Group’s adoption of a risk-based
approach to internal audit. The Audit
Committee Chair receives a quarterly
report from the Head of Internal Audit
which sets out specific areas covered,
improvements being recommended and
introduced, and proposals for the
programme over the following three
months. The CEO and Chief Financial
Officer also receive copies of these
reports and robustly support the
activities of the Internal Audit function.
On three occasions during the year, the
Committee met with the Head of Internal
of Audit without the presence of executive
management to discuss, among other
things, the resourcing of the function
and the scheduled work plan.
Internal control
– Through the processes
described on the following page, the Audit
Committee reviewed the adequacy of the
Group’s internal control environment and
risk management systems.
Whistleblowing
– In line with the 2018
Corporate Governance Code, the Audit
Committee reviewed, on behalf of the
Board, the adequacy of the Group’s
whistleblowing arrangements.
Whistleblowing reports are circulated to
a group comprising the Audit Committee
Chair (‘AC Chair’), the Head of Internal
Audit, the Vice-President of Human
Resources and the Company Secretary
(‘the Reporting Group’); the AC Chair has
a preliminary discussion with the Head of
Internal Audit on the approach to the
investigation; and the findings of the
investigation are then reported, in the
first instance, to the AC Chair and the
Reporting Group and to the next
scheduled meeting of the Audit
Committee. The Committee ensures
that the availability of the whistleblowing
arrangements is publicised across the
organisation and, during the year, a
video was produced which was
circulated to all staff.
advisers, including external counsel, for a
full understanding of the implications for
the Committee as well as on Directors’
duties and liabilities generally.
Evaluation
– In relation to the evaluation
of the Committee’s performance, this was
carried out as part of the annual Board
evaluation which, as reported earlier in
this Corporate Governance Report, was
facilitated by Independent Audit Limited.
The facilitator observed a meeting of the
Audit Committee and aspects of the
Committee’s role were discussed in the
one-to-one interviews held with each
Board member. Recommendations of
particular relevance to the Committee’s
work relate to the reporting of risk and
internal audit findings which will be
considered further in the current year.
Tax compliance strategy
– The Audit
Committee approved on behalf of the
Board a document on the Group’s
approach to UK tax matters. The
document can be found at: www.
hochschildmining.com/en/responsibility/
tax_compliance_strategy
Significant issues relating to the
2021 financial statements
As recommended by the Code,
the following is a summary of the
significant issues considered by the
Committee in relation to the 2021
financial statements and how these
issues have been addressed.
(a) Aclara demerger
The accounting for the demerger of
Aclara Resources in December 2021,
including the estimation of the fair value
of the in specie dividend (being the
method employed to demerge Aclara
from the Group).
The Audit Committee considered and
challenged management’s judgement
and estimates and concluded that the
accounting approach was appropriate
and that the relevant disclosures have
been made.
(b) Impairments
The Audit Committee considered
management’s analysis of potential
indicators of impairment and impairment
reversals across the Group’s assets which
concluded that:
– there were no triggers for impairment
(or impairment reversals) at Inmaculada
and San Jose; and
– the lower than expected production
from Pallancata in 2021, primarily due
to lower grades, and a new Life of Mine
plan resulting in higher forecast capital
expenditure were considered triggers
for impairment.
Fraud and bribery
– The Audit Committee
continued to review and challenge the
actions taken by management to
promote ethical and transparent
working practices.
The Group’s Code of Conduct describes
the values and standards of behaviour
expected of our employees and our
business partners. In addition, the Group
has adopted a specific anti-bribery and
anti-corruption policy to reflect the
Board’s zero tolerance of these types of
acts. This policy is circulated to all
employees by the CEO on a periodic
basis, highlighting the consequences of
acting in breach of its provisions which
may include termination of employment
and criminal proceedings.
External audit
–The Audit Committee
oversees the relationship with the
external Auditor. EY was first appointed
by the Company as Auditor in 2006 and,
following a tender process undertaken in
Q1 2016, was reappointed. The Audit
Committee evaluated the performance
of EY in 2021 and concluded that it was
appropriate to recommend the re-
appointment of EY as external Auditor
at the 2021 Annual General Meeting.
The Audit Committee reviewed the
findings of the external Auditor and
management letters, and reviewed
and approved the audit fees.
During the year, the Audit Committee
evaluated the effectiveness of EY and
the external audit process, taking into
account the results of Hochschild
management’s internal survey relating
to EY’s performance as well as views and
recommendations from management
and its own experiences with the external
Auditor. Key criteria of the evaluation
included resources and expertise, quality
and timeliness of the audit process,
quality of communication and reporting
to the Audit Committee.
Auditor objectivity
– The Audit
Committee has adopted a policy on
the use of the external Auditor for the
provision of non-audit services (see later
section on Auditor independence for
more details).
Governance
– The Audit Committee
received updates from the Auditor and
the Company Secretary on regulatory
and other developments impacting the
Committee’s role. During the year, the
Committee received detailed updates
with regards to the UK Government’s
consultation on significant reforms to
audit and governance. In light of the
wide-ranging nature of the proposals,
the Committee sought advice from its
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Governance
Further Information
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In addition, the annual impairment test
was carried out with respect to the
Volcan project.
The Audit Committee considered:
– analyst consensus price forecasts for
silver and gold; and
– the underlying calculation of the
impairment review.
With regards to the Volcan project, the
Committee considered management’s
approach to the value in-situ analysis and
its assumptions.
In conclusion, the Audit Committee
concurred with management that an
impairment of $24.9 million be made as
at 31 December 2021 with respect to
Pallancata and that no impairments or
impairment reversals be recognised
with regards to Inmaculada, San Jose
and Volcan.
(c) Going concern assessment
The Directors must satisfy themselves
as to the Group’s ability to continue as a
going concern to 31 March 2023, being a
minimum of 12 months from the approval
of the financial statements. The Audit
Committee supported the Board in this
assessment by considering whether, in
adverse circumstances, the Company
has adequate liquid resources to meet its
obligations as they fall due. Such potential
adverse circumstances included a
four-week suspension across all three
mines and an increase in royalties and
taxes combined with significantly lower
precious metal prices. In February 2022,
the Audit Committee reviewed the Group
budget and cash flow forecasts for the
going concern period taking into account
the Company’s anticipated production
profiles at each mine, budgeted capital
and exploration expenditure and the
sensitivity of the cash flow forecasts
to movements in precious metal prices.
In addition, the Audit Committee
corroborated its assessment through
consideration of the processes
undertaken by the Auditor in its testing
of management’s going concern
assessment and on the reasonableness
of assumptions therein, including their
consistency with assumptions and
estimates used elsewhere in the
preparation of the financial statements.
In particular, the Committee challenged
management on the feasibility of the
mitigating actions.
The 2020 NAS Policy reflects the Revised
Ethical Standard in permitting the
engagement of the Auditor only for
additional services that are directly linked
to the audit or are required by law and/or
regulation. The 2020 NAS Policy requires
(i) the Audit Committee and Chief
Financial Officer to approve all non-audit
services undertaken by the external
Auditor and (ii) that the cost of non-audit
services rendered by the external Auditor,
in any financial year, cannot exceed 70%
of the average of the audit fees paid to
the external Auditor in the last three
consecutive financial years.
2021 Audit and non-audit fees
Please refer to note 33 to the consolidated
financial statements for details of the fees
paid to the external Auditor.
Safeguards
Additional safeguards to ensure Auditor
objectivity and independence include:
– six-monthly reports to the Audit
Committee from the Auditor analysing
the fees for non-audit services
rendered; and
– an annual assessment, by the Audit
Committee, of the Auditor’s objectivity
and independence in light of all
relationships between the Company
and the audit firm.
Compliance Statement required under
Article 7.1 of the Statutory Audit Services
for Large Companies Market
Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014
(the ‘Order’)
The Company confirms that it has
complied with the Order during the year
under review.
Internal control and risk management
Whilst the Board has overall responsibility
for the Group’s system of internal control
including risk management and for
reviewing its effectiveness, responsibility
for the periodic review of the effectiveness
of these controls has been delegated to
the Audit Committee. Notwithstanding
this delegation of authority, the Board
continues to monitor the strategic risks
to which the Company is exposed in the
context of a risk appetite that is under
continuous review. Internal controls are
managed by the use of formal procedures
designed to highlight financial,
operational, environmental and social
risks and provide appropriate information
to the Board enabling it to protect
effectively the Company’s assets and,
in turn, maintain shareholder value.
In conclusion, the Committee is content
and recommended to the Board that the
Directors should continue to adopt the
going concern basis of accounting in
preparing the annual financial
statements.
Please refer to the Directors’ Report
on page 82 for its confirmation to
shareholders on the appropriateness
of the going concern assumption and
the Risk Management section on the
Directors’ approach to the longer-term
Viability Statement.
(d) Mine rehabilitation provision
The Audit Committee considered the
judgement exercised by management
in assessing the amounts required to be
paid by the Company to rehabilitate the
Group’s assets.
In its assessment of the analysis
undertaken by management and an
independent third party, the Audit
Committee took into account:
– the basis of the estimation of future
rehabilitation costs;
– the discount rate applied;
– significant changes in estimates and
the basis and level of new costs; and
– the accounting for the changes in
the provisions.
The Audit Committee concluded that
the provision is appropriate.
Auditor independence
The Audit Committee continues to
oversee the implementation of specific
policies designed to safeguard the
independence and objectivity of the
Auditor, which includes the Group’s policy
on the provision of non-audit services.
Policy on the use of Auditor for
non-audit services
Following the issue of the Revised Ethical
Standard 2019 by the Financial Reporting
Council (the ‘FRC’), the Audit Committee
adopted a revised policy on the use of the
Auditor for non-audit services (the ‘2020
NAS Policy’).
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The process used by the Audit Committee
to assess the effectiveness of risk
management and internal control
systems comprises:
– reports from the Head of the Internal
Audit function;
– reviews of accounting and financial
reporting processes together with the
internal control environment at Group
level. This involves the monitoring of
performance and the taking of relevant
action through the monthly review of
Key Performance Indicators and, where
required, the production of revised
forecasts. The Group has adopted a
standard accounting manual to be
followed by all finance teams, which is
continually updated to ensure the
consistent recognition and treatment of
transactions and production of the
consolidated financial statements;
– the external Auditor’s observations of
the Company’s internal control
environment;
– review of budgets and reporting against
budgets; and
– consideration of progress against
strategic objectives.
The system of internal control is designed
to manage rather than eliminate the risk
of failure to achieve business objectives
and it must be recognised that such a
system can only provide reasonable and
not absolute assurance against material
misstatement or loss.
Audit Committee’s assessment
At its February 2022 meeting, the Audit
Committee reviewed the process
described above and is satisfied that, for
the year under review and the period from
1 January 2022 to the date of approval of
the Annual Report and Accounts, internal
controls are in place at the operational
level within the Group.
Board’s assessment
Risk management
Throughout the year, the Board
considered its risk appetite which was
considered to be appropriate. The Board
confirms that its assessment of the
emerging and principal risks facing the
Company, including those that would
threaten its business model, future
performance, solvency or liquidity, and
which are set out in the Risk Management
and Viability section, was robust.
Internal control
As detailed above, the Board, through the
delegated authority granted to the Audit
Committee, monitors the ongoing process
by which critical risks to the business are
identified, evaluated and managed. This
process is consistent with the FRC’s
‘Guidance on Risk Management, Internal
Control and Related Financial and
Business Reporting’ published in 2014.
The Directors confirm that, with the
support of the Audit Committee, the
effectiveness of the Company’s system of
risk management and internal controls
has been reviewed during the year under
review. These covered material controls,
which included controls covering
operational, financial and compliance
matters. The controls operated effectively
during the financial year although, as is
the case for many large companies,
additional controls were implemented or
further strengthened during the year. The
Audit Committee was made aware of the
control changes and there was no
significant impact on the financial results.
The Directors confirm that no significant
failings or weaknesses were identified as
a result of the review of the effectiveness
of the Group’s system of internal control.
Strategic Report
Financial Statements
Governance
Further Information
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NOMINATION COMMITTEE REPORT
2021 Meeting attendance
Members
Independent
Maximum
possible
attendance
Actual
attendance
Eduardo Hochschild, Committee Chair
No
3
3
Graham Birch, Non-Executive Director
Yes
3
3
Jorge Born, Non-Executive Director
Yes
3
3
Jill Gardiner, Non-Executive Director
Yes
3
3
Eileen Kamerick, Non-Executive Director
Yes
3
3
Tracey Kerr, Non-Executive Director*
Yes
–
–
Michael Rawlinson, Non-Executive Director
Yes
3
3
Dionisio Romero Paoletti, Non-Executive Director
No
3
2
**
Sanjay Sarma, Non-Executive Director***
Yes
3
3
*
Tracey Kerr was appointed a member of the Committee on joining the Board on 10 December 2021
**
Dionisio Romero Paoletti was unable to attend the February 2021 Committee meeting due to a
conflicting engagement
*** Sanjay Sarma stepped down from the Committee on his retirement from the Board on 10 December 2021
Dear Shareholder
I am delighted to report that, during 2021,
the Committee saw progress on a number of
matters within its scope of responsibilities,
primarily Board composition and balance,
and succession planning for the Board
and the executive team.
We reported last year that the Board was
committed to meeting the target set by
the Hampton-Alexander Review of
one-third female Board representation by
the end of 2021. It was with great
pleasure, therefore, that we were able to
announce the appointment of Tracey Kerr
as an Independent Non-Executive
Director. Our search process, which is
described in more detail later in this
report, was led by a need to identify a
candidate who could support our
programme of ESG-related initiatives.
Tracey’s substantial experience in the
areas of sustainability, safety and, not
least, geology will be of enormous
value to the Board.
In addition to reviewing the Board skills
matrix earlier in the year, the
Committee received regular updates
on the recruitment and selection of key
executive positions to place us firmly
on track to meet our strategic goals.
Eduardo Hochschild
Committee Chair
CORPORATE GOVERNANCE REPORT
CONTINUED
The Nomination Committee plays a crucial
role in ensuring that the Board and senior
management have the right balance of skills
to achieve our strategic goals.’’
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Key roles and responsibilities
– Identify and nominate candidates for
Board approval;
– Make recommendations to the Board
on composition and balance;
– Oversee the succession planning of
Board and senior management
positions; and
– Review the Directors’ external interests
with regards to actual, perceived or
potential conflicts of interest.
Membership
The members of the Committee are listed
opposite. Tracey Kerr was appointed a
member of the Committee following her
appointment to the Board on 10
December 2021 and Sanjay Sarma
stepped down from the Committee
following his retirement from the Board on
that same date.
The Company Secretary acts as
Secretary to the Committee.
Activity during the year
The principal matters considered by the
Committee are outlined below.
Reporting
– The report of the Committee’s activities
for inclusion in the 2020 Annual Report;
Board/Committee composition
– The appointment of Eileen Kamerick
as a member of the Sustainability
Committee;
– The selection and recruitment process
for the appointment of an Independent
Non-Executive Director and the
subsequent review of conflicts of
interest prior to recommending the
appointment of Tracey Kerr (see
‘Appointments to the Board’ section
below for further details);
Succession planning
–
Non-Executive succession plan
To support the search process which
resulted in the appointment of Tracey
Kerr, the Committee considered a skills
matrix which (a) maps the extent to
which key strategic skills are
represented around the Board table;
and (b) identifies any skill gaps that
arise on the anticipated retirements
from the Board;
–
Executive succession and
development plan
The Committee received updates on
the selection and recruitment process
for several senior management
positions of strategic importance
including the role of VP, North
America and the Project CEO for
the Volcan project;
Recruitment process
The recruitment process for Tracey was
overseen by the Nomination Committee
which was supported by search firm
London Search Associates, which
provided a long-list of potential
candidates with experience of ESG
matters and/or operational mining.
A short-list was drawn up and a sub-
committee of the Nomination Committee
carried out interviews prior to
recommending Tracey Kerr’s
appointment to the Board.
Neither the Company nor any individual
Director has any connection with London
Search Associates.
Diversity
Policy on Board appointments
The Board is committed to the overriding
principle that every member and
potential appointee must be able to
demonstrate the skills and knowledge to
be able to make a valued contribution to
the Board. It is also acknowledged that
diversity brings new perspectives which
can drive superior business performance
and promote innovation.
The Directors have therefore adopted a
multifaceted approach to Board
recruitment which:
– primarily considers a candidate’s merits;
– seeks opportunities to ensure the
ongoing diversity of the Board (whether
of gender, culture, race, professional
background, nationality or otherwise)
which will also reflect the Company’s
specific context including that it is
headquartered in Peru with operating
assets located solely in South America.
Increasing workforce diversity
The Company is committed to redressing
the gender imbalance in its workforce.
Please refer to page 61 for further details
of the diversity and inclusion initiatives
and the progress made by the Company
over the course of 2021.
Endorsed the recommended
appointment of Eduardo Noriega as
Chief Financial Officer in place of
Ramon Barua who left Hochschild
Mining’s employment to assume the
position of Aclara’s CEO following its
demerger from the Group;
Subsequent to the year-end, the
Committee considered the Talent
Review Plan which, in addition to setting
out the developmental needs for senior
executives, also identifies successors to
‘Critical Positions’ and their personal
development strategies;
Conflicts of interest
– Consideration of conflicts of interest
arising prior to Michael Rawlinson’s
appointment to the board of AfriTin
Mining Limited.
Evaluation
– The action plan to implement the
findings of the 2020 Board evaluation
process relating to Board composition
which resulted in, among other things,
Tracey Kerr’s appointment (referred
to above);
– In line with the Committee’s prior
year recommendation, an externally-
facilitated Board and Committee
evaluation process was undertaken
by Independent Audit Limited in 2021.
The performance of the Committee
was evaluated as part of this process
which, among other things, highlighted
further consideration of the optimal
composition of the Committee, a
deeper review of issues arising from
Executive succession planning and
the succession of the Board Chair.
For further details of the review, please
refer to page 92.
Appointments to the Board
The Company’s approach
In seeking candidates for appointment to
the Board, regard is given to relevant
experience and the skills required to
complete the composition of a balanced
Board, taking into account the challenges
and opportunities facing the Company.
The Board’s annual evaluation back in
2019 and its review of the Board
succession plan identified opportunities
to acquire skills that would support the
Company’s strategic path and, at the
same time, improve the gender diversity
of the Board. As reported last year, this
resulted in the appointment of Jill
Gardiner and, in December 2021, Tracey
Kerr joined the Board as an Independent
Non-Executive Director.
Strategic Report
Financial Statements
Governance
Further Information
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SUPPLEMENTARY INFORMATION
Introduction
References in this section to ‘the Articles’
are to the Company’s Articles of
Association as at the date of this report,
copies of which are available from the
Registrar of Companies or on request
from the Company Secretary.
References in this section to ‘the
Companies Act’ are to the Companies
Act 2006.
Share capital
Issued share capital
The Company’s issued share capital
comprises 513,875,563 ordinary shares of
25 pence each (‘shares’). No shares were
issued during the year ended 31
December 2021.
The Hochschild Mining Employee Share
Trust (‘the Trust’) is an employee share
trust established to hold shares on trust
for the benefit of employees within
the Group.
The Trustee of the Trust has absolute
discretion to vote or abstain from voting in
relation to the shares held by it from time
to time and in doing so may take into
account the interests of current and
future beneficiaries and other
considerations.
Current share repurchase authority
The Company obtained shareholder
approval at the AGM held in May 2021
for the repurchase of up to 51,387,556
shares which represents 10% of the
Company’s issued share capital (‘the
2021 Authority’). Whilst no purchases
have been made by the Company
pursuant to the 2021 Authority, it is
intended that shareholder consent will
be sought on similar terms at this year’s
AGM when the 2021 Authority expires.
Additional share capital information
This section provides additional
information as at 31 December 2021.
(a) Structure of share capital
The Company has a single class of share
capital which is divided into ordinary
shares of 25 pence each, which are in
registered form.
Further information on the Company’s
share capital is provided in note 29 to the
consolidated financial statements.
– the Directors may:
•
in their absolute discretion, refuse to
register a transfer if it is in favour of
more than four persons jointly; and
•
decline to register a transfer of any of
the Company’s shares by a person with
a 0.25% interest, if such a person has
been served with a notice under the
Companies Act after failure to provide
the Company with information
concerning interests in those shares
required to be provided under the
Companies Act.
(d) Restrictions on voting
No member shall be entitled to vote at
any general meeting or class meeting in
respect of any shares held by him or her, if
any call or other sum then payable by him
or her in respect of that share remains
unpaid. Currently, all issued shares
are fully paid.
In addition, no member shall be entitled
to vote if he or she failed to provide the
Company with information concerning
interests in those shares required to be
provided under the Companies Act.
e) Deadlines for voting rights
Votes are exercisable at the general
meeting of the Company in respect of
which the business being voted upon is
being heard.
Votes may be exercised in person, by
proxy or, in relation to corporate
members, by a corporate representative.
Under the Articles, the deadline for
delivering proxy forms cannot be earlier
than 48 hours (excluding non-working
days) before the meeting for which the
proxy is being appointed.
(b) Rights and obligations attaching
to shares
The rights attaching to the ordinary
shares are described in full in the Articles.
In summary, on a show of hands and on
a poll at a general meeting or class
meeting, every member present in person
or, subject to the below, by proxy has one
vote for every ordinary share held.
However, in the case of a vote on a
show of hands, where a proxy has been
appointed by more than one member,
the proxy has one vote for and one vote
against if the proxy has been instructed
by one or more members to vote for the
resolution and by one or more members
to vote against the resolution.
Members are entitled to appoint a proxy
to exercise all or any of their rights to
attend and to speak and vote on their
behalf at a general meeting or class
meeting. A member that is a corporation
is entitled to appoint more than one
individual to act on its behalf at a general
meeting or class meetings as a corporate
representative.
(c) Transfer of shares
The relevant provisions of the Articles
state that:
– registration of a transfer of an
uncertificated share may be refused in
the circumstances set out in the CREST
Regulations and where, in the case of a
transfer to joint holders, the number of
joint holders to whom the uncertificated
share is to be transferred exceeds four;
– the Directors may, in their absolute
discretion, decline to register any
transfer of any share which is not a fully
paid share. The Directors may also
decline to recognise any instrument of
transfer relating to a certificated share
unless the instrument of transfer:
•
is duly stamped (if required) and is
accompanied by the relevant share
certificate(s) and such other evidence
of the right to transfer as the Directors
may reasonably require; and
•
is in respect of only one class of share.
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Shareholder agreements
The Relationship Agreement entered into
prior to the IPO between, amongst others,
the Major Shareholder (as defined in the
Relationship Agreement) and Eduardo
Hochschild (collectively ‘the Controlling
Shareholders’) and the Company:
– contains provisions restricting the
Controlling Shareholders’ rights to
exercise their voting rights to procure an
amendment to the Articles that would
be inconsistent with the Relationship
Agreement; and
– contains an undertaking by the
Controlling Shareholders that they will,
and will procure that their Associates
will, abstain from voting on any
resolution to approve a transaction with
a related party (as defined in the FCA
Listing Rules) involving the Controlling
Shareholders or their Associates.
Significant agreements
A change of control of the Company
following a takeover bid may cause a
number of agreements to which the
Company, or any of its trading
subsidiaries, is party to take effect, alter
or terminate. Such agreements include
commercial trading contracts, joint
venture agreements and financing
arrangements.
Further details are given below of those
arrangements where the impact may be
considered to be significant in the context
of the Group.
(a) $300 million Credit Agreement
Under the terms and conditions of the
$300 million Credit Agreement between,
amongst others, the Group and
Scotiabank Peru S.A.A, a Change of
Control obliges the Group to prepay all
Advances (as defined in the agreement)
unless any Lender notifies the Group that
it is declining any such prepayment in
which case the Advances owing to such
declining Lender shall not be prepaid.
In summary, a Change of Control means
an event or series of events by which: (a)
the Permitted Holders (being Eduardo
Hochschild, his spouse, either of their
descendants or estate or guardian of any
of the aforementioned, a trust for the
benefit of one or more of the
aforementioned or any entity controlled by
any one or more of the aforementioned)
shall for any reason cease, individually or
in the aggregate, to be the beneficial
owners (as so defined) of at least 30% of
the Company’s shares; or (b) the Permitted
Holders shall for any reason cease,
individually or in the aggregate, to have
the power to appoint at least the number
of the members of the Board of Directors
or other equivalent governing body of the
Company that the Permitted Holders are
permitted to elect as at 20 September
2021; or (c) the Company shall for any
reason cease, directly or through one or
more of its Subsidiaries, to be the
‘beneficial owner’ (as so defined) of more
than 50% of the Equity Interests in
Compania Minera Ares S.A.C.
(b) Long-Term Incentive Plans
Awards made under the Group’s Long-
Term Incentive Plan shall, upon a change
of control of the Company, vest early
unless a replacement award is made.
Vesting will be pro-rated to take account
of the proportion of the period from the
award date to the normal vesting date
falling prior to the change of control and
the extent to which performance
conditions (and any other conditions)
applying to the award have been met.
Summary of constitutional and other
provisions
Appointment of Directors
Under the terms of the Articles Directors
may be appointed by the Company by
ordinary resolution or by the Board. A
Director appointed by the Board holds
office only until the next following AGM
and is then eligible for election by
shareholders but is not taken into account
in determining the Directors or the
number of Directors who are to retire by
rotation at that meeting.
The Directors may from time to time
appoint one or more of their body to be
the holder of any executive office for such
period (subject to the Companies Act)
and on such terms as they may determine
and may revoke or terminate any such
appointment.
Each Director is subject to periodic
re-election by shareholders at intervals
of no more than every three years. Each
Director (other than the Chairman and
any Director holding executive office)
shall retire at each AGM following the
ninth anniversary of the date on which
he or she was elected by the Company.
Approach to appointments adopted
by the Board
Under law, the Company is entitled to
adopt such practices which are no less
stringent than those set out in the Articles.
Accordingly, notwithstanding the above,
the Board has adopted the
recommendation of the UK Corporate
Governance Code that all Directors should
seek annual re-election by shareholders.
2014 Listing Rules
Following the implementation, in 2014,
of new Listing Rules by the Financial
Conduct Authority (in its capacity as the
UK Listing Authority), as a company with
a controlling shareholder, the election or
re-election of any Independent Director
must be approved by: (i) all shareholders
of the Company; and (ii) the independent
shareholders of the Company (i.e. any
person entitled to vote on the election of
Directors of the Company who is not a
controlling shareholder).
If either shareholder resolution to elect or
re-elect the Independent Director is
defeated, the Company may propose a
further resolution to elect or re-elect the
proposed Independent Director provided
that the further resolution must not be
voted on within 90 days from the date of
the original vote but it must then be voted
on within a period of 30 days from the end
of the 90 day period. It may then be
passed by a simple majority of the
shareholders of the Company voting
as a single class.
Substantial shareholdings
The Company has been notified of the interests detailed in the table below in the
Company’s shares in accordance with Chapter 5 of the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules.
As at 31 December 2021
Number of
ordinary
shares/voting
rights
Percentage of
issued share
capital
Nature of
holding
Eduardo Hochschild
1
196,900,306
38.32%
Indirect
Majedie Asset Management Limited
2
25,384,745
4.94%
Indirect
Van Eck Associates Corporation
17,949,877
3.49%
Direct
1
The shareholding of Mr Eduardo Hochschild is held through Pelham Investment Corporation.
2
The information disclosed is taken from the latest notification received by the Company from Majedie Asset
Management Limited in October 2018.
Strategic Report
Financial Statements
Governance
Further Information
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Removal of Directors
The Company may, in accordance
with and subject to the provisions of the
Companies Act by ordinary resolution
of which special notice has been given,
remove any Director before the expiration
of his/her term of office. The office of
Director shall be vacated if: (i) s/he is
prohibited by law from acting as a Director;
(ii) s/he resigns or offers to resign and the
Directors resolve to accept such offer; (iii)
s/he becomes bankrupt or compounds
with his/her creditors generally; (iv) a
relevant order has been made by any
court on the grounds of mental disorder;
(v) s/ he is absent without permission of the
Directors from meetings of the Board for
six months and the Directors resolve that
his/her office be vacated; (vi) his/her
resignation is requested in writing by not
less than three quarters of the Directors
for the time being; or (vii) in the case of a
Director other than the Chairman and any
Director holding an executive office, if the
Directors shall resolve to require him/her to
resign and within 30 days of being given
notice of such notice s/he so fails to do.
Relationship Agreement
In addition, under the terms of the
Relationship Agreement:
•
for as long as the Major Shareholder
has an interest of 30% or more in the
Company, it is entitled to appoint up
to two Non-Executive Directors and
to remove such Directors so
appointed; and
•
for as long as the Major Shareholder
has an interest of 15% or more of the
Company, it is entitled to appoint up to
one Non-Executive Director and to
remove such Director so appointed.
Amendment of Articles of Association
Any amendments to the Articles
may be made in accordance with the
provisions of the Companies Act by
way of special resolution.
Powers of the Directors
Subject to the Articles, the Companies Act
and any directions given by special
resolution, the business and affairs of the
Company shall be managed by the
Directors who may exercise all such
powers of the Company.
Additional disclosures
Disclosure table pursuant to Listing Rule 9.8.4C R
For the purposes of LR 9.8.4C R, the information required to be disclosed by LR 9.8.4 R
can be found in the following parts of this Annual Report:
Section
Matter
Location
(1)
Interest capitalised
Note 16 to the
consolidated financial
statements
(2)
Publication of unaudited financial information
Not applicable
(4)
Details of specified long-term incentive scheme
None
(5)
Waiver of emoluments by a Director
None
(6)
Waiver of future emoluments by a Director
None
(7)
Non pre-emptive issues of equity for cash
None
(8)
Item (7) in relation to major subsidiary undertakings
None
(9)
Parent participation in a placing by a listed subsidiary
None
(10)(a)
Contract of significance in which a Director is interested
Directors’ Report (and
the related note 32(c) to
the consolidated
financial statements)
(10)(b)
Contract of significance with controlling shareholder
Directors’ Report (and
the related note 32(c) to
the consolidated
financial statements)
(11)
Provision of services by a controlling shareholder
Directors’ Report
(12)
Shareholder waivers of dividends
Directors’ Report
(13)
Shareholder waivers of future dividends
Directors’ Report
(14)
Agreement with controlling shareholder
Directors’ Report
Subject to applicable statutes and other
shareholders’ rights, shares may be
issued with such rights or restrictions as
the Company may by ordinary resolution
decide or, in the absence of any such
resolution, as the Directors may decide.
Subject to applicable statutes and any
ordinary resolution of the Company, all
unissued shares of the Company are at
the disposal of the Directors. At each
AGM, the Company puts in place an
annual shareholder authority seeking
shareholder consent to allot unissued
shares, in certain circumstances for cash,
in accordance with the guidelines of
certain Investor Protection Committees.
Repurchase of shares
Subject to authorisation by shareholder
resolution, the Company may purchase
its own shares in accordance with the
Companies Act. Any shares which have
been bought back may be held as
Treasury shares or, if not so held, must be
cancelled immediately upon completion
of the purchase, thereby reducing the
amount of the Company’s issued share
capital. The minimum price which must be
paid for such shares is specified in the
relevant shareholder resolution.
Dividends and distributions
Subject to the provisions of the
Companies Act, the Company may by
ordinary resolution from time to time
declare dividends not exceeding the
amount recommended by the Directors.
The Directors may pay interim dividends
whenever the financial position of the
Company, in the opinion of the Directors,
justifies their payment. If the Directors act
in good faith, they are not liable to holders
of shares with preferred or pari passu
rights for losses arising from the payment
of interim dividends on other shares.
SUPPLEMENTARY INFORMATION
CONTINUED
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Group non-financial information statement
The information below is produced to comply with sections 414CA and 414CB of the Companies Act 2006. The information is
incorporated by cross-reference.
Reporting requirement
Relevant policies
Further information
KPIs
Business model
Business model (page 22)
Principal risks
– Risk Management & Viability
(page 68)
– Audit Committee report
(page 93)
Environmental matters
– Code of Conduct*
– Corporate Sustainability
Policy*
– Corporate Environmental
Policy
Environment section of the
Sustainability Report (page 56)
– GHG emissions
– GHG intensity
– ECO Score
– Electricity consumption
– Water consumption
– Waste generation
Employees
– Code of Conduct*
– Corporate Sustainability
Policy*
– Protocol for the Prevention of
Covid-19
– Corporate Health & Safety
Policy
The following sections of the
Sustainability Report:
Our People (page 61), Health
& Safety (page 59)
– % workforce unionised
– Health consultations
– High Potential Events rate
– Fatalities
– Injury Frequency rate
– Accident Severity rate
Social matters
– Corporate Sustainability
Policy*
– Corporate Community
Relations Policy*
Community Relations section
of the Sustainability Report
(page 54)
– Community employment
– Community investment
– Services and goods
provided by suppliers from
communities
Human rights
– Corporate Sustainability
Policy*
– Corporate Human Rights
Policy*
– Diversity & Inclusion Policy*
– Sexual Harassment Prevention
Policy
Our People section of the
Sustainability Report (page 61)
– Workforce by gender
Anti-corruption and
Anti-bribery matters
– Code of Conduct*
– Anti-corruption and
Bribery Policy*
– Whistleblowing Policy*
Audit Committee report
(page 93)
*
Copies available from http://www.hochschildmining.com/en/responsibility
Strategic Report
Financial Statements
Governance
Further Information
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DIRECTORS’ REMUNERATION REPORT
While the Committee was, and continues
to be, committed to remunerating senior
executives based on a holistic assessment
of performance, it is clear that a less
formulaic approach than the one applied
to the 2020 annual bonus may have been
merited in a year heavily impacted by
Covid. Such an approach could perhaps
have balanced the concerns of our
shareholders with the many positive
aspects of our performance in 2020,
including the increase in dividends
supported by strong cash generation, and
the many steps taken to position the
Company for long-term growth with no
pay cuts or redundancies. In addition, in
2020 we undertook many initiatives to
support local communities in Peru,
including supporting remote learning for
students and giving support to local
healthcare providers.
We were pleased that our new three-year
forward-looking Directors’ Remuneration
Policy was approved by over 87% of
shareholder votes cast on this resolution
at our 2021 AGM and in this Directors’
Remuneration Report we detail how the
Company has performed against the
revised policy in its first year of operation.
Pay and performance in 2021
As noted earlier in the Strategic Report
section of our Annual Report, 2021 was a
year of resilient performance for
Hochschild. The Remuneration Committee
particularly noted the following positive
aspects of our performance:
– Production and AISC in line with
forecasts;
– Achieving the positive outcome for
shareholders of the Aclara demerger;
– A continuing rigorous focus on both
health and safety and our environmental
performance with meaningful
improvement over the course of the year.
We also maintained our focus on wider
employee pay matters:
•
We are proud that in 2021 we did not
make any redundancies and neither
did we participate in any governmental
support schemes; and
•
We have 900 participants in our
annual bonus plan. In a year where
they have performed admirably in the
most trying of circumstances and have
worked to protect and enhance the
value of our shareholders’ assets, we
are delighted that they have shared in
a 2021 bonus that, we feel,
demonstrates the integrity of pay at
Hochschild to our colleagues.
Turning to safety, I feel that I must first
acknowledge that as a Board, we were all
deeply affected by the unprecedented
tragic traffic accident in June 2021
involving a bus operated by one of the
Company’s contractors.
It is also regrettable that, during the year
there were two fatal accidents within our
mining operations. Every such event is
followed by a thorough investigation led by
a deep concern for colleague welfare.
Further details of these incidents can be
found in the Sustainability Report from
page 50.
From a Remuneration Committee
perspective, we consider such matters
both at a detailed level and also at a
broader reputational level, so that any
concerns can be reflected in our broader
overview of in-year performance in the
round before any incentive pay outcomes
are confirmed.
In conclusion, we have used a discretionary
override to reduce to nil the safety element
of the 2021 annual bonus scorecard due to
the loss of life during the year at our
operations. As a Board, we consider that
not to acknowledge these fatal accidents in
our incentive pay outcomes would be
misaligned with the values which we hold
and which we believe our investors would
expect to see demonstrated.
Dear Shareholder
On behalf of the Board, I am pleased to
present the Directors’ Remuneration
Report for the year ending 31 December
2021 which is split into two sections: this
Annual Statement and the Annual Report
on Remuneration.
Our 2021 AGM
As a first item, I would like to reassure all
of our shareholders that the Remuneration
Committee was disappointed that the
advisory vote to approve our 2020
Directors’ Remuneration Report (‘DRR’)
was approved by only 67% of shareholder
votes cast on this resolution at our 2021
AGM. We regard this as a serious matter
and accordingly we initiated an ‘open
agenda’ listening exercise with our 15
largest shareholders (and not only those
who voted against our 2020 DRR) and with
the leading proxy advisory firms to better
understand their views on remuneration
at Hochschild.
We have received some positive feedback
(both general and specific) and we also
consider the points of constructive advice
that we have been given as valuable
guidance should we be faced in the future
with similar points of decision to those we
faced in late 2020 and early 2021.
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The Committee exercised what it
regards as normal commercial judgement
in respect of Directors’ remuneration
throughout the year (and in all cases
in line with the Company’s Directors’
Remuneration Policy) including in
relation to:
– setting performance metrics for normal
course annual bonuses and LTIPs in the
year; and
– confirming the outcome of performance
metrics for annual bonuses and LTIPs in
the year.
There were no other exercises of
judgement or discretion by the Committee
save as detailed in this report.
Operation of our Remuneration Policy
in 2022
As I noted earlier in this Annual Statement,
our shareholders gave a high level of
support to our Directors’ Remuneration
Policy at our 2021 AGM, and our intention
is to continue to operate our Remuneration
Policy in 2022 in a way that is closely
aligned with how our policy was
applied in 2021.
Our 2022 annual bonus will again operate
using a scorecard that considers
operational, financial, strategic and
ESG-related metrics and that we believe
promotes appropriate balance, having
both the capacity to reward very good
in-year performance and a range of
matters that will position the Company
well in the longer term. In addition, going
forward, we will be operating a safety
underpin to the annual bonus so that in
the event of a fatality during a year, we will
operate a discretionary override to reduce,
to nil, the element of the bonus that relates
to safety.
We will also make our second round of LTIP
awards using our revised LTIP
performance conditions, which
encompass relative TSR, growth in
measured and indicated resources and
consistent operational and strategic
performance.
Format of the report and matters to be
approved at our 2022 AGM
At the 2022 AGM, shareholders will be
asked to approve the Directors’
Remuneration Report; this will be the
normal annual advisory vote on the report.
I hope that you find this report to be
informative and that our shareholders
remain supportive of our approach to
executive pay at Hochschild and vote in
favour of the resolution.
As in past years, I would like to assure all
our shareholders that the Committee
welcomes all input on remuneration
matters, and if you have any comments or
questions on any element of the Directors’
Remuneration Report, please do not
hesitate to contact me at
We are grateful for the guidance and
support which we have received from our
shareholders on remuneration matters in
the last year.
Michael Rawlinson
Chair of the Remuneration Committee
Strategic Report
Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
This report has been prepared according to the requirements of the Companies Act 2006 (‘the Act’), Regulation 11 and Schedule
8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2018 (as amended), and other
relevant requirements of the FCA Listing Rules. In addition, the Board has applied the principles of good corporate governance
set out in the UK Corporate Governance Code, and has considered the guidelines issued by its leading shareholders and bodies
such as ISS (Institutional Shareholder Services), Glass Lewis and the Investment Association.
2021 Directors’ Remuneration Policy
The main aspects of the Directors’ Remuneration Policy for Executive and Non-Executive Directors for the three-year period
expiring at the Company’s 2024 Annual General Meeting, and which was approved by shareholders at the 2021 Annual General
Meeting, can be found in the appendix to this report.
Annual Report on Remuneration
The following section provides details of how Hochschild’s approved 2021 Directors’ Remuneration Policy was implemented during the
financial year ending 31 December 2021, and how the Remuneration Committee intends to implement the Directors’ Remuneration
Policy in 2022. Any information contained in this section of the report that is subject to audit has been marked as such.
Remuneration Committee membership
The Remuneration Committee was chaired during the year under review by Michael Rawlinson, and its other members were Eileen
Kamerick and Jill Gardiner. The Remuneration Committee has comprised, at all times, only Independent Non-Executive Directors.
The composition of the Remuneration Committee and its terms of reference comply with the provisions of the UK Corporate
Governance Code and the terms of reference are available for inspection on the Company’s website at www.hochschildmining.com.
Members of senior management attend meetings at the invitation of the Committee. During the year, such members included the
Chairman, the CEO and the Vice President of Human Resources. No Director or senior executive is present when his or her own
remuneration arrangements are considered by the Committee. The Company Secretary acts as Secretary to the Committee.
The Committee’s terms of reference
The duties of the Remuneration Committee are to determine and agree with the Board the broad policy for the remuneration of the
Executive Directors, the other members of senior management and the Company Secretary, as well as their specific remuneration
packages including pension rights and, where applicable, any compensation payments. In determining such policy, the
Remuneration Committee shall take into account all factors which it deems necessary to ensure that members of the senior
executive management of the Group are provided with appropriate incentives to encourage strong performance, and are rewarded
in a fair and responsible manner for their individual contributions to the success of the Group.
The Remuneration Committee met four times during the year and attendance was as detailed below:
2021 Meeting attendance
Members
Independent
Maximum
possible
attendance
Actual
attendance
Michael Rawlinson, Non-Executive Director (Chair)
Yes
4
4
Jill Gardiner, Non-Executive Director
Yes
4
4
Eileen Kamerick, Non-Executive Director
Yes
4
4
The Committee undertook the following items of business:
2020 Remuneration and reporting
– Reviewed and approved incentive outcomes for 2020 (2020 annual bonus and vesting of 2018 LTIP awards);
– Considered and approved the 2020 Directors’ Remuneration Report;
2021 Remuneration
– Reviewed the CEO’s total remuneration, including salary for 2021 (which remained unchanged from the level set in 2016);
– Considered and approved the CEO’s 2021 objectives;
– Approved the opportunity/award level and performance targets for 2021 annual bonus and LTIP awards;
Policy and keeping informed
– Settled the terms of the 2021 Directors’ Remuneration Policy for approval by shareholders at the 2021 AGM;
– Engaged with major shareholders in advance of the 2021 AGM regarding the revised Directors’ Remuneration Policy;
– Considered feedback from shareholders regarding both the revised 2021 Directors’ Remuneration Policy and action taken in
relation to 2020 incentive pay outcomes;
– Initiated a wider governance consultation with shareholders following the 2021 AGM, reflecting feedback received;
– Considered the engagement of FIT Remuneration Consultants LLP as the new Committee adviser (further details of which are
provided below);
– Considered market trends in executive remuneration and key themes for 2022.
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Advisers
During the year, in order to enable the Committee to reach informed decisions on executive remuneration, advice on market data and
trends was obtained from independent consultants Ellason LLP and, from October 2021, FIT Remuneration Consultants LLP (‘FIT’).
Both firms reported directly to the Committee Chair in 2021, and are signatories to and abide by the Code of Conduct for
Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com). Other than advice on remuneration,
no other services were provided by Ellason LLP or by FIT to the Company. The Committee is satisfied that the advice provided by
both firms in 2021 was independent and objective.
The fees paid to Ellason LLP in respect of work carried out in 2021 (based on time and materials) totalled £19,171, excluding
expenses and VAT.
FIT was appointed as the independent adviser to the Remuneration Committee following a competitive tender process. The fees
paid to FIT in respect of work carried out in 2021 were £17,895, excluding expenses and VAT, and were charged on the basis of FIT’s
standard terms of business for advice provided.
Summary of shareholder voting
The table below shows the results of the advisory vote on the 2020 Annual Report on Remuneration and of the binding vote on the
2021 Remuneration Policy at the 2021 AGM:
2021 Remuneration
Policy
2020 Annual Report
on Remuneration
Total number
of votes
% of votes cast
Total number
of votes
% of votes cast
For (including discretionary)
359,539,286
85.60%
282,820,516
67.47%
Against
60,498,907
14.40%
136,328,236
32.53%
Total votes cast (excluding withheld votes)
420,038,193
419,148,752
Votes withheld
34,381
923,822
Note: Votes withheld are not included in the final proxy figures as they are not recognised as votes in law.
The Committee is committed to listening to and engaging with the views of our shareholders and takes an interest in voting
outcomes. The Committee will continue to be transparent in our remuneration decision-making and to engage with our
shareholders on remuneration matters. More details regarding the engagement activities undertaken with shareholders in the year
are set out in the Committee Chair’s Annual Statement that introduces this report.
Subsequent to the year-end, the Committee received and considered a report summarising the base salaries, benefits and
incentives received by each category of Group staff and summarising the bonus potential and performance metrics used in each of
the annual bonus schemes in operation across the Group. In addition, the Committee ensures that it remains informed regarding
mandatory profit sharing for Peru-based employees.
The Company undertakes varied forms of engagement with employees. In 2021, this primarily took the form of workshops to discuss
the Group’s cultural attributes, frequent and periodic meetings held by mine management with mine-site employees as well as
regular engagement with workers’ appointed representatives regarding many aspects of the business. This process provides an
opportunity for feedback on Executive Directors’ pay to be given and explanations to be shared, although most of the engagement
process is focused on wider employee welfare; a report on any material feedback regarding remuneration is received by the
Remuneration Committee.
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Financial Statements
Governance
Further Information
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Single total figure of remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by Ignacio Bustamante, the only Executive Director, for
the year ended 31 December 2021 and the prior year:
2021
(US$000)
2020
(US$000)
Base salary
1
700
700
Taxable benefits
2
27
30
Total fixed
727
730
Single-year variable
3
989
945
Multi-year variable
4
0
0
Profit share
5
172
151
Total variable
1,161
1,096
Compensation for Time Service (‘CTS’)
6
100
98
Tax refunds
7
7
9
Total remuneration
1,996
1,933
All figures are rounded to the nearest $000
Notes for 2021 values:
1
Figures disclosed include certain statutory payments accounted for internally within base salary (‘Statutory Supplements’) as follows: 2021: $300; 2020: $300
2
Taxable benefits include: company car (2021: $20k; 2020: $21k) and medical insurance.
3
Payment for performance during the year under the Annual Bonus Plan. See following sections for further details.
4 2021 Multi-year variable value is nil as the 2019 LTIP did not vest based on performance to 31 December 2021.
5
All-employee profit share mandated by Peruvian law.
6
CTS is a legal entitlement for employees in Peru which provides for a fund in the event of termination of employment. CTS in respect of base salary is calculated as one month’s
wages and is deposited biannually in an employee’s interest-accruing bank account and prior to the end of employment, employees can gain access to the deposited amount
to the extent it exceeds four months’ wages. CTS in respect of other forms of remuneration such as incentive payouts, that are considered to be ‘non-extraordinary’, is currently
calculated at a rate of 1/24th. For 2021 CTS comprises: CTS on base salary ($58k) and on bonus ($41k) (difference due to rounding). 2020 CTS comprises: CTS on base salary ($58k)
and on bonus ($39k).
7
Refunds payable in relation to social security following a change in regulations.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration for the year ended 31 December 2021 and the prior year received
by each Non-Executive Director serving during the year:
Base fee
(US$000)
Additional fees
(US$000)
Taxable benefits
(US$000)
Total
(US$000)
2021
2020
2021
2020
2021
2020
2021
2020
Eduardo Hochschild
1
400
400
0
0
776
665
1,176
1,065
Dr Graham Birch
96
89
19
3
2
0
0
115
92
Jorge Born Jr
96
89
0
0
0
0
96
89
Jill Gardiner
3
96
38
3
0
0
0
0
96
38
Eileen Kamerick
96
89
19
18
0
0
115
107
Tracey Kerr
4
6
n/a
0
n/a
0
n/a
6
n/a
Michael Rawlinson
96
89
38
36
0
0
135
125
Dionisio Romero
96
89
0
0
0
0
96
89
Sanjay Sarma
5
91
89
0
0
0
0
91
89
All figures are rounded to the nearest $000
Notes:
1
Eduardo Hochschild was an Executive Director until 31 December 2014 and, as reported in the 2015 report, Eduardo Hochschild retained eligibility to receive benefits following his
transition to the Non-Executive Chairman role comprising personal security, medical insurance and use of a company car and driver.
2.
To align the position with that of the other Committees, the Board approved the payment of the additional fee to Mr Birch as Chair of the Sustainability Committee from 1 November
2020.
3. Jill Gardiner was appointed to the Board on 1 August 2020.
4. Tracey Kerr was appointed to the Board on 10 December 2021.
5. Sanjay Sarma stepped down from the Board on 10 December 2021.
Salary and fees for the year ended 31 December 2021
Executive Director
The Committee reviewed the CEO’s salary in 2021 and determined that there would be no increase.
Executive Director
Base salary from
1 March 2020 (US$000)
Base salary from
1 March 2019 (US$000)
% change
Ignacio Bustamante
700
700
–
Base salary above excludes CTS. Ignacio Bustamante’s salary is denominated in US dollars.
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Non-Executive Directors
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order
to carry out their duties as members of the Board and its Committees. The annual rates of fees payable to the Non-Executive
Directors of the Company in 2020 and 2021 are set out in the table below. All Non-Executive Directors receive a base fee, and
additional fees are paid for acting as Chair of one of the Board Committees and as Senior Independent Director. No change was
made to these fees in 2021.
Fee level from
1 March 2021 (US$000)
Fee level from
1 March 2020 (US$000)
% change
Non-Executive Chairman’s fee
US$400,000
US$400,000
–
Non-Executive Director base fee
£70,000
£70,000
–
Additional fees
Senior Independent Director
£14,000
£14,000
–
Chair of the Audit Committee
£14,000
£14,000
–
Chair of the Remuneration Committee
£14,000
£14,000
–
Chair of the Sustainability Committee
£14,000
£14,000
–
Incentive outcomes for the year ended 31 December 2021 (audited)
Annual bonus in respect of 2021 performance
Objectives for the 2021 bonus were set by the Committee at the beginning of the year and assessment of performance during the
year was undertaken at the February 2022 Committee meeting.
Details of the bonus paid to the CEO for 2021, including the specific performance metrics, weightings and performance against
each of the metrics, are provided in the table below:
Targets
2021 Assessment
Objective
KPI
Target
weighting
Threshold
Target
Maximum
2021 result
Final bonus
score/
(Maximum)
Profitable production
and financial results
Production (Oz Ag Eq)
18%
29m
30m
31.2m
31.2m
18% (18%)
Adjusted EBITDA
1
13.5%
US$290m
US$310m
US$332m
US$332.3m
13.5% (13.5%)
AISC from operations with growth
2
13.5%
US$15.1/oz
US$14.7/oz
US$14.3/oz
US$14.0/oz
13.5% (13.5%)
Strategic advancement
10%
Remco Assessment
Full Vesting
10% (10%)
Penco Rare Earths project
5%
Remco Assessment
Full Vesting
5% (5%)
Brownfield exploration
Inferred resources (subject to permits
available) (Oz Ag Eq)
10%
40m
60m
80m
83.2m
10% (10%)
Safety and
environmental
awareness
Accident frequency rate (LTIFR)
13%
3.00
2.50
2.00
1.30
Nil
3
(13%)
Accident Severity Index
8.5%
540
450
300
676
Nil (8.5%)
ECO Score
4
8.5%
4.55 – 4.74
4.75 – 4.99
>= 5.00
5.29
8.5% (8.5%)
Bonus payable (as a percentage of maximum opportunity)
78.5%
Notes:
1
Adjusted EBITDA is used for the annual bonus and is determined based on EBITDA adjusted primarily to neutralise price effects and other unbudgeted expenditure including
additional personnel costs in Argentina ($8.3million) and costs related to Business Development ($2.2million)
2
All-in sustaining cost is adjusted to ensure comparability with the objective set at the beginning of the year and therefore disregards unbudgeted expenditure including Statutory
Workers’ Profit Sharing ($0.1/oz), exploration costs ($0.2/oz) and additional infill drilling ($0.2/oz)
3
The Remuneration Committee exercised its discretion to reduce, to nil, all safety elements of the annual bonus. See Safety section below for further details.
4
Refer to www.hochschildmining.com for further details on the methodology of calculating the Group’s ECO Score (the internally designed measurement of the Company’s
environmental performance)
General approach
The determination of the bonus payout is at the discretion of the Committee, taking into account performance during the year
against the above scorecard. Each objective in the scorecard has a ‘threshold’, ‘target’ and ‘maximum’ performance target,
achievement of which translates into a score for each objective. The bonus scores for each objective are summed which translates
into a percentage which is applied to the maximum bonus opportunity.
Adjustments were made in line with the Company’s usual practice to maintain the quality of earnings by primarily disregarding the
impact of factors outside of management’s control such as the price of silver and gold (as compared to budgeted prices).
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Financial Statements
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Further Information
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Assessing performance against 2021 bonus objectives
In arriving at the above bonus scorecard, the Committee paid particular attention to the following aspects of the
Company’s performance:
–
Safety
As part of the Committee’s engagement with investors, both before and subsequent to the 2021 AGM, it became clear that
attitudes towards corporate safety performance in general had evolved. The Committee has always been mindful that
remuneration decisions should reflect Hochschild’s corporate values and therefore, in relation to safety, has sought to incentivise
operational safety performance as well as the ongoing efforts of embedding a safety-first culture.
The Committee has reflected on the views of investors and decided that in light of the loss of life during 2021 as a result of the two
accidents at the Group’s operations, the Committee exercised its discretion to reduce, to nil, the safety component of the annual
bonus. The Committee and, indeed, the full Board, considered the detailed findings of the investigations carried out following each
of these incidents and although no corporate failings were identified, the use of the Committee’s discretionary override was felt to
be wholly appropriate. Please refer to the Sustainability Report on pages 59 and 60 for further information on the steps taken by
the Company to mitigate the recurrence of similar accidents.
–
Strategic advancement
In evaluating performance against this objective, the Committee considered a range of actions taken to position the Company for
long-term and sustainable growth to benefit our shareholders, comprising:
•
the exercise of the option to start earning-in a 60% interest in the Snip project following the successful drilling campaign by
Hochschild’s partner and owner of the project, Skeena Resources. In addition, the Committee’s assessment reflects the promising
preliminary maiden resource demonstrating its value-enhancing potential;
•
the demerger of Aclara Resources Inc (formerly known as Biolantanidos, the owner of the Penco Rare Earths project) which was
completed in December 2021 and which realised value of approximately US$40million for the Company’s shareholders. The
Committee took note of (a) the successful listing of the company on the Toronto Stock Exchange within the pricing range approved
by the Hochschild Board and (b) the fact that the targeted amount of equity capital was raised. In the limited time since completion
of the IPO in mid-December 2021, Aclara’s share price performance has been largely influenced by the number of Hochschild
Mining shareholders required to sell their position as well as the general market weakness for junior companies with pre-production
assets. Overall, however, the Committee believes the transaction to have strong potential to be value accretive for Hochschild
shareholders given the strength and quality of the institutions who invested at or subsequent to the IPO;
•
the thorough process leading to the identification of an opportunity to enhance resources within appropriate cost and risk
parameters resulting in the acquisition of Amarillo Gold Corporation which, subject to completion in Q1 2022, would result in the
addition of the low-cost Posse gold project to the Group’s asset portfolio with its relatively near-term production and strong
exploration potential; and
•
commissioning a technical review of the resources at the Group’s Volcan project and appointing a project CEO who will lead a review
of strategic options for the project.
–
Penco Rare Earths project
The Committee considered the notable developments achieved during 2021 with respect to the project itself, including:
•
the completion of the Preliminary Economic Assessment (‘PEA’) with enhanced resource quality and a more robust process design.
It was noted that the PEA ascribed a valuation to the project of US$178million which compared to the c.US$80million invested by
Hochschild; and
•
successful amendments to the Environmental Impact Assessment which significantly improved the project’s
environmental credentials.
–
ECO Score
The overall ECO Score for the year is 5.29 against a stretch target of 5.0. This internally designed award-winning measure of
environmental management demonstrates the following (as more fully detailed in our Sustainability Report):
•
our lowest water consumption since 2015;
•
the lowest amount of waste generation since 2015 (1kg/person/day);
•
the highest level of compliance with the behaviours expected from our environmental culture plan (using an internal scoring system).
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The Committee also took into account the experience of the Group’s stakeholders during the year, noting:
– the performance of the Company’s share price which, in 2021, was primarily impacted by political events in Peru and in particular:
•
the political uncertainty caused by the contested Presidential elections; and
•
the actions of the Peruvian Prime Minister in November 2021 resulting in the declaration of a number of measures including the
closure of two of the Company’s mines which was subsequently clarified.
By contrast, the Committee noted the strong level of cash generation demonstrated by the interim dividend and the in- specie
dividend of shares in Aclara Resources;
– that there have been no compulsory job losses and every employee and contractor received full pay throughout the year without
any material delays;
– the Group has not made use of any government-sponsored schemes or grants in any of the countries in which it operates;
– the Company’s ongoing programme of initiatives to assist the communities and other local stakeholders who, notably in 2021,
expressed their support for the Company in response to the actions of the Prime Minister referred to above; and
– the continued strong performance in environmental management and the unprecedented number of reporting initiatives
undertaken in 2021 reinforcing our commitment to transparency. For further details see the Sustainability Report on page 56.
In conclusion the Committee agreed that the CEO be awarded a bonus of 78.5% of the maximum opportunity, which equates to
c.141% of salary.
2019 LTIP vesting
On 20 February 2019, Ignacio Bustamante was granted an award under the LTIP with a face value of US$1,400,000. Vesting was
dependent on three-year relative TSR performance against both a tailored peer group (70% of the total award) and the
constituents of the FTSE 350 Mining Index (30% of the total award). There was no retesting of performance. Further details of the
performance conditions are shown in the table below.
Performance measure
Weighting
Performance targets
Relative TSR
1
performance vs. tailored peer group
2
70%
Upper quintile (80th percentile): full vesting
Upper tercile (67th percentile): 75% vesting
Median (50th percentile): 25% vesting
Straight-line vesting between these points
Relative TSR performance vs. constituents of the
FTSE 350 Mining Index
3
30%
Median TSR +10% p.a.: full vesting
Median TSR: 25% vesting
Straight-line vesting between these points
Notes:
1
TSR is calculated in common currency.
2
The 2019 LTIP peer group, at the time of the granting of the award, comprised: Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold, Centamin Egypt, Cia des Minas
Buenaventura, Coeur Mining, Eldorado Gold, Endeavour Silver, First Majestic Silver, Fortuna Silver Mines, Fresnillo, Gold Fields, , Hecla Mining, IAMGOLD, Kinross Gold, Newmont
Mining, Pan American Silver, Petropavlovsk, Polymetal, Silver Standard Resources, and Volcan Compania Minera.
3 As at the start of the performance period.
The Remuneration Committee considered corporate activity affecting the 2019 LTIP peer group and the constituents of the
FTSE 350 Mining Index and concluded that the Company’s TSR over the performance period between 1 January 2019 and
31 December 2021 ranked 17th percentile vs. the tailored peer group and underperformed the median of the constituents of
the FTSE 350 Mining and Precious Metals Index by 76% per annum. Accordingly, the award will lapse in full.
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Further Information
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Scheme interests awarded in 2021 (audited)
On 27 May 2021, Ignacio Bustamante was granted a cash-settled award under the LTIP with a face value of $1,400,000.
Vesting is dependent on three-year relative TSR from 1 January 2021 to 31 December 2023, with 50% of the award based on
TSR performance against a tailored peer group and 50% based on internal KPIs as summarised in the table below.
Awards vest on the third anniversary of the date of grant, subject to continued employment, and are subject to potential malus if,
before vesting, the Committee determines either that (i) the overall underlying business performance of the Company is not
satisfactory, (ii) an act or failure to act, which is attributable (directly or indirectly) to an award-holder has resulted in, among other
things, an adverse event related to health and safety, the environment or community relations, or (iii) on the occurrence of certain
trigger events including material misstatement, material failure of risk management, action or omission resulting in serious
reputational damage. Due to legal difficulties arising from its enforcement in Peru, the Remuneration Committee is unable to
operate clawback and hence the Group’s malus policy was clarified as referred to above. After payment of tax, all of the vested
cash award will be required to be invested in Hochschild shares which will be held for a further period of two years. Dividends, if any,
will accrue to shares during the holding period. Further details, including vesting schedules, are provided in the table below:
Executive Director
Grant date
Performance period
Face value of
award at grant
Award value for
threshold performance
Ignacio Bustamante
27 May 2021
1 January 2021 to 31
December 2023
$1,400,000
$350,000
Performance measure
Weighting
Performance targets
TSR
Relative TSR
1
performance
vs. tailored peer group
2
50%
Upper quintile (80th percentile): full vesting
Upper tercile (67th percentile): 75% vesting
Median (50th percentile): 25% vesting
Straight-line vesting between these points
Internal KPIs
Measured & Indicated Resources
(‘M&IR’) per share
3
– absolute %
growth over three-year
performance period 2021-2023
25%
49.06% growth in M&IR per share – full vesting
47.26% growth in M&IR per share – 75% vesting
35.44% growth in M&IR per share – 25% vesting
Straight-line vesting between these points
Consistency Performance
Condition
25%
Average bonus scorecard outcome 2021-2023 with threshold vesting of 25% requiring an
average achievement of 60% scorecard attainment with straight-line vesting up to full
vesting requiring an average of 100% scorecard attainment. There is an overriding
underpin whereby if the annual scorecard achievement is less than 60% in any one year,
then the vesting of this LTIP component will be nil.
Notes:
1
TSR is calculated on the basis of common currency.
2
The 2021 LTIP peer group, at the date of grant, comprised: Agnico-Eagle Mines, Alamos Gold, AngloGold Ashanti, Barrick Gold Corp, Centamin, Cia des Minas Buenaventura, Coeur
Mining, Endeavour Silver Corp, Eldorado Gold Corp, First Majestic Silver Corp, Fortuna Silver Mines, Fresnillo, Gold Fields, Hecla Mining, IAMGOLD, Kinross Gold, Kirkland Lake,
Newmont Mining, OceanaGold Corp, Pan American Silver, Petropavlovsk, Polymetal and SSR Mining.
3
M&IR per share means the Company’s Measured and Indicated Resources excluding Volcan as at 31 December 2020 (338.6 Ag Eq Moz) subject to such adjustments as the
Committee considers appropriate in its absolute discretion divided by the Company’s issued share capital. % growth figures are based on the addition of 180 Ag Eq Moz (full
vesting), 160 Ag Eq Moz (75% vesting), and 120 Ag Eq Moz (25% vesting).
Exit payments made in the year (audited)
No exit payments were made to Directors in the year.
Payments to past Directors (audited)
No payments were made to past Directors in the year.
Implementation of Remuneration Policy for 2022
A summary of how the 2021 Remuneration Policy will be applied for the year ended 31 December 2022 is provided below.
Salary
The Committee reviewed the CEO’s salary and has determined that it will remain unchanged at $700,000 (excluding CTS).
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Annual bonus
The maximum annual bonus opportunity for the CEO for the 2022 financial year will be 180% of salary. The bonus payment will
be subject to performance against broadly the same measures as those used in 2021. However, we intend to rebalance our
Corporate Social Responsibility scorecard weightings and introduce a measure which recognises the importance to our business’
sustainability of our social contribution initiatives within the local communities where we operate. That these activities are
important was strongly demonstrated by the support shown by those communities when the Peruvian Government questioned
our licence to operate in 2021. Further disclosure of measures and targets, where not commercially sensitive, will be provided in
next year’s Annual Report on Remuneration. In line with the Remuneration Policy, payout for ‘threshold’ and ‘target’ performance
will be 30% and 50% of the maximum opportunity, respectively.
As in 2021, the Committee will assess performance against the objectives set and calculate an overall bonus score which will be
applied to the maximum bonus opportunity. The bonus will be subject to malus provisions in line with the Remuneration Policy and,
in line with the approach taken with respect to the 2021 bonus, a discretionary override will be applied such that the occurrence of
any fatality during the year at the Group’s operations will result in the reduction, to nil, of the safety-related objectives.
Any bonus earned above 150% of salary will be paid in shares and deferred for two years.
LTIP
The Committee will make awards in 2022 at levels up to 200% of base salary. Vesting will be based on the same performance
conditions as those set for the 2021 LTIP awards.
Vested LTIP awards will be invested (on a post-tax basis) in the Company’s shares which are required to be held for a further
two years.
The performance conditions are:
– Relative TSR performance vs. tailored peer group (50% weighting: same median to upper quintile range as for 2021 awards)
– Measured & Indicated Resources (‘M&IR’) per share (25% weighting: growth over three-year performance period 2022-2024,
reflecting the same absolute growth targets as for 2021 awards)
– Consistency Performance Condition (25% weighting: measured as for 2021 LTIP awards)
Malus provisions will apply to LTIP awards granted in 2022 in line with the Remuneration Policy.
Non-Executive fees
From 1 March 2022, Non-Executive Directors will, in addition to their base fee, be paid an additional fee of £5,000 per year for every
main Board Committee that they serve on with the exception of the Nomination Committee. There will be no change to the
supplementary fee payable to the Chairs of the Audit, Nomination and Remuneration Committees.
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Annual percentage change in Directors’ remuneration
The table below shows the percentage change in Board Directors’ remuneration in 2020 and 2021 compared with the percentage
change in remuneration for all other employees.
2021
% change
Base salary
1
/ fees
Taxable benefits
2
Single-year variable
3
Executive Directors
Ignacio Bustamante
0%
–10%
5.7%
Non-Executive Directors
Eduardo Hochschild
0%
17%
n/a
Dr Graham Birch
0%
n/a
n/a
Jorge Born Jr
0%
n/a
n/a
Jill Gardiner
0%
n/a
n/a
Eileen Kamerick
0%
n/a
n/a
Michael Rawlinson
0%
n/a
n/a
Dionisio Romero
0%
n/a
n/a
Sanjay Sarma
5
0%
n/a
n/a
Average all employees
4
6.2%
n/a
0.8%
2020
% change
Base salary
1
/ fees
Taxable benefits
2
Single-year variable
3
Executive Directors
Ignacio Bustamante
0%
4.5%
–5.3%
Non-Executive Directors
Eduardo Hochschild
0%
2%
n/a
Dr Graham Birch
0%
n/a
n/a
Jorge Born Jr
0%
n/a
n/a
Jill Gardiner
n/a
n/a
n/a
Eileen Kamerick
0%
n/a
n/a
Michael Rawlinson
0%
n/a
n/a
Dionisio Romero
0%
n/a
n/a
Sanjay Sarma
5
0%
n/a
n/a
Average all employees
4
5.8%
n/a
3.8%
Notes:
1
Base salary only (i.e. excluding Statutory Supplements – see footnote 1 to table on single figure of total remuneration for Executive Directors on page 108).
2
Taxable benefits comprise (a) for Ignacio Bustamante, a company car and medical insurance and (b) for Eduardo Hochschild, the use of a car and driver, personal security and
medical insurance. See footnote 2 to table on single figure of total remuneration for Executive Directors on page 108).
3
Single-year variable comprises (a) bonus (calculated with reference to base salary only, i.e. before CTS and tax rebates) and (b) estimate of statutory profit-share due to the
unavailability of final data as at the date of this report.
4 ‘All employees’ comprise full-time salaried employees in Peru.
5
Sanjay Sarma resigned from the Board on 10 December 2021.
Relative importance of spend on pay
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends) from
the financial year ended 31 December 2020 to the financial year ended 31 December 2021.
Distribution to shareholders (US$000)
1
Employee remuneration (US$000)
2021
2020
% change
2021
2020
% change
22,000
2
32,600
2
-32.5%
3
161,170
141,700
13.7%
Notes:
1
Comprises all cash dividends paid in respect of each year (including the proposed 2021 final dividend).
2
2020 figure includes the interim dividend of US$20.6 million, a portion of which relates to the 2019 final dividend of US$12 million which was withdrawn due to the uncertainty caused
by the Covid-19 pandemic.
3 See footnote 2 above.
The Directors are recommending the payment of a final dividend of US$12 million for the year ended 31 December 2021.
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Pay for performance
The following graph shows the TSR for the Company compared to the FTSE 350 Precious Metals and Mining Index and FTSE 250
Index, assuming £100 was invested on 31 December 2011. The Board considers that the FTSE 350 Precious Metals and Mining
Index is an appropriate published index as it reflects the sector that Hochschild operates in, and the FTSE 250 Index provides a view
of performance against a broad equity market index of which Hochschild has been a constituent for the majority of the past 10
years. The table below details the CEO’s single figure remuneration and actual variable pay outcomes over the same period.
Hochschild Mining PLC
FTSE250
FTSE 350 Precious Metals and Mining Index
2012
2011
2013
2014
2015
2016
2017
2018
2020
2021
2019
0
50
100
150
200
250
300
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the 10 years to 31 December 2021
CEO
Ignacio
Bustamante
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
CEO single figure
of remuneration ($000)
1,852
999
924
1,328
3,474
4,519
4,174
3,665
1,933
1,996
Annual bonus outcome
(% of maximum)
90%
81%
67%
67%
83%
83%
90%
95%
90%
78.5%
LTI vesting outcome
(% of maximum)
98%
(LTIP)
0%
0%
0%
0%
(ELTIP)
90%
(LTIP)
86%
(ELTIP)
100%
(LTIP)
43%
(ELTIP)
100%
(LTIP)
34%
(ELTIP)
0%
(LTIP)
0%
(LTIP)
0%
(LTIP)
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Directors’ interests (audited)
The interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2021 are detailed in the
table below.
The Company has adopted shareholding guidelines whereby all Executive Directors (currently only the CEO) are required to acquire
and retain a beneficial shareholding in the Company equal to at least 250% of base salary (the ‘Shareholding Requirement’). The
CEO is required to invest the entire amount of a vested LTIP for two years (on a net basis) regardless of his achievement of the
shareholding guideline. The Shareholding Requirement will apply for the first year post-termination with respect to vested LTIP
awards granted from 2021 which will reduce thereafter by 50% with respect to the second year.
Shares held
Owned
outright or
vested at
31 Dec 2020
(or date of
appointment
if later)
Owned
outright or
vested at
31 Dec 2021
(or date of
retirement if
earlier)
Vested but
subject to
holding period
Unvested and
subject to
performance
conditions
Unvested and
subject to
deferral only
Shareholding
requirement
(% of salary)
Current
shareholding
(% of salary)
Requirement
met?
Ignacio Bustamante
1,791,570
1,214,115
0
0
0
250%
305%
1
Yes
Eduardo Hochschild
196,900,306
196,900,306
Dr Graham Birch
33,750
33,750
Jorge Born Jr
0
0
Jill Gardiner
0
0
Eileen Kamerick
0
0
Tracey Kerr
0
0
Michael Rawlinson
0
0
Dionisio Romero
0
55,169
Sanjay Sarma
15,000
15,000
Notes:
1
Using the Company’s closing share price and GBP/USD exchange rate as at 31 December 2021 (being the last trading day of the year) of £1.301 and £1:$1.35 respectively
2
As at 10 December 2021, being the date of Tracey Kerr’s appointment
3 As at 10 December 2021, being the date on which Sanjay Sarma stepped down from the Board
There have been no changes to Directors’ shareholdings since 31 December 2021.
Directors’ interests in share options, shares and cash awards in Hochschild long-term incentive plans
Details of Directors’ interests in shares and cash awards under Hochschild’s long-term incentive plans are set out in the table below.
Ignacio
Bustamante
Date
of grant
Share price
at grant
Exercise price
at grant
Number of
shares
awarded
Face value
at grant
1
Performance
period
Vesting
date
2020 LTIP
19.02.20
n/a
n/a
n/a
$1.4m
01.01.20 – 31.12.22
19.02.23
2021 LTIP
27.05.21
n/a
n/a
n/a
$1.4m
01.01.21 – 31.12.23
27.05.24
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of
the Group.
External appointments
The table below details the fees received and retained by Ignacio Bustamante, who was the only Executive Director in office during
2021, in respect of his external directorships.
Name of company
Fee received
Profuturo AFP
US$42,000
Scotiabank Peru SAA
US$60,000
Signed on behalf of the Board
Michael Rawlinson
Chair of the Remuneration Committee
22 February 2022
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Appendix – Directors’ Remuneration Policy (unaudited)
This Appendix sets out the main aspects of the Directors’ Remuneration Policy as approved by the Company’s shareholders at the
2021 Annual General Meeting (‘AGM’) on 27 May 2021. This section is provided for information and does not form part of the
Directors’ Remuneration Report which will be voted on by shareholders at the Company’s 2022 AGM. The full 2021 Directors’
Remuneration Policy can be found in the 2020 Annual Report and Accounts available on the Company’s website at www.
hochschildmining.com
The Policy applies to Directors’ remuneration at the Company for a period of up to three years from the 2021 AGM, unless amended
by the Company’s shareholders at a general meeting.
Introduction to the Policy
The principal objectives of the Remuneration Policy are to:
– attract, retain, and motivate the Group’s executives and senior management;
– provide management incentives that align with and support the Group’s business strategy; and
– align management incentives with the creation of shareholder value.
The Group seeks to achieve this alignment over both the short and long term through the use of an annual performance-related
bonus, which rewards the achievement of a balanced mix of financial, operational and other relevant performance measures, and
the use of a Long-Term Incentive Plan (‘LTIP’) which is linked to longer-term critical measures of financial and non-financial
performance.
The Committee takes into consideration the remuneration arrangements for the wider employee population in making its decisions
on remuneration for senior executives. Remuneration decisions are also driven by external considerations, in particular relating to
the global demand for talent in the mining sector. The Committee retains discretion to make non-significant changes to the Policy
without going back to shareholders.
The Committee is satisfied the principles of the UK Corporate Governance Code relating to the design of remuneration policies and
practices have been applied:
Clarity:
we ensure pay for performance and our policy is designed to be logical and transparent
Simplicity:
Executive Director remuneration comprises a minimum of components, based on a regular package including fixed pay,
and short- and long-term variable pay
Risk:
a significant proportion of the Executive Director remuneration package is delivered in long-term or deferred pay which
ensures the longer-term impact of decisions is reflected in pay. Furthermore, the combination of in-post and post-employment
shareholding requirements, as well as capturing several categories of performance in the variable pay elements, helps to ensure
multiple mechanisms through which to expose senior executive pay to inadequate risk management
Predictability:
variable pay is subject to the achievement of specific and transparent performance targets, and the Committee has
the ability to apply its discretion to ensure variable pay outcomes reflect underlying corporate health
Proportionality:
the Executive Director pay mix is similar to that at comparable international mining peers, and the Committee has
the ability to apply its discretion to ensure overall pay outcomes are proportionate to the Company’s long-term performance
Alignment to culture:
variable pay captures several categories of performance, including non-financial objectives such as those
relating to safety and environmental performance, helping to ensure pay reflects multiple perspectives on performance, and not
just financial outcomes
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Policy Table
The table below provides a summary of each element of the Remuneration Policy for Executive Directors.
Element:
Base salary
Objective and link to strategy:
To support recruitment and retention
Operation
Opportunity
Performance
metrics
Salary is reviewed annually, usually in March, or following
a significant change in responsibilities.
Salary levels are targeted to be competitive and relevant to the
global mining sector, with reference to the relative cost of living.
The Committee also takes into consideration general pay levels
for the wider employee population.
To avoid setting expectations, there is no prescribed
maximum salary.
In respect of existing Executive Directors, it is anticipated that
salary increases will generally be in line with the wider employee
population. In exceptional circumstances (including, but not
limited to, a material increase in job size or complexity, the
reversal of a previous salary reduction, or if a Director has not
received an increase for a number of years), the Committee has
discretion to make appropriate adjustments to salary levels.
None
Executive Directors receive Compensation for Time
Services (‘CTS’) and profit share, both of which are provided
for by Peruvian law, as well as certain allowances which may
include medical insurance, the use of a car and driver, and
personal security.
CTS is a legal entitlement for employees in Peru which provides
for a fund in the event of termination of employment. CTS in
respect of base salary is calculated as one month’s wages and
is deposited biannually in an employee’s interest-accruing bank
account and prior to the end of employment, employees can
gain access to the deposited amount to the extent it exceeds
four months’ wages. CTS in respect of other forms of
remuneration such as incentive payouts, that are considered to
be ‘non-extraordinary’, is currently calculated at a rate of 1/24th.
For the profit share, an amount equal to 8% of the relevant
Peruvian company’s taxable income for the year is distributable
to its employees. This amount is mandated by Peruvian law, and
any increases are not within the control of the Group. The
amount receivable by each Executive Director is determined
with reference to annual base salary (plus other incentive
payouts, if any) and the number of days worked during the
calendar year.
The value of the other benefits varies by role and individual
circumstances; eligibility and cost are reviewed periodically.
The Committee retains the discretion to approve a higher cost
of benefits in exceptional circumstances (for example
relocation) or in circumstances where factors outside the
Company’s control have changed materially (for example
increases in insurance premiums).
None
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Element:
Annual bonus
Objective and link to strategy:
To achieve alignment with the Group’s strategy and commitment to operating responsibly
Operation
Opportunity
Performance metrics
Performance measures, targets and weightings are set at
the start of the year. At the end of the year, the Committee
determines the extent to which targets have been achieved,
taking into account individual performance.
Bonus payments of up to 150% of salary are delivered in
cash; any bonus earned above 150% of salary is deferred in
Hochschild shares, under the Deferred Bonus Plan, for
two years.
Deferred bonus is subject to malus, i.e. forfeiture or reduction,
in circumstances such as material misstatement, reputational
damage, gross misconduct and material breach of an
individual’s employment contract.
If deferral is applied, the Committee retains the discretion to
allow dividends (or equivalent) to accrue over the deferral period
in respect of the awards that vest.
The maximum
annual bonus
opportunity is
180% of salary.
For ‘threshold’
and ‘target’ levels
of performance,
the bonus earned
is up to 30% and
50% of maximum,
respectively.
Performance is determined by the Committee by reference to
Group financial measures as well as the achievement of personal/
strategic objectives. The personal/strategic objectives are
typically weighted no higher than 30% of maximum.
The Committee retains discretion to vary year-on-year the
weightings for individual measures, to ensure alignment with the
business priorities for the year. Performance targets are generally
calibrated with reference to the Company’s budget for the year.
Each objective in the scorecard has a ‘threshold’, ‘target’ and
‘maximum’ performance target, achievement of which translates
into a score for each objective.
The Committee uses its judgement to determine the overall
scorecard outcome based on the achievement of the targets
and the Committee’s broad assessment of Company and
individual performance. A review of the quality of earnings is
conducted by the Committee to determine whether any
adjustments should be made to the reported profit for the
purpose of bonus outcomes. This ensures that bonus outcomes
are not impacted by unbudgeted non-recurring or one-off
items, or circumstances outside of management’s control such
as material changes in commodity prices that could distort the
overall quality of earnings.
Malus provisions apply, i.e. the Committee has the discretion to
reduce bonus payments on the occurrence of an adverse event
that is attributable (directly or indirectly) to an act or failure to act
by the executive. Such events include those related to health and
safety, the environment or community relations. Other trigger
events include misconduct, material misstatement, material
failure of risk management, action or omission resulting in serious
reputational damage, or any material breach of an individual’s
employment contract.
Details of the measures, weightings and targets applicable for
the financial year under review are provided in the Annual
Report on Remuneration, unless they are considered to be
commercially sensitive.
Element:
Long-Term Incentive Plan (‘LTIP’)
Objective and link to strategy:
To directly incentivise sustained shareholder value creation through operational performance
and to support the recruitment of senior positions and longer-term retention
Operation
Opportunity
Performance metrics
Awards are made annually, in the form of cash, with vesting
subject to the attainment of specific performance conditions
and continued employment.
Awards have a performance and vesting period of at least three
years. Vested awards are invested in Company shares and
normally required to be held for a further two years. Dividends, if
any, will accrue to shares during the holding period.
Maximum annual
award level is
200% of salary
(267% of salary in
exceptional
circumstances
relating to the
recruitment of an
Executive Director).
Threshold
performance will
result in vesting of
25% of an award.
Vesting of LTIP awards is based on performance measures linked
to the Group’s strategic priorities and may vary cycle-to-cycle.
Malus provisions apply, i.e. the Committee can reduce or prevent
vesting if it determines either that (i) the overall underlying
business performance of the Company is not satisfactory or (ii) an
act or failure to act, which is attributable (directly or indirectly) to
an award-holder has resulted in, among other things, an adverse
event related to health and safety, the environment or community
relations; or (iii) on the occurrence of certain trigger events
including misconduct, material misstatement, material failure
of risk management, action or omission resulting in serious
reputational damage, or any material breach of an individual’s
employment contract.
In addition to the above elements of remuneration, the Committee may consider it appropriate to grant an award under a different
structure, but within the limits sets out in the Policy Table, in order to facilitate the recruitment of an individual, exercising the
discretion available under Listing Rule 9.4.2R.
Shareholding requirements
Executive Directors are required to acquire and retain a beneficial shareholding in the Company equal to at least 250% of base
salary whilst in employment. Directors’ shareholdings are reviewed to ensure compliance with the requirements. A post-employment
shareholding requirement will apply to equity-based awards granted after the effective date of the 2021 Remuneration Policy,
requiring Executive Directors on the termination of their employment to hold the lower of (i) their shareholding at the date of
termination and (ii) shares equivalent to their in-post shareholding requirement for a two-year period post-employment, with the
required shareholding level reduced to 50% of the in-post shareholding requirement after 12 months.
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Notes to the Policy Table
Payments from existing awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the
Remuneration Policy detailed in this report (such as awards made under a previous Policy, or awards made prior to appointment
to the Board). Details of any such payments will be set out in the Annual Report on Remuneration as they arise.
Performance measurement selection and approach to target-setting
The measures used under the annual bonus are selected annually to reflect the Group’s main strategic objectives for the year and
reflect both financial and non-financial priorities.
Performance targets are set to be stretching and achievable, taking into account the Company’s strategic priorities and the
economic environment in which the Company operates. Targets are set taking into account a range of reference points including
the Group’s strategic and operating plan.
The Committee considers a combination of relative TSR and internal KPIs to be the most appropriate measures of long-term
performance for the Company and together with the annual bonus measures, provide a balance between absolute and relative
performance, between short-term and long-term performance measures, and between external and internal measures of
performance. TSR, in particular, aligns with the Company’s focus on shareholder value creation and rewards management for
outperformance of sector peers, and is transparent, visible and motivational to executives.
The Committee has discretion to vary the performance condition for in-flight awards in certain circumstances to ensure they
continue to be fair, reasonable and no more or less difficult to satisfy than originally intended. For example, in the event of corporate
activity amongst the TSR comparator group during a performance period, the Committee may make adjustments to the
comparator group (for example, replacing that company with the acquiring company, including a substitute for that company,
or tracking the future performance of that company by reference to the median of the remaining comparators). Other examples
of special circumstances include but are not limited to rights issues, corporate restructuring, and special dividends. The
Committee will also review the appropriateness of the performance conditions prior to each LTIP grant and reserves the
discretion to set different targets for future awards without consulting with shareholders.
Remuneration Policy for other employees
The Committee takes into consideration the remuneration arrangements for the wider employee population in making its decisions on
remuneration for senior executives. The Company’s approach to annual salary reviews is consistent across the Group, with consideration
given to the scope of the role, level of experience, responsibility, individual performance and pay levels in comparable companies.
In general, the Remuneration Policy and principles which apply to other senior executives are broadly consistent with those set out in this
report for the CEO. Generally, remuneration is linked to Company and individual performance in a way that is ultimately aimed at
reinforcing the delivery of shareholder value.
Senior employees above a specific grade are eligible to participate in an annual bonus scheme with a similar design to that for the
CEO. Opportunities and specific performance conditions vary by organisational level with business area-specific metrics incorporated
where appropriate.
All Peruvian employees participate in the statutory profit share scheme whereby an amount equal to 8% of the relevant Peruvian
company’s taxable income for the year is distributable to its employees. The amount receivable by each employee is determined with
reference to their annual base salary and bonus, if any, and the number of days worked in the calendar year.
Selected senior employees participate in the LTIP and are required to invest 50% of the vested cash award (on a tax net basis) in the
Company’s shares and hold these shares for a further two years. These shares will count towards their target shareholding (expressed
as a percentage of salary, which will be set depending on seniority).
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Approach to remuneration on recruitment or promotion
The Committee’s policy is to set the remuneration package for a new Executive Director in accordance with the approved
Remuneration Policy at the time of the appointment. The overarching aim is to ensure that the Company pays no more than is
necessary to appoint individuals of an appropriate calibre.
In cases of appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration
as set out in the Policy Table. In determining the appropriate remuneration for a new Executive Director, the Committee will take into
consideration all relevant factors (including the nature of remuneration and where the candidate was recruited from) to ensure that
arrangements are in the best interests of Hochschild and its shareholders. Where an individual is appointed on an initial base salary
that is below market, any shortfall may be managed with phased increases over a period of time, subject to the individual’s
development in the role. This may result in above-average salary increases during this period.
In addition to the components of remuneration as set out in the Policy Table, the Committee may also make an award in respect of
a new appointment to ‘buy-out’ incentive arrangements forfeited on leaving a previous employer on a like-for-like basis, having
regard to the fair value of the instruments. In doing so, the Committee will consider relevant factors including any performance
conditions attached to these awards and the likelihood of those conditions being met. The Committee aims to use the current
remuneration structure in making recruitment awards, but in some cases it may be required to use the flexibility afforded by Listing
Rule 9.4.2R, if appropriate, in relation to such buy-out awards.
In cases of appointing a new Executive Director by way of internal promotion, the Committee will determine remuneration in line
with the Policy for external appointees as detailed above. Where an individual has contractual commitments made prior to his or
her promotion to the Board, the Company will continue to honour these arrangements. Incentive opportunities for below-Board
employees are typically no higher than for Executive Directors, but measures may vary to provide better line-of-sight.
Service contracts
Executive Director
Date of service contract
Ignacio Bustamante
1 April 2007
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Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee.
Ignacio Bustamante was appointed a Director of the Company with effect from 1 April 2010 and is employed under a contract of
employment with Compañia Minera Ares S.A.C. (Ares) dated 1 April 2007. The contract is subject to Peruvian law and, as such, has
no fixed term and may be terminated (i) by the executive on 30 days’ notice and (ii) by Ares without notice. Under Peruvian law,
termination by Ares other than termination for certain prescribed reasons (such as gross negligence) gives rise to an entitlement to
compensation of no less than 1.5 times the monthly base salary for each year of service completed, up to a maximum of 12 months’
base salary. In addition to these provisions and to reflect Peruvian market practice, the Committee has discretion to award Ignacio
Bustamante up to an additional 12 months’ base salary on termination (other than for the prescribed reasons outlined above). The
prevailing circumstances will be taken into consideration at the time of termination.
Non-Executive Directors
The Group’s Non-Executive Directors serve under Letters of Appointment as detailed in the table below. In accordance with their
terms, the Non-Executive Directors serve for an initial period of three years which is automatically extended for further three-year
terms. Notwithstanding this, all Directors are subject to annual re-election by the Company in general meeting in line with the UK
Corporate Governance Code, and the appointments of Non-Executive Directors may be determined by the Board or the Director
giving not less than three months’ notice. Details of the terms of appointment of the Company’s Non-Executive Directors serving
during the year are shown in the table below. The appointment and reappointment and the remuneration of Non-Executive
Directors are matters reserved for the full Board.
Non-Executive Director
Letter of appointment dated
Anticipated expiry of present term of
appointment (subject to annual re-election)
Eduardo Hochschild
30 January 2015
1 January 2025
Dr Graham Birch
20 June 2011
1 July 2023
Jorge Born Jr.
16 October 2006
16 October 2024
Jill Gardiner
17 July 2020
1 August 2023
Eileen Kamerick
9 September 2016
1 November 2022
Tracey Kerr
4 December 2021
10 December 2024
Michael Rawlinson
18 December 2015
1 January 2025
Dionisio Romero Paoletti
18 December 2017
1 January 2024
Note: Copies of the Directors’ letters of appointment and service agreements are available for inspection at the Company’s registered office.
The Non-Executive Directors are not eligible to participate in the Company’s performance-related incentive plans and do not
receive any pension contributions. As part of his change of role from Executive to Non-Executive Chairman on 1 January 2015, the
Committee agreed that Mr Hochschild would retain his eligibility for benefits received in respect of his time as an Executive Director,
consisting primarily of personal security, car and driver, and medical insurance.
The Non-Executive Directors’ fees have been set at a level to reflect the amount of time and level of involvement required in order to
carry out their duties as members of the Board and its Committees.
Details of the Policy on fees paid to our Non-Executive Directors are set out in the table below:
Objective
Details
Opportunity
Performance
metrics
To attract and retain
Non-Executive Directors of
the highest calibre with broad
commercial and other
experience relevant to the
Company.
Fee levels are reviewed from time to time, with
any adjustments typically effective from 1
March each year.
The fee paid to the Chairman is determined by
the Committee, and base fees to
Non-Executive Directors are determined by the
Board. Additional fees are payable for acting
as Chair of the Board’s Committees and as
Senior Independent Director.
Fee levels are reviewed by reference to
FTSE-listed companies of similar size and
complexity. Time commitment, level of
involvement required and responsibility are
taken into account when reviewing fee levels.
Non-Executive Director fees will typically only
be increased during the term of this Policy in
line with general market levels of NED fee
inflation.
In the event that there is a material
misalignment with the market or a change in
the complexity, responsibility or time
commitment required to fulfil a Non-Executive
Director role, the Board has discretion to make
an appropriate adjustment to the fee level.
The maximum aggregate annual fee for all
Directors provided in the Company’s Articles of
Association is £3 million p.a.
None
In recruiting a new Non-Executive Director, the Committee will use the Policy as set out in the table above. A base fee would be
payable for Board membership, with additional fees payable for those acting as Chair of the Company’s Board Committees and as
Senior Independent Director, as appropriate.
DIRECTORS’ REMUNERATION REPORT
CONTINUED
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Leaver and change-of-control provisions
The table below summarises how the awards under the annual bonus and LTIP are typically treated in specific circumstances, with
the final treatment remaining subject to the Committee’s discretion. When considering the appropriate treatment, the Committee
reviews all potential incentive outcomes to ensure they are fair to both shareholders and participants.
Reason for leaving
Treatment of awards
Timing of vesting
Annual bonus
Retirement, ill health, disability, death or any
other reasons the Committee may determine
in its absolute discretion
Cash bonuses will only be paid to the extent that Group and personal objectives
set at the beginning of the year have been achieved. Any resulting bonus would
typically be pro-rated for time served during the year.
The Committee has discretion to determine whether deferral would be applied.
Normal payment
date, although the
Committee has
discretion
to accelerate
Change of control and company/
business sale
The Committee would determine the most appropriate treatment in the
circumstances.
The Committee has discretion to determine whether deferral would be applied.
On date of event
Any other reason
No bonus is paid.
Not applicable
LTIP
Retirement, ill health, disability, redundancy,
injury or any other reasons the Committee
may determine in its absolute discretion
Any outstanding awards will be pro-rated for time and performance, unless the
Committee determines otherwise.
Normal vesting
date, although the
Committee has
discretion to
accelerate
Death
Any outstanding awards will be pro-rated for time and performance, unless the
Committee determines otherwise.
On date of event
Change of control and company/
business sale
Any outstanding awards will be pro-rated for time and performance, unless the
Committee determines otherwise. On a change of control, Hochschild awards
may alternatively be exchanged for new equivalent awards in the acquirer,
where appropriate.
On date of event
Any other reason
Awards lapse.
Not applicable
Deferred Bonus Plan (‘DBP’)
Death, ill health, disability, redundancy, injury,
retirement with agreement of the Director, or
any other reasons the Committee may
determine in its absolute discretion
Any outstanding awards would typically be pro-rated for time.
On date of event
Change of control and company/business sale
Any outstanding awards would typically be pro-rated for time. On a change of
control, Hochschild awards may alternatively be exchanged for new equivalent
awards in the acquirer, where appropriate.
On date of event
Any other reason
Awards lapse.
Not applicable
The Remuneration Committee has discretion to determine the most appropriate treatment of vested LTIP awards that are subject
to a holding period, based on the individual circumstances at the time.
Strategic Report
Financial Statements
Governance
Further Information
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STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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
UK-adopted international accounting standards (‘IFRS’). 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 UK-adopted
international accounting standards.
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 and Parent Company financial
position and financial performance;
– in respect of the Group financial statements, state whether
UK-adopted international accounting standards 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 UK-adopted international accounting standards 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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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOCHSCHILD MINING PLC
Opinion
In our opinion:
– Hochschild Mining PLC’s Group financial statements and
Parent Company financial statements (the “financial
statements”) give a true and fair view of the state of the Group’s
and of the Parent Company’s affairs as at 31 December 2021
and of the Group’s profit for the year then ended;
– the Group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
– the Parent Company financial statements have been properly
prepared in accordance with UK adopted international
accounting standards as applied in accordance with section
408 of the Companies Act 2006; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Hochschild Mining
PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2021 which comprise:
Group
Parent Company
Consolidated statement
of financial position as at
31 December 2021
Statement of financial position as
at 31 December 2021
Consolidated income statement
for the year then ended
Statement of changes in equity for
the year then ended
Consolidated statement of
comprehensive income for the
year then ended
Statement of cash flows for the
year then ended
Consolidated statement of
changes in equity for the year
then ended
Related notes 1 to 14 to the
financial statements including a
summary of significant
accounting policies
Consolidated statement of cash
flows for the year then ended
Related notes 1 to 39 to the
consolidated financial
statements, including a
summary of significant
accounting policies
The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in
the Auditor’s responsibilities for the audit of the financial
statements section of our report below. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We are independent of the Group and Parent Company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
Financial Reporting Council’s (FRC) Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the group or the parent company and we
remain independent of the group and the parent company in
conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our
evaluation of the directors’ assessment of the Group and Parent
Company’s ability to continue to adopt the going concern basis
of accounting included the following:
– Obtaining an understanding management’s process and
controls related to the assessment of going concern.
– Obtaining the Group’s going concern assessment
which includes the cash flow forecast and its liquidity
position covering the period to 31 March 2023, being a
period of at least twelve months from the approval of
the financial statements.
– Assessing the adequacy of the going concern assessment
period until 31 March 2023, considering whether any events
or conditions foreseeable after the period indicated a longer
review period would be appropriate.
– Reviewing and challenging the assumptions applied in the
forecast, with our main focus, given the number of possible
outcomes that exist, on the extreme downside scenario
constructed by management as well as its reverse stress
testing, as follows:
•
Reviewing how the business model responds to reduced
prices, and the extent of enhanced Covid-related restrictions
impacting operations, such as additional restrictions on the
movement of people across all operations or government-
imposed suspension of the operations.
•
Modelling reverse stress tests based on management’s most
severe scenario. This was performed to identify i) a
combination of prices that would result in a closing cash
position at the end of March 2023 that would be the minimum
liquidity sufficient to maintain the business; and ii) the point at
which the Group would breach its financial covenants during
the going concern period. We assessed whether the
probability of the resulting combination of prices and period
of stoppage was remote based on historic price changes and
stoppages experienced to date.
•
Reviewing the reasonableness of all key assumptions in
management’s forecasts based on third party sources and
other evidence obtained through our audit. This includes the
length of time Covid-related restrictions remain in place and
the subsequent recovery period; the forecast gold and silver
price used; the incremental costs to be incurred to manage the
various health and safety Covid protocols; the level of costs
estimated during the stoppages and ramp-up period; and the
mitigating factors that exist that can be utilised to ensure the
liquidity of the Group.
•
Undertaking an assessment of management’s track record of
accuracy in forecasting to determine the reliability of current
forecasts by comparing actuals results with budgets and
understanding any deviations.
Strategic Report
Financial Statements
Governance
Further Information
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INDEPENDENT AUDITOR’S REPORT
CONTINUED
– Obtaining bank confirmations covering 99.9% of the Group’s
cash and cash equivalents as at 31 December 2021.
– Verifying the terms, maturity, interest rates, and any
restrictions or covenants of the borrowings held by the Group
at the date of approving of the financial statements against
the original contracts.
– Confirming the appropriateness of the method used in
management’s model, checked the clerical accuracy of
management’s modelling, and recalculating management’s
forecasts of its compliance with borrowing covenants
throughout the assessment period under
management’s scenarios.
– With regards to the Parent Company financial statements,
reviewing the letter of support received from Compañía
Minera Ares (‘CMA’) and assessing the ability of CMA to
provide financial support to the Parent Company during the
going concern period, through our test of CMA’s future
cashflows included within the Group’s going concern model.
– Reviewing the appropriateness of management’s going
concern disclosures in describing the risks associated with its
ability to continue as a going concern during the assessment
period to 31 March 2023.
Through our procedures we have observed that the
combination of gold and silver prices used in management’s
extreme downside scenario and those resulting from our reverse
stress test are below the minimum analyst consensus price
forecast for the going concern period.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and Parent Company’s ability to continue as a going
concern for the going concern period to 31 March 2023, which is
at least twelve months from when the financial statements are
authorised for issue.
In relation to the Group and Parent Company’s reporting on how
they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
directors’ statement in the financial statements about whether
the directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections
of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee
as to the Group or Parent Company’s ability to continue as a
going concern.
Overview of our audit approach
Audit scope
–
We performed an audit of the complete financial
information of three components, and audit
procedures on specific balances for a further three
components and for the remaining 13 components we
performed other audit procedures.
–
The components where we performed full or specific
audit procedures accounted for 99% of Adjusted
EBITDA, 100% of Revenue and 98% of Total Assets.
Key audit
matters
–
Recoverability of the carrying value of the Group’s
mining assets
–
Revenue recognition
–
Mine rehabilitation provisions
Materiality
–
Overall Group materiality of US$7.6m which represents
2% of Adjusted EBITDA.
An overview of the scope of the parent company
and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope for each company within the Group. Taken together, this
enables us to form an opinion on the consolidated financial
statements. We take into account size, risk profile, the
organisation of the Group and effectiveness of Group-wide
controls, changes in the business environment and other factors,
such as recent Internal Audit results, when assessing the level of
work to be performed at each component.
In assessing the risk of material misstatement to the Group
financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial
statements, of the 19 reporting components of the Group, we
selected six components covering entities within the UK, Peru
Argentina and Chile, which represent the principal business
units within the Group.
We performed an audit of the complete financial information
of three components (“full scope components”) which were
selected based on their size or risk characteristics. In addition to
this, for three components (“specific scope components”), we
performed audit procedures on specific accounts within those
components that we considered had the potential for the
greatest impact on the financial statements either because
of the size of these accounts or their risk profile.
The reporting components where we performed audit
procedures accounted for 99% (2020: 99%) of the Group’s
Adjusted EBITDA (on an absolute basis), 100% (2020: 100%) of
the Group’s Revenue and 98% (2020: 98%) of the Group’s Total
Assets. For the current year, the three full scope components
contributed 99% (2020: 99%) of the Group’s Adjusted EBITDA (on
an absolute basis), 100% (2020: 100%) of the Group’s Revenue
and 76% (2020: 87%) of the Group’s Total Assets. The three
specific scope components contributed 22% (2020: 11%) of the
Group’s Total Assets. The audit scope of these specific scope
components may not have included testing of all significant
accounts of the component but will have contributed to the
coverage of significant accounts tested for the Group.
The remaining 13 components together represent less than
1% of the Group’s Adjusted EBITDA (on an absolute basis)
(2020: 2%), For these components, we performed other
procedures, including analytical reviews, testing of cash
balances, testing of consolidation journals and enquiry of
management about unusual transactions in these components,
to respond to any potential risks of material misstatement to
the Group financial statements.
The charts on the next page illustrate the coverage obtained
from the work performed by our audit teams.
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Adjusted EBITDA
%
Full scope
components
99%
Other procedures
1%
Revenue
%
Total assets
%
Full scope
components
100%
Full scope
components
76%
Specific scope
components
22%
Other procedures
2%
Changes from the prior year
Our audit scope is consistent with that adopted in the prior year.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at
each of the components by us, as the Group audit team (which
comprises team members from both the UK and Peru), or by
component auditors from other EY global network firms
operating under our instruction. Of the three full scope
components, audit procedures were performed on two of these
by component audit teams, and directly by the Group audit
team on the remaining one. For the three specific scope
components, the work was performed by the Group audit team.
We determined the appropriate level of involvement to enable us
to determine that sufficient audit evidence had been obtained
as a basis for our opinion on the Group as a whole.
The Group audit team has a programme of planned visits that
has been designed to ensure that the Senior Statutory Auditor
visits each of the primary operating locations where the Group
audit scope is focused. The UK members of the Group audit
team and the Senior Statutory Auditor would normally visit the
Peru operating location twice every year, and the Argentina
operating location at least once every two years. However, due
to travel restrictions imposed by governments in response to the
Covid pandemic, it was not possible to complete the planned
visits to Peru and Argentina during the current or previous years’
audit cycles.
The UK members of the Group audit team therefore continued
their approach, established in the previous year in response to
the onset of the Covid pandemic, of virtually interacting with
and monitoring component EY teams. In lieu of planned visits,
we maintained regular dialogue with our component teams and
the Group’s local management. We held additional phone and
video meetings to discuss any issues arising from the audit work
and to ensure that we were fully aware of the progress and
results of the component teams’ audit procedures. We also
utilised EY’s global audit platform to facilitate timely and secure
delivery by management of requested evidence and to enable
our review of key component workpapers.
The Group audit team thus interacted regularly with the
component teams where appropriate during the various stages
of the audit, was responsible for the scope and direction of the
audit process, including through attendance at planning and
closing meetings, and reviewed key audit working papers on risk
areas. This, together with the additional procedures performed
at Group level, gave us appropriate evidence for our opinion on
the Group financial statements.
Climate change
There has been increasing interest from stakeholders as to how
climate change will impact Hochschild Mining PLC. The Group
has determined that the most significant future impacts from
climate change on their strategy and operations will be from
potential governmental and societal responses to climate
change risks, changes in weather patterns and consequential
restricted access to capital as a result of failing to respond to
these risks. These are explained on pages 64 to 67 in the Task
Force for Climate related Financial Disclosures (TCFD) and on
page 74 in the principal risks and uncertainties, which form part
of the “Other information,” rather than the audited financial
statements. Our procedures on these disclosures therefore
consisted solely of considering whether they are materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appear to be
materially misstated.
As explained in Note 2 to the Consolidated Financial Statements
and the TCFD, the governmental and societal responses to
climate change risks are still developing, and are interdependent
upon each other, and consequently financial statements cannot
capture all possible future outcomes as these are not yet known.
The degree of certainty of these changes may also mean that
they cannot be taken into account when determining asset and
liability valuations and the timing of future cash flows under the
requirements UK adopted International Accounting Standards.
Our audit effort in considering climate change was focused
on ensuring that the effects of material climate risks disclosed
on page 74 have been appropriately reflected in disclosures
in Note 2 to the Consolidated Financial Statements. We also
challenged the Directors’ considerations of climate change
in their assessment of going concern and viability and
associated disclosures.
The Group is updating their risk assessment, strategy and
action plan in response to climate change, and have shared
their ambition to become carbon net zero. However, until this
response is established they are unable to determine the full
future economic impact on their business model, and
operational plans and therefore the potential impacts are not
fully incorporated in these financial statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most
significant assessed risks of material misstatement (whether or
not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in our opinion thereon, and we do not provide a
separate opinion on these matters.
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Risk
Our response to the risk
Key observations
communicated to the
Audit Committee
Recoverability of the carrying value of the
Group’s mining assets
Refer to the Audit Committee Report (page
95); Accounting policies (page 139); and Notes
16,17 and 18 of the Consolidated Financial
Statements (page 160)
At 31 December 2021 the carrying values of
the Group’s mining assets were:
–
Property, plant and equipment:
US$738.1m (2020: US$787.7m);
–
Evaluation and exploration assets:
US$123.3m (2020: US$192.1m); and
–
Intangible assets: US$18.1m (2020:
US$21.6m)
IFRS requires companies to test cash
generating units (CGUs) for impairment
whenever an indicator exists. An intangible
asset with an indefinite useful life is tested for
impairment at least annually and whenever
there is an indication that the asset might be
impaired. For the Group, CGUs represent
individual mines and advanced exploration
projects.
Additionally, IFRS requires testing of CGUs for
impairment reversal at the end of each
reporting period whether there is any indicator
that an impairment loss recognised in prior
periods (for an asset other than goodwill) may
no longer exist, or may have decreased.
For the Group, the appropriate CGUs are:
–
Operating mines: Pallancata, Inmaculada
and San Jose; and
–
Advanced exploration projects: Volcan,
Azuca and Crespo.
The Volcan CGU includes an intangible asset
with an indefinite useful life and therefore is
tested for impairment at least annually and
whenever there is an indication that the asset
might be impaired.
As disclosed in Note 16 to the consolidated
financial statements, indicators of impairment
were identified in 2021 with respect to the
Pallancata CGU, and therefore management
performed an impairment test on that CGU.
As a consequence of the above indicator,
management estimated the recoverable
amount of the asset and recognised an
impairment charge of $24.9m in respect of the
Pallancata CGU.
There is a risk that the carrying values of the
Group’s mining assets may not be recoverable
or could require a reversal of impairments
previously recognised.
The risk relating to recoverability of the
carrying value of mining assets has remained
stable in comparison to the prior year.
Our approach focused on the following procedures:
–
We obtained an understanding of management’s process and key
controls over impairment of mining assets in supporting the
prevention, detection and correction of material errors in the financial
statements.
–
We also obtained an understanding of management’s process to
obtain and extend the mining operating permits, including those
related to mine closure plans, and assessed the reasonableness of
any judgments that could impact the determination of the life of mine
of the Group’s assets.
–
We obtained management’s assessment of whether any indicators of
impairment or reversal of impairment were present at 31 December
2021, following the requirements of IFRS.
–
We challenged the validity and completeness of the indicators
identified by management in its assessment with reference to our
existing knowledge of the business and evidence obtained elsewhere
in our audit, including searching for contra-evidence, with a focus on
the following key assumptions:
•
We compared and assessed the changes to the spot and analysts’
forecasts of future gold and silver prices as at 31 December 2021 and
31 December 2020.
•
We obtained relevant support of management’s position on market
interest rates and other macro-economic factors.
•
We reviewed the economic performance of the CGUs during the year,
discussed with management and reviewed the approved mine plans
and/or budgets, taking into account the updated reserves and
resources estimates.
–
For exploration projects we obtained an understanding of
management’s plans to recover the carrying value in full from
successful development or by sale.
–
We obtained the recoverable value model from management for the
Pallancata CGU as this required a full impairment assessment and
performed the following procedures:
•
We assessed the appropriateness of the methodology applied in
preparing the model as well as the arithmetical accuracy of
management’s model.
•
We challenged the appropriateness of key assumptions as compared
with third party/independent sources or other evidence (including
searching for contra-evidence),and performed sensitivity analyses
on significant inputs.
•
We undertook an assessment of management’s track record of
accuracy in forecasting to determine the reliability of current
forecasts, whilst considering the impact of the Covid pandemic and
climate change on the cashflow projections. We agreed the main
inputs to the approved mine plans or budgets, and compared them
with historical actual figures, where appropriate.
•
We involved our valuation specialists to assist us in challenging and
assessing the appropriateness of the discount rate used in the
calculation as well as other key assumptions such as future gold and
silver prices.
•
With respect to the recoverable value model for the Volcan CGU, we
agreed the main inputs used to information from third party/
independent sources and involved our valuation specialists to assist
us in assessing the appropriateness of the methodology applied to
determine the carrying value of the CGU as well as the
reasonableness of the risk premium used therein.
–
We compared the calculated recoverable value of the Pallancata and
Volcan CGUs to the associated carrying value, assessing whether any
impairment charges, or reversal of previously recognised impairment
charges, were necessary.
–
We have reviewed, by reference to the FRC’s guidance, the
appropriateness, sufficiency, and clarity of the impairment-
related disclosures provided in the financial statements, including the
sensitivity disclosures and the significant judgement, disclosed by the
Group, that permits will be secured such that operations can continue
without interruption.
The above audit procedures over this risk area, covering 100% of the
amount at risk, were performed by the Group audit team.
As a result of the audit
procedures performed, we
have concluded that
management’s impairment
indicator analysis and
impairment assessment for
the Group’s CGUs has been
carried out appropriately
and in accordance with the
requirements of IFRS.
We further concluded that
the significant assumptions
used in the recoverable
value models prepared
by management were
appropriate, and where
applicable, fell within
the range of acceptable
outcomes that we
had calculated.
Based on the procedures
performed, we consider the
impairment of $24.9m
recognised in respect of the
Pallancata CGU to be
appropriate and we are
satisfied that the carrying
value of the Volcan CGU
does not require impairment
nor reversal of impairment
as at 31 December 2021.
We concluded that the
related disclosures in the
Group financial statements,
including the significant
judgement that permits will
be obtained as required,
are appropriate.
INDEPENDENT AUDITOR’S REPORT
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Risk
Our response to the risk
Key observations
communicated to the
Audit Committee
Revenue recognition
Refer to Accounting policies (page 146); and
Note 5 to the Consolidated Financial
Statements (page 154)
For the year ended 31 December 2021 the
Group recognised revenue from operations of
US$811.4m (2020: US$621.8m).
The complexity of terms that define when
control passes to the customer and the high
value of transactions, gives rise to the risk that
revenue is materially misstated through
recognition in the incorrect period. Cut-off
around the balance sheet date is the key area
of risk.
The risk relating to revenue recognition
has remained stable in comparison to the
prior year.
Our approach focused on the following procedures:
–
We obtained an understanding of management’s process and key
controls around the revenue recognition process to assess the design
effectiveness in supporting the prevention, detection and correction
of misstatements in the reported revenue figures.
–
We used data analytics tools to understand variations in revenue and
receivables, covering the entire Group’s revenue and trade
receivables balances.
–
We read the terms and conditions of material sales contracts and
ensured they had been accounted for in line with the Group’s revenue
recognition policy.
–
We performed detailed substantive testing procedures over 100% of
the revenue transactions. This included: agreeing the main inputs to
supporting evidence (such as provisional and final invoices, credit/
debit notes, bills of lading, market prices, agreements and bank
statements), recalculating the amounts invoiced and recorded as
revenue and performing cut-off testing to ensure revenue is
recognised in the correct period.
–
For open sales where provisional pricing applies, we verified
with external sources that inputs used were appropriate and
recalculated the provisional price adjustment to ensure that it
was correctly measured.
–
We performed analytical review procedures comparing current
year to prior year, investigating unusual variances, taking into
account: commodity type, quantities sold, prices (including discounts)
and customers.
–
We investigated and obtained an understanding of the nature of any
significant credits raised post year-end to ensure that transactions
were recorded at the correct value in the relevant period.
–
We tested the reconciliation of year-end inventory (additional cut-off
procedure) by agreeing the movements of production and sales
transactions to the respective reports.
–
We assessed whether there were any performance obligations related
to CIF shipping services that would need to be deferred, as required
by IFRS 15.
–
We read and assessed the financial statements’ disclosures to ensure
these were appropriate.
The above audit procedures were performed in two components under full
scope audit, covering 100% of this risk amount, under the supervision and
direction of the Group audit team.
As a result of the procedures
performed, we concluded
that the Group has
appropriately accounted
for revenue transactions in
accordance with IFRS.
Mine rehabilitation provisions
Refer to the Audit Committee Report (page
96); Accounting policies (pages 139 and 145);
and Note 28 to the Consolidated Financial
Statements (page 170)
At 31 December 2021 management has
recorded a mine rehabilitation provision of
US$134.0m (2020: US$126.4m).
Management is required to provide for the
costs of environmental rehabilitation and site
restoration in accordance with IAS 37
‘Provisions, contingent liabilities and
contingent assets’.
Given the high level of judgment and
estimation in assessing the method, timing
and quantum of the cash flows required to
rehabilitate mines, there is a risk that the
provision is not appropriately valued.
The risk relating to mine rehabilitation
provisions has remained stable, as certain
mines are approaching the end of their life,
and additional provisions have been
recognised to reflect management’s latest
estimates, supported by internal and
external specialists.
Our approach consisted of the following procedures:
–
We obtained an understanding of management’s process and
controls to calculate the future rehabilitation costs.
–
We also obtained an understanding of management’s process to
obtain and extend the mining operating permits, including those
related to mine closure plans, and assessed the reasonableness of
any judgments that could impact the determination of the life of mine
of them Group’s assets.
–
We obtained a detailed understanding of the mine rehabilitation
reports issued by the external specialists engaged by the Group and
held discussions directly with the specialists to understand their work
and assessed the sufficiency of the Group’s rehabilitation provisions.
–
We obtained and reviewed all mine closure plans approved by the
Government and understood any reconciliations to the amounts
provided in the financial statements.
–
We assessed the competence, objectiveness and independence of
the external and internal specialists used by management.
–
We obtained an understanding of the main changes or lack of
changes in estimates and new rehabilitation costs and challenged the
rationale behind these. For this purpose we held discussions with
management and the external specialists, as well as performing a
comparison with prior year figures and inquiring about significant
variances.
–
We proactively sought out potential contrary evidence that could
indicate the need for further changes to estimates, considering, for
example, changes in the life of mine, acquisitions, press releases,
board minutes and the results of management inquiries.
–
With the assistance of component teams, we performed an overall
recalculation of the mine rehabilitation provision, including assessing
the appropriateness of the discount rate applied by agreeing the
nominal risk-free rate according to the life of each mine unit to
independent sources.
–
We assessed the appropriateness of the accounting for the
changes to these provisions, and ensured that these changes and
the provisions were appropriately reflected and disclosed in the
Group financial statements.
The above audit procedures over this risk area, covering 100% of the
amount at risk, were performed by the Group audit team with support of
the component teams.
Based on the procedures
performed, we consider the
judgments and
assumptions made by
management, supported by
internal and external
specialists, to be reasonable.
Our evaluation of the
rationale for material
changes in the mine
rehabilitation provision was
satisfactory as these
reflected new conditions as
at 31 December 2021.
We concluded that the
provisions for mine
rehabilitation activities have
been recognised
appropriately in accordance
with IFRS, and that all
required disclosures have
been included in the Group
financial statements.
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The key audit matters in the current year audit report have not
changed since the prior year.
As part of our audit, we also address the risk of management
override of internal controls, including evaluating whether there
is evidence of bias by the Directors that may represent a risk of
material misstatement due to fraud. The above is not a complete
list of all risks identified by our audit.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and
extent of our audit procedures.
We determined materiality for the Group to be US$7.6m (2020:
US$5.4m), which is 2% (2020: 2%) of the Group’s Adjusted
EBITDA. We believe that Adjusted EBITDA is an earnings-based
measure that is significant to users of the financial statements.
This is considered to be a critical measure for users of the
financial statements, given the focus on this metric by the
Group’s shareholders, investors and external lenders. In
addition, the Adjusted EBITDA measure is used to assess the
Group’s compliance with key restrictive covenants on the
Group’s borrowings.
We determined materiality for the Parent Company to be
US$11.2m (2020: US$18.1m), which is 1% (2020: 1%) of Equity.
The Parent Company materiality is higher than the Group
materiality as it is based on Equity, which we consider to be an
appropriate basis for materiality for a holding company, as the
users of the financial statements focus on a capital-based
measure.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Group’s overall control environment, our
judgment was that performance materiality was 75% (2020:
75%) of our planning materiality, namely US$5.7m (2020:
US$4.1m). We have set performance materiality at this
percentage due to our understanding of the Group’s control
environment, and that there have been no significant events
that would alter our expectation that there is a low likelihood of
misstatements that would be material individually or in
aggregate to the financial statements.
Audit work at component locations for the purpose of obtaining
audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance
materiality. The performance materiality set for each
component is based on the relative scale and risk of the
component to the Group as a whole and our assessment of the
risk of misstatement at that component. In the current year, the
range of performance materiality allocated to components was
US$2.7m to US$5.7m (2020: US$1.8m to US$4.1m).
Reporting threshold
An amount below which identified misstatements are considered
as being clearly trivial.
We agreed with the Audit Committee that we would report to
them all uncorrected audit differences in excess of US$380k
(2020: $US270k), which is set at 5% of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included in the
Annual Report set out on pages 1 to 124, including the Strategic
Report and Governance sections (including the Directors’
Report, Corporate Governance Report, Supplementary
Information, Directors’ Remuneration Report and Statement of
Directors’ Responsibilities), other than the financial statements
and our auditor’s report thereon. The directors are responsible
for the other information contained within the Annual Report.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly
stated in this report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement
in the financial statements themselves. If, based on the work
we have performed, we conclude that there is a material
misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
.
– Profit from continuing operations
before exceptional items, net of
foreign exchange loss and income tax
(US$179.4m)
– Add: Depreciation and amortisation
in cost of sales and in administrative
expenses (US$147.7m)
– Add: Exploration expenses other than
personnel and other exploration
related fixed expenses (U$39.8m)
– Add: Other non-cash expenses
(US$15.9m)
– US$382.8m Adjusted EBITDA
– Materiality of US$7.6m
(2% of materiality basis)
Starting basis
Adjustments
Materiality
INDEPENDENT AUDITOR’S REPORT
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Annual Report & Accounts 2021
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the Directors’ Remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
– the information given in the Strategic Report and the
Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
– the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group
and the Parent Company and its environment obtained in the
course of the audit, we have not identified material
misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
– adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
– the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the group and company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
– Directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any
material uncertainties identified set out on pages 141 and 142;
– Directors’ explanation as to its assessment of the Company’s
prospects, the period this assessment covers and why the
period is appropriate set out on page 76;
– Director’s statement on whether it has a reasonable
expectation that the Group will be able to continue in
operation and meets its liabilities set out on page 82;
– Directors’ statement on fair, balanced and understandable set
out on page 82;
– Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 97;
– The section of the Annual Report that describes the review of
effectiveness of risk management and internal control
systems set out from page 96; and;
– The section describing the work of the audit committee set out
from page 93.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities
statement set out on page 124, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor ’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined below, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with
governance of the company and management.
– We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined
that the most significant and directly relevant to specific
assertions in the financial statements are those related to the
reporting frameworks (UK adopted international accounting
standards), the Companies Act 2006, the UK Corporate
Governance Code, the Listing Rules of the UK Listing
Authority) and the relevant tax compliance regulations in the
jurisdictions in which the Group operates (principally UK, Peru
and Argentina). In addition, we concluded that there are
certain significant laws and regulations that may have an
effect on the determination of the amounts and disclosures in
the financial statements, mainly relating to health and safety,
employee matters, bribery and corruption practices,
environmental and certain aspects of company legislation
recognising the regulated nature of the Group’s mining
activities and its legal form.
– We understood how Hochschild Mining PLC is complying with
those frameworks by making enquiries of management,
internal audit, those responsible for legal and compliance
procedures and the Company Secretary. We corroborated our
enquiries through our review of Board minutes, papers
provided to the Audit Committee and correspondence
received from regulatory bodies, and noted there was no
contradictory evidence.
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Governance
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Annual Report & Accounts 2021
– During the year, it was identified that certain dividend
distributions paid by the Company in previous years were
not in accordance with The Companies Act 2006, due to the
Company’s lack of sufficient distributable reserves at the
relevant times. We reviewed the steps that the Company,
along with its legal advisors, has taken and plans to take to
remediate the issue. In addition, we ensured that related
disclosures in the financial statements were appropriate.
– We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud
might occur, by meeting with management from various parts
of the business to understand what areas were susceptible to
fraud. We also considered performance targets and their
propensity to influence management to manage earnings.
– We considered the programmes and controls that the Group
has established to address risks identified, or that otherwise
prevent, deter and detect fraud; and how senior management
monitors those programmes and controls. Where risk was
considered as higher, we performed audit procedures to
address each identified fraud risk.
– Based on this understanding we designed our audit
procedures to identify non-compliance with such laws and
regulations that could have a material impact on the financial
statements. Our procedures involve: incorporated data
analytics across our audit approach, journal entry testing with
a focus on manual consolidation journals and journals
meeting our defined risk criteria based on our understanding
of the business; enquiries of the legal counsel, Group
management, internal audit and all full and specific scope
management; review of Board and Audit Committee reporting;
and focused testing as referred to in the key audit matters
section above.
– We ensured our global team has appropriate industry
experience through working for many years on relevant audits,
including experience of mining. Our audit planning included
considering external market factors, for example geopolitical
risk, the potential impact of climate change, commodity price
risk and major trends in the industry.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Other matters we are required to address
– Following the recommendation from the audit committee, we
were appointed by the Company on 16 October 2006 to audit
the financial statements for the year ending 31 December
2006 and subsequent financial periods. Following a
competitive tender process, we were reappointed as auditor of
the Company for the period ending 31 December 2016 and
subsequent financial periods.
The period of total uninterrupted engagement including
previous renewals and reappointments is 16 years, covering
the years ending 31 December 2006 to 31 December 2021.
– The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the Parent
Company and we remain independent of the Group and the
Parent Company in conducting the audit.
– The audit opinion is consistent with the additional report to the
Audit Committee.
Use of our report
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and
the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
William Binns
(Senior statutory auditor)
for and on behalf of
Ernst & Young LLP, Statutory Auditor
London
23 February 2022
INDEPENDENT AUDITOR’S REPORT
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Hochschild Mining PLC
Annual Report & Accounts 2021
Consolidated income statement
For the year ended 31 December 2021
Year ended 31 December 2021
Year ended 31 December 2020
Notes
Before
exceptional
items
US$000
Exceptional
items
(note 11)
US$000
Total
US$000
Before
exceptional
items
US$000
Exceptional
items
(note 11)
US$000
Total
US$000
Continuing operations
Revenue
5
Cost of sales
6
(487,772 )
(22,511 )
(510,283 )
(397,793 )
(27,613 )
(425,406 )
Gross profit
(22,511 )
(27,613 )
Administrative expenses
7
(51,905 )
(51,905 )
(43,282 )
(43,282 )
Exploration expenses
8
(39,848 )
(39,848 )
(32,795 )
(32,795 )
Selling expenses
9
(15,431 )
(15,431 )
(12,754 )
(12,754 )
Other income
12
Other expenses
12
(44,565 )
(1,503 )
(46,068 )
(28,905 )
(3,613 )
(32,518 )
Impairment and write-off of non-current assets, net
(863 )
(24,846 )
(25,709 )
(2,078 )
Profit/(loss) from continuing operations before net
finance income/(cost), foreign exchange loss and
income tax
(11,399 )
(22,923 )
Share of loss of an associate
19
(169 )
(169 )
Finance income
13
Finance costs
13
(32,061 )
(32,061 )
(23,560 )
(23,560 )
Foreign exchange loss, net
(2,424 )
(2,424 )
(2,631 )
(2,631 )
Profit/(loss) from continuing operations before
income tax
(11,399 )
(22,923 )
Income tax (expense)/benefit
14
(81,280 )
(66,225 )
(49,651 )
(42,494 )
Profit/(loss) for the year from continuing operations
(15,766 )
Attributable to:
Equity shareholders of the Parent
(16,800 )
Non-controlling interests
(2,117 )
(3,711 )
(5,828 )
(15,766 )
Basic earnings/(loss) per ordinary share from continuing
operations for the year (expressed in US dollars per share)
15
(0.03 )
Diluted earnings/(loss) per ordinary share from continuing
operations for the year (expressed in US dollars per share)
15
(0.03 )
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Year ended 31 December
Notes
2021
US$000
2020
US$000
Profit for the year
Other comprehensive income that might be reclassified to profit or loss in subsequent periods, net of tax:
Net gain/(loss) on cash flow hedges
38(a), 38(g)
(5,913 )
Deferred tax (charge)/benefit on cash flow hedges
30
(7,383 )
Exchange differences on translating foreign operations
(21,282 )
Cumulative exchange differences gain transferred to the income statement on disposal of foreign operations
4
Share of other comprehensive loss of an associate
19
(9 )
(4,010 )
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods, net of tax:
Net gain on equity instruments at fair value through other comprehensive income (‘OCI’)
20
Other comprehensive income/(loss) for the year, net of tax
(2,245 )
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity shareholders of the Parent
Non-controlling interests
(5,828 )
FINANCIAL STATEMENTS
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Governance
Further Information
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Annual Report & Accounts 2021
Consolidated statement of financial position
As at 31 December 2021
Notes
As at
31 December
2021
US$000
As at
31 December
2020
US$000
ASSETS
Non-current assets
Property, plant and equipment
16
Evaluation and exploration assets
17
Intangible assets
18
Investment in an associate
19
Financial assets at fair value through OCI
20
Financial assets at fair value through profit and loss
21
Trade and other receivables
22
Derivative financial assets
38(a)
Deferred income tax assets
30
Current assets
Inventories
23
Trade and other receivables
22
Derivative financial assets
38(a)
Income tax receivable
Cash and cash equivalents
24
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital
29
Share premium
29
Other reserves
(217,657 )
(225,664 )
Retained earnings
Non-controlling interests
Total equity
Non-current liabilities
Trade and other payables
25
Derivative financial liabilities
38(f)
Borrowings
27
Provisions
28
Deferred income tax liabilities
30
Current liabilities
Trade and other payables
25
Derivative financial liabilities
38(f)
Borrowings
27
Provisions
28
Deferred income
Income tax payable
Total liabilities
Total equity and liabilities
These financial statements were approved by the Board of Directors on 22 February 2022 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
22 February 2022
FINANCIAL STATEMENTS
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Consolidated statement of cash flows
For the year ended 31 December 2021
Year ended 31 December
Notes
2021
US$000
2020
US$000
Cash flows from operating activities
Cash generated from operations
34
Interest received
Interest paid
27
(5,720 )
(6,312 )
Payment of mine closure costs
28
(9,083 )
(3,987 )
Income tax, special mining tax and mining royalty paid
1
(22,021 )
(5,618 )
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
(130,965 )
(94,046 )
Purchase of evaluation and exploration assets
17
(21,398 )
(13,287 )
Purchase of financial assets at fair value through OCI
20
(7 )
Purchase of investment in associate
19
(19,995 )
Purchase of financial assets at fair value through profit and loss
21
(3,308 )
Purchase of Argentinian bonds
13
(33,469 )
(27,256 )
Proceeds from sale of Argentinian bonds
13
Proceeds from sale of financial assets at fair value through OCI
20
Proceeds from sale of financial assets at fair value though profit and loss
21
Proceeds from sale of property, plant and equipment
Cash and cash equivalent of demerged entity
4
(553 )
Net cash used in investing activities
(183,434 )
(112,229 )
Cash flows from financing activities
Proceeds from borrowings
27
Repayment of borrowings
27
(14,793 )
(37,717 )
Payment of lease liabilities
26
(2,182 )
(2,021 )
Purchase of treasury shares
29(b)
(292 )
Dividends paid to non-controlling interests
31
(9,832 )
(345 )
Dividends paid
31
(22,022 )
(20,556 )
Cash flows generated from/(used in) financing activities
(12,411 )
Net increase in cash and cash equivalents during the year
Exchange difference
(3,487 )
(5,208 )
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
24
1
Taxes paid have been offset with value added tax (VAT) credits of US$3,478,000 (2020: US$3,390,000).
Strategic Report
Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
Consolidated statement of changes in equity
For the year ended 31 December 2021
Other reserves
Notes
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
US$000
Fair
value re-
serve of
financial
assets at
fair value
through
OCI
US$000
Share
of other
compre-
hensive
loss of an
asso-
ciate
US$000
Dividends
expired
US$000
Cumulative
translation
adjustment
US$000
Unrealised
gain/
(loss) on
hedges
US$000
Merger
reserve
US$000
Share-
based
payment
reserve
US$000
Total
other
reserves
US$000
Retained
earnings
US$000
Capital and
reserves
attributable
to
shareholders
of the Parent
US$000
Non-
controlling
interests
US$000
Total
equity
US$000
Balance at
1 January 2020
(14,035 )
(210,046 )
(221,800 )
Other
comprehensive
income/
(expense)
(4,169 )
(2,245 )
(2,245 )
(2,245 )
Profit for the
year
Total
comprehensive
income/
(expense) for
the year
(4,169 )
(2,245 )
Sale of financial
assets at fair
value through
OCI
20
(1,988 )
(1,988 )
Exercise of
share options
29(b)
(1,087 )
(1,087 )
Dividends
31
(20,556 )
(20,556 )
(20,556 )
Dividends to
non-
controlling
interests
31
(345 )
(345 )
Purchase of
treasury shares
29(b)
(292 )
–
(292 )
(292 )
Share-based
payments
29(c)
Balance at 31
December 2020
(205 )
(13,876 )
(4,169 ) (210,046 )
(225,664 )
Other
comprehensive
income/
(expense)
(9 )
(11,287 )
Profit for the
year
(5,828 )
Total
comprehensive
income/
(expense) for
the year
(9 )
(11,287 )
(5,828 )
Sale of financial
assets at fair
value through
OCI
20
(18 )
Dividends
31
(22,022 )
(22,022 )
(22,022 )
In specie
dividends
(94,945 )
(94,945 )
(94,945 )
Dividends to
non-controlling
interests
31
(9,832 )
(9,832 )
Share-based
payments
29(c)
Forfeiture of
share options
29(c)
(1,063 )
(1,063 )
Balance at 31
December 2021
(9 )
(25,163 )
(210,046 )
FINANCIAL STATEMENTS
CONTINUED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2021
1 Corporate information
Companies Act 1985 as a Limited Company and registered in England and Wales with registered number 05777693 . The
Company’s registered office is located at 17 Cavendish Square, London W1G 0PH, United Kingdom .
The ultimate controlling party of the Company is Mr Eduardo Hochschild whose beneficial interest in the Company and its
subsidiaries (together ‘the Group’ or ‘Hochschild Mining Group’) is 38.32% and is held through Pelham Investment Corporation
(‘Pelham’), a Cayman Islands company.
On 8 November 2006, the Company’s shares were admitted to the Official List of the UKLA (United Kingdom Listing Authority) and
to trading on the London Stock Exchange.
and Inmaculada) located in southern Peru and one operating mine (San Jose) located in Argentina. The Group also has a portfolio
of projects located across Peru, Argentina, Mexico, United States, Canada and Chile at various stages of development.
These consolidated financial statements were approved for issue by the Board of Directors on 22 February 2022.
The Group´s subsidiaries are as follows:
Equity interest at 31 December
Company
Principal activity
Country of incorporation
2021
%
2020
%
Hochschild Mining (Argentina) Corporation S.A.
1
Holding company
Argentina
100
100
MH Argentina S.A.
2
Exploration office
Argentina
100
100
Minera Santa Cruz S.A.
1 and 10
Production of gold and silver
Argentina
51
51
Minera Hochschild Chile S.C.M.
3
Exploration
Chile
100
100
Andina Minerals Chile SpA (formerly Andina
Minerals Chile Ltd.)
3
Exploration
Chile
100
100
REE UNO SpA
4
Exploration
Chile
0
100
Southwest Minerals (Yunnan) Inc.
5
Exploration
China
100
100
Hochschild Mining Holdings Limited
6
Holding company
England and Wales
100
100
Hochschild Mining Ares (UK) Limited
6
Administrative office
England and Wales
100
100
Southwest Mining Inc.
5
Exploration
Mauritius
100
100
Southwest Minerals Inc.
5
Exploration
Mauritius
100
100
Minera Hochschild Mexico, S.A. de C.V.
7
Exploration
Mexico
100
100
Hochschild Mining (Peru) S.A.
5
Holding company
Peru
100
100
Compañía Minera Ares S.A.C.
5
Production of gold and silver
Peru
100
100
Compañía Minera Arcata S.A.
5
Production of gold and silver
Peru
99.1
99.1
Empresa de Transmisión Aymaraes S.A.C.
5
Power transmission
Peru
100
100
Minera Antay S.A.C.
5
Exploration
Peru
100
100
Hochschild Mining (US) Inc.
8
Holding company
USA
100
100
Hochschild Mining Canada Corp
9
Exploration
Canada
100
0
1334940 BC
9
Holding company
Canada
100
0
1
Registered address: Av. Santa Fe 2755, floor 9, Buenos Aires, Argentina.
2
Registered address: Sargento Cabral 124, Comodoro Rivadavia, Provincia de Chubut, Argentina.
3
Registered address: Av. Apoquindo 4775 of 1002, Comuna Las Condes, Santiago de Chile, Chile.
4
Registered address: Cerro el Plomo 5630, floor 9, Las Condes, Santiago de Chile, Chile. The Company ceased to be controlled by the Group on 8 December 2021 (refer note 4).
5
Registered address: La Colonia 180, Santiago de Surco, Lima, Peru.
6 Registered address: 17 Cavendish Square, London, W1G0PH, United Kingdom.
7
Registered address: Calle Aguila Real No 122, Colonia Carolco, Monterrey, Nuevo Leon, CP 64996, Mexico.
8
Registered address: 1025 Ridgeview Dr. 300, Reno, Nevada 89519, USA.
9 Registered address: Suite 1700, Park Place, 666 Burrard Street, Vancouver BC, V6C 2X8.
10 The Group has a 51% interest in Minera Santa Cruz S.A. (Minera Santa Cruz), while the remaining 49% is held by a non-controlling interest. The significant financial information in
respect of this subsidiary before intercompany eliminations as at and for the years ended 31 December 2021 and 2020 is as follows:
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Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2
Significant accounting policies
(a) Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with UK adopted International
Accounting Standards.
The basis of preparation and accounting policies used in
preparing the consolidated financial statements for the years
ended 31 December 2021 and 2020 are set out below. The
consolidated financial statements have been prepared on a
historical cost basis except for the revaluation of certain
financial instruments that are measured at fair value at the end
of each reporting period, as explained below. These accounting
policies have been consistently applied, except for the effects of
the adoption of new and amended accounting standards.
The financial statements are presented in US dollars (US$) and
all monetary amounts are rounded to the nearest thousand
($000) except when otherwise indicated.
Changes in accounting policy and disclosures
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are
consistent with those followed in the preparation of the Group’s
annual consolidated financial statements for the year ended 31
December 2020, except for the adoption of new standards and
interpretations effective for the Group from 1 January 2021.
Other amendments and interpretations apply for the first time in
2021, but do not have an impact on the consolidated financial
statements of the Group. The Group has not early adopted any
other standard, interpretation or amendment that has been
issued but is not yet effective.
Standards, interpretations and amendments to existing
standards that are not yet effective and have not been
previously adopted by the Group
Certain new standards, amendments and interpretations to
existing standards have been published and are mandatory for
the Group’s accounting periods beginning on or after 1 January
2022 or later periods but which the Group has not previously
adopted. These have not been listed as they are not expected to
impact the Group.
(b) Judgements in applying accounting policies and key
sources of estimation uncertainty
Many of the amounts included in the financial statements
involve the use of judgement and/or estimation. These
judgements and estimates are based on management’s best
knowledge of the relevant facts and circumstances, having
regard to prior experience, but actual results may differ from the
amounts included in the financial statements. Information about
such judgements and estimates is contained in the accounting
policies and/or the notes to the financial statements.
Significant areas of estimation uncertainty and critical
judgements made by management in preparing the
consolidated financial statements include:
Significant estimates:
–
Useful lives of assets for depreciation and amortisation
purposes – note 2(f)
Estimates are required to be made by management as to the
useful lives of assets. For depreciation calculated under the
unit-of-production method, estimated recoverable reserves
and resources are used in determining the depreciation and/or
amortisation of mine-specific assets. This results in a
depreciation/amortisation charge proportional to the
depletion of the anticipated remaining life-of-mine production.
Each item’s life, which is assessed annually, has regard to both
its physical life limitations and to present assessments of
economically recoverable reserves and resources of the mine
property at which the asset is located. These calculations
require the use of estimates and assumptions, including the
amount of recoverable reserves and resources. Changes are
accounted for prospectively.
–
Ore reserves and resources – note 2(h)
There are numerous uncertainties inherent in estimating ore
reserves and resources. Assumptions that are valid at the time
of estimation may change significantly when new information
becomes available. Changes in the forecast prices of
commodities, exchange rates, production costs or recovery
rates may change the economic status of reserves and
resources and may, ultimately, result in the reserves and
resources being updated.
1 Corporate information
continued
As at 31 December
2021
US$000
2020
US$000
Non-current assets
157,629
166,663
Current assets
89,923
94,924
Non-current liabilities
(68,667)
(61,711)
Current liabilities
(51,354)
(40,389)
Equity
(127,531)
(159,487)
Cash and cash equivalents
25,942
37,899
Revenue
258,972
206,098
Depreciation and amortisation
(52,069)
(31,790)
Interest income
1,558
607
Interest expense
(3,196)
(3,291)
Income tax
(13,550)
(6,483)
Profit for the year and total comprehensive income
(11,891)
10,743
Net cash generated from operating activities
62,614
28,272
Net cash used in investing activities
(43,667)
(17,734)
Net cash (used in)/generated from financing activities
(30,900)
9,926
(Loss)/profit attributable to non-controlling interests in the consolidated income statement, non-controlling interest in the
consolidated statement of financial position, and dividends declared to non-controlling interests in the consolidated statement of
changes in equity are solely related to Minera Santa Cruz.
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–
Recoverable values of mining assets – notes 2(k), 16, 17 and 18
The values of the Group’s mining assets are sensitive to a
range of characteristics unique to each mine unit. Key sources
of estimation for all assets include uncertainty around ore
reserve estimates and cash flow projections. In performing
impairment reviews, the Group assesses the recoverable
amount of its operating assets principally with reference to
fair value less costs of disposal, assessed using discounted
cash flow models. To determine the fair value less costs of
disposal of exploration assets the Group uses the value-in-
situ methodology. This methodology applies a realisable
‘enterprise value’ to unprocessed mineral resources per
ounce of resources.
There is judgement involved in determining the assumptions
that are considered to be reasonable and consistent with
those that would be applied by market participants. Significant
estimates used include future gold and silver prices, future
capital requirements, reserves and resources volumes,
production costs and the application of discount rates which
reflect the macro-economic risk in Peru and Argentina, as
applicable. Judgement is also required in determining the
risk factor that will be applied by market participants to take
into account the water restrictions imposed by the Chilean
government over the Volcan cash-generating unit. Changes in
these assumptions will affect the recoverable amount of the
property, plant and equipment, evaluation and exploration
assets, and intangibles.
–
Mine closure costs – notes 2(o) and 28(1)
The Group assesses its mine closure cost provision annually.
Significant estimates and assumptions are made in
determining the provision for mine closure cost as there are
numerous factors that will affect the ultimate liability. These
factors include estimates of the extent and costs of
rehabilitation activities, technological changes, regulatory
changes, cost increases, mine life and changes in discount
rates. Those uncertainties may result in future actual
expenditure differing from the amounts currently provided.
The provision at the balance sheet date represents
management’s best estimate of the present value of the future
closure costs required. In July 2021, the mine closure law for
the province of Santa Cruz in Argentina was published, which
indicates a period of 180 business days to present the Mine
Closure Plan; the Group is waiting for the regulation which will
be issue in 2022 to assess the potential impact on the closure
activities and hence in the financial statements.
–
Valuation of financial instruments – note 38
The valuation of certain Group assets and liabilities reflects the
changes to certain assumptions used in the determination of
their value, such as future gold and silver prices.
–
Non-market performance conditions on LTIP 2021 – note 29(c)
There are two parts to the performance conditions attached to
LTIP awards: 50% is subject to the Company’s TSR ranking
relative to a tailored peer group of mining companies, 50% is
subject to internal KPIs split equally between: (i) three-year
growth of the Company’s Measured and Indicated Resources
(‘MIR’) per share (calculated on an enterprise value basis), and
(ii) average outcome of the annual bonus scorecard in respect
of 2021, 2022 and 2023, calculated as the simple mean of the
three scorecard outcomes.
Critical judgements:
–
Income tax – notes 2(t), 2(u), 14, 30 and 36(a)
Judgement is required in determining whether deferred tax
assets are recognised on the statement of financial position.
Deferred tax assets, including those arising from un-utilised
tax losses, require management to assess the likelihood that
the Group will generate taxable earnings in future periods, in
order to utilise recognised deferred tax assets. Estimates of
future taxable income are based on forecast cash flows from
operations and the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable
income differ significantly from estimates, the ability of the
Group to realise the net deferred tax assets recorded at the
balance sheet date could be impacted. The Group analyses
the possibility of generating profit in all the companies and
determines the recognition of deferred tax. No deferred tax
asset is recognised in the holding and exploration entities as
they are not expected to generate any profit to settle the
temporary difference (refer to note 30).
Judgement is also required when determining the recognition
of tax liabilities as the tax treatment of some transactions
cannot be finally determined until a formal resolution has been
reached by the tax authorities. Tax liabilities are also recorded
for uncertain exposures which can have an impact on both
deferred and current tax. Tax benefits are not recognised
unless it is probable that the benefit will be obtained and tax
liabilities are recognised if it is probable that a liability will arise
(refer to note 36(a)). The final resolution of these transactions
may give rise to material adjustments to the income statement
and/or cash flow in future periods. The Group reviews each
significant tax liability or benefit each period to assess the
appropriate accounting treatment.
–
Life of mine (‘LOM’).
There are several aspects which are determined by the life of
mine, such as ore reserves and resources, recoverable values
of mining assets, mine rehabilitation provision and
depreciation. The life of mine for an operation is specified in
the relevant Environmental Impact Assessment (‘EIA’) which is
amended from time to time as more resources at the mine are
identified. EIAs are permits which are granted in the ordinary
course of business to the mining industry. While the processing
of such permits may be subject to delays, the Group has never
had an EIA denied. A crucial element of Peru’s legal framework
is the principle of predictability which, in essence, means that if
the legal requirements for any given permit have been
satisfied, the State cannot lawfully deny the granting of the
permit. The commitment to this principle has been reaffirmed
in recent interactions with governmental authorities as
demonstrated by the recent approval of the third amendment
of the Mine Closure Plan for Inmaculada on 23 December 2021,
despite the announcements made by the Peruvian Head of
Cabinet in the Coracora district in Ayacucho in November
2021 (further details of which are provided on page 72). Taking
this into consideration, as well as the Group’s operational
experience, the Group believes that permits will be secured
such that operations can continue without interruption. In the
unlikely scenario that this does not occur, there could be
material changes to those items in the financial statements
that are determined by the life of mine.
–
Determination of functional currencies – note 2(e)
The determination of functional currency requires
management judgement, particularly where there may be
several currencies in which transactions are undertaken and
which impact the economic environment in which the entity
operates. In Argentina, the exchange control restrictions limit
the ability of companies to hold US$ dollars but do not restrict
carrying out transactions in US dollars.
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Governance
Further Information
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2
Significant accounting policies
continued
–
Recognition of evaluation and exploration assets and transfer
to development costs – notes 2(g), 16 and 17
Judgement is required in determining when the future
economic benefit of a project can reasonably be regarded as
assured, at which point evaluation and exploration expenses
are capitalised. This includes the assessment of whether there
is sufficient evidence of the probability of the existence of
economically recoverable minerals to justify the
commencement of capitalisation of costs; the timing of the end
of the exploration phase; the start of the development phase;
and the commencement of the production phase. For this
purpose, the future economic benefit of the project can
reasonably be regarded as assured when the Board authorises
management to conduct a feasibility study, mine-site
exploration is being conducted to convert resources to
reserves, or mine-site exploration is being conducted to
confirm resources, all of which are based on supporting
geological information.
–
Pandemic expenses
The Group analyses the effect of pandemics in its operations
and accounting treatment, because they generate stoppages,
low capacity production and incremental costs. In the case of
Covid-19, the fixed ‘normal’ production costs during stoppages
are recognised as expenses and are not considered as costs of
the inventories produced. In the income statement these fixed
costs are classified as pre-exceptional.
To determine whether the incremental Covid-related costs
should be recognised as exceptional expenses, consideration
has been made as to whether they meet the criteria as set out
in the Group’s accounting policy (note 2(z)), in particular
regarding the expected infrequency of the events that have
given rise to them.
The pandemic can be considered a single protracted globally
pervasive event with a financial impact over a number of
reporting periods. Management’s initial expectation was that
these costs would cease to be incurred at the end of 2020 or
early 2021, and whilst the majority of the costs have reduced
over time as a result of the efficiencies made to the health
protocols and logistics required to operate throughout the
pandemic, some residual costs continue to be incurred to date.
In order to provide the users of the financial statements with a
better understanding of the financial performance of the
Group in the year, and to facilitate comparison with the prior
period, we have considered it appropriate to continue to
disclose separately as exceptional these incremental Covid-
related costs up to December 2021.
Following the outbreak of the Omicron variant, the virus
appears to have shifted into an endemic phase. Consequently,
these costs will no longer be presented as exceptional items
from 2022 and will form part of the underlying profits.
–
Climate change
•
General
The Group is in the process of completing a climate change
risk assessment and strategy and developing an action plan
to continually reduce operational energy, GHG emissions
and water consumption, with the ultimate aim of reaching
net zero GHG emissions. As a result, the Group is currently
unable to determine the full future economic impact of this
strategy on its business model and operational plans and
therefore the potential impacts are not fully incorporated in
these financial statements.
In addition, societal expectations are driving government
action that may impose further requirements and cost on
companies in the future. Therefore risks associated with
climate change could, over time, impose changes that may
potentially impact (among other things) capital expenditure,
mine closure provisions and production costs. However,
currently the financial statements cannot capture such
possible future outcomes as these are not yet known. With
regards to the calculation of those items in the financial
statements that rely on life-of-mine calculations (such as
impairments, deferred tax and depreciation), it should be
highlighted that as an underground mining company,
Hochschild Mining’s operating assets have much lower lives
than conventional open-pit mining companies. As such, by
virtue of the longer-term time horizon of the physical risks of
climate change, the financial impact on such items will be
less pronounced than may otherwise be expected.
The adoption of the Group’s climate change strategy and
the implementation of climate-change regulations in the
countries where the Group operates may impact the
Group’s significant judgements and key estimates and could
result in material changes to financial results and the
carrying values of certain assets and liabilities in future
reporting periods.
•
Physical risks
As previously stated, the Group is progressing work to assess
the potential impact of the physical risks of climate change.
Given the ongoing nature of the Group’s physical risk
assessment process, reflecting adaptation risk in the
Group’s operating plans, and associated asset valuations, is
currently limited. As the Group progresses its adaptation
strategy, the identification of additional risks or the detailed
development of the Group’s response may result in material
changes to financial results and the carrying values of
assets and liabilities in future reporting periods.
(c) Basis of consolidation
The consolidated financial statements set out the Group’s
financial position, performance and cash flows as at 31
December 2021 and 31 December 2020 and for the years then
ended, respectively.
Subsidiaries are those entities controlled by the Group
regardless of the amount of shares owned by the Group. Control
is achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee.
Non-controlling interests’ rights to safeguard their interest
are fully considered in assessing whether the Group controls
a subsidiary. Specifically, the Group controls an investee if,
and only if, the Group has:
– power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the investee);
– exposure, or rights, to variable returns from its involvement
with the investee; and
– the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights
result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an
investee, including:
– the contractual arrangement with the other vote holders of
the investee;
– rights arising from other contractual arrangements; and
– the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one
or more of the three elements of control.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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Annual Report & Accounts 2021
Basis of consolidation
Subsidiaries are consolidated from the date of their acquisition,
being the date on which the Group obtains control, and continue
to be consolidated until the date that such control ceases.
Assets, liabilities, income and expenses of a subsidiary acquired
or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until
the date the Group ceases to control the subsidiary.
Profit or loss and each component of OCI are attributed to the
equity holders of the parent of the Group and to the non-
controlling interests, even if this results in the non-controlling
interests having a deficit balance. When necessary, adjustments
are made to the financial statements of subsidiaries to bring
their accounting policies in line with the Group’s accounting
policies. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between
members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without loss
of control, is accounted for as an equity transaction, affecting
retained earnings. If the Group loses control over a subsidiary, it
(i) derecognises the assets (including goodwill) and liabilities of
the subsidiary; (ii) derecognises the carrying amount of any
non-controlling interest (‘NCI’); (iii) derecognises the cumulative
translation differences, recorded in equity; (iv) recognises the
fair value of the consideration received; (v) recognises the fair
value of any investment retained; (vi) recognises any surplus or
deficit in profit or loss; and (vii) reclassifies the parent’s share of
components previously recognised in other comprehensive
income to profit or loss or retained earnings, as appropriate.
An NCI represents the equity in a subsidiary not attributable,
directly and indirectly, to the Parent Company and is presented
separately within equity in the consolidated statement of
financial position, separately from equity attributable to owners
of the parent.
Losses within a subsidiary are attributable to the NCI even if that
results in a deficit balance.
Business combinations
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at
acquisition date fair value and the amount of any NCI in the
acquiree. The choice of measurement of NCI, either at fair value
or at the proportionate share of the acquiree’s identifiable net
assets, is determined on a transaction by transaction basis.
Acquisition costs incurred are expensed and included in
administrative expenses.
Goodwill is initially measured at cost, being the excess of the
aggregate of the consideration transferred and the amount
recognised for the NCI, and any interest previously held, over the
net identifiable assets acquired and the liabilities assumed.
Assets acquired and liabilities assumed in transactions separate
to the business combinations, such as the settlement of
pre-existing relationships or post-acquisition remuneration
arrangements, are accounted for separately from the business
combination in accordance with their nature and applicable
IFRSs. Identifiable intangible assets meeting either the
contractual-legal or the separability criteria are recognised
separately from goodwill. Contingent liabilities representing a
present obligation are recognised if the acquisition date fair
value can be measured reliably.
(d) Going concern
The Group’s business activities, its future development and the
factors likely to affect its performance and position are set out
in the Strategic Report from page 2 to page 77. The financial
position of the Group, its cash flows, liquidity position and
borrowings are described in the Financial Review on pages 36
to 44 and discussion of the Group’s viability on the occurrence
of certain scenarios is provided in the Viability Statement on
page 76. In addition, note 38 to the financial statements
includes the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments; and its exposure to credit
risk and liquidity risk.
Covid-19
The reduced impact of Covid-19 meant that Hochschild Mining
was able to benefit from a year of uninterrupted operations. The
Company continues to take a cautious approach and prioritises
employee welfare by facilitating social distancing at the
operations, implementing testing, and taking other relevant
measures. The Company’s Covid-19 Crisis Plan, which provides
for numerous mitigating measures to be adopted in response to
an outbreak of infections, can be implemented as required. At
the time of writing, the number of new Covid-19 cases in Peru
and Argentina is falling from a recent peak due to the Omicron
variant and the Directors are confident that adequate
mitigation steps can be taken to prevent significant disruption to
the business. The Directors’ assessment is naturally dependent
on the continued progress in Peru and Argentina with regards to
their respective government vaccination rollout programmes
and the effectiveness of these vaccines against new variants of
the virus.
Further information on the action taken by the Company in
2020 can be found on pages 64 to 71 of the Risk Management
report. and pages 6 and 7 of the 2020 Annual Report.
Socio-political developments
As described in the Risk Management report, in the run up to the
Peruvian Presidential elections in the first half of 2021 and
following the inauguration of the left-wing Castillo
administration in late July 2021, issues associated with mining
have been the subject of increased public debate. Particular
aspects relate to mining companies’ social licence to operate
and the taxation of mining companies’ revenues.
–
Government/legislative action
In considering the possible impact on the business by
government action, the Directors note that, as reported in the
Risk Management report, the Peruvian Government intends to
submit a legislative bill to Congress to increases taxes on the
mining sector in Q1 2022 although no specific details have been
announced.
–
Social licence
As a result of the election of the Castillo administration, rural
communities have become more active in their demands to
mine operators for economic and other forms of support.
The Company is committed to active engagement with local
communities and details of initiatives pursued during the year
can be found in the Sustainability Report on page 54. The
Company’s approach was recently acknowledged by various
stakeholders who conveyed formal expressions of support for
the Company in response to events in the Coracora district in
Ayacucho in November 2021 (see page 72 for further details).
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Significant accounting policies
continued
Directors’ assessment
The Directors have reviewed Group liquidity, including cash
resources and borrowings (refer to note 27 on details of the
US$300 million medium-term loan) and related covenant
forecasts to assess whether the Group is able to continue in
operation for the period to 31 March 2023 (the ‘Going Concern
Period’) which is at least 12 months from the date of these
financial statements. In line with their usual practice, the
Directors also considered the impact of a number of potential
downside scenarios on the Group’s future cash flows and
liquidity position as well as debt covenant compliance. The
scenarios were further reviewed under varying precious metal
price assumptions.
Within these scenarios, consideration was given to the potential
impact of Covid and the possible actions of government and
other third parties.
More specifically, the scenarios reviewed by the Directors
included a base case (the ‘Base Scenario’), reflecting (among
other things) budgeted production for 2022, life-of-mine plans
for Inmaculada, Pallancata and San Jose, a budget for Covid-
related costs, the planned acquisition of Amarillo Gold
Corporation in Q1 2022 and average precious metal prices of
$1,745/oz for gold and $23.3/oz for silver, being the average
analysts’ consensus for the next 15 months (the ‘Assumed
Prices’). The Directors also considered ‘Severe’ and ‘Remote’
scenarios which took into account a combination of
circumstances which is considered by the Directors to be
unlikely. The former takes into account a four-week suspension
of all operations and an increase in royalties and taxes. The
latter analyses the cumulative impact of the Severe scenario
and precious metal prices which are 20% lower than the
Assumed Prices. Those prices would be significantly below
current spot prices. In each scenario, it has been assumed that
all employees remain on full pay and that mitigating actions,
while available, would not be necessary to maintain a
comfortable level of liquidity.
Under all three scenarios, the cash balance remained more than
adequate for the Group’s forecast expenditure with sufficient
headroom maintained to comply with debt covenants. The
results of a reverse stress test were also considered.
Conclusion
After their review, the Directors have a reasonable expectation
that the Group and the Company have adequate resources to
continue in operational existence during the Going Concern
Period. Accordingly, they continue to adopt the going concern
basis of accounting in preparing the annual financial statements.
(e) Currency translation
The functional currency for each entity in the Group is
determined by the currency of the primary economic
environment in which it operates. For the holding companies
and operating entities this currency is US dollars and for the
other entities it is the local currency of the country in which they
operate. The Group’s financial information is presented in US
dollars, which is the Company’s functional currency.
Transactions denominated in currencies other than the
functional currency of the entity are initially recorded in the
functional currency using the exchange rate prevailing at the
date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are remeasured at the
exchange rate prevailing at the statement of financial position
date. Exchange gains and losses on settlement of foreign
currency transactions which are translated at the rate prevailing
at the date of the transactions, or on the translation of monetary
assets and liabilities which are translated at period-end
exchange rates, are taken to the income statement. Non-
monetary assets and liabilities denominated in foreign
currencies that are stated at historical cost are translated to the
functional currency at the foreign exchange rate prevailing at
the date of the transaction. Exchange differences arising from
monetary items that are part of a net investment in a foreign
operation are recognised in equity and transferred to income on
disposal of such net investment.
Subsidiary financial statements expressed in their
corresponding functional currencies are translated into US
dollars by applying the exchange rate at period-end for assets
and liabilities and the transaction date exchange rate for
income statement items. The resulting difference on
consolidation is included as a cumulative translation adjustment
in equity. On disposal of a foreign operation, the component of
OCI relating to that particular foreign operation is reclassified to
profit or loss.
(f) Property, plant and equipment
Property, plant and equipment is stated at cost or deemed
cost less accumulated depreciation and impairment losses.
Cost comprises its purchase price and directly attributable
costs of acquisition or construction required to bring the asset
to the condition necessary for the asset to be capable of
operating in the manner intended by management. Economical
and physical conditions of assets have not changed
substantially over this period.
The cost less residual value of each item of property, plant and
equipment is depreciated over its useful life. Each item’s
estimated useful life has been assessed with regard to both its
own physical life limitations and the present assessment of
economically recoverable reserves and resources of the mine
property at which the item is located. Estimates of remaining
useful lives are made on a regular basis for all mine buildings,
machinery and equipment, with annual reassessments for major
items. Depreciation is charged to cost of production on a units of
production basis for mine buildings and installations and plant
and equipment used in the mining production process, or
charged directly to the income statement over the estimated
useful life of the individual asset on a straight-line basis when
not related to the mining production process. Changes in
estimates, which mainly affect units of production calculations,
are accounted for prospectively. Depreciation commences when
assets are available for use. Land is not depreciated.
An asset’s carrying amount is written-down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Gains and losses on disposals are determined by comparing the
net proceeds with the carrying amount and are recognised
within other income/expenses, in the income statement.
The expected useful lives under the straight-line method are
as follows:
Years
Buildings
3 to 33
Plant and equipment
5 to 10
Vehicles
5
Borrowing costs directly attributable to the acquisition or
construction of an asset that necessarily takes a substantial
period of time to be ready for its intended use are capitalised as
part of the cost of the asset. All other borrowing costs are
expensed where incurred. For borrowings associated with a
specific asset, the actual rate on that borrowing is used.
Otherwise, a weighted average cost of borrowing is used. The
Group capitalises the borrowing costs related to qualifying
assets with a value of US$1,000,000 or more, considering that
the substantial period of time to be ready is six or more months.
Mining properties and development costs
Purchased mining properties are recognised as assets at their
cost of acquisition or at fair value if purchased as part of a
business combination. Costs associated with developments of
mining properties are capitalised.
Mine development costs are, upon commencement of
commercial production, depreciated using the units of
production method based on the estimated economically
recoverable reserves and resources to which they relate.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs
ceases and costs are either regarded as part of the cost of
inventory or expensed, except for costs which qualify for
capitalisation relating to mining asset additions or
improvements, underground mine development or mineable
reserve development. In addition, the revenue generated from
the sale of the inventory produced during the pre-operating
stage is recognised as a deduction of the costs capitalised for
this project.
Construction in progress and capital advances
Assets in the course of construction are capitalised as a
separate component of property, plant and equipment. Once
the asset moves into the production phase, the cost of
construction is transferred to the appropriate category.
Construction in progress is not depreciated.
Subsequent expenditure
Expenditure incurred to replace a component of an item of
property, plant and equipment is capitalised separately with the
carrying amount of the component being written-off. Other
subsequent expenditure is capitalised if future economic
benefits will arise from the expenditure. All other expenditure
including repairs and maintenance expenditures is recognised
in the income statement as incurred.
(g) Evaluation and exploration assets
Evaluation and exploration expenses are capitalised when the
future economic benefit of the project can reasonably be
regarded as assured. Exploration and evaluation costs related
to projects in the development phase are capitalised as assets
from the date that the Board authorises management to
conduct a feasibility study.
Expenditure is transferred to mine development costs once the
work completed to date supports the future development of the
property and such development receives appropriate approval.
Costs incurred in converting inferred resources to indicated and
measured resources (of which reserves are a component) are
capitalised as incurred. Costs incurred in identifying inferred
resources are expensed as incurred.
(h) Determination of ore reserves and resources
The Group estimates its ore reserves and mineral resources
based on information compiled by internal competent persons.
Reports to support these estimates are prepared each year and
are stated in conformity with the 2012 Joint Ore Reserves
Committee (JORC) code.
It is the Group’s policy to have the report audited annually by a
Competent Person. Reserves and resources are used in the units
of production calculation for depreciation as well as the
determination of the timing of mine closure cost and
impairment analysis.
(i) Investment in associates
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is
not control or joint control over those policies.
The considerations made in determining significant influence
are similar to those necessary to determine control over
subsidiaries. The Group’s investment in its associate is
accounted for using the equity method.
Under the equity method, the investment in an associate
is initially recognised at cost. The carrying amount of the
investment is adjusted to recognise changes in the Group’s
share of net assets of the associate since the acquisition
date Goodwill relating to the associate is included in the
carrying amount of the investment and is not tested for
impairment separately.
The statement of profit or loss reflects the Group’s share of the
results of operations of the associate. Any change in OCI of
those investees is presented as part of the Group’s OCI. In
addition, when there has been a change recognised directly in
the equity of the associate, the Group recognises its share of
any changes, when applicable, in the statement of changes in
equity. Unrealised gains and losses resulting from transactions
between the Group and the associate are eliminated to the
extent of the interest in the associate.
The aggregate of the Group’s share of profit or loss of an
associate is shown on the face of the statement of profit or loss
outside operating profit and represents profit or loss after tax
and non-controlling interests in the subsidiaries of the associate.
The financial statements of the associate are prepared for the
same reporting period as the Group. When necessary,
adjustments are made to bring the accounting policies in line
with those of the Group.
After application of the equity method, the Group determines
whether it is necessary to recognise an impairment loss on its
investment in its associate. At each reporting date, the Group
determines whether there is objective evidence that the
investment in the associate is impaired. If there is such evidence,
the Group calculates the amount of impairment as the
difference between the recoverable amount of the investment
and its carrying value, and then recognises the loss within ‘Share
of profit of an associate’ in the statement of profit or loss.
Upon loss of significant influence over the associate, the Group
measures and recognises any retained investment at its fair
value. Any difference between the carrying amount of the
associate upon loss of significant influence and the fair value
of the retained investment and proceeds from disposal is
recognised in profit or loss.
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Significant accounting policies
continued
(j) Intangible assets
Right to use energy of transmission line
Transmission line costs represent the investment made by the
Group to construct the transmission line on behalf of the
government to be granted the right to use it. This is an asset with a
finite useful life equal to that of the mine to which it relates and that
is amortised applying the units of production method for that mine.
Water permits
Water permits are recorded at cost and allow the Group to
withdraw a specified amount of water from the ground for
reasonable, beneficial uses. This is an asset with an indefinite
useful life.
Legal rights
Legal rights correspond to expenditures required to give the
Group the right to use a property for the surface exploration
work, development and production. This is an asset with a finite
useful life equal to that of the mine to which it relates and that
is amortised applying the units of production method for
that mine.
Other intangible assets
Other intangible assets are primarily computer software which
are capitalised at cost and are amortised on a straight-line
basis over their useful life of three years.
(k) Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment.
The carrying amounts of property, plant and equipment and
evaluation and exploration assets are reviewed for impairment if
events or changes in circumstances indicate that the carrying
value may not be recoverable. If there are indicators of
impairment, an exercise is undertaken to determine whether the
carrying values are in excess of their recoverable amount. Such
review is undertaken on an asset by asset basis, except where
such assets do not generate cash flows independent of other
assets, and then the review is undertaken at the cash-
generating unit level.
The assessment requires the use of estimates and assumptions
such as long-term commodity prices, discount rates, future
capital requirements, and reserves and resources volumes
(reflected in the production volume). Changes in these
assumptions will affect the recoverable amount of the property,
plant and equipment and evaluation and exploration assets.
If the carrying amount of an asset or its cash-generating unit
(CGU) exceeds the recoverable amount, an impairment
provision is recorded to reflect the asset at the lower amount.
Impairment losses are recognised in the income statement.
Calculation of recoverable amount
The recoverable amount of assets is the greater of their value in
use (VIU) and fair value less costs of disposal (FVLCD) to sell.
FVLCD is based on an estimate of the amount that the Group
may obtain in a sale transaction on an arm’s length basis. VIU is
based on estimated future cash flows discounted to their
present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. For an asset that does not generate cash inflows
largely independent of those from other assets, the recoverable
amount is determined for the cash-generating unit to which the
asset belongs.
The recoverable values of the CGUs are determined using
a FVLCD methodology. FVLCD was determined using a
combination of level 2 and level 3 inputs. The FVLCD of the
producing and developing stage mine assets is determined
using a discounted cash flow model (note 16) and for the
exploration projects is based on the value-in-situ methodology
(notes 17 and 18(2)), to estimate the amount that would be paid
by a willing third party in an arm’s length transaction.
Reversal of impairment
An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
(l) Inventories
Inventories are valued at the lower of cost or net realisable value.
Cost is determined using the weighted average method.
The cost of work in progress and finished goods (ore inventories)
is based on the cost of production. For this purpose, the costs of
production include:
– costs, materials and contractor expenses which are directly
attributable to the extraction and processing of ore;
– depreciation of property, plant and equipment used in
the extraction and processing of ore; and
– related production overheads (based on normal
operating capacity).
Net realisable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses.
(m) Trade and other receivables
Current trade receivables are carried at the original invoice
amount less provision made for impairment of these receivables.
Non-current receivables are stated at amortised cost. A
provision for impairment of trade receivables is established
using the expected credit loss impairment model according to
IFRS 9. The amount of the provision is the difference between
the carrying amount and the recoverable amount and this
difference is recognised in the income statement. The
revaluation of provisionally priced contracts stated in 2(q)
is recorded as trade receivables.
(n) Share capital
Ordinary shares are classified as equity. Any excess above the
par value of shares received upon issuance of those shares is
classified as share premium. In the case the excess above par
value is available for distribution, it is classified as merger
reserve and then transferred to retained earnings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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(o) Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle
the obligation and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of
money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Mine closure cost
Provisions for mine closure costs are made in respect of
the estimated future costs of closure and restoration and
for environmental rehabilitation costs (which include the
dismantling and demolition of infrastructure, removal of residual
materials and remediation of disturbed areas) in the accounting
period when the related environmental disturbance occurs.
The provision is discounted and the unwinding of the discount is
included in finance costs. At the time of establishing the provision,
a corresponding asset is capitalised and is depreciated over
future production from the mine to which it relates. The provision
is reviewed on an annual basis for changes in cost estimates,
discount rates and operating lives of the mines.
Changes to estimated future costs are recognised in the
statement of financial position by adjusting the mine closure
cost liability and the related asset originally recognised. If, for
mature mines, the related mine assets net of mine closure cost
provisions exceed the recoverable value, that portion of the
increase is charged directly to the income statement. Similarly, if
reductions to the estimated costs exceed the carrying value of
the mine asset, that portion of the decrease is credited directly
to the income statement. For closed sites, changes to estimated
costs are recognised immediately in the income statement.
Workers’ profit sharing and other employee benefits
In accordance with Peruvian legislation, companies in Peru must
provide for workers’ profit sharing equivalent to 8% of taxable
income in each year. This amount is charged to the income
statement within personnel expenses (note 10) and is
considered deductible for income tax purposes. The Group
has no pension or retirement benefit schemes.
Other
Other provisions are accounted for when the Group has a
legal or constructive obligation for which it is probable there
will be an outflow of resources for which the amount can be
reliably estimated.
(p) Share-based payments
Cash-settled transactions
The fair value of cash-settled share plans is recognised as a
liability over the vesting period of the awards. Movements in that
liability between reporting dates are recognised as personnel
expenses. The fair value of the awards is taken to be the market
value of the shares at the date of award adjusted by a factor for
anticipated relative Total Shareholder Return (TSR)
performance. Fair values are subsequently remeasured at each
reporting date to reflect the number of awards expected to vest
based on the current and anticipated TSR performance.
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair
value at the date when the grant is made using an appropriate
valuation model and is recognised, together with a
corresponding increase in other reserves in equity, over the
period in which the performance and/or service conditions are
fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and
the Group’s best estimate of the number of equity instruments
that vest. The income statement expense for a period
represents the movement in cumulative expense recognised as
at the beginning and end of that period and is recognised in
personnel expenses (note 10).
Service and non-market performance conditions are not
taken into account when determining the grant date fair value
of awards, but the likelihood of the conditions being met is
assessed as part of the Group’s best estimate of the number of
equity instruments that will ultimately vest. Market performance
conditions are reflected within the grant date fair value. Any
other conditions attached to an award, but without an
associated service requirement, are considered to be non-
vesting conditions. Non-vesting conditions are reflected in the
fair value of an award and lead to an immediate expensing of
an award unless there are also service and/or performance
conditions. No expense is recognised for awards that do not
ultimately vest because non-market performance and/or
service conditions have not been met. Where awards include a
market or non-vesting condition, the transactions are treated
as vested irrespective of whether the market or non-vesting
condition is satisfied, provided that all other performance and/
or service conditions are satisfied. When the terms of an
equity-settled award are modified, the minimum expense
recognised is the grant date fair value of the unmodified award,
provided the original vesting terms of the award are met. An
additional expense, measured as at the date of modification,
is recognised for any modification that increases the total fair
value of the share-based payment transaction, or is otherwise
beneficial to the employee. Where an award is cancelled by
the entity or by the counterparty, any remaining element of
the fair value of the award is expensed immediately through
profit or loss.
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2
Significant accounting policies
continued
(q) Revenue recognition
The Group is involved in the production and sale of gold and
silver from dore and concentrate containing both gold and silver.
Dore bars are either sold directly to customers or are sent to a
third party for further refining into gold and silver before they
are sold. Concentrate is sold directly to customers.
Revenue from contracts with customers is recognised when
control of the goods or services is transferred to the customer at
an amount that reflects the consideration to which the Group
expects to be entitled in exchange for those goods or services.
Revenue excludes any applicable sales taxes.
The revenue is subject to adjustment based on inspection of the
product by the customer. Revenue is initially recognised on a
provisional basis using the Group’s best estimate of contained
gold and silver. Any subsequent adjustments to the initial
estimate of metal content are recorded in revenue once they
have been determined.
In addition, certain sales are ‘provisionally priced’ where the
selling price is subject to final adjustment at the end of a period,
normally ranging from 15 to 120 days after the start of the
delivery process to the customer, based on the market price at
the relevant quotation point stipulated in the contract. Revenue
is initially recognised when the conditions set out above have
been met, using market prices at that date. The price exposure
is considered to be an adjustment and hence separated from
the sales contract at each reporting date. The provisionally
priced metal is revalued based on the forward selling price for
the quotational period stipulated in the contract until the
quotational period ends. The selling price of gold and silver can
be measured reliably as these metals are actively traded on
international exchanges. The revaluation of provisionally priced
contracts is recorded as revenue.
A proportion of the Group’s sales are sold under CIF Incoterms,
whereby the Group is responsible for providing freight/shipping
services (as principal) after the date that the Group transfers
control of the metal in concentrate to its customers. The Group,
therefore, has separate performance obligations for freight/
shipping services which are provided solely to facilitate sale of
the commodities it produces.
Other Incoterms commonly used by the Group are FOB, where
the Group has no responsibility for freight or insurance once
control of the products has passed at the loading port, and
Delivered at Place (DAP), where control of the goods passes
when the product is delivered to the agreed destination. For
arrangements which have these Incoterms, the only
performance obligations are the provision of the product at
the point where control passes.
For CIF arrangements, the transaction price (as determined
above) is allocated to the metal in concentrate and freight/
shipping services using the relative stand-alone selling price
method. Under these arrangements, a portion of consideration
may be received from the customer in cash at, or around, the
date of shipment under a provisional invoice. Therefore, some of
the upfront consideration that relates to the freight/shipping
services yet to be provided is deferred. It is then recognised as
revenue over time using an output method (being days of
shipping/transportation elapsed) to measure progress towards
complete satisfaction of the service as this best represents the
Group’s performance. This is on the basis that the customer
simultaneously receives and consumes the benefits provided by
the Group as the services are being provided. The costs
associated with these freight/shipping services are also
recognised over the same period of time as incurred.
Income from services provided to related parties (note 32) is
recognised in revenue when services are provided.
Deferred revenue results when cash is received in advance of
revenue being earned. Deferred revenue is recorded as a liability
until it is earned. Once earned, the liability is reduced and
revenue is recorded. The Group analyses when revenue is
earned or deferred.
(r) Contingencies
A contingent liability is a possible obligation depending on
whether some uncertain future event occurs, or a present
obligation where payment is not probable or the amount cannot
be measured reliably. Contingent liabilities are not recognised in
the financial statements and are disclosed in notes to the
financial statements unless their occurrence is remote.
A contingent asset is a possible asset that arises from past
events, and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity. Contingent
assets are not recognised in the financial statements, but are
disclosed in the notes if their recovery is deemed probable.
(s) Finance income and costs
Finance income and costs comprise interest expense on
borrowings, the accumulation of interest on provisions, interest
income on funds invested, unwind of discount, and gains and
losses from the change in fair value of derivative instruments.
Interest income is recognised as it accrues, taking into account
the effective yield on the asset.
(t) Income tax
Income tax for the year comprises current and deferred tax.
Income tax is recognised in the income statement except to the
extent that it relates to items charged or credited directly to
equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable
income for the year, using tax rates enacted at the statement of
financial position date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes, with the
following exceptions:
– where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time
of the transaction affects neither accounting nor taxable
profit or loss; and
– in respect of taxable temporary differences associated with
investments in subsidiaries and associates, where the timing of
the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is
realised or the liability is settled based on the tax rates (and tax
laws) that have been enacted or substantively enacted at the
statement of financial position date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable that the related tax
benefit will be realised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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(u)
Uncertain tax positions
An estimated tax liability is recognised when the Group has a
present obligation as a result of a past event, it is probable that
the Group will be required to settle that obligation and a
reliable estimate can be made of the amount of the obligation.
The liability is the best estimate of the consideration required
to settle the present obligation at the balance sheet date,
taking into account risks and uncertainties surrounding the
obligation. Separate liabilities for interest and penalties are
also recorded if appropriate.
Movements in interest and penalty amounts in respect of
tax liability are not included in the tax charge, but are
disclosed in the income statement. Tax liabilities are based on
management’s interpretation of country-specific tax law and
the likelihood of settlement. This involves a significant amount
of judgement as tax legislation can be complex and open to
different interpretation. Management uses in-house tax
experts, professional firms and previous experience when
assessing tax risks. Where actual tax liabilities differ from the
liabilities, adjustments are made which can have a material
impact on the Group’s profits for the year. Refer to note 36(a)
for specific tax contingencies.
(v) Leases
Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease (i.e., the date the underlying
asset is available for use). Right-of-use assets are measured at
cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount of lease liabilities
recognised, initial direct costs incurred, and lease payments
made at or before the commencement date less any lease
incentives received. The right-of-use asset is depreciated over
the shorter of the asset’s useful life and the lease term on a
straight-line basis. Right-of-use assets are subject to
impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include
fixed payments (including in-substance fixed payments) less
any lease incentives receivable, and amounts expected to be
paid under residual value guarantees. The lease payments also
include the exercise price of a purchase option reasonably
certain to be exercised by the Group and payments of penalties
for terminating a lease, if the lease term reflects the Group
exercising the option to terminate. The variable lease payments
are recognised as expense in the period in which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the
Group uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is
not readily determinable. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion of
interest, and reduced for the lease payments made. In addition,
the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption
to its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It
also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered of low value
(i.e., below US$5,000). Lease payments on short-term leases and
leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
(w) Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through
other comprehensive income (OCI), and fair value through
profit or loss.
The classification of financial assets at initial recognition
depends on the financial asset’s contractual cash flow
characteristics and the Group’s business model for
managing them.
The Group’s business model for managing financial assets
refers to how it manages its financial assets in order to generate
cash flows. The business model determines whether cash flows
will result from collecting contractual cash flows, selling the
financial assets, or both.
Purchases or sales of financial assets that require delivery
of assets within a time frame established by regulation or
convention in the market place (regular way trades) are
recognised on the trade date, i.e., the date that the Group
commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, the Group’s financial
assets are classified in the following categories:
– Financial assets at amortised cost (debt instruments)
The Group measures financial assets at amortised cost if both
of the following conditions are met:
– The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows, and
– The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss
when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost includes
trade receivables.
– Financial assets designated at fair value through OCI
(equity instruments)
Upon initial recognition, the Group can elect to classify
irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the
definition of equity under IAS 32 Financial Instruments:
Presentation and are not held for trading. The classification is
determined on an instrument-by-instrument basis.
Financial assets designated at fair value through OCI are
carried in the statement of financial position at fair value
with net changes in fair value recognised in the OCI. Gains
and losses on these financial assets are never recycled to
profit or loss. Dividends are recognised as other income in the
statement of profit or loss when the right of payment has
been established, except when the Group benefits from such
proceeds as a recovery of part of the cost of the financial
asset, in which case, such gains are recorded in OCI. Equity
instruments designated at fair value through OCI are not
subject to impairment assessment.
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Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
– Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through
profit or loss.
– Loans and borrowings
This is the category most relevant to the Group. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the EIR
method. Gains and losses are recognised in profit or loss when
the liabilities are derecognised as well as through the EIR
amortisation process.
Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included in
finance costs in the statement of profit or loss.
This category generally applies to interest-bearing loans
and borrowings.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the statement
of profit or loss.
Derivative financial instruments and hedge accounting
In 2020, the Group used interest rate swaps to hedge certain of
its cash flows from loans against interest rate risk. The interest
rate swap was settled in September 2021. In addition, in 2021
the Group signed silver forward agreements. The silver forward
is being used to hedge the exposure to changes in the cash
flows of the silver commodity prices. Consequently, the Group
has opted to apply hedge accounting under the requirements of
IFRS 9 Financial Instruments.
Initial recognition and subsequent measurement
These derivative financial instruments were initially recognised
at fair value on the date on which the derivative contract was
entered into and were subsequently remeasured at fair value.
Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified as
cash flow hedges when hedging the exposure to variability in
cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly
probable forecast transaction or the foreign currency risk in an
unrecognised firm commitment.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it
wishes to apply hedge accounting and the risk management
objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging
instrument, the hedged item, the nature of the risk being
hedged and how the Group will assess whether the hedging
relationship meets the hedge effectiveness requirements
(including the analysis of sources of hedge ineffectiveness and
how the hedge ratio is determined). A hedging relationship
qualifies for hedge accounting if it meets all of the following
effectiveness requirements:
2
Significant accounting policies
continued
The Group has listed and non-listed equity investments under
this category.
– Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for trading, financial assets designated
upon initial recognition at fair value through profit or loss, or
financial assets mandatorily required to be measured at fair
value. Financial assets are classified as held for trading if they
are acquired for the purpose of selling or repurchasing in the
near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they are
designated as effective hedging instruments. Financial assets
with cash flows that are not solely payments of principal and
interest are classified and measured at fair value through profit
or loss, irrespective of the business model. Notwithstanding the
criteria for debt instruments to be classified at amortised cost or
at fair value through OCI, as described above, debt instruments
may be designated at fair value through profit or loss on initial
recognition if doing so eliminates, or significantly reduces, an
accounting mismatch.
Financial assets at fair value through profit or loss are carried in
the statement of financial position at fair value with net changes in
fair value recognised in the statement of profit or loss.
The Group has listed equity investments and embedded
derivatives under this category. Dividends on listed equity
investments are also recognised as other income in the
statement of profit or loss when the right of payment has
been established.
Derecognition
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group’s consolidated
statement of financial position) when:
– the rights to receive cash flows from the asset have expired; or
– the Group has transferred its rights to receive cash flows from
the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under
a ‘pass-through’ arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and
all the cash flows that the Group expects to receive, discounted
at an approximation of the original effective interest rate.
For trade receivables, the Group applies a simplified approach
in calculating ECLs. Therefore, the Group does not track
changes in credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in
the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The Group’s financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts, and
derivative financial instruments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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(aa) Fair value measurement
The Group measures financial instruments, such as derivatives,
at each statement of financial position date.
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either:
– in the principal market for the asset or liability; or
– in the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be
accessible by the Group.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in
their best economic interest.
A fair value measurement of a non-financial asset takes into
account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use. The Group uses valuation techniques
that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, as described in notes 26 and 37(e).
For assets and liabilities that are recognised in the financial
statements on a recurring basis at fair value, the Group
determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
The Group determines the policies and procedures for both
recurring fair value measurement and unquoted financial
assets, and for non-recurring measurement.
At each reporting date, the Group analyses the movements in the
values of assets and liabilities which are required to be re-
measured or re-assessed as per the Group’s accounting policies.
For this analysis, the Group verifies the major inputs applied in the
latest valuation by agreeing the information in the valuation
computation to contracts and other relevant documents.
The Group, in conjunction with its external valuers where
applicable, also compares the changes in the fair value of each
asset and liability with relevant external sources to determine
whether the change is reasonable.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as explained above.
– There is ‘an economic relationship’ between the hedged item
and the hedging instrument.
– The effect of credit risk does not ‘dominate the value changes’
that result from that economic relationship.
– The hedge ratio of the hedging relationship is the same as that
resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument
that the Group actually uses to hedge that quantity of
hedged item.
Cash flow hedges
Changes in the fair value of derivatives designated as cash
flow hedges, which are held to hedge the exposure to variability
in cash flows of the hedged items, are recognised in other
components of equity until changes in the fair value of the
hedged item are recognised in profit or loss. However, the
ineffective portion of the changes in the fair value of such
derivatives is recognised in profit or loss. The Group uses
cash flow hedges for hedging the exposure to variability in
silver prices.
The amounts that have been recognised in other components of
equity relating to such hedging instruments are reclassified to
profit or loss when the hedged transaction affects profit or loss.
(x) Dividend distribution
Dividends on the Company’s ordinary shares are recognised
when they have been appropriately authorised and are no
longer at the Company’s discretion. Accordingly, interim
dividends are recognised when they are paid and final dividends
are recognised when they are declared following approval by
shareholders at the Company’s Annual General Meeting.
(y) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at cost. For the purposes of the statement of
financial position, cash and cash equivalents comprise cash on
hand and deposits held with banks that are readily convertible
into known amounts of cash and which are subject to
insignificant risk of changes in value. For the purposes of the
cash flow statement, cash and cash equivalents, as defined
above, are shown net of outstanding bank overdrafts.
Liquidity funds are classified as cash equivalents if the
amount of cash that will be received is known at the time
of the initial investment and the risk of changes in value is
considered insignificant.
(z) Exceptional items
Exceptional items are those significant items which, due to their
nature or the expected infrequency of the events giving rise to
them, need to be disclosed separately on the face of the income
statement to enable a better understanding of the financial
performance of the Group and facilitate comparison with prior
years. Exceptional items mainly include:
– impairments or write-offs of assets, property, plant and
equipment and evaluation and exploration assets;
– incremental cost due to pandemics which are not expected to
be recurring;
– gains or losses arising on the disposal of subsidiaries,
investments or property, plant and equipment;
– any gain or loss resulting from restructuring within the Group;
– the impact of infrequent labour action related to work
stoppages in mine units;
– the penalties generated by the early termination of
agreements with providers or lenders of the Group;
– the reversal of an accumulation of prior year’s tax expenses
that resulted from an agreement with the government; and
– the related tax impact of the above items.
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Governance
Further Information
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3
Segment reporting
The Group’s activities are principally related to mining operations which involve the exploration, production and sale of gold and
silver. Products are subject to the same risks and returns and are sold through similar distribution channels. The Group undertakes
a number of activities solely to support mining operations including power generation and services. Transfer prices between
segments are set at an arm’s length basis in a manner similar to that used for third parties. Segment revenue, segment expense and
segment results include transfers between segments at market prices. Those transfers are eliminated on consolidation.
For internal reporting purposes, management takes decisions and assesses the performance of the Group through consideration of
the following reporting segments:
– Operating unit – San Jose, which generates revenue from the sale of gold and silver (dore and concentrate).
– Operating unit – Pallancata, which generates revenue from the sale of gold and silver (concentrate).
– Operating unit – Inmaculada, which generates revenue from the sale of gold and silver (dore).
– Exploration, which explores and evaluates areas of interest in brownfield and greenfield sites with the aim of extending the life of
mine of existing operations and to assess the feasibility of new mines. The exploration segment includes costs charged to the
profit and loss and capitalised as assets.
– Other – includes the profit or loss generated by Empresa de Transmisión Aymaraes S.A.C.
The Group’s administration, financing, other activities (including other income and expense) and income taxes are managed at a
corporate level and are not allocated to operating segments.
Segment information is consistent with the accounting policies adopted by the Group. Management evaluates the financial
information based on the adopted IFRS accounting policies in the financial statements.
The Group measures the performance of its operating units by the segment profit or loss that comprises gross profit, selling
expenses and exploration expenses.
Segment assets include items that could be allocated directly to the segment.
(a) Reportable segment information
Inmaculada
US$000
San Jose
US$000
Pallancata
US$000
Exploration
US$000
Other
1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended 31 December 2021
Revenue from external customers
452,849
260,879
103,809
–
464
–
818,001
Inter-segment revenue
–
–
–
–
9,225
(9,225)
–
Total revenue from customers
452,849
260,879
103,809
–
9,689
(9,225)
818,001
Provisional pricing adjustment
(14)
(1,907)
(4,693)
–
–
–
(6,614)
Total revenue
452,835
258,972
99,116
–
9,689
(9,225)
811,387
Segment profit/(loss)
226,727
52,614
343
(40,520)
7,345
(684)
245,825
Others
2
–
–
–
–
–
–
(108,494)
Profit from continuing operations before income tax
–
–
–
–
–
–
137,331
Other segment information
Depreciation
3
(75,524)
(51,217)
(22,618)
(396)
(5,795)
–
(155,550)
Amortisation
(108)
(852)
–
(107)
(51)
–
(1,118)
Impairment and write-off of assets, net
(326)
(354)
(24,940)
–
(89)
(25,709)
Assets
Capital expenditure
76,512
43,666
14,250
15,896
3,537
–
153,861
Current assets
20,182
43,473
9,072
–
4,230
–
76,957
Other non-current assets
515,943
157,749
3,241
155,702
46,882
–
879,517
Total segment assets
536,125
201,222
12,313
155,702
51,112
–
956,474
Not reportable assets
4
–
–
–
–
498,241
–
498,241
Total assets
536,125
201,222
12,313
155,702
549,353
–
1,454,715
1
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.
2
Comprised of administrative expenses of US$51,905,000, other income of US$45,896,000, other expenses of US$46,068,000, write-off of assets (net) of US$863,000, impairment of
non-current assets of US$24,846,000, share of losses of an associate of US$169,000, finance income of US$3,946,000, finance expense of US$32,061,000, and foreign exchange loss
of US$2,424,000.
3
Includes depreciation capitalised in the Crespo project (US$430,000), San Jose unit (US$2,341,000), products in process (US$509,000) and recognised against the mine
rehabilitation provision (US$1,978,000).
4
Not reportable assets are comprised of financial assets at fair value through OCI of US$661,000, financial assets at fair value through profit and loss of US$3,155,000, other
receivables of US$44,446,000, income tax receivable of US$32,000, deferred income tax asset of US$484,000, investment in associates of US$43,559,000, derivative financial assets
of US$19,115,000 and cash and cash equivalents of US$386,789,000.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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Inmaculada
US$000
San Jose
US$000
Pallancata
US$000
Exploration
US$000
Other
1
US$000
Adjustment
and
eliminations
US$000
Total
US$000
Year ended 31 December 2020
Revenue from external customers
314,742
199,803
96,134
–
149
–
610,828
Inter-segment revenue
–
–
–
–
6,918
(6,918)
–
Total revenue from customers
314,742
199,803
96,134
–
7,067
(6,918)
610,828
Provisional pricing adjustment
164
6,295
4,540
–
–
–
10,999
Total revenue
314,906
206,098
100,674
–
7,067
(6,918)
621,827
Segment profit/(loss)
129,103
47,290
3,989
(33,436)
5,699
(1,773)
150,872
Others
2
–
–
–
–
–
–
(87,952)
Profit from continuing operations before income tax
–
–
–
–
–
–
62,920
Other segment information
Depreciation
3
(54,522)
(31,238)
(28,969)
(406)
(3,734)
–
(118,869)
Amortisation
(82)
(552)
–
(442)
(39)
–
(1,115)
Impairment and write-off of assets, net
(535)
7,750
(221)
(720)
(49)
–
6,225
Assets
Capital expenditure
62,128
23,030
7,399
12,772
2,595
–
107,924
Current assets
14,613
43,735
24,692
–
4,675
–
87,715
Other non-current assets
516,505
166,887
33,784
232,135
52,037
–
1,001,348
Total segment assets
531,118
210,622
58,476
232,135
56,712
–
1,089,063
Not reportable assets
4
–
–
–
–
276,998
–
276,998
Total assets
531,118
210,622
58,476
232,135
333,710
–
1,366,061
1
‘Other’ revenue relates to revenues earned by Empresa de Transmisión Aymaraes S.A.C.
2
Comprised of administrative expenses of US$43,282,000, other income of US$3,617,000, other expenses of US$32,518,000, write-off of assets (net) of US$2,078,000, reversal of
impairment of non-current assets of US$8,303,000, finance income of US$4,197,000, finance expense of US$23,560,000, and foreign exchange loss of US$2,631,000.
3
Includes depreciation capitalised in the Crespo project (US$768,000), San Jose unit (US$1,349,000) and products in process (US$168,000).
4
Not reportable assets are comprised of financial assets at fair value through OCI of US$402,000, financial assets at fair value through profit and loss of US$5,407,000, other
receivables of US$38,238,000, income tax receivable of US$59,000, deferred income tax asset of US$1,009,000, and cash and cash equivalents of US$231,883,000.
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Further Information
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3
Segment reporting
continued
(b) Geographical information
The revenue for the period based on the country in which the customer is located is as follows:
Year ended 31 December
2021
US$000
2020
US$000
External customer
Switzerland
360,838
236,455
Canada
213,350
138,795
Korea
135,162
150,094
Germany
47,014
60,299
Japan
26,151
13,264
Chile
13,184
10,872
United Kingdom
7,982
–
Bulgaria
4,703
9,311
USA
–
2,994
Peru
3,003
(257)
Total
811,387
621,827
Inter-segment
Peru
9,225
6,918
Total
820,612
628,745
In the periods set out below, certain customers accounted for greater than 10% of the Group’s total revenues as detailed in the
following table:
Year ended 31 December 2021
Year ended 31 December 2020
US$000
% Revenue
Segment
US$000
% Revenue
Segment
Argor Heraus
208,037
26%
Inmaculada
and San Jose
176,543
28%
Inmaculada
and San Jose
LS Nikko
135,162
17%
Pallancata
and San Jose
150,094
24%
Pallancata
and San Jose
Asahi Refining Canada
198,254
24%
Inmaculada
121,048
19%
Inmaculada
MKS Switzerland S.A.
152,801
19%
Inmaculada
59,912
10%
Inmaculada
Non-current assets, excluding financial instruments and deferred income tax assets, were allocated to the geographical areas in
which the assets are located as follows:
As at 31 December
2021
US$000
2020
US$000
Peru
665,839
699,121
Argentina
157,750
166,887
Chile
55,922
135,340
Canada
6
–
Total non-current segment assets
879,517
1,001,348
Financial assets at fair value through OCI
661
402
Financial assets at fair value through profit and loss
3,155
5,407
Investment in associates
43,559
–
Trade and other receivables
2,470
5,395
Deferred income tax assets
484
1,009
Derivative financial instruments
5,042
–
Total non-current assets
934,888
1,013,561
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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4
Demerger of Aclara Resources Inc. (‘Aclara’)
Hochschild Mining Holdings Ltd (‘HM Holdings’), a wholly owned subsidiary of the Group, had interests over a Chilean company
named REE UNO SpA. This entity holds the project Aclara (formerly named Biolantanidos), which is located in the south of Chile,
and is currently focused on the development of the Penco module, which will aim to produce a rare earth concentrate through a
processing plant that will be fed by clays from nearby deposits.
The Group wanted to separate the Aclara project from its other businesses dedicated to the extraction and production of gold and
silver. For this purpose, a new company named Aclara Resources Inc. located in Canada (hereinafter, ‘Aclara’) was incorporated by
the Group. The investment held in REE UNO SpA was then transferred to Aclara.
A distribution of 70,606,502 Aclara shares, representing 80% of the Aclara shares, was made to the holders of ordinary shares of the
Group by way of a dividend in specie (the ‘Demerger Dividend’). The approval of the Group’s shareholders in respect of the
Demerger Dividend was granted at the Extraordinary General Meeting held on 5 November 2021. The Demerger Dividend was
effected on 10 December 2021, shortly before the Aclara Initial Public Offering (‘IPO’) was completed later that day.
Once the Aclara IPO was completed, Aclara became an independent company listed on the Toronto Stock Exchange.
The ratio of Demerged Aclara shares to the number of ordinary shares in the Group was 70,606,502 to 513,875,563. Therefore, the
shareholders who were entitled to receive the Demerger Dividend received 0.1374 Aclara shares for each ordinary share in the
Group. The value of the Demerger Dividend is C$120,031,053 (equivalent to US$94,945,000) in aggregate based on the offering
price of C$1.70 per Aclara share (the Offering Price).
HM Holdings retained 20% of the Aclara shares. The investment was recorded at initial recognition at fair value, based on the
Offering Price.
The fair value of the Demerger Dividend at the date of the demerger and retained investment is therefore a level 1 fair
value measurement.
Immediately following the Demerger Dividend and pursuant to the subscription agreement with Aclara dated 2 December 2021, HM
Holdings purchased 14,870,397 Aclara shares at the Offering Price for aggregate gross proceeds to Aclara of C$25,279,675
(equivalent to US$19,996,000).
The consolidated effect in the financial statements of the Group is an exceptional gain of US$37,461,000 presented within
other income.
Details of the net gain on demerger of Aclara are shown below:
US$000
Property, plant and equipment
507
Evaluation and exploration assets
70,311
Other non-current assets
2,668
Current assets
1,210
Current liabilities
(3,465)
Aclara net assets and liabilities demerged
1
71,231
Net cash and cash equivalents demerged
(553)
Net cash outflow from demerger of Aclara
(553)
In specie dividends relating to Aclara demerger
94,945
Retained financial investments in associate (note 19)
23,742
Net assets demerged
(71,231)
Reclassification of foreign currency translation reserve
(9,995)
Gain on demerger of Aclara
37,461
1
Considered in the exploration segment of the Group.
On completion of the demerger, the Group retained a 20% interest in Aclara through the Aclara Resources Inc. investment company.
An investment in associates of US$23,742,000 was recognised on the Group’s consolidated balance sheet in respect of this interest.
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5
Revenue
Year ended 31 December 2021
Year ended 31 December 2020
Revenue from customers
Revenue from customers
Goods sold
US$000
Shipping
services
US$000
Total
US$000
Provisional
pricing
US$000
Total
US$000
Goods sold
US$000
Shipping
services
US$000
Total
US$000
Provisional
pricing
US$000
Total
US$000
Gold (from dore bars)
353,258
914
354,172
40
354,212
255,142
577
255,719
144
255,863
Silver (from dore bars)
207,022
804
207,826
(52)
207,774
101,195
383
101,578
62
101,640
Gold (from
concentrates)
100,233
2,462
102,695
912
103,607
109,816
2,447
112,263
1,956
114,219
Silver (from
concentrates)
150,140
2,704
152,844
(7,514)
145,330
138,669
2,450
141,119
8,837
149,956
Services
464
–
464
–
464
149
–
149
–
149
Total
811,117
6,884
818,001
(6,614)
811,387
604,971
5,857
610,828
10,999
621,827
6 Cost of sales before exceptional items
Included in cost of sales are:
Year ended 31 December
2021
US$000
2020
US$000
Depreciation and amortisation in cost of sales
1
145,482
114,662
Personnel expenses (note 10)
2
101,682
65,077
Mining royalty (note 37)
7,171
5,208
Change in products in process and finished goods
320
17,323
Fixed costs at the operations during stoppages, reduced capacity and excess absenteeism
3
8,680
46,480
1
The depreciation and amortisation in production cost is US$148,842,000 (2020: US$113,146,000).
2
Includes workers’ profit sharing of US$6,512,000 (2020: US$2,632,000) and excludes personnel expenses of US$7,607,000 (2020: US$32,117,000) included within unallocated fixed cost
at the operations (see below).
3
Corresponds to the unallocated fixed cost accumulated as a result of excess absenteeism (2020: during the stoppage and operation of the mine units under reduced operating
capacity) due to the Covid-19 pandemic. These costs mainly include personnel expenses of US$7,607,000 (2020: US$32,117,000), third-party services of US$995,000 (2020:
US$8,948,000), supplies of US$nil (2020: US$1,698,000), depreciation and amortisation of US$nil (2020: US$1,818,000) and other costs of US$78,000 (2020: US$1,899,000).
7 Administrative expenses
Year ended 31 December
2021
US$000
2020
US$000
Personnel expenses (note 10)
29,832
27,016
Professional fees
8,710
4,978
Donations
587
373
Lease rentals
1,301
1,353
Third-party services
302
241
Communications
473
427
Indirect taxes
2,057
2,029
Depreciation and amortisation
1,823
1,723
Depreciation of rights of use
226
284
Technology and systems
1,207
1,063
Security
956
891
Other
1
4,431
2,904
Total
51,905
43,282
1
Predominantly relates to advertising costs of US$372,000 (2020: US$292,000), insurance fees of US$837,000 (2020: US$464,000), repair and maintenance of US$326,000 (2020:
US$314,000), supplies costs of US$102,000 (2020: US$42,000), tax penalties of US$1,476,000 (2020: US$55,000), travel expenses of US$105,000 (2020: US$188,000) and personnel
transportation of US$108,000 (2020: US$115,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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8 Exploration expenses
Year ended 31 December
2021
US$000
2020
US$000
Mine site exploration
1
Arcata
2,189
990
Ares
628
940
Inmaculada
3,276
2,526
Pallancata
5,993
4,652
San Jose
9,653
9,720
21,739
18,828
Prospects
2
Peru
2,677
1,731
USA
3,731
1,902
Chile
(53)
(211)
Canada
51
–
6,406
3,422
Generative
3
Peru
3,263
2,331
USA
11
12
Mexico
861
974
Chile
177
437
4,312
3,754
Personnel (note 10)
6,368
5,905
Others
731
581
Depreciation right-of-use assets
292
305
Total
39,848
32,795
1
Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending the mine’s life.
2
Prospects expenditure relates to detailed geological evaluations in order to determine zones which have mineralisation potential that is economically viable for exploration.
Exploration expenses are generally incurred in the following areas: mapping, sampling, geophysics, identification of local targets and reconnaissance drilling.
3
Generative expenditure is early stage exploration expenditure related to the basic evaluation of the region to identify prospect areas that have the geological conditions
necessary to contain mineral deposits. Related activities include regional and field reconnaissance, satellite images, compilation of public information and identification of
exploration targets.
The Group determines the cash flows which relate to the exploration activities of the companies engaged only in exploration.
Exploration activities incurred by Group operating companies are not included since it is not practicable to separate the liabilities
related to the exploration activities of these companies from their operating liabilities. Cash outflows on exploration activities were
US$12,163,000 in 2021 (2020: US$6,176,000).
9 Selling expenses
Year ended 31 December
2021
US$000
2020
US$000
Personnel expenses (note 10)
304
303
Warehouse services
1,392
1,281
Taxes
1
11,765
9,202
Other
1,970
1,968
Total
15,431
12,754
1
Corresponds to the export duties in Argentina.
10 Personnel expenses
Year ended 31 December
2021
US$000
2020
US$000
Salaries and wages
109,769
104,331
Workers’ profit sharing (note 28)
11,018
4,986
Other legal contributions
23,792
22,158
Statutory holiday payments
7,237
6,214
Long-Term Incentive Plan
1,783
1,764
Termination benefits
6,470
1,495
Other
1,101
752
Total
1
161,170
141,700
1
Includes exceptional personnel expenses amounting to US$2,745,000 (2020: US$4,595,000) (refer to note 11(1)).
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10 Personnel expenses
continued
Personnel expenses are distributed as follows:
Year ended 31 December
2021
US$000
2020
US$000
Cost of sales
1
111,613
101,404
Administrative expenses
29,832
27,016
Exploration expenses
6,368
5,905
Selling expenses
304
303
Other expenses
2
11,579
4,255
Capitalised as property, plant and equipment
1,474
2,817
Total
161,170
141,700
1
Exceptional personnel expenses included in cost of sales amount to US$2,324,000 (2020: US$4,210,000).
2 Exceptional personnel expenses included in other expenses amount to US$421,000 (2020: US$385,000).
The average numbers of employees for 2021 and 2020 were as follows:
Year ended 31 December
2021
2020
Peru
2,057
1,897
Argentina
1,478
1,432
Chile
42
13
United Kingdom
10
10
Total
3,587
3,352
11 Exceptional items
Exceptional items are those significant items which, due to their nature or the expected infrequency of the events giving rise to them,
need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance
of the Group and facilitate comparison with prior years. Unless stated, exceptional items do not correspond to a reporting segment
of the Group.
Year ended
31 December
2021
US$000
Year ended
31 December
2020
US$000
Cost of sales
Incremental costs due to Covid-19 pandemic
1
(22,511)
(27,613)
Total
(22,511)
(27,613)
Other income
Demerger of Aclara (note 4)
37,461
–
Total
37,461
–
Other expenses
Incremental costs due to Covid-19 pandemic
1
(1,503)
(3,613)
Total
(1,503)
(3,613)
(Impairment)/impairment reversal of non-financial assets, net
Impairment of non-financial assets
2
(24,846)
–
Reversal of impairment of non-financial assets
3
–
8,303
Total
(24,846)
8,303
Income tax benefit
4
15,055
7,157
Total
15,055
7,157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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The exceptional items for the years ended 31 December 2021 and 2020 correspond to:
1
Incremental production costs incurred in the operating mine units to manage the Covid-19 pandemic have been presented within costs of sales and costs incurred by mine
units in care and maintenance and those related to corporate activities have been presented within other expenses:
Year ended 31 December
2021
2020
Cost of sales
US$000
Other expenses
US$000
Cost of sales
US$000
Other expenses
US$000
Third-party services
16,032
873
18,823
665
Personnel expenses (note 10)
2,324
421
4,210
385
Donations
–
–
124
1,365
Consumption of medical supplies
1,327
120
1,062
248
Cleaning and food services
2,728
24
1,493
59
Depreciation and amortisation
37
29
534
–
Others
63
36
1,367
891
Total
22,511
1,503
27,613
3,613
These costs have been incurred in respect of the implementation of the necessary protocols including incremental third-party services mainly related to accommodation whilst
testing all workers for active Covid-19 cases prior to travelling to mine units, medical tests and additional transportation costs to facilitate social distancing, personnel expenses
mainly reflecting one-off bonuses paid to those workers required to oversee critical processes during period of suspension (occurred only in 2020), donations which includes the
value of equipment donated to assist the national effort in Peru to control the pandemic as well as the donations to hardship funds administered by educational institutions, UTEC
and TECSUP (refer to note 32)).
The pandemic can be considered a single protracted globally pervasive event with a financial impact over a number of reporting periods. Management’s initial expectation was
that these costs would cease to be incurred at the end of 2020 or early 2021, and whilst the majority of the costs have reduced over time as a result of the efficiencies made to the
health protocols and logistics required to operate throughout the pandemic, some residual costs continue to be incurred to date.
In order to provide the users of the financial statements with a better understanding of the financial performance of the Group in the year, and to facilitate comparison with
the prior period, we have considered it appropriate to continue to disclose separately as exceptional these incremental Covid-related costs up to December 2021. Following the
outbreak of the Omicron variant, the virus appears to have shifted into an endemic phase. Consequently, these costs will no longer be presented as exceptional items from 2022
and will form part of the underlying profits.
2
Corresponds to the impairment related to the Pallancata mine unit in Peru (refer to notes 16 and 17).
3
Reversals of impairment related to the San Jose mine unit (refer to notes 16, 17 and 18).
4
The current tax credit generated by the incremental costs arising from the Covid-19 pandemic of US$7,725,000 (2020: US$9,241,000) and the deferred tax credit generated by the
impairment of the Pallancata mine unit of US$7,330,000 (2020: deferred tax charge generated by the reversal of the impairment related to the San Jose mine unit of US$2,084,000).
12 Other income and other expenses before exceptional items
Year ended
31 December
2021
Year ended
31 December
2020
Before
exceptional
items
US$000
Before
exceptional
items
US$000
Other income
Gain on sale of property, plant and equipment (note 16)
3,342
231
Logistic services
7
336
Income on recovery of expenses
418
–
Recovery of provision of obsolescence of supplies (note 23)
2,338
1,921
Other
1
2,330
1,129
Total
8,435
3,617
Other expenses
Increase in provision for mine closure (note 28(1))
(22,095)
(16,056)
Provision of obsolescence of supplies (note 23)
(559)
–
Care and maintenance expenses of Ares mine unit
(2,903)
(2,578)
Write off of value added tax
(188)
(101)
Corporate social responsibility contribution in Argentina
2
(3,911)
(2,689)
Care and maintenance expenses of Arcata mine unit
(2,772)
(2,966)
Provision for impairment of receivables
3
–
(996)
Voluntary retirement plan in Argentina
4
(8,263)
–
Other
5
(3,874)
(3,519)
Total
(44,565)
(28,905)
1
Mainly corresponds to the gain recognised for the Mosquito project of US$400,000 (2020: US$400,000).
2
Relates to a contribution in Argentina to the Santa Cruz province calculated as a proportion of sales.
3 Mainly due to write-off of a claim receivable of US$996,000.
4 Related to payments made and the provision recognised under voluntary retirement plan in Minera Santa Cruz.
5
Mainly corresponds to the expenses due to concessions of US$179,000 (2020: US$295,000), depreciation expense for right-of-use assets of US$135,000 (2020: US$151,000), the loss on
recovery of expenses of US$nil (2020: US$158,000) and loss on sale of supplies of US$2,027,000 (2020: US$1,312,000).
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13 Finance income and finance costs
Year ended
31 December
2021
US$000
Year ended
31 December
2020
US$000
Finance income
Interest on deposits and liquidity funds
1,815
2,106
Interest on loans to related parties
11
–
Interest income
1,826
2,106
Unwind of discount on mine rehabilitation (note 28)
2,038
387
Gain on discount of other receivables
1
–
335
Gain from changes in the fair value of financial instruments
2
–
1,057
Other
82
312
Total
3,946
4,197
Finance costs
Interest on secured bank loans (note 27)
(5,951)
(7,086)
Other interest
(1,332)
(684)
Interest expense
(7,283)
(7,770)
Fair value loss on interest rate swap reclassified from equity
(5,521)
(1,497)
Loss on discount of other receivables
1
(632)
–
Loss from changes in the fair value of financial instruments
3
(16,170)
(12,770)
Other
(2,455)
(1,523)
Total
(32,061)
(23,560)
1
Mainly related to the effect of the discount of tax credits in Argentina and Peru.
2
Related to the fair value adjustment of the Americas Gold and Silver Corporation (AGSC) shares.
3
Represents the fair value change of US$834,000 on the AGSC and C3 Metals Inc shares (note 21) (2020: US$nil)) and the foreign exchange transaction costs of US$15,336,000 (2020:
US$12,770,000) to acquire US$18,133,000 dollars through the sale of bonds in Argentina (2020: US$14,486,000).
14 Income tax expense
Year ended 31 December 2021
Year ended 31 December 2020
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Before
exceptional
items
US$000
Exceptional
items
US$000
Total
US$000
Current corporate income tax from continuing operations
Corporate income tax charge
53,965
(7,725)
46,240
31,551
(9,241)
22,310
Withholding tax
689
–
689
402
–
402
54,654
(7,725)
46,929
31,953
(9,241)
22,712
Deferred taxation
Origination and reversal of temporary differences from continuing
operations (note
30)
26,885
(7,330)
19,555
8,962
2,084
11,046
Effect of change in income tax rates
1
(12,501)
–
(12,501)
1,529
–
1,529
14,384
(7,330)
7,054
10,491
2,084
12,575
Corporate income tax
69,038
(15,055)
53,983
42,444
(7,157)
35,287
Current mining royalties
Mining royalty charge (note 37)
6,326
–
6,326
4,088
–
4,088
Special mining tax charge (note 37)
5,916
–
5,916
3,119
–
3,119
Total current mining royalties
12,242
–
12,242
7,207
–
7,207
Total taxation charge/(credit) in the income statement
81,280
(15,055)
66,225
49,651
(7,157)
42,494
1
On 16 June 2021, the Argentinian government published the Law 27630 that establishes taxable net income brackets: up to 5 million pesos is 0%, more than 5 million up to 50 million
pesos is 30%, and more than 50 million pesos is 35%. with effect from 1 January 2021. The UK Government increased the rate of Corporation Tax to 25% on profits over £250,000
from April 2023. There is no impact on the deferred tax calculation of the Group arising from the change in the Corporation Tax in the UK.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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The weighted average statutory income tax rate was 27.7% for 2021 and 30.8% for 2020. This is calculated as the average of the
statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the Group
companies in their respective countries as included in the consolidated financial statements.
The change in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the
various jurisdictions in which the Group operates. partially offset by the increase in the Argentinian tax rate.
There were tax charges in relation to the cash flow hedge gains (2020: losses) recognised in equity during the year ended 31
December 2021 of US$7,383,000 (2020: US$1,744,000 credit).
The total taxation charge on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted
average tax rate applicable to the consolidated profits of the Group companies as follows:
As at 31 December
2021
US$000
2020
US$000
Profit from continuing operations before income tax
137,331
62,920
At average statutory income tax rate of 27.7% (2020: 30.8%)
37,996
19,368
Expenses not deductible for tax purposes
5,482
5,251
Change in statutory income tax rate
12,501
(1,529)
Non-taxable income resulted from Aclara demerger
(7,118)
–
Deferred tax recognised on special investment regime
1
(3,561)
(2,870)
Movement in unrecognised deferred tax
2
2,922
4,571
Special mining tax and mining royalty deductible for corporate income tax
(3,611)
(2,126)
Other
2,176
461
Corporate income tax at average effective income tax rate of 34.1% (2020: 36.8%) before foreign exchange
effect and withholding tax
46,787
23,126
Special mining tax and mining royalty
3
12,242
7,207
Corporate income tax and mining royalties at average effective income tax rate of 43.0% (2020: 48.2%)
59,029
30,333
Foreign exchange rate effect
4
6,507
11,759
Corporate income tax and mining royalties at average effective income tax rate of 47.7% (2020: 66.9%) before
withholding tax
65,536
42,092
Withholding tax
689
402
Total taxation charge in the income statement at average effective tax rate of 48.2% (2020: 67.5%) from
continuing operations
66,225
42,494
1
Argentina benefits from a special investment regime that allows for a super (double) deduction in calculating its taxable profits for all costs relating to prospecting, exploration and
metallurgical analysis, pilot plants and other expenses incurred in the preparation of feasibility studies for mining projects.
2
Includes the income tax charge on mine closure provision of -US$1,325,000 (2020: US$1,687,000), the tax charge related to the Inmaculada mine unit depreciation of US$1,090,000
(2020: US$902,000), and the effect of not recognised tax losses of US$3,157,000 (2020: US$1,982,000).
3
Corresponds to the impact of a mining royalty and special mining tax in Peru (note 37).
4
The foreign exchange effect is composed of US$934,000 profit (2020: US$1,584,000 loss) from Argentina and a loss of US$7,441,000 (2020: US$10,175,000 loss) from Peru. This mainly
corresponds to the foreign exchange effect of converting tax bases and monetary items from local currency to the corresponding functional currency. The main contributor of the
foreign exchange effect on the tax charge in 2021 is the devaluation of the Peruvian soles (2020: Peruvian soles).
15 Basic and diluted earnings per share
Earnings per share (‘EPS’) is calculated by dividing profit for the year attributable to equity shareholders of the Parent by the
weighted average number of ordinary shares issued during the year.
The Company has dilutive potential ordinary shares.
As at 31 December 2021 and 2020, EPS has been calculated as follows:
As at 31 December
2021
2020
Basic earnings/(loss) per share from continuing operations
Before exceptional items (US$)
0.14
0.06
Exceptional items (US$)
0.01
(0.03)
Total for the year and from continuing operations (US$)
0.15
0.03
Diluted earnings/(loss) per share from continuing operations
Before exceptional items (US$)
0.13
0.06
Exceptional items (US$)
0.01
(0.03)
Total for the year and from continuing operations (US$)
0.14
0.03
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15 Basic and diluted earnings per share
continued
Profit from continuing operations before exceptional items and attributable to equity holders of the Parent is derived as follows:
As at 31 December
2021
2020
Profit attributable to equity holders of the Parent – continuing operations (US$000)
76,934
15,162
Exceptional items after tax – attributable to equity holders of the Parent (US$000)
(7,367)
16,800
Profit from continuing operations before exceptional items attributable to equity holders of the Parent
(US$000)
69,567
31,962
Profit from continuing operations before exceptional items attributable to equity holders of the Parent for the
purpose of diluted earnings per share (US$000)
69,567
31,962
The following reflects the share data used in the basic and diluted earnings per share computations:
As at 31 December
2021
2020
Basic weighted average number of ordinary shares in issue (thousands)
513,876
513,876
Effect of dilutive potential ordinary shares related to contingently issuable shares (thousands)
5,689
600
Weighted average number of ordinary shares in issue for the purpose of diluted earnings per share (thousands)
519,565
514,476
16
Property, plant and equipment
Mining
properties
and
development
costs
1
US$000
Land and
buildings
US$000
Plant and
equipment
US$000
1 and 2
Vehicles
5
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
4
US$000
Total
US$000
Year ended 31 December 2021
Cost
At 1 January 2021
1,514,704
530,784
612,620
10,654
107,740
33,320
2,809,822
Additions
89,551
735
16,373
6,095
–
19,709
132,463
Change in discount rate (note 28(1))
–
–
–
–
(2,344)
–
(2,344)
Change in mine closure estimate (note
28(1))
–
–
–
–
986
–
986
Disposals
–
–
(1,430)
(5,654)
–
–
(7,084)
Write-offs
–
–
(7,529)
(419)
–
–
(7,948)
Demerger Aclara (note 4)
–
(201)
(432)
–
–
–
(633)
Foreign exchange effect
–
(21)
(158)
–
–
–
(179)
Transfers and other movements
3
1,064
24,235
15,632
1,321
–
(41,188)
1,064
At 31 December 2021
1,605,319
555,532
635,076
11,997
106,382
11,841
2,926,147
Accumulated depreciation
and impairment
At 1 January 2021
1,188,404
352,088
396,155
8,754
75,919
839
2,022,159
Depreciation for the year
95,308
24,188
29,080
2,593
4,381
–
155,550
Disposals
–
–
(1,392)
(5,515)
–
–
(6,907)
Write-offs
–
–
(6,676)
(409)
–
–
(7,085)
Demerger Aclara (note 4)
–
–
(126)
–
–
–
(126)
Foreign exchange effect
–
–
(126)
–
–
–
(126)
Impairment
16,643
1,506
4,575
1,201
601
–
24,526
Transfers and other movements
3
37
(70)
(423)
89
–
404
37
At 31 December 2021
1,300,392
377,712
421,067
6,713
80,901
1,243
2,188,028
Net book amount at 31 December 2021
304,927
177,820
214,009
5,284
25,481
10,598
738,119
1
Within mining properties and development costs and plant and equipment there are US$28,947,000 and US$6,742,000 related to the Crespo CGU that is not currently being
depreciated as the unit is not operating pending the feasibility of the project and considering that the depreciation method is units of production.
2
Within plant and equipment, costs of US$391,152,000 are subject to depreciation on a unit of production basis in line with accounting policy on note 2(f) for which the accumulated
depreciation is US$248,187,000 and depreciation charge for the year is US$15,377,000.
3
Transfers and other movements include US$1,027,000 that was transferred from evaluation and exploration assets (note 17).
4 There were borrowing costs capitalised in property, plant and equipment amounting to US$37,000.
5
Vehicles include US$3,258,000 of right-of-use assets (note 26).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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Mining
properties
and
development
costs
1
US$000
Land and
buildings
US$000
Plant and
equipment
US$000
1 and 2
Vehicles
5
US$000
Mine
closure
asset
US$000
Construction
in progress
and capital
advances
4
US$000
Total
US$000
Year ended 31 December 2020
Cost
At 1 January 2020
1,449,374
529,081
610,955
11,748
99,696
15,196
2,716,050
Additions
62,442
118
6,431
–
–
25,646
94,637
Initial recognition
–
–
–
–
235
–
235
Change in discount rate (note 27(1))
–
–
–
–
5,385
–
5,385
Change in mine closure estimate (note 27(1))
–
–
–
–
2,424
–
2,424
Disposals
–
(132)
(1,870)
(31)
–
–
(2,033)
Write-offs
–
–
(8,613)
(1,127)
–
–
(9,740)
Transfers and other movements
3
2,888
1,717
5,717
64
–
(7,522)
2,864
At 31 December 2020
1,514,704
530,784
612,620
10,654
107,740
33,320
2,809,822
Accumulated depreciation
and impairment
At 1 January 2020
1,119,462
334,065
384,155
7,310
74,834
947
1,920,773
Depreciation for the year
72,067
19,030
22,700
2,618
2,454
–
118,869
Disposals
–
(17)
(1,867)
(28)
–
–
(1,912)
Write-offs
–
–
(6,539)
(1,123)
–
–
(7,662)
Reversal of impairment
(3,831)
(1,101)
(1,589)
–
(1,369)
–
(7,890)
Transfers and other movements
4
706
111
(705)
(23)
–
(108)
(19)
At 31 December 2020
1,188,404
352,088
396,155
8,754
75,919
839
2,022,159
Net book amount at 31 December 2020
326,300
178,696
216,465
1,900
31,821
32,481
787,663
1
Within mining properties and development costs and plant and equipment there are US$28,489,000 and US$6,718,000 related to the Crespo CGU that is not currently being
depreciated as the unit is not operating pending the feasibility of the project.
2
Within plant and equipment, costs of US$381,456,000 are subject to depreciation on a unit of production basis in line with accounting policy on note 2(f) for which the accumulated
depreciation is US$230,709,000 and depreciation charge for the year is US$10,289,000.
3
Transfers and other movements include US$2,828,000 that was transferred from evaluation and exploration assets (note 17).
4 There were borrowing costs capitalised in property, plant and equipment amounting to US$32,000.
5 Vehicles include US$410,00 of right-of-use assets (note 26).
2021
As at 31 December 2021, management determined that there was a trigger of impairment in the Pallancata mine unit due to lower
grade production and the need for an increase in capital expenditure to access new low grade areas and extend the life of mine by
one year to 2023.
The impairment test performed over the Pallancata CGU resulted in an impairment charge recognised as at 31 December 2021
amounting to US$24,846,000 (US$24,526,000 in property, plant and equipment, and US$320,000 in evaluation and exploration assets).
No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.
The recoverable value of the Pallancata CGU was determined using a fair value less costs of disposal (FVLCD) methodology. FVLCD
was determined using a combination of level 2 and level 3 inputs, which result in fair value measurements categorised in their
entirety as level 3 in the fair value hierarchy, to construct a discounted cash flow model to estimate the amount that would be paid
by a willing third party in an arm’s length transaction.
The key assumptions on which management has based its determination of FVLCD and the associated recoverable values
calculated are gold and silver prices, future capital requirements, production costs, reserves and resources volumes (reflected in
the production volume), and the discount rate.
Real prices US$ per oz.
2022
2023
Gold
1,764
1,669
Silver
23.5
22.3
Pallancata
Discount rate (post-tax)
3.3%
The period of two years was used to prepare the cash flow projections of the Pallancata mine unit which is in line with its life of mine.
Pallancata
Current carrying value of CGU, net of deferred tax
3,241
Strategic Report
Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
16
Property, plant and equipment
continued
Sensitivity analysis
As the Pallancata CGU was impaired at 31 December 2021, a negative change in any of the key assumptions would not have an
impact on the impairment charge recognised. Given the short time left in the life of this mine, management also believes that no
reasonably possible change in any of the key assumptions would decrease the impairment charge recognised, other than a positive
change in the gold and silver prices.
An increase of 10% in the gold and silver prices would decrease the impairment charge recorded by US$5,600,000.
2020
In 2020, management determined that there was a trigger of impairment in the San Jose mine unit due to the increase of the
discount rate from 13.5% to 15.9%, mainly explained by the rise in country risk premium in Argentina. In addition, the increase in the
short and medium analysis consensus prices of gold and silver in the year represented a trigger of impairment reversal for the
Pallancata and San Jose mine units as both of these CGUs have previously been impaired.
The impairment test performed over the San Jose CGU resulted in a reversal of impairment recognised as at 31 December 2020
amounting to US$8,303,000 (US$7,890,000 in property, plant and equipment, US$100,000 in evaluation and exploration assets and
US$313,000 in intangibles). The reversal of impairment was mainly driven by an increase in the analysis consensus prices of silver
and gold which was partially offset by the impact of the increase in the discount rate.
The result of the impairment test performed over the Pallancata CGU showed that the recoverable value of Pallancata was
supported by the carrying value, and neither an impairment nor impairment reversal was recognised at 31 December 2020.
No indicators of impairment or reversal of impairment were identified in the other CGUs, which includes other exploration projects.
The recoverable values of the San Jose and Pallancata CGUs were determined using a fair value less costs of disposal (FVLCD)
methodology.
The key assumptions on which management has based its determination of FVLCD and the associated recoverable values
calculated are gold and silver prices, future capital requirements, production costs, reserves and resources volumes (reflected in
the production volume), and the discount rate.
Real prices US$ per oz.
2021
2022
2023
2024
Long-term
Gold
1,937
1,823
1,684
1,452
1,400
Silver
26.4
21.8
21.0
19.2
17.8
San Jose
Pallancata
Discount rate (post-tax)
5.9%
4.1%
The period of six and two years were used to prepare the cash flow projections of San Jose mine unit and the Pallancata mine unit
respectively which were in line with their life of mine.
31 December 2020 (US$000)
San Jose
Pallancata
Current carrying value of CGU, net of deferred tax
127,500
35,481
The estimated recoverable values of the Group’s CGUs are equal to, or not materially different than, their carrying values.
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above
would cause the carrying value of any of its cash-generating units to exceed its recoverable amount.
A change in any of the key assumptions would have the following impact:
US$000
San Jose
Pallancata
Gold and silver prices (decrease by 10%)
(61,800)
(12,200)
Gold and silver prices (increase by 5%)
7,700
1
9,750
1
Production costs (increase by 10%)
(32,800)
(4,700)
Production costs (decrease by 10%)
7,700
1
4,700
Production volume (decrease by 10%)
(11,800)
–
Production volume (increase by 10%)
7,700
1
–
Post tax discount rate (increase by 3%)
2
(8,200)
–
Post tax discount rate (decrease by 3%)
2
7,700
1
–
Capital expenditure (increase by 10%)
(10,300)
–
Capital expenditure (decrease by 10%)
7,700
1
–
1
This represents the maximum impairment loss that could be reversed, as it represents the carrying amount that would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
2
Management believed that a 3% change was a reasonably possible change in the post-tax discount rate in Argentina. However, changes in the perception of Argentina arising
from political, social and financial disruption may give rise to significant movement in the discount rate used in the assessment of the San Jose CGU.
Management has also determined that the Group’s CGUs are sensitive to future stoppage of operations as a result of Covid-19. In
the absence of any changes to the current gold and silver prices projections or any of the other key assumptions, we would expect
the estimated recoverable amount of our CGUs related to the San Jose and Pallancata mine units could be reduced by
US$8,900,000 and US$3,700,000 respectively, per month of stoppage.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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17 Evaluation and exploration assets
Azuca
US$000
Crespo
US$000
Aclara
(formerly
Biolantanidos)
US$000
Volcan
US$000
Others
US$000
Total
US$000
Cost
Balance at 1 January 2020
82,713
27,242
60,507
95,452
21,153
287,067
Additions
551
1,684
8,297
1,068
1,687
13,287
Transfers to property, plant and equipment (note 16)
–
–
–
–
(2,857)
(2,857)
Balance at 31 December 2020
83,264
28,926
68,804
96,520
19,983
297,497
Additions
580
2,421
11,349
953
6,095
21,398
Demerger (note 4)
–
–
(70,311)
–
–
(70,311)
Disposals
–
–
(122)
–
–
(122)
Foreign exchange effect
–
–
(9,720)
(16,222)
–
(25,942)
Transfers to property, plant and equipment (note 16)
–
–
–
–
(1,064)
(1,064)
Balance at 31 December 2021
83,844
31,347
–
81,251
25,014
221,456
Accumulated impairment
Balance at 1 January 2020
45,876
9,878
–
44,381
5,370
105,505
Impairment reversal
–
–
–
–
(100)
(100)
Transfers to property, plant and equipment (note 16)
–
–
–
–
(29)
(29)
Balance at 31 December 2020
45,876
9,878
–
44,381
5,241
105,376
Impairment
–
–
–
–
320
320
Foreign exchange effect
–
–
–
(7,507)
–
(7,507)
Transfers to property, plant and equipment (note 16)
–
(37)
(37)
Balance at 31 December 2021
45,876
9,878
–
36,874
5,524
98,152
Net book value as at 31 December 2020
37,388
19,048
68,804
52,139
14,742
192,121
Net book value as at 31 December 2021
37,968
21,469
–
44,377
20,517
123,304
At 31 December 2021, the Group has recorded an impairment with respect to evaluation and exploration assets of the Pallancata
mine unit of US$320,000 (2020: reversal of impairment with respect to evaluation and exploration assets of the San Jose mine unit
of US$100,000). The calculation of the recoverable values is detailed in note 16.
There were no borrowing costs capitalised in evaluation and exploration assets.
Strategic Report
Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
18 Intangible assets
Transmission
line
1
US$000
Water
permits
2
US$000
Software
licences
US$000
Legal rights
3
US$000
Total
US$000
Cost
Balance at 1 January 2020
22,157
26,583
1,899
8,580
59,219
Transfer
–
–
7
–
7
Balance at 31 December 2020
22,157
26,583
1,906
8,580
59,226
Foreign exchange effect
–
(4,499)
–
–
(4,499)
Disposals
–
–
(17)
–
(17)
Balance at 31 December 2021
22,157
22,084
1,889
8,580
54,710
Accumulated amortisation and impairment
Balance at 1 January 2020
16,486
12,686
1,873
5,815
36,860
Amortisation for the year
4
535
–
17
563
1,115
Reversal of impairment
(313)
–
–
–
(313)
Balance at 31 December 2020
16,708
12,686
1,890
6,378
37,662
Amortisation for the year
4
843
–
8
267
1,118
Disposals
–
–
(17)
–
(17)
Foreign exchange effect
–
(2,147)
–
–
(2,147)
Balance at 31 December 2021
17,551
10,539
1,881
6,645
36,616
Net book value as at 31 December 2020
5,449
13,897
16
2,202
21,564
Net book value as at 31 December 2021
4,606
11,545
8
1,935
18,094
1
The transmission line is amortised using the units of production method. At 31 December 2021 the remaining amortisation period is approximately seven years (2020: seven years)
in line with the life of the mine. At 31 December 2020, the Group recorded a reversal of impairment with respect to the transmission line of the San Jose mine unit of US$313,000 (the
calculation of the recoverable values is detailed in note 16).
2
Corresponds to the acquisition of water permits of Andina Minerals Group (‘Andina’). These permits have an indefinite life according to Chilean law. To determine the fair value less
costs of disposal of the Volcan cash-generating unit, which includes the water permits held by the Group, the Group used the value-in-situ methodology. This methodology applies
a realisable ‘enterprise value’ to unprocessed mineral resources which was US$7.15 per gold equivalent ounce of resources at 31 December 2021 (2020: US$7.40). The risk adjusted
enterprise value figure has been determined using a combination of level 2 (enterprise values and gold prices) and level 3 inputs (unprocessed mineral resources and risk factor)
which result in a fair value measurement categorised in its entirety as level 3 in the fair value hierarchy, to estimate the amount that would be paid by a willing third party in an arm’s
length transaction, taking into account the water restrictions imposed by the Chilean government.
3
Legal rights correspond to expenditures required to give the Group the right to use a property for the surface exploration work, development and production. At 31 December 2021
the remaining amortisation period is from 1.5 to 11.5 years (2020: 2.5 to 12.5 years).
4 The amortisation for the period is included in cost of sales and administrative expenses in the income statement.
The carrying amount of the Volcan CGU, which includes the water permits, is reviewed annually to determine whether it is in excess
of its recoverable amount. No impairments were recognised in 2021 and 2020. The estimated recoverable amount is not materially
different from its carrying value.
Key assumptions
2021
2020
Risk adjusted value per in-situ (gold equivalent ounce) US$
7.15
7.40
US$000
2021
2020
Current carrying value Volcan CGU
55,922
66,036
The estimated recoverable amount is not materially different from its carrying value.
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the key assumptions above
would cause the carrying value to exceed its recoverable amount.
A change in the value in situ assumption could cause an impairment loss or reversal of impairment to be recognised as follows:
Approximate (impairment)/reversal of impairment resulting from the following changes (US$000)
2021
2020
Value per in-situ ounce (20% decrease)
(13,661)
(14,100)
Value per in-situ ounce (20% increase)
13,661
14,100
Risk factor (increase by 5%)
(5,254)
(5,400)
Risk factor (decrease by 5%)
5,254
5,400
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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Annual Report & Accounts 2021
19 Investment in an associate
Following the demerger of Aclara (refer to note 4), the Group retained a 20.0% interest in Aclara Resources Inc., a listed company
involved in the exploration of rare-earth metals in Chile. The company was incorporated under the laws of British Columbia,
Canada, where the principal executive offices are located. The operations are conducted through one wholly-owned subsidiary
named REE UNO SpA, located in Chile.
According to IFRS 10, when a parent loses control of a subsidiary, it must recognise any investment retained in the former subsidiary
at its fair value at the date when control is lost. Any gain or loss on the transaction will be recorded in profit and loss. This fair value
will be accounted for the cost on initial recognition of an investment in an associate. The fair value recognised was US$23,742,000
(refer to note 4).
The Group’s interest in Aclara is accounted for using the equity method in the consolidated financial statements.
In addition, the Group purchased 14,870,397 shares for a total consideration of US$19,995,000 to maintain the 20% interest after
the IPO of Aclara.
At 31 December 2021, the Group holds 32,526,101 shares in Aclara, representing 20% interest in the Company. From
10 December 2021 Aclara is listed on the Toronto Stock Exchange and the fair value of the shares amounted to US$37,080,000
as at 31 December 2021.
The following table summarises the financial information of the Group’s investment in Aclara Resources Inc:
31 December
2021
US$000
Current assets
91,320
Non-current assets
68,126
Current liabilities
(3,185)
Equity
156,261
Group’s share in equity (20%)
31,252
Fair value adjustment allocated to the evaluation and exploration assets on initial recognition
12,307
Group’s carrying amount of the investment (20%)
43,559
Summarised consolidated statement of profit and loss
Revenue
–
Administrative expenses
(324)
Exploration expenses
(510)
Finance cost
(17)
Foreign exchange loss
(479)
Loss from continuing operations for the year
(1,330)
Loss from continuing operations from incorporation to 31 December 2021
(847)
Group’s share of loss for the period
(169)
Other comprehensive loss that may be reclassified to profit or loss in subsequent periods, net of tax
Exchange differences on translating foreign operations
(4,526)
Total comprehensive loss for the year
(4,526)
Total comprehensive loss from incorporation to 31 December 2021
(46)
Group’s share of comprehensive loss for the period
(9)
At the moment of the acquisition of the associate the loss for the period was US$483,000 and the comprehensive loss for the period
was US$4,480,000.
The carrying amount of the investment recognised the changes in the Group’s share of net assets of the associate since the
acquisition date. The balance as at 31 December 2021 is US$43,559,000.
No dividends were received from the associate during 2021.
The associate had no contingent liabilities or capital commitments as at 31 December 2021.
Strategic Report
Financial Statements
Governance
Further Information
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Annual Report & Accounts 2021
20 Financial assets at fair value through OCI
Year ended 31 December
2021
US$000
2020
US$000
Beginning balance
402
6,159
Acquisitions
1
7
–
Fair value change recorded in OCI
261
1,765
Disposals
2
(9)
(7,522)
Ending balance
661
402
1
Corresponds to the purchase of 47,625 shares of Austral Gold (US$7,000).
2
Corresponds to the sale of 51,857 shares of Revelo Resources Corp. with a fair value at the date of sale of US$9,000 generating a loss on disposal of US$18,000 that was recycled to
retained earnings (2020: As the investments were not considered to be strategic, the Group sold 452,200 shares of ASC, 7,399,331 shares of Skeena Resources Limited and 7,000,026
shares of Goldspot Discoveries Inc. with a fair value at the date of sale of US$1,257,000, US$5,337,000 and US$928,000, generating a gain on disposal of US$658,000, US$1,091,000
and US$239,000 respectively).
The Group made the election at initial recognition to measure the below equity investments at fair value through OCI as they are
not held for trading. The fair value at 31 December 2021 and 31 December 2020 is as follows:
As at 31 December
2021
US$000
2020
US$000
Listed equity investments:
Power Group Projects Corp (formerly Cobalt Power Group)
12
27
Revelo Resources Corp.
–
8
Austral Gold
3
–
Skeena Resources Limited
312
325
Empire Petroleum Corp.
334
42
Total listed equity investments
661
402
Total non-listed equity investments
–
–
Total
661
402
Fair value of the listed shares is determined by reference to published price quotations in an active market and they are categorised
as level 1. The fair value of non-listed equity investments is determined based on financial information available for the companies
and they are categorised as level 3.
21 Financial assets at fair value through profit and loss
Year ended 31 December
2021
US$000
2020
US$000
Beginning balance
5,407
–
Acquisitions
1
3,308
4,301
Fair value change recorded in profit and loss
(834)
1,106
Disposals
2
(4,726)
–
Ending balance
3,155
5,407
1
Corresponds to 25,001,540 shares of C3 Metals Inc. received in payment for the sale of the Jasperoide property in Peru (2020: corresponds to 1,687,401 shares of AGSC received as a
payment for the balance receivable for the sale of the San Felipe project recognised as an asset held for sale as at 31 December 2019).
2
During 2021 the Group sold 1,687,401 shares of AGSC, classified as financial assets at fair value through profit and loss, with a fair value at the date of the sale of US$4,726,000,
generating a loss on disposal of US$681,000 which was recognised within finance costs.
The below equity investments are classified at fair value through profit and loss as they are held for trading. The fair value at 31
December 2021 and 31 December 2020 is as follows:
Year ended 31 December
2021
US$000
2020
US$000
Listed equity investments:
Americas Gold and Silver Corporation
–
5,407
C3 Metals Inc.
3,155
–
3,155
5,407
Fair value of the listed shares is determined by reference to published price quotations in an active market and they are categorised
as level 1.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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Annual Report & Accounts 2021
22 Trade and other receivables
As at 31 December
2021
2020
Non-current
US$000
Current
US$000
Non-current
US$000
Current
US$000
Trade receivables
–
27,773
–
45,353
Advances to suppliers
–
5,119
–
4,045
Duties recoverable from exports of Minera Santa Cruz
1
184
–
846
–
Receivables from related parties (note 32(a))
–
224
–
388
Loans to employees
531
257
603
101
Interest receivable
–
95
–
126
Receivable from Kaupthing, Singer and Friedlander Bank
–
200
–
201
Other
2
1,540
9,013
1,519
10,298
Provision for impairment
3
–
(2,421)
–
(7,111)
Assets classified as receivables
2,255
40,260
2,968
53,401
Prepaid expenses
174
6,047
212
4,606
Value Added Tax (VAT)
4
41
23,442
2,215
20,189
Total
2,470
69,749
5,395
78,196
The fair values of trade and other receivables approximate their book value.
1
Relates to export benefits through the Patagonian Port and silver refunds in Minera Santa Cruz, discounted over 18 and 24 months (2020: 18 and 24 months) at a rate of 17.55% (2020:
14.03%) for dollar denominated amounts and 40.17% (2020: 40.34%) for Argentinian pesos. The loss on the unwinding of the discount is recognised within finance expense (2020:
finance income).
2
Mainly corresponds to account receivables from contractors for the sale of supplies of US$2,164,000 (2020: US$1,642,000), receivables from government agencies of US$nil (2020:
US$4,476,000), loan to third parties of US$790,000 (2020: US$512,000), claim receivable of US$1,165,000 (2020: US$1,269,000), receivable from the sale of VAT in San José of US$nil
(2020: US$1,222,000l) and other tax claims of US$2,150,000 (2020: US$45,000).
3
Includes the provision for impairment of trade receivable from customers in Peru of US$1,277,000 (2020: US$1,403,000), the impairment of deposits in Kaupthing, Singer and
Friedlander of US$197,000 (2020: US$201,000), the impairment of the account receivables from government agencies of US$nil (2020: US$4,476,000), the impairment of account
receivable from third parties of US$692,000 (2020: US$656,000) and other receivables of US$343,000 (2020: US$375,000).
4
Primarily relates to US$17,053,000 (2020: US$9,747,000) of VAT receivable related to the San Jose project that will be recovered through future sales of gold and silver and also
through the sale of these credits to third parties by Minera Santa Cruz. It also includes the VAT of Minera Ares of US$5,570,000 (2020: US$9,154,000), REE UNO SpA of US$nil (2020;
US$2,166,000) and Empresa de Transmisión Aymaraes S.A.C. of US$nil (2020: US$590,000). The VAT is valued at its recoverable amount.
Movements in the provision for impairment of receivables:
Individually
impaired
US$000
At 1 January 2020
6,766
Provided for during the year (note 12)
996
Foreign exchange effect
(651)
At 31 December 2020
7,111
Write-off
(4,476)
Foreign exchange effect
(214)
At 31 December 2021
2,421
As at 31 December 2021 and 2020, none of the financial assets classified as receivables (net of impairment) were past due.
23 Inventories
As at 31 December
2021
US$000
2020
US$000
Finished goods valued at cost
220
–
Products in process valued at cost
3,547
4,087
Products in process accrual
7,534
4,413
Supplies and spare parts
41,021
38,778
52,322
47,278
Provision for obsolescence of supplies
(3,138)
(4,916)
Total
49,184
42,362
Finished goods include ounces of gold and silver, dore and concentrate. Products in process include stockpile (2020: stockpile).
The Group either sells dore bars as a finished product or if it is commercially advantageous to do so, delivers the bars for refining
into gold and silver ounces which are then sold. In the latter scenario, the dore bars are classified as products in process. At 31
December 2021 and 2020 the Group had no dore on hand included in products in process.
Concentrate is sold to smelters, but in addition could be used as a product in process to produce dore.
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Further Information
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23
Inventories
continued
As part of the Group’s short-term financing policies, it acquires pre-shipment loans which are guaranteed by the sales contracts.
The Group has contracts as at 31 December 2021 of US$nil (2020: US$10,628,000) (refer to note 27).
The amount of expense recognised in profit and loss related to the consumption of inventory of supplies, spare parts and raw
materials is US$109,191,000 (2020: US$76,739,000).
Movements in the provision for obsolescence comprise an increase in the provision of US$559,000 (2020: US$nil) and the reversal of
US$2,338,000 related to supplies and spare parts, that had been provided for (2020: US$1,921,000).
24 Cash and cash equivalents
As at 31 December
2021
US$000
2020
US$000
Cash at bank
1,065
1,198
Current demand deposit accounts
1
86,058
79,834
Time deposits
2
299,666
150,851
Cash and cash equivalents considered for the statement of cash flows
386,789
231,883
The fair value of cash and cash equivalents approximates their book value. The Group does not have undrawn borrowing facilities
available in the future for operating activities or capital commitments.
1
Relates to bank accounts which are freely available and bear interest.
2
These deposits have an average maturity of 18 days (2020: average of 45 days).
25
Trade and other payables
As at 31 December
2021
2020
Non-current
US$000
Current
US$000
Non-current
US$000
Current
US$000
Trade payables
1
–
78,695
–
72,066
Salaries and wages payable
2
–
30,850
–
26,580
Dividends payable
–
31
–
34
Taxes and contributions
1
9,607
3
5,075
Guarantee deposits
–
5,773
–
5,962
Mining royalties (note 37)
–
1,505
–
315
Accounts payable to related parties (note 32(a))
–
284
–
266
Lease liabilities (note 26)
2,814
1,597
–
617
Other
–
5,140
202
3,500
Total
2,815
133,482
205
114,415
The fair value of trade and other payables approximate their book values.
1
Trade payables relate mainly to the acquisition of materials, supplies and contractors’ services. These payables do not accrue interest and no guarantees have been granted.
2
Salaries and wages payable relates to remuneration payable. At 31 December 2021, there were Board members’ remuneration payable of US$170,000 (2020: US$151,000) and no
Long-Term Incentive Plan payable (2020: US$nil).
26 Leases
The Group has lease contracts for vehicles used in its operations and administrative offices. Leases of motor vehicles generally
have lease terms of three years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets.
The Group also has certain leases of assets with lease terms of 12 months or less and leases of office equipment with low value. The
Group applies the short-term lease and lease of low-value assets recognition exemptions for these leases.
The following are the amounts recognised in profit or loss:
As at 31 December
2021
US$000
2020
US$000
Depreciation expense for right-of-use assets
(1,969)
(2,123)
Interest expense on lease liabilities
(42)
(62)
Expense relating to short-term leases (included in cost of sales, administrative, exploration and other expenses)
(2,751)
(2,335)
Expense relating to leases of low-value assets (included in cost of sales, administrative, exploration and other
expenses)
(1,031)
(1,062)
Variable lease payments (included in cost of sales)
(5,643)
(4,614)
Total amount recognised in profit or loss
(11,436)
(10,196)
The Group had total cash outflows for leases of US$11,606,000 in 2021 (2020: US$10,032,000). There were additions to right-of-use
assets and lease liabilities during the year of US$6,046,000 (2020: US$nil). The future cash outflows relating to leases that have not
yet commenced are US$4,587,000 (2020: US$2,473,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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27 Borrowings
As at 31 December
2021
2020
Effective
interest rate
Non-current
US$000
Current
US$000
Effective
interest rate
Non-current
US$000
Current
US$000
Secured bank loans (a)
Pre-shipment loans in Minera Santa Cruz (note 23)
–
–
28% to 35%
–
10,628
Bank loans
2.17%
300,000
499
1.5%
199,554
150
Total
300,000
499
199,554
10,778
(a) Secured bank loans:
Medium-term bank loans:
In December 2019, a five-year credit agreement was signed between Minera Ares and Scotiabank Peru S.A.A., The Bank of Nova
Scotia and BBVA Securities Inc, with Hochschild Mining PLC as guarantor. The US$200,000,000 medium-term loan was payable in
equal quarterly instalments from the second anniversary of the loan with an interest rate of Libor three months plus 1.15% payable
quarterly until maturity on 13 December 2024. In September 2021, the Group negotiated with the same counterpart a US$
200,000,0000 loan to replace the original loan, plus an additional US$100,000,000 optional loan. US$200,000,000 was withdrawn on
21 September 2021, and the optional US$100,000,000 loan was withdrawn on 1 December 2021. The maturity was extended until
September 2026, and the interest rate increased to three-month USD Libor plus a spread of 1.65%. A structuring fee of US$900,000
was paid to the lender and an additional US$193,000 was incurred as transaction costs. In addition, a commitment fee of
US$120,000 was paid for the period that the optional US$100,000,000 loan remained undrawn. This was considered a substantial
modification to the terms of the loan, and consequently, it was treated as an extinguishment of the loan which resulted in the
derecognition of the existing liability and recognition of a new liability. The associated costs and fees incurred have been
recognised as part of the loss on the extinguishment.
The carrying value including accrued interests payable as at 31 December 2021 is US$300,499,000. The maturity of non-current
borrowings is as follows:
As at 31 December
2021
US$000
2020
US$000
Between 1 and 2 years
25,000
66,666
Between 2 and 5 years
275,000
132,888
Over 5 years
–
–
Total
300,000
199,554
The carrying amount of the pre-shipment loans approximates their fair value. The carrying amount and fair value of the mid-term
loan are as follows:
Carrying amount
as at 31 December
Fair value
as at 31 December
2021
US$000
2020
US$000
2021
US$000
2020
US$000
Secured bank loans
300,499
199,704
296,122
199,110
Total
300,499
199,704
296,122
199,110
The movement in borrowings during the year is as follows:
As at 1
January 2021
US$000
Additions
US$000
Repayments
US$000
Reclassifications
US$000
As at 31
December 2021
US$000
Current
Bank loans
10,101
5,954
(14,793)
(1,262)
–
Accrued interest
677
5,951
(5,720)
(409)
499
10,778
11,905
(20,513)
(1,671)
499
Non-current
Bank loans
199,554
100,000
–
446
300,000
199,554
100,000
–
446
300,000
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Further Information
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28 Provisions
Provision
for mine
closure
1
US$000
Long-Term
Incentive
Plan
2
US$000
Workers’ profit
sharing
US$000
Other
US$000
Total
US$000
At 1 January 2020
106,671
818
6,063
2,019
115,571
Additions
235
308
4,986
41
5,570
Accretion (note 13)
(387)
–
–
–
(387)
Change in discount rate
7,129
–
–
–
7,129
Change in estimates
16,736
–
–
–
16,736
Foreign exchange effect
–
–
(11)
(435)
(446)
Payments
(3,987)
–
(5,649)
–
(9,636)
At 31 December 2020
126,397
1,126
5,389
1,625
134,537
Less: current portion
(19,390)
–
(5,389)
(725)
(25,504)
Non-current portion
107,007
1,126
–
900
109,033
At 1 January 2021
126,397
1,126
5,389
1,625
134,537
Additions
–
(659)
11,018
2,164
12,523
Accretion (note 13)
(2,038)
–
–
–
(2,038)
Change in discount rate
(1,627)
–
–
–
(1,627)
Change in estimates
22,364
–
–
–
22,364
Foreign exchange effect
–
–
(525)
(290)
(815)
Utilisation
(1,978)
–
–
–
(1,978)
Payments
(9,083)
–
(4,990)
–
(14,073)
At 31 December 2021
134,035
467
10,892
3,499
148,893
Less: current portion
(19,670)
–
(10,892)
(1,496)
(32,058)
Non-current portion
114,365
467
–
2,003
116,835
1
The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the expected date of closure of each of the mines. The
present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure adjusted for the impact of
inflation as at 31 December 2021 and 2020 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties on the timing for
use of this provision include changes in the future that could impact the time of closing the mines, as new resources and reserves are discovered. The discount rate used was
-2.09% (2020: -1.58%). Expected cash flows will be over a period from one to 17 years (2020: over a period from one to 17 years).
Based on the internal and external reviews of mine rehabilitation estimates, the provision for mine closure increased by US$22,364,000 mainly due to an increase in the Selene
mine unit of US$14,032,000 and Sipan mine unit of US$3,103,000 (2020: increase by US$16,736,000 mainly due to an increase in the Ares mine unit of US$14,070,000 and San Jose
mine unit of US$1,944,000).
A net charge of US$22,095,000 related to changes in estimates (US$21,378,000) and discount rates (US$717,000) for mines already closed was recognised directly in the income
statement (2020: net charge of US$16,056,000 related to changes in estimates (US$14,312,000) and discount rates (US$1,744,000) for mines already closed was recognised
directly in the income statement).
Utilisation for the year corresponds to depreciation of certain assets which are used as part of mine rehabilitation. This has been recognised against the mine
rehabilitation provision.
The increase in the accretion from 2020 (US$387,000) to 2021 (US$2,038,000) is explained because the Group is closer to the budget execution periods and the discount rates
used for 2021 were more negatives than those of 2021, hence the increase.
A change in any of the following key assumptions used to determine the provision would have the following impact:
US$000
Closure costs (increase by 10%) increase of provision
13,404
Discount rate (increase by 0.5%) (decrease of provision)
(7,426)
An element of mine closure planning can be water management which relates to the treatment of contact water. The cost of this water processing could continue for a number
of years after closure activities have been completed and is therefore, potentially, exposed to long-term climate change. Mine planning for Hochschild’s operating assets takes
into account mine-closure activities. In the case of the now-closed Sipan mine, due to the specific characteristics of the closed mine components, contact water treatment is
ongoing. According to our most recent approved Mine Closure Plan (July 2021), Sipan will be the subject of ongoing treatment until 2025 or until baseline water quality conditions
have been met. As at the date of approval of these financial statements, the impact of climate change on Sipan’s mine closure planning is not expected to be material.
2
Corresponds to the provision related to awards granted under the Long-Term Incentive Plan (‘LTIP’) to designated personnel of the Group. Includes the following benefits: (i)
2020 awards, granted in February 2020, payable in February 2023, as 50% in cash (refer to note 29(c)), (ii) 2019 awards, granted in July 2019, payable in February 2022, as 50%
in cash. Only employees who remain in the Group’s employment on the vesting date will be entitled to vested awards, subject to exceptions approved by the Remuneration
Committee of the Board. There are two parts to the performance conditions attached to LTIP awards: 70% is subject to the Company’s TSR ranking relative to a tailored peer
group of mining companies, and 30% is subject to the Company’s TSR ranking relative to the constituents of the FTSE 350 mining index. The liability for the LTIP paid in cash is
measured, initially and at the end of each reporting period until settled, at the fair value of the awards, by applying the Monte Carlo pricing model, taking into account the terms
and conditions on which the awards were granted, and the extent to which the employees have rendered services to date. The net decrease to the provision of US$659,000
(2020: US$308,000 net increase) has been recorded as administrative expenses -US$630,000 (2020: US$295,000) and exploration expenses -US$29,000 (2020: US$13,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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The following tables list the inputs to the Monte Carlo model used for the LTIPs as at 31 December 2021 and 2020, respectively:
For the period ended
LTIP 2019
LTIP 2020
31 December
2020
US$000
31 December
2021
US$000
31 December
2020
US$000
Dividend yield (%)
1.43
2.37
1.43
Expected volatility (%)
3.39
3.70
3.39
Risk-free interest rate (%)
-0.12
0.02
-0.13
Expected life (years)
1
1
2
Weighted average share price (pence £)
161.37
179.61
179.61
The expected volatility reflects the assumption that the historical volatility over a period is similar to the life of the awards and is
indicative of future trends, which may not necessarily be the actual outcome. The outcome of the LTIP 2019 as at 31 December
2021 was US$nil.
29 Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2021 and 2020 is as follows:
Class of shares
Issued
Number
Amount
Ordinary shares
513,875,563
£128,468,891
At 31 December 2021 and 2020, all issued shares with a par value of 25 pence each were fully paid (2021: weighted average of
US$0.441 per share, 2020: weighted average of US$0.441 per share).
The changes in share capital are as follows:
Number of
shares
Share capital
US$000
Share premium
US$000
Shares issued as at 1 January 2020
513,875,563
226,506
438,041
Shares issued as at 31 December 2020
513,875,563
226,506
438,041
Shares issued as at 31 December 2021
513,875,563
226,506
438,041
Rights attached to ordinary shares
At general meetings of the Company, on a show of hands and on a poll, every member who is present in person or subject to the
below, by proxy, has one vote for every share of which they are the holder/proxy. However, in the case of a vote on a show of hands
where a proxy has been appointed by more than one member, the proxy has one vote for and one vote against if the proxy has been
instructed by one or more members to vote for the resolution and by one or more members to vote against the resolution.
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining PLC shares purchased in the market and held by the trustee of the
Hochschild Mining Employee Share Trust to satisfy the award of conditional shares under the Group’s Enhanced Long-Term
Incentive Plan granted to the CEO (note 2(o)).
The movements in treasury shares are as follows:
– On 30 March 2020, the Group purchased 182,941 shares for a total consideration of £234,000 (equivalent to US$292,000).
– On 30 March 2020, 182,941 treasury shares with a value of US$292,000 (being the cost incurred to acquire the shares) were
transferred to the CEO of the Group with respect to the Enhanced Long-Term Incentive Plan.
At 31 December 2021 the balance of treasury shares is nil (31 December 2020: nil).
(c) Other reserves
Fair value reserve of financial assets at fair value through OCI
In accordance with IFRS 9, the Group made the decision to classify its investments in listed and unlisted companies as financial
assets at fair value through OCI. The increase/decrease in the fair value, net of the related deferred tax liability, is taken directly to this
account where it will remain until disposal, when the cumulative unrealised gains and losses are recycled through retained earnings.
Cumulative translation adjustment
The cumulative translation adjustment account is used to record exchange differences arising from the translation of the financial
statements of subsidiaries with a functional currency different to the reporting currency of the Group.
Merger reserve
The merger reserve represents the difference between the value of the net assets of the Cayman Holding Companies (Ardsley,
Garrison, Larchmont and Hochschild Mining (Peru)) acquired under the Share Exchange Agreement and the nominal value of the
shares issued in consideration of such acquisition.
Cash flow hedges
Changes in the fair value of derivatives designated as cash flow hedges, which are held to hedge the exposure to variability in cash
flows of the hedged items, are recognised in other components of equity until changes in the fair value of the hedged item are
recognised in profit or loss. The Group uses cash flow hedges for hedging the exposure to variability in silver prices.
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Further Information
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29 Equity
continued
Share-based payment reserve
The share-based payment reserve is used to recognise the value of equity-settled share-based payment transactions provided to
employees, as a part of their remuneration.
(i) Enhanced Long-Term Incentive Plan (‘ELTIP’)
In March 2014, the CEO was granted awards under the ELTIP (1,076,122 shares). Awards were made over conditional shares with a
value, on the date of grant, equivalent to six times salary and which vest in tranches over an extended performance period of four,
five and six years. Further details on the design of the ELTIP award and numbers of awards granted are included in the Directors’
Remuneration Report.
The fair value of the option was determined using the Monte Carlo model. The carrying amount of the share-based payment
reserve relating to the ELTIP at 31 December 2021 is US$nil (2020: US$nil) with the amount recognised in the consolidated income
statement of US$nil (2020: US$40,000).
As at 31 December 2019, 538,061 ordinary shares were pending to vest. The vesting percentage of the 50% of the award (538,061
shares) resulted in 34% and on 30 March 2020 the CEO received 182,941 treasury shares, and US$794,000 was transferred from the
share-based payment reserve to retained earnings.
As at 31 December 2021 nil ordinary shares are pending to vest (31 December 2020: nil ordinary shares).
The movement in other reserves is as follows:
US$000
Balance at 1 January 2020
1,047
Expense recognised in the period
40
Vesting at 20 March 2020, treasury shares received by the CEO on 30 March 2020 with a value of US$1.60 per share totalling
US$292,000 (refer to (b) below)
(1,087)
Balance at 31 December 2020 and 2021
–
The movement of the shares according to the date of vesting is as follows:
Number of
shares
Balance of shares pending to vest at 1 January 2020
538,061
Shares lapsed on 20 March 2020 (50% of the award)
(355,120)
Shares vested on 20 March 2020
(182,941)
Balance of shares pending to vest at 31 December 2020 and 2021
–
(ii) Long-Term Incentive Plan (‘LTIP’)
On 25 May 2018 the Group approved the grant of 2018 LTIP awards, on 11 February 2019 the Group approved the grant of 2019
LTIP awards, on 19 February 2020 the Group approved the grant of 2020 LTIP awards and on 26 May 2021 the Group approved the
grant of 2021 LTIP awards. The 2018, 2019 and 2020 awards give a right to receive a cash payment equivalent to the 50% of the
prize (cash-settled transaction) (refer to note 28(2)), and the other 50% will be used to acquire shares of the Company (equity-
settled transaction).
The vesting of the 2021 LTIP awards is subject to the following performance conditions: 50% on Hochschild’s three-year total
shareholder return (‘TSR’) and 50% on internal Key Performance Indicators (KPIs) measured during the same period. The
performance period will be from 1 January 2021 to 31 December 2023. The award will vest in May 2024.
The whole of any vested LTIP award will be deferred in Company shares for two years. The award will lapse if the beneficiary ceases
to be an employee of the Group other than as a good leaver or on death.
Further details on the design of the LTIP award are included in the Directors’ Remuneration Report.
The fair value of the option based on the TSR was determined using the Monte Carlo model. The following tables list the inputs to the
Monte Carlo model used for the 2018 LTIP, 2019 LTIP, 2020 LTIP and 2021 LTIP:
LTIP 2021
LTIP 2020
LTIP 2019
LTIP 2018
Dividend yield (%)
2.37
0.87
1.46
1.18
Expected volatility (%)
3.71
3.19
2.90
5.2
Risk–free interest rate (%)
0.23
0.51
0.42
0.55
Expected life (years)
2
2.5
2.4
2.6
Weighted average share price (pence £)
177.00
179.61
161.37
235.08
The 50% subject to internal KPIs is split equally between:
i)
three-year growth of the Company´s Measured and Indicated Resources (MIR) per share (excluding Volcan), The three-year MIR
growth was projected using a normal distribution based on historical data, and factoring in the additional growth expected from
acquisitions, and
ii)
average outcome of the annual bonus scorecard in respect of 2021, 2022 and 2023, calculated as the simple mean of the three
scorecard outcomes.
Probabilities assigned to each possible outcome, based on historical data and management judgement.
The remaining contract life is nil years (2020: 0.4 years), 0.1 years (2020: 1.1 years), 1.1 years (2020: 2.1 years), and 2.4 years for the
2018 LTIP, 2019 LTIP, 2020 LTIP and 2021 LTIP respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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The movement in other reserves is as follows:
LTIP 2021
US$000
LTIP 2020
US$000
LTIP 2019
US$000
LTIP 2018
US$000
Balance at 1 January 2020
–
–
551
566
Expense recognised in the period
–
438
624
354
Balance at 31 December 2020
–
438
1,175
920
Expense recognised in the period
1,167
509
623
143
Forfeiture of share options
–
–
–
(1,063)
Balance at 31 December 2021
1,167
947
1,798
–
No shares vested during the period (2020: nil).
30 Deferred income tax
The changes in the net deferred income tax assets/(liabilities) are as follows:
As at 31 December
2021
US$000
2020
US$000
Beginning of the year
(72,307)
(61,476)
Income statement credit (note 14)
(7,054)
(12,575)
Equity charge
(7,383)
1,744
End of the year
(86,744)
(72,307)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal authority.
The movement in deferred income tax assets and liabilities before offset during the year is as follows:
Differences
in cost
of PP&E
US$000
Mine
development
US$000
Provisional
pricing
adjustment
US$000
Others
US$000
Total
US$000
Deferred income tax liabilities
At 1 January 2020
36,770
81,768
353
4,283
123,174
Income statement charge/(credit)
2,751
3,184
343
(636)
5,642
At 31 December 2020
39,521
84,952
696
3,647
128,816
Income statement charge/(credit)
6,108
(67)
(752)
(495)
4,794
At 31 December 2021
45,629
84,885
(56)
3,152
133,610
Differences
in cost
of PP&E
US$000
Provision
for mine
closure
US$000
Mine
development
US$000
Others
1
US$000
Total
US$000
Deferred income tax assets
At 1 January 2020
31,044
21,380
584
8,690
61,698
Income statement (charge)/credit
(10,914)
4,004
(110)
87
(6,933)
Equity credit
–
–
–
1,744
1,744
At 31 December 2020
20,130
25,384
474
10,521
56,509
Income statement (charge)/credit
(7,333)
5,082
(109)
100
(2,260)
Equity charge
–
–
–
(7,383)
(7,383)
At 31 December 2021
12,797
30,466
365
3,238
46,866
1
Credit/(charge) in the year mainly related to silver forward of US$7,383,000 (2020: interest rate swap of US$1,744,000), statutory holiday provision of US$1,112,000 (2020:
US$857,000) and Long-Term Incentive Plan of US$731,000 (2020: US$771,000).
The amounts after offset, as presented on the face of the statement of financial position, are as follows:
As at 31 December
2021
US$000
2020
US$000
Deferred income tax assets
484
1,009
Deferred income tax liabilities
(87,228)
(73,316)
Total
(86,744)
(72,307)
Unrecognised tax losses expire in the following years:
As at 31 December
2021
US$000
2020
US$000
Expire after four years
167,273
171,527
167,273
171,527
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Further Information
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30 Deferred income tax
continued
Other unrecognised deferred income tax assets comprise (gross amounts):
As at 31 December
2021
US$000
2020
US$000
Provision for mine closure
1
7,887
9,212
1
This relates to provision for mine closure expenditure which is expected to be incurred in periods in which taxable profits are not expected to be available to offset the expenditure.
Unrecognised deferred tax liability on retained earnings
At 31 December 2021 and 2020, there was no recognised deferred tax liability for taxes that would be payable on the unremitted
earnings of certain of the Group’s subsidiaries as the intention is that these amounts are permanently reinvested.
31 Dividends
2021
US$000
2020
US$000
Dividends paid and proposed during the year
Equity dividends on ordinary shares:
Final dividend for 2020: 2.335 US cents per share (2019: nil US cents per share)
12,002
–
Interim dividend for 2021: 1.95 US cents per share (2020: 4.000 US cents per share)
10,020
20,556
Total dividends paid in cash
22,022
20,556
Dividends in specie paid with Aclara shares (note 4)
94,945
–
Total dividends paid on ordinary shares
116,967
20,556
Proposed dividends on ordinary shares:
Final dividend for 2021: 2.335 US cents per share (2020: 2.335 US cents per share)
12,000
12,002
Dividends declared to non-controlling interests: 0.058 US$ per share (2020: 0.002 US$ per share)
9,832
345
Total dividends declared to non-controlling interests
9,832
345
Dividends paid in 2021 to non-controlling interests amounted to US$9,832,000 (2020: US$345,069).
In August 2021, the Board became aware of an issue concerning technical compliance with the Companies Act 2006 in relation to
the 2017 final dividend, the 2018 interim and final dividends, the 2019 interim dividend, and the 2020 interim and final dividends (the
‘Relevant Dividends’). In particular, the Relevant Dividends were paid to shareholders when the Company did not have adequate
distributable reserves.
Significant corrective transactions (namely, a capital reduction and dividend distribution by the Company’s wholly-owned
subsidiary, Hochschild Mining Holdings Limited) were implemented by the Company in September 2021, shortly after discovery of
the issue. Had these internal corporate transactions been implemented prior to the payment of the 2017 final dividend, adequate
distributable reserves would have been available to the Company.
As previously reported, the Board intends to put resolutions to shareholders at a General Meeting to i) complete the rectification of
this past issue and ii) increase further, to the extent practicable, the level of Distributable Reserves available to the Company.
Dividends per share
The interim dividend paid in September 2021 was US$10,020,000 (1.954 US cents per share). A dividend in specie amounting to
US$94,945,000 was paid in December 2021 (refer to note 4). A proposed dividend in respect of the year ending 31 December 2021
of 2.335 US cents per share, amounting to a total dividend of US$12,000,000, is subject to approval at the Annual General Meeting
to be held on 26 May 2022 and is not recognised as a liability as at 31 December 2021.
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 2021 and 2020. The
related parties are companies owned or controlled by the main shareholder of the Parent Company or associates.
Accounts receivable
as at 31 December
Accounts payable
as at 31 December
2021
US$000
2020
US$000
2021
US$000
2020
US$000
Current related party balances
Cementos Pacasmayo S.A.A.
1
217
387
152
146
Tecsup
2
1
1
115
120
Universidad UTEC
2
–
–
5
–
REE UNO SpA
3
6
–
–
–
Aclara Resources Inc
3
–
–
12
–
Total
224
388
284
266
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.
3 Associated companies of the Aclara Group (refer to notes 4 and 19).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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As at 31 December 2021 and 2020, all accounts are, or were, non-interest bearing.
No security has been granted or guarantees given by the Group in respect of these related party balances.
Principal transactions between affiliates are as follows:
Year ended 31 December
2021
US$000
2020
US$000
Expenses
Expense recognised for the rental paid to Cementos Pacasmayo S.A.A.
(403)
(469)
Expense donations to Tecsup
–
(505)
Expense donations to Universidad UTEC
–
(875)
Expense technical services from Tecsup
(292)
(190)
Transactions between the Group and these companies are at an arm’s length basis.
(b) Compensation of key management personnel of the Group
Compensation of key management personnel (including Directors)
Year ended 31 December
2021
US$000
2020
US$000
Short-term employee benefits
7,509
7,330
Long-term Incentive Plans
776
808
Total compensation paid to key management personnel
8,285
8,138
This amount includes the remuneration paid to the Directors of the Parent Company of the Group of US$3,967,000 (2020:
US$3,821,000).
(c) Related party transaction
Participation of Pelham Investment Corporation in the IPO of Aclara
As announced by the Company on 3 December 2021, Pelham Investment Corporation (‘Pelham’), a company controlled by the
Chairman, Eduardo Hochschild, entered into a subscription agreement with Aclara on 2 December 2021 pursuant to which Pelham
agreed to purchase, on a prospectus exempt basis in Canada, 22,791,399 Aclara shares at a price of C$1.70 per share (the ‘Offering
Price’). In addition, Pelham subscribed for 9,855,660 Aclara shares at the Offering Price as part of the IPO. These share acquisitions,
which are in addition to the Aclara shares acquired by Pelham as part of the demerger dividend, constitute a smaller related party
transaction for the purposes of the UK Listing Rules. Accordingly, as also announced, the Company obtained a written confirmation
from a sponsor that the terms of the smaller related party transaction were fair and reasonable as far as the shareholders of the
Company are concerned.
33 Auditor’s remuneration
The auditor’s remuneration for services provided to the Group during the years ended 31 December 2021 and 2020 is as follows:
Amounts paid to Ernst & Young in
the year ended 31 December
2021
US$000
2020
US$000
Audit fees pursuant to legislation
1
1,206
855
Audit-related assurance services
130
90
Other assurance services
2
176
12
Other non-audit services
3
–
37
Total
1,512
994
1
The total audit fee in respect of local statutory audits of subsidiaries is US$417,000 (2020: US$323,000).
2
Includes US$164,000 for assurance services (including comfort letters) in relation to the spin-off of Aclara and US$12,000 for assurance services over the Group’s environmental
ECO Score. (2020: US$ 12,000 for assurance services over the Group’s environmental ECO Score).
3
Related to corporate finance transaction services for a transaction that did not proceed.
In 2021 and 2020, all fees are included in administrative expenses.
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34 Notes to the statement of cash flows
As at 31 December
2021
US$000
2020
US$000
Reconciliation of loss for the year to net cash generated from operating activities
Profit for the year
71,106
20,426
Adjustments to reconcile Group loss to net cash inflows from operating activities
Depreciation (note 3(a))
150,292
116,920
Amortisation of intangibles (note 18)
1,118
1,115
Write-off of assets (note 16)
863
2,078
Provision of doubtful receivable (note 12)
–
996
Impairment /(reversal of impairment) of assets (note 11)
24,846
(8,303)
Gain on demerger of Aclara (note 4)
(37,461)
–
Loss on sale of financial assets at fair value through profit and loss (note 21)
834
–
Share of post-tax losses of associates
169
–
Gain on sale of property, plant and equipment
(3,342)
(231)
Provision for obsolescence of supplies (note 12)
(1,779)
(1,921)
Increase of provision for mine closure (note 12)
22,095
16,056
Finance income (note 13)
(3,946)
(4,197)
Finance costs (note 13)
32,061
23,560
Income tax expense (note 14)
66,225
42,494
Other
7,742
4,012
Increase/(decrease) of cash flows from operations due to changes in assets and liabilities
Trade and other receivables
(13,734)
(18,905)
Income tax receivable
(3,501)
2,189
Other financial assets and liabilities
15,336
90
Inventories
(4,534)
21,991
Trade and other payables
(9,542)
(8,611)
Provisions
4,740
(760)
Cash generated from operations
319,588
208,999
35
Commitments
(a) Mining rights purchase options
During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third
parties. Generally, under the terms of these agreements, the Group has the option to acquire the concession or invest in the entity
holding the concession. In order to exercise these options the Group must satisfy certain financial and other obligations during the
term of the agreement. The options lapse in the event that the Group does not meet its financial obligations. At any point in time, the
Group may cancel the agreements without penalty, except where specified below. These agreements are not under non-
cancellable/irrevocable clauses.
The Group continually reviews its requirements under the agreements and determines, on an annual basis, whether to proceed with
its financial commitment. Based on management’s current intention regarding these projects, the commitments at the statement of
financial position date are as follows:
As at 31 December
2021
US$000
2020
US$000
Commitment for the subsequent 12 months
12,583
3,837
More than one year
66,218
35,552
(b) Capital commitments
For the year ended 31 December
2021
US$000
2020
US$000
Peru
24,946
1,800
Argentina
13,812
2,111
38,758
3,911
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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36 Contingencies
As at 31 December 2021 the Group is subject to various claims which arise in the ordinary course of business. No provision has been
made in the financial statements and none of these claims are currently expected to result in any material loss to the Group.
(a) Taxation
Fiscal periods remain open to review by the tax authorities for four years in Peru, five years in Argentina and Mexico and three years
in Chile, preceding the year of review. During this time the authorities have the right to raise additional tax assessments including
penalties and interest. Under certain circumstances, reviews may cover longer periods.
Because a number of fiscal periods remain open to review by the tax authorities, coupled with the complexity of the Group and the
transactions undertaken by it, there remains a risk that significant additional tax liabilities may arise. As at 31 December 2021, the
Group had exposures totalling US$20,622,000 (2020: US$26,706,000).
When the tax authority challenges the deductibility of certain expenses the Group reassesses the case internally and externally,
with the support of a third-party professional, to determine the probability of success and, depending on the result, makes the
decision whether or not to continue with the claim. Notwithstanding this risk, the Directors believe that management’s interpretation
of the relevant legislation and assessment of taxation is appropriate and that it is probable that the Group’s tax and customs
positions will be sustained in the event of a challenge by the tax authorities. Consequently, the Directors consider that no tax liability
is required to be recognised in respect of these claims or risks.
(b) Guarantees
The Group is required to provide guarantees in Peru in respect of environmental restoration and decommissioning obligations. The
Group has provided for the estimated cost of these activities (see note 28(1)).
37
Mining royalties
Peru
In accordance with Peruvian legislation, owners of mining concessions must pay a mining royalty for the exploitation of metallic and
non-metallic resources. Mining royalties have been calculated with rates ranging from 1% to 3% of the value of mineral concentrate
or equivalent sold, based on quoted market prices.
In October 2011 changes came into effect for mining companies, with the following features:
a)
Introduction of a Special Mining Tax (‘SMT’), levied on mining companies at the stage of exploiting mineral resources. The
additional tax is calculated by applying a progressive scale of rates ranging from 2% to 8.4%, of the quarterly operating profit.
b)
Modification of the mining royalty calculation, which consists of applying a progressive scale of rates ranging from 1% to 12%, of
the quarterly operating profit. The former royalty was calculated on the basis of monthly sales value of mineral concentrates.
The SMT and modified mining royalty are accounted for as an income tax in accordance with IAS 12 ‘Income Taxes’
c)
For companies that have mining projects benefiting from tax stability regimes, mining royalties are calculated and recorded as
they were previously, applying an additional new special charge on mining that is calculated using progressive scale rates,
ranging from 4% to 13.12% of quarterly operating profit.
As at 31 December 2021, the amounts payable under the new mining royalty and the SMT amounted to US$1,341,000 (2020:
US$1,544,000) and US$882,000 (2020: US$1,492,000) respectively. The new mining royalty and SMT are reported as ‘Income tax
payable’ in the statement of financial position. The amount recorded in the income statement was US$6,326,000 (2020:
US$4,088,000) of new mining royalty and US$5,916,000 (2020: US$3,119,000) of SMT, both classified as income tax.
Argentina
In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to collect
royalties from mine operators. For San Jose, the mining royalty applicable to dore and concentrate is 3% of the pit-head value. As at
31 December 2021, the amount payable as mining royalties amounted to US$1,505,000 (2020: US$315,000). The amount recorded
in the income statement as cost of sales was US$7,171,000 (2020: US$5,208,000).
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Further Information
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38
Financial risk management
The Group is exposed to a variety of risks and uncertainties which may have a financial impact on the Group and which also impact
the achievement of social, economic and environmental objectives. These risks include strategic, commercial, operational and
financial risks and are further categorised into risk areas to facilitate consolidated risk reporting across the Group.
The Group has made significant developments in the management of the Group’s risk environment which seeks to identify and,
where appropriate, implement the controls to mitigate the impact of the Group’s significant risks. This effort is supported by a Risk
Committee with the participation of the CEO, the Vice Presidents, and the head of the internal audit function. The Risk Committee is
responsible for implementing the Group’s policy on risk management and internal control in support of the Company’s business
objectives, and monitoring the effectiveness of risk management within the organisation.
(a) Commodity price risk
Silver and gold prices have a material impact on the Group’s results of operations. Prices are significantly affected by changes in
global economic conditions and related industry cycles. Generally, producers of silver and gold are unable to influence prices
directly; therefore, the Group’s profitability is ensured through the control of its cost base and the efficiency of its operations.
The Group’s policy is generally to remain hedge-free. However, management continuously monitors silver and gold prices and
reserves the right to take the necessary action, where appropriate and within Board approved parameters, to mitigate the impact
of this risk. During 2020 the Group had no hedging instruments.
At 31 December 2020 the Group was not exposed to commodity price risk on commodity forward contracts.
Derivative financial assets – Silver forward
On 8 February 2021, the Group signed agreements with JP Morgan to hedge the sale of 4,000,000 ounces of silver at US$27.10 per
ounce for 2021 and a further 4,000,000 ounces of silver at US$26.86 per ounce for 2022.
On 10 November 2021, the Group signed agreements with JP Morgan to hedge the sale of 3,300,000 ounces of silver at US$25.0 per
ounce for 2023.
The silver forwards are being used to hedge exposure to changes in cash flows from silver commodity prices. There is an economic
relationship between the hedged item and the hedging instruments due to a common underlying. In accordance with IFRS 9, the
derivative instruments are categorised as cash flow hedges at the inception of the hedging relationship and, on an ongoing basis,
the Group assesses whether a hedging relationship meets the hedge effectiveness requirements. The Group has established a
hedge ratio of 1:1 for the hedging relationships as the underlying risk of the silver forwards is identical to the hedged risk
components. To test the hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes in the
fair value of the silver forwards against the changes in fair value of the hedged item attributable to the hedged risk. That said, it is
observed that the effectiveness tests comply with the requirements of IFRS 9 and that the hedging strategy is highly effective.
The fair values of the silver forwards were calculated using a discounted cash flow model applying a combination of level 1 (USD
quoted market commodity prices) and level 2 inputs. The models used to value the commodity forward contracts are standard
models, that calculate the present value of the fixed legs (the fixed silver leg) and compare them with the present value of the
expected cash flows of the flowing legs (the London Metal Exchange ‘LME’ silver fixing). In the case of the commodity forward
contracts, the models use the LME AG forward curve and the US LIBOR swap curve for discounting.
This approach results in the fair value measurement categorised in its entirety as level 2 in the fair value hierarchy. The fair values of
the silver forwards as at 31 December 2021 are as follows:
US$000
Current assets
5,042
Non-current assets
14,073
19,115
The effect recorded is as follows:
US$000
Income statement – revenue
7,982
Equity – unrealised gain on hedges
19,115
The sensitivity to a reasonable movement in the commodity prices, with all other variables held constant, determined as a +/-10%
change in prices has aUS$2,182,000/ US$36,046,000 effect on OCI.
The Group has price adjustments arising from the sale of concentrate and dore which were provisionally priced at the time the sale
was recorded (refer to note 5). The sensitivity of the fair value to an immediate 10% favourable or adverse change in the price of
gold and silver (assuming all other variables remain constant) is as follows:
Year
Increase/
decrease in
price of
ounces of:
Effect on
profit before tax
US$000
2021
Gold +/-10%
+/-95
Silver+/-10%
+/-757
2020
Gold +/-10%
+/-210
Silver+/-10%
+/-890
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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(b) Foreign currency risk
The Group produces silver and gold which are typically priced in US dollars. A proportion of the Group’s costs are incurred in
pounds sterling, Peruvian nuevos soles, Canadian dollars, Argentinian pesos, Chilean pesos and Mexican pesos. Accordingly, the
Group’s financial results may be affected by exchange rate fluctuations between the US dollar and the local currency. The long-
term relationship between commodity prices and currencies in the countries in which the Group operates provides a certain degree
of natural protection. The Group does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their
respective currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the
Group’s profit before tax and the Group’s equity.
Year
Increase/
decrease in
US$/other
currencies’
rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
2021
Pounds sterling
+/-10%
-/+248
–
Argentinian pesos
+/-10%
-/+3,084
–
Mexican pesos
+/-10%
+/-1,879
–
Peruvian nuevos soles
+/-10%
-/+3,663
–
Canadian dollars
+/-10%
-/+270
+/-32
Chilean pesos
+/-10%
-/+82
–
2020
Pounds sterling
+/-10%
+/-11
–
Argentinian pesos
+/-10%
+/-867
–
Mexican pesos
+/-10%
+/-2,026
–
Peruvian nuevos soles
+/-10%
-/+4,059
–
Canadian dollars
+/-10%
+/-424
+/-37
Chilean pesos
+/-10%
-/+144
–
(c) Credit risk
Credit risk arises from debtors’ inability to make payment of their obligations to the Group as they become due (without taking into
account the fair value of any guarantee or pledged assets). The Group is primarily exposed to credit risk as a result of commercial
activities and non compliance, by counterparties, in transactions in cash which are primarily limited to cash balances deposited in
banks and accounts receivable at the statement of financial position date.
Counterparty credit exposure based on commercial activities, including trade and other receivables, embedded derivatives, hedge
instruments and cash balances in banks as at 31 December 2021 and 31 December 2020:
Summary commercial partners
As at
31 December
2021
US$000
% collected as
at 21 February
2022
As at
31 December
2020
US$000
% collected as
at 16 February
2021
Trade receivables
27,773
74%
45,353
56%
Other receivables include advances to suppliers and receivables from contractors for the sale of supplies. There is no credit risk on
these amounts as the Group can withhold the balances that it owes the suppliers or contractors for their services.
Cash and cash equivalents – Credit rating
1
As at
31 December
2021
US$000
As at
31 December
2020
US$000
A+
60,000
20,000
A
–
14,479
A-
142,740
79,559
BBB+
171,328
100,421
BBB
–
14,528
NA
12,721
2,896
Total
386,789
231,883
1
Represents the long-term credit rating as at 3 January 2022 (2020: 4 February 2021).
As at 31 December 2021, the credit rating of the counterparty of the silver forward hedges is A-.
To manage the credit risk associated with commercial activities, the Group took the following steps:
– Active use of prepayment/advance clauses in sales contracts.
– Delaying delivery of title and/or requiring advance payments to reduce exposure timeframe (potential delay in sales recognition).
– Maintaining as diversified a portfolio of clients as possible.
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38
Financial risk management
continued
To manage credit risk associated with cash balances deposited in banks, the Group took the following steps:
– Increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and to
diversify credit risk.
– Limiting exposure to financial counterparties according to Board approved limits.
– Investing cash in short-term, highly liquid and low-risk instruments (term deposits mainly).
– Increasing the utilisation of UK bank accounts.
Receivable balances are monitored on an ongoing basis and the result of the Group’s exposure to bad debts is recognised in the
consolidated income statement. The maximum exposure is the carrying amount as disclosed in notes 22, 24 and 38(e).
The Group’s risk assessment procedures includes customer analysis and reviewing financial counterparties. For further details refer
to the Commentary section of the Commercial Counterparty risk in the Risk Management and Viability Report.
(d) Equity risk on financial instruments
The Group acquires financial instruments in connection with strategic alliances with third parties. The Group constantly monitors
the fair value of these instruments in order to decide whether or not it is convenient to dispose of these investments. The disposal
decision is also based on management’s intention to continue with the strategic alliance, the tax implications and changes in the
share price of the investee.
At 31 December 2021 the sensitivity to reasonable movements in the share price of financial assets at fair value through OCI of +/-
25% with all other variables held constant is +/-US$165,000 (2020: +/-US$101,000) recognised in equity. The sensitivity to
reasonable movements in the share price of financial assets at fair value through profit and loss of +/- 25% with all other variables
held constant is +/-US$789,000 (2020: +/-US$1,352,000) recognised in the consolidated statement of profit and loss.
(e) Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
As at 31 December 2021 and 2020, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
31 December
2021
US$000
Level 1
US$000
Level 2
US$000
Level 3
US$000
Equity shares (notes 20 and 21)
3,816
3,816
–
–
Trade receivables (note 22)
27,773
–
–
27,773
Derivative financial assets
19,115
–
19,115
–
Assets measured at fair value
31 December
2020
US$000
Level 1
US$000
Level 2
US$000
Level 3
US$000
Equity shares (notes 20 and 21)
5,809
5,809
–
–
Trade receivables (note 22)
45,353
–
–
45,353
Liabilities measured at fair value
Derivative financial liabilities
(6,003)
–
(6,003)
–
During the period ending 31 December 2021 and 2020, there were no transfers between these levels.
The reconciliation of the financial instruments categorised as level 3 is as follows:
Trade
receivables/
price
adjustments
US$000
Balance at 1 January 2020
37,799
Net change in trade receivables from goods sold
6,289
Changes in fair value of price adjustments (note 5)
10,999
Realised price adjustments during the year
(9,734)
Balance at 31 December 2020
45,353
Net change in trade receivables from goods sold
(12,969)
Changes in fair value of price adjustments (note 5)
(6,614)
Realised price adjustments during the year
2,003
Balance at 31 December 2021
27,773
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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The impact of the hedging instrument and hedge item on the statement of financial position is as follows:
Silver ounces
Average price
US$/ounce
Line item
in the
statement of
financial
position
Carrying
amount of
hedging
instrument
US$000
Change in
fair value of
hedging in-
strument used
for measuring
ineffectiveness
for the period
US$000
Change in
fair value
of hedged
item used for
measuring
ineffectiveness
for the period
US$000
Silver forward contracts
7.5 million
26.03
Derivative
financial
asset
19,115
13,476
13,476
The hedging gain recognised in OCI before tax on silver forward hedges is equal to the change in fair value of the hedged item
attributable to the hedged risk used for measuring effectiveness. There is no ineffectiveness recognised in profit or loss.
Impact of hedging on equity
Set out below is the reconciliation of each component of equity and the analysis of other comprehensive income:
Interest rate
swap
US$000
Silver
forward
US$000
Total
US$000
Balance at 1 January 2021
(4,169)
–
(4,169)
Reclassification adjustments for items included in the income statement on realisation:
Transfer to silver sales (revenue)
–
(7,982)
(7,982)
Transfer to finance costs
5,521
–
5,521
Revaluation arising on the year
392
27,097
27,489
Movement in deferred tax
(1,744)
(5,639)
(7,383)
Balance at 31 December 2021
–
13,476
13,476
(f) Liquidity risk
Liquidity risk arises from the Group’s inability to obtain the funds it requires to comply with its commitments, including the inability to sell
a financial asset quickly enough and at a price close to its fair value. Management constantly monitors the Group’s level of short- and
medium-term liquidity, and its access to credit lines, in order to ensure appropriate financing is available for its operations.
The table below categorises the undiscounted cash flows of Group’s financial liabilities into relevant maturity groupings based on the
remaining period as at the statement of financial position to the contractual maturity date. Interest cash flows have been calculated
using the spot rate at year end.
Less than
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
At 31 December 2021
Trade and other payables
118,110
1,637
1,177
–
120,924
Borrowings
5,644
30,597
285,387
–
321,628
Total
123,754
32,234
286,564
–
442,552
At 31 December 2020
Trade and other payables
103,419
211
–
–
103,630
Borrowings
14,316
69,124
135,424
–
218,864
Derivative financial liabilities
1
1,500
1,557
2,946
–
6,003
Total
119,235
70,892
138,370
–
328,497
1
The interest rate swap settles the difference between the fixed and floating interest rate on a net basis on a quarterly basis.
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Further Information
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38
Financial risk management
continued
(g) Interest rate risk
The Group has financial assets and liabilities which are exposed to interest rate risk. Changes in interest rates primarily impact
loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). The Group
does not have a formal policy of determining how much of its exposure should be at fixed or at variable rates. However, at the time
of taking new loans or borrowings, management applies its judgement to decide whether it believes that a fixed or variable rate
borrowing would be more favourable to the Group over the expected period until maturity.
As at 31 December 2021
Within
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Fixed rate
Assets
299,666
–
–
–
299,666
Floating rate
Liabilities
(499)
(25,000)
(275,000)
–
300,499
As at 31 December 2020
Within
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
Fixed rate
Assets
150,851
–
–
–
150,851
Liabilities
(10,628)
–
–
–
(10,628)
Floating rate
Liabilities
(150)
(66,666)
(132,888)
–
(199,704)
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that are
not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk.
The sensitivity to a reasonable movement in the interest rate, with all other variables held constant, of the financial instruments with
a floating rate, determined as a +/-20bps change in interest rates, has a -/+US$600,000 effect on profit before tax (2020:
-/+US$400,000). The Group is exposed to fluctuations in market interest rates.
This assumes that the amount remains unchanged from that in place at 31 December 2021 and 2020 and that the change in
interest rates is effective from the beginning of the year. In reality, the floating rate will fluctuate over the year and interest rates will
change accordingly.
Derivative financial liabilities – Interest rate swap
On 14 February 2020, the Group and JP Morgan Chase Bank, N.A. entered into an interest rate swap with a notional amount equal
to the principal of the medium-term loan whereby the Group paid a fixed rate of 2.534% and received interest at a variable rate
equal to Libor+1.15% on the notional amount from 17 March 2020 to 17 December 2024. The interest rate swap was used to hedge
the exposure to changes in the cash flows of the Group’s variable rate medium-term loan. In accordance with IFRS 9, this derivative
instrument was categorised as a cash flow hedge at the inception of the hedging relationship, and on an ongoing basis, the Group
assessed whether a hedging relationship meets the hedge effectiveness requirements. At a minimum, an entity shall perform the
ongoing assessment at each reporting date or upon a significant change in the circumstances affecting the hedge effectiveness
requirements, whichever comes first. The assessment relates to expectations about hedge effectiveness and is therefore only
forward-looking.
The Group has established a ratio of 1:1 for the hedging relationship as the underlying risk of the interest rate swap is identical to
the hedged risk component. The hedging instrument and the hedged item have values that move in the opposite direction due to
the same risk and, therefore, there is an economic relationship between the hedged item and the instrument coverage as the terms
of the interest rate swap match the terms of the fixed rate loan (i.e., notional amount, maturity and payment dates). That said, it is
observed that the effectiveness tests comply with the requirements of IFRS 9 and we conclude that the hedging strategy is highly
effective. There is no ineffectiveness recognised in profit or loss.
The fair value of the interest rate swap was calculated using a discounted cash flow model applying a combination of level 1 (USD
swap curve and USD zero yield curve) and level 2 inputs. This approach results in the fair value measurement categorised in its
entirety as level 2 in the fair value hierarchy.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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The fair value of the interest rate swap as at 31 December 2020 was as follows:
US$000
Current derivative financial liabilities
1,500
Non-current derivative financial liabilities
4,503
6,003
The effect recorded is as follows:
US$000
Income statement – Finance costs
90
Equity – Cash flow hedge reserve
5,913
The Group repaid the interest rate swap on 21 September 2021, paying US$3,774,000.
The effect recorded is as follows:
US$000
Income statement – Finance costs
5,521
(h) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders, benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost
of capital. Management considers as part of its capital, the financial sources of funding from shareholders and third parties
(notes 27 and 29).
In 2021 the Group received proceeds from borrowings of US$105,954,000 (2020: US$48,520,000) whilst US$14,793,000 (2020:
US$37,717,000) was repaid.
Management also retains the right to fund operations (fully owned and with joint venture partners) with a mix of equity and joint
venture partners’ debt.
39
Subsequent events
The Group entered into a definitive agreement with Amarillo Gold Corporation (‘Amarillo’) to acquire all of the issued and
outstanding shares of Amarillo at a price of C$0.40 per share in cash (the ‘Cash Offer’). Pursuant to the Transaction, the Group will
acquire a 100% interest in Amarillo’s flagship Posse gold project (‘Posse’) located in Goiás State, Brazil. The shareholders of Amarillo
will receive shares in a newly formed company, Lavras Gold Corp., which will hold a stake in the Lavras do Sul project, C$10 million of
cash, and a 2.0% net smelter revenue royalty on certain exploration properties owned by Amarillo and located outside the current
Posse resource and mine plan at Amarillo’s Mara Rosa property. The net acquisition cost to Hochschild, including the Cash Offer,
cash provided to Lavras Gold Corp. and Amarillo’s net cash is estimated to be C$135 million (approximately US$106 million).
Strategic Report
Financial Statements
Governance
Further Information
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Parent company statement of financial position
As at 31 December 2021
Notes
As at 31 December
2021
US$000
2020
US$000
ASSETS
Non-current assets
Investments in subsidiaries
5
1,138,762
2,104,219
1,138,762
2,104,219
Current assets
Other receivables
6
5,211
2,603
Cash and cash equivalents
7
528
748
5,739
3,351
Total assets
1,144,501
2,107,570
EQUITY AND LIABILITIES
Equity share capital
8
226,506
226,506
Share premium
8
458,267
458,267
Other reserves
3,912
2,533
Retained earnings
435,136
1,127,421
Total equity
1,123,821
1,814,727
Non-current liabilities
Trade and other payables
9
1,837
872
Provisions
10
37
81
1,874
953
Current liabilities
Trade and other payables
9
18,806
291,890
18,806
291,890
Total liabilities
20,680
292,843
Total equity and liabilities
1,144,501
2,107,570
The loss of the Company after tax amounted to US$576,381,000 (2020: profit of US$283,560,000).
The financial statements were approved by the Board of Directors on 22 February 2022 and signed on its behalf by:
Ignacio Bustamante
Chief Executive Officer
22 February 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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Parent company statement of cash flows
For the year ended 31 December 2021
Notes
Year ended 31 December
2021
US$000
2020
US$000
Reconciliation of loss for the year to net cash used in operating activities
(Loss)/profit for the year
(576,381)
283,560
Adjustments to reconcile Company profit to net cash outflows from operating activities
Impairment/(reversal of impairment) on investment in subsidiary
5
966,933
(288,306)
Share-based payments
2,442
1,456
Finance income
13
(397,380)
(296)
Finance costs
13
12
Income tax
2
–
(Decrease)/increase of cash flows from operations due to changes in assets and liabilities
Other receivables
(2,637)
(1,496)
Trade and other payables
824
390
Provision for Long-Term Incentive Plan
10
(44)
21
Cash used in operating activities
(6,228)
(4,659)
Interest received
1
1
Net cash used in operating activities
(6,227)
(4,658)
Cash flows from investing activities
Repayment of loans to subsidiaries
–
5,175
Dividends collected
29
–
Net cash generated from investing activities
29
5,175
Cash flows from financing activities
Dividends paid
12
(22,022)
(20,556)
Purchase of treasury shares
8(b)
–
(292)
Repayment of loan from subsidiary
–
(5,000)
Loans from subsidiaries
11(a)
28,000
25,525
Cash flows generated from/(used in) financing activities
5,978
(323)
Net (decrease)/increase in cash and cash equivalents during the year
(220)
194
Cash and cash equivalents at beginning of year
748
554
Cash and cash equivalents at end of year
7
528
748
Strategic Report
Financial Statements
Governance
Further Information
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Parent company statement of changes in equity
For the year ended 31 December 2021
Notes
Other reserves
Retained
earnings
US$000
Total equity
US$000
Equity
share
capital
US$000
Share
premium
US$000
Treasury
shares
US$000
Share-
based
payment
reserve
US$000
Total other
reserves
US$000
Balance at 1 January 2020
226,506
458,267
–
2,164
2,164
863,622
1,550,559
Other comprehensive income
–
–
–
–
–
–
–
Profit for the year
–
–
–
–
–
283,560
283,560
Total comprehensive profit for the year
–
–
–
–
–
283,560
283,560
Exercise of share options
8(b)
–
–
292
(1,087)
(1,087)
795
–
Dividends
12
–
–
–
–
–
(20,556)
(20,556)
Purchase of treasury shares
8(b)
–
–
(292)
–
–
–
(292)
Share-based payments
8(c)
–
–
–
1,456
1,456
–
1,456
Balance at 31 December 2020
226,506
458,267
–
2,533
2,533
1,127,421
1,814,727
Other comprehensive income
–
–
–
–
–
–
–
Profit for the year
–
–
–
–
–
(576,381)
(576,381)
Total comprehensive profit for the year
–
–
–
–
–
(576,381)
(576,381)
Exercise of share options
8(c)
–
–
–
(1,063)
(1,063)
1,063
–
Dividends
12
–
–
–
–
–
(22,022)
(22,022)
Dividends in specie
12
–
–
–
–
–
(94,945)
(94,945)
Share-based payments
8(c)
–
–
–
2,442
2,442
–
2,442
Balance at 31 December 2021
226,506
458,267
–
3,912
3,912
435,136
1,123,821
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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1
Corporate information
Hochschild Mining PLC (hereinafter ‘the Company’) is a public
limited company incorporated on 11 April 2006 under the
Companies Act 1985 as a Limited Company and registered in
England and Wales with registered number 05777693.
The Company’s registered office is located at 17 Cavendish
Square, London W1G 0PH, United Kingdom. The Company was
incorporated to serve as a holding company to be listed on the
London Stock Exchange. The Company acquired its interest in a
group of companies to constitute the Hochschild Mining Group
(‘the Group’) pursuant to a share exchange agreement (‘Share
Exchange Agreement’) dated 2 November 2006.
The ultimate controlling party of the Company is Mr Eduardo
Hochschild whose beneficial interest in the Company and its
subsidiaries (together ‘the Group’ or ‘Hochschild Mining Group’)
is 38.32% and it is held through Pelham Investment Corporation,
a Cayman Islands company.
On 8 November 2006, the Company’s shares were admitted to
the Official List of the UKLA (United Kingdom Listing Authority)
and to trading on the London Stock Exchange.
2
Significant accounting policies
(a) Basis of preparation
The Company’s financial statements have been prepared in
accordance with UK adopted International Accounting
Standards. The Company applies the same Group policies,
unless there is an exception in its financial statements.
The financial statements of the Company have been prepared
on a historical cost basis. The financial statements are
presented in US dollars (US$) and all monetary amounts are
rounded to the nearest thousand ($000) except when
otherwise indicated.
(b) Going concern
The financial position of the Company is set out in the statement
of financial position. The Company has received a support letter
from its wholly owned subsidiary, Hochschild Mining Holdings
Ltd (‘HM Holdings’), indicating that it will not request a
repayment of the interest-free loan of US$12,000,000 for the
period to 31 March 2023.
The ability for the Company to continue as a going concern is
dependent on Compañía Minera Ares S.A.C. (‘Minera Ares’),
another wholly owned subsidiary of the Company, providing
additional funding to the extent that the operating inflows of the
Company are insufficient to meet future cash requirements.
The Company has obtained a letter of support from Minera
Ares indicating that the financial support will continue until 31
March 2023.
Considering the support available from the subsidiaries
described above, the Directors have a reasonable expectation
that the Company has adequate resources to continue in
operation until 31 March 2023, being a period of at least 12
months from the date of these financial statements. These
considerations included the impact of the Covid pandemic on
the wider Hochschild Group and the Hochschild Group Directors’
assessment of going concern. Accordingly, the financial
statements have been prepared on the going concern basis.
(c) Exemptions
The Company’s financial statements are included in the
Hochschild Mining Group consolidated financial statements for
the years ended 31 December 2021 and 31 December 2020. As
permitted by section 408 of the Companies Act 2006, the
Company has not presented its own profit and loss account.
(d) Changes in accounting policy and disclosures
The accounting policies adopted in the preparation of the
financial statements are consistent with those applied in the
preparation of the Company financial statements for the year
ended 31 December 2020. Amendments to standards and
interpretations which came into force during the year did not
have a significant impact on the financial statements.
(e) Investments in subsidiaries
Subsidiaries are entities over which the Company controls
operating and financial policies, generally by owning more than
50% of voting rights. Investments in subsidiaries are recognised
at acquisition cost less any provision for impairment. The
Company assesses investments for impairment whenever
events or changes in circumstances indicate that the carrying
value of an investment may not be recoverable. If any such
indication of impairment exists, the Company makes an
estimate of its recoverable amount. Where the carrying amount
of an investment exceeds its recoverable amount, the
investment is considered impaired and is written down to its
recoverable amount. If, in subsequent periods, the amount of the
impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is
reversed. Any subsequent reversal of an impairment loss is
recognised in the profit and loss account, to the extent that the
carrying value of the asset does not exceed its amortised cost at
the reversal date.
(f) Dividends receivable
Dividends are recognised when the Company’s right to receive
payments is established. Dividends received are recorded in the
income statement.
Dividends distributions of non-cash assets are recognised at
fair value.
(g) Judgements in applying accounting policies and key
sources of estimation uncertainty
Certain amounts included in the financial statements involve the
use of judgement and/or estimation. These judgements and
estimates are based on management’s best knowledge of the
relevant facts and circumstances, having regard to prior
experience, but actual results may differ from the amounts
included in the financial statements. Information about such
judgements and estimation is contained in the accounting
policies and/or the notes to the financial statements.
Significant estimates:
–
Impairment in subsidiaries – notes 2(e) and 5
Estimates are required to be made by management in
determining the recoverable value of the investments in
subsidiaries. The Company tested its investment in subsidiary
determining the recoverable value using a fair value less cost
of disposal, that was determined with reference to the market
capitalisation of the Company, to which a control premium is
applied. Judgement is involved in determining the control
premium rate to be paid by market participants in an arm’s
length transaction.
Critical judgements:
–
Income tax – note 2(n)
The Company analyses the possibility of generation of
profit and determines the recognition of deferred tax. No
deferred tax asset is being recognised by the Company as
it does not expect to generate any profit to settle the
temporary difference.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
Strategic Report
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Governance
Further Information
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2
Significant accounting policies
continued
(h) Other receivables
Other receivables are initially recognised at fair value less
provision made for impairment of these receivables. Non-
current receivables are stated at amortised cost. A provision for
impairment of trade receivables is established using the
expected credit loss impairment model according to IFRS 9. The
amount of the provision is the difference between the carrying
amount and the recoverable amount and this difference is
recognised in the income statement.
(i) Currency translation
The functional currency of the Company is the US dollar and is
determined by the currency of the primary economic
environment in which its subsidiaries operate and therefore
drives their ability to pay dividends.
Transactions denominated in currencies other than the
functional currency of the Company are initially recorded in the
functional currency using the exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in
foreign currencies are remeasured at the rate of exchange
ruling at the statement of financial position date. Exchange
gains and losses on settlement of foreign currency transactions
which are translated at the rate prevailing at the date of the
transactions, or on the translation of monetary assets and
liabilities which are translated at period-end exchange rates, are
taken to the income statement. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at
historical cost are translated to the functional currency at the
foreign exchange rate prevailing at the date of the transaction.
(j) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at cost. For the purposes of the statement of
financial position, cash and cash equivalents comprise cash in
hand and deposits held with banks that are readily convertible
into known amounts of cash within three months or less and
which are subject to insignificant risk of changes in value. For
the purposes of the cash flow statement, cash and cash
equivalents as defined above are shown net of outstanding
bank overdrafts.
(k) Share capital
Ordinary shares are classified as equity. Any excess above the
par value of shares received upon issuance of those shares is
classified as share premium. In the case the excess above par
value is available for distribution, it is classified as merger
reserve and then transferred to retained earnings.
(l) Share-based payments
Cash-settled transactions
The fair value of cash-settled share plans is recognised as a
liability over the vesting period of the awards. Movements in that
liability between reporting dates are recognised as personnel
expenses. The fair value of the awards is taken to be the market
value of the shares at the date of award adjusted by a factor for
anticipated relative TSR performance. Fair values are
subsequently remeasured at each reporting date to reflect the
number of awards expected to vest based on the current and
anticipated TSR performance.
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair
value at the date when the grant is made using an appropriate
valuation model and is recognised, together with a
corresponding increase in other reserves in equity, over the
period in which the performance and/or service conditions are
fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and
the Company’s best estimate of the number of equity
instruments that vest. The income statement expense for a
period represents the movement in cumulative expense
recognised as at the beginning and end of that period and is
recognised in personnel expenses.
Service and non-market performance conditions are not
taken into account when determining the grant date fair value
of awards, but the likelihood of the conditions being met is
assessed as part of the Company’s best estimate of the number
of equity instruments that will ultimately vest. Market
performance conditions are reflected within the grant date
fair value. Any other conditions attached to an award, but
without an associated service requirement, are considered to
be non-vesting conditions. Non-vesting conditions are reflected
in the fair value of an award and lead to an immediate
expensing of an award unless there are also service and/or
performance conditions. No expense is recognised for awards
that do not ultimately vest because non-market performance
and/or service conditions have not been met. Where awards
include a market or non-vesting condition, the transactions are
treated as vested irrespective of whether the market or non-
vesting condition is satisfied, provided that all other
performance and/or service conditions are satisfied. When the
terms of an equity-settled award are modified, the minimum
expense recognised is the grant date fair value of the
unmodified award, provided the original vesting terms of the
award are met. An additional expense, measured as at the
date≈of modification, is recognised for any modification that
increases the total fair value of the share-based payment
transaction, or is otherwise beneficial to the employee. Where
an award is cancelled by the entity or by the counterparty, any
remaining element of the fair value of the award is expensed
immediately through profit or loss.
(m) Finance income and costs
Finance income and costs mainly comprise interest income on
funds invested, interest expense on borrowings and foreign
exchange gains and losses. Interest income and costs are
recognised as they accrue, taking into account the effective
yield on the asset and liability, respectively.
(n) Income tax
Income tax for the year comprises current and deferred tax.
Income tax is recognised in the income statement except to the
extent that it relates to items charged or credited directly to
equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable
income for the year, using tax rates enacted at the statement of
financial position date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes with the
following exemptions:
– where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time
of the transaction affects neither accounting nor taxable
profit or loss;
– in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures,
where the timing of the reversal of the temporary differences
can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is
realised or the liability is settled based on the tax rates (and tax
laws) that have been enacted or substantively enacted at the
statement of financial position date.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
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A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable that the related tax
benefit will be realised.
(o) Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends
on the financial asset’s contractual cash flow characteristics and
the Company’s business model for managing them.
The Company’s business model for managing financial assets
refers to how it manages its financial assets in order to generate
cash flows. The business model determines whether cash flows will
result from collecting contractual cash flows, selling the financial
assets, or both.
Subsequent measurement
The Company measures financial assets at amortised cost
(debt instruments) if both of the following conditions are met:
– The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows, and
– The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss
when the asset is derecognised, modified or impaired.
The Company’s financial assets at amortised cost include
trade receivables.
Derecognition
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Company’s consolidated
statement of financial position) when:
– the rights to receive cash flows from the asset have expired; or
– the Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third
party under a ‘pass-through’ arrangement; and either (a) the
Company has transferred substantially all the risks and
rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.
Impairment of financial assets
The Company recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through profit
or loss. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash
flows that the Company expects to receive, discounted at an
approximation of the original effective interest rate.
For other receivables, the Company applies a simplified approach
in calculating ECLs. Therefore, the Company does not track
changes in credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in
the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The Company’s financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts, and
financial guarantee liabilities.
Subsequent measurement
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the
effective interest rate (EIR) method. Gains and losses are
recognised in profit or loss when the liabilities are derecognised
as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortisation is included as
finance costs in the statement of profit or loss.
This category generally applies to interest-bearing loans
and borrowings.
Derecognition
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires. When an existing
financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is
treated as the derecognition of the original liability and the
recognition of a new liability. The difference in the respective
carrying amounts is recognised in the statement of profit or loss.
(p) Financial guarantees
Financial guarantees are initially recognised in the financial
statements at fair value at the time the guarantee is issued. The
Company estimates the fair value of the financial guarantee
contract as the difference between the net present value of the
contractual cash flows required under a debt instrument, and
the net present value of the net contractual cash flows that
would have been required without the guarantee. The present
value is calculated using a risk-free interest rate.
Subsequent to initial recognition, the Company’s liability under
each guarantee is measured at the higher of the amount initially
recognised less cumulative amortisation recognised in profit
and loss, and the amount of ECL. Financial guarantee ECL
reflect the cash shortfalls adjusted by the risks that are specific
to the cash flows. If the ECL exceeds the initially recognised
guarantee amount less cumulative amortisation the difference
is taken to profit and loss.
A financial guarantee liability is derecognised when the liability
underlying the guarantee is discharged or cancelled or expires,
or if the guarantee is withdrawn or cancelled. The carrying
amount of the financial guarantee is taken to the statement of
profit or loss.
(q) Dividend distribution
Dividend distribution to the Company’s shareholders is
recognised as a liability in the Company’s financial statements
in the period in which the dividends are approved by the
Company’s shareholders.
The Company measures a liability to distribute non-cash
assets as a dividend to its owners at the fair value of the assets
to be distributed.
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3
Profit and loss account
The Company made a loss attributable to equity shareholders of US$576,381,000 (2020: profit of US$283,560,000).
4
Property, plant and equipment
At 31 December 2021 and 2020 the Company has property, plant and equipment with cost of equipment of US$265,000 which is
fully depreciated.
There were no additions during 2020 and 2021.
5
Investments in subsidiaries
Total
US$000
Year ended 31 December 2020
Cost
At 1 January 2020
2,337,482
At 31 December 2020
2,337,482
Accumulated impairment
At 1 January 2020
521,569
Reversal of impairment
(288,306)
At 31 December 2020
233,263
Net book value at 31 December 2020
2,104,219
Year ended 31 December 2021
Cost
At 1 January 2021
2,337,482
Additions
95,160
Disposals
(93,684)
At 31 December 2021
2,338,958
Accumulated impairment
At 1 January 2021
233,263
Impairment
966,933
At 31 December 2021
1,200,196
Net book value at 31 December 2021
1,138,762
HM Holdings had interests over a Chilean company named REE UNO SpA. This entity holds the project Aclara (formerly named
Biolantanidos), which is located in the south of Chile, and is currently focused on the development of the Penco module, which will
aim to produce a rare earth concentrate through a processing plant that will be fed by clays from nearby deposits.
The Hochschild Group wanted to separate the Aclara project from its other businesses dedicated to the extraction and production
of gold and silver. For this purpose, a new company named Aclara Resources Inc. located in Canada (hereinafter, ‘Aclara’) was
incorporated by HM Holdings. The investment held in REE UNO SpA was then transferred to Aclara.
A distribution of 70,606,502 Aclara shares, representing 80% of the Aclara shares, was made to the Company by HM Holdings on 3
December 2021 by way of a dividend in specie. The value of the dividend received was C$120,031,053 in aggregate (equivalent to
US$93,684,000 at that date). The dividend distribution was recognised by the Company at fair value, based on the offering price of
C$1.70 per Aclara share (the Offering Price).
On 10 December 2021, a distribution of the Aclara shares held by the Company was made to the holders of ordinary shares of the
Company by way of a dividend in specie (the ‘Demerger Dividend’). The approval of the Group’s shareholders in respect of the
Demerger Dividend was granted at the Extraordinary General Meeting held on 5 November 2021. The Aclara Initial Public Offering
(‘IPO’) was completed later that day. Once the Aclara IPO was completed, Aclara became an independent company listed on the
Toronto Stock Exchange.
The ratio of Demerged Aclara shares to the number of ordinary shares in the Company was 70,606,502 to 513,875,563.
Therefore, the shareholders who were entitled to receive the Demerger Dividend received 0.1374 Aclara shares for each ordinary
share in the Group. The value of the Demerger Dividend is C$120,031,053 (equivalent to US$94,945,000) in aggregate based on
the Offering Price.
The fair value of the dividends received and paid is therefore a level 1 fair value measurement.
In 2021, the Company tested its investment in subsidiary for impairment in light of decreases in the Company’s publicly listed share
price. As a result of this test, the Company recognised an impairment of the investment in HM Holdings of US$966,933,000.
In 2020, the Company tested its investment in subsidiary for impairment reversal in light of increases in the Company’s publicly
listed share price. As a result of this test, the Company recognised an impairment reversal of the investment in HM Holdings of
US$288,306,000.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
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The recoverable value of the investment in HM Holdings was determined using a fair value less costs of disposal. The fair value less
costs of disposal was determined with reference to the market capitalisation of the Company at 31 December 2021 translated
from pounds sterling into US dollars using the year-end exchange rate (both Level 1 inputs), to which a control premium was
added based on recent market transactions (a Level 2 input), and subsequently adjusted for the assets and liabilities held directly
by the Company, which results in fair value measurements categorised in their entirety as Level 3 in the fair value hierarchy. A Level
1 input refers to quoted prices in active markets, while a Level 2 input corresponds to other information that can be observed
directly or indirectly.
A positive/adverse change of 10% of the market capitalisation would result in an additional decrease/increase to the impairment
recognised by US$112,810,000 (2020: additional increase/reduction to the reversal of impairment recognised by US$181,638,000).
A change in the control premium would have the following impact over the impairment recognised in 2021 and the reversal of
impairment recognised in 2020 as follows:
As at
31 December
2021
US$000
As at
31 December
2020
US$000
Control premium (increase by 5%)
(45,124)
72,655
Control premium (decrease by 5%)
45,124
(72,655)
The breakdown of the investments in subsidiaries is as follows:
Name
As at 31 December 2021
As at 31 December 2020
Country of
incorporation
Equity interest
%
Carrying value
US$000
Country of
incorporation
Equity interest
%
Carrying value
US$000
Hochschild Mining Holdings Ltd
England and Wales
100%
1,138,762
England and Wales
100%
2,104,219
Total
1,138,762
2,104,219
The list of indirectly held subsidiaries of the Company is presented in note 1 (Corporate information) of the notes to the consolidated
financial statements.
During 2021 the Company recorded a capital contribution of $1,476,000 related to the financial guarantee granted over some
borrowings entered into by Minera Ares, one of its indirectly held subsidiaries (note 9).
6
Other receivables
Year ended 31 December
2021
US$000
2020
US$000
Amounts receivable from subsidiaries (note 11)
4,640
2,371
Prepayments
567
231
Receivable from Kaupthing, Singer and Friedlander
200
201
Other receivable
1
1
5,408
2,804
Provision for impairment
1
(197)
(201)
Total
5,211
2,603
Less current balance
(5,211)
(2,603)
1
Corresponds to the balance of the impairment of cash deposits with Kaupthing, Singer and Friedlander of US$197,000 accrued in 2008 (2020: US$201,000).
The fair values of other receivables approximate their book values.
Movements in the provision for impairment of receivables:
Total
US$000
At 1 January 2020
197
Provided during the year
4
At 31 December 2020
201
Provided during the year
(4)
At 31 December 2021
197
As at 31 December 2021 and 2020, none of the financial assets classified as receivables (net of impairment) were past due.
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7
Cash and cash equivalents
Year ended 31 December
2021
US$000
2020
US$000
Bank current account
1
319
411
Time deposits
2
209
337
Cash and cash equivalents considered for the cash flow statement
528
748
1
Relates to bank accounts which are freely available and bear interest.
2
These deposits have an average maturity of nil days (2020: nil days).
8
Equity
(a) Share capital and share premium
Issued share capital
The issued share capital of the Company as at 31 December 2021 and 2020 is as follows:
Class of shares
Issued
Number
Amount
Ordinary shares
513,875,563
£128,468,891
At 31 December 2021 and 2020, all issued shares with a par value of 25 pence each were fully paid (weighted average of US$0.441
per share).
The changes in share capital are as follows:
Number of
shares
Share capital
US$000
Share premium
US$000
Shares issued as at 1 January 2020
513,875,563
226,506
458,267
Shares issued as at 31 December 2020
513,875,563
226,506
458,267
Shares issued as at 31 December 2021
513,875,563
226,506
458,267
Rights attached to ordinary shares
At general meetings of the Company, on a show of hands and on a poll, every member who is present in person or subject to the
below by proxy has one vote for every share of which they are the holder/proxy. However, in the case of a vote on a show of hands
where a proxy has been appointed by more than one member, the proxy has one vote for and one vote against if the proxy has been
instructed by one or more members to vote for the resolution and by one or more members to vote against the resolution.
(b) Treasury shares
Treasury shares represent the cost of Hochschild Mining PLC shares purchased in the market and held by the trustee of the
Hochschild Mining Employee Share Trust to satisfy the award of conditional shares under the Company’s Enhanced Long-Term
Incentive Plan granted to the CEO (note 2(l)).
The movements in the treasury shares are as follows:
– On 30 March 2020, the Group purchased 182,941 shares for a total consideration of £234,000 (equivalent to US$292,000).
– On 30 March 2020, 182,941 treasury shares with a value of US$292,000 (being the cost incurred to acquire the shares) were
transferred to the CEO of the Group with respect to the Enhanced Long-Term Incentive Plan.
At 31 December 2021 the balance of treasury shares is nil (31 December 2020: nil).
(c) Other reserves
Share-based payment reserve
The share-based payment reserve is used to recognise the value of equity-settled share-based payment transactions provided to
employees, as a part of their remuneration.
Refer to note 29(c) to the consolidated financial statements for details of the share-based payment reserve at 31 December 2021
and 2020.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
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(d) Retained earnings
Merger reserve
The merger reserve represents the difference between the value of the net assets of the Cayman Holding Companies (Ardsley,
Garrison, Larchmont and Hochschild Mining (Peru)) acquired under the Share Exchange Agreement and the nominal value of the
shares issued in consideration of such acquisition.
The merger reserve is disclosed under retained earnings.
Contained within retained earnings is a merger reserve which mainly represents the difference between the fair value of the net
assets of the Cayman Holding Companies acquired under the Share Exchange Agreement dated 2 November 2006 and the
nominal value of the shares issued in consideration of such acquisitions. During the period ended 31 December 2021,
US$966,933,000 was realised as a result of the impairment of the investment in subsidiary recorded in the period (note 5). As at 31
December 2021 US$198,398,000 of the merger reserve remained within retained earnings, which balance is unrealised and not
available for distribution:
US$000
As at 1 January 2020
877,025
Reversal of impairment of investment in subsidiary (note 5)
288,306
As at 31 December 2020
1,165,331
Impairment of investment in subsidiary (note 5)
(966,933)
As at 31 December 2021
198,398
9
Trade and other payables
As at 31 December
2021
2020
Non-current
US$000
Current
US$000
Non-current
US$000
Current
US$000
Trade payables
–
1,922
–
286
Payables to subsidiaries (note 11 (a))
–
15,930
–
290,952
Remuneration payable
–
251
–
244
Taxes and contributions
–
177
–
113
Financial guarantees
1
1,837
495
872
295
Others
–
31
Total
1,837
18,806
872
291,890
1
The Company provided a financial guarantee to the bank loan entered into by its subsidiary Minera Ares. The financial guarantee was recognised at its fair value at initial
recognition of US$2,948,000 (US$1,472,000 recognised in 2019 and an additional US$1,476,000 recognised in 2021). This fair value was determined through the use of certain level
3 estimates, the most significant of which being the estimated rate of interest Minera Ares would have been charged were it not for the guarantee provided by the Company.
Trade payables mainly relate to the purchase of third-party services. These payables do not accrue interest and no guarantees
have been granted in relation to these payables. The fair value of trade and other payables approximate their book values.
10
Provisions
As at 31 December
2021
US$000
2020
US$000
Beginning balance
81
60
(Decrease)/increase in provision, net
(44)
21
At 31 December
37
81
Less: current portion
–
–
Non-current portion
37
81
Corresponds to the provision related to awards granted under the Long-Term Incentive Plan (‘LTIP’) to designated personnel of the
Company. Includes the following benefits: (i) 2020 awards, granted in February 2020, payable in February 2023, as 50% in cash, (ii)
2019 awards, granted in July 2019, payable in February 2022, as 50% in cash with a result of US$nil. Only employees who remain in
the Group’s employment on the vesting date will be entitled to vested awards, subject to exceptions approved by the Remuneration
Committee of the Board. Refer to footnote 2 of note 28 to the consolidated financial statements for details of the LTIP awards and
assumptions used for the valuation as at 31 December 2021 and 2020.
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11
Related-party balances and transactions
(a) Related-party accounts receivable and payable
The Company had the following related-party balances and transactions during the years ended 31 December 2021 and 31
December 2020.
As at 31 December 2021
As at 31 December 2020
Accounts
receivable
US$000
Accounts
payable
US$000
Accounts
receivable
US$000
Accounts
payable
US$000
Subsidiaries
Compañía Minera Ares S.A.C.
1
3,413
3,906
1,416
3,545
Hochschild Mining Holdings Ltd
2
–
12,000
–
287,385
Other subsidiaries
1,227
24
955
22
Total
4,640
15,930
2,371
290,952
1
The account receivable mainly relates to the LTIP 2021, LTIP 2020, LTIP 2019 and LTIP 2018 (50% paid in shares that are going to be paid by Hochschild Mining PLC on behalf of
Minera Ares). The account payable mainly relates to the services performed by Minera Ares to the Company, which during 2021 amounts to US$361,000 (2020: US$508,000). The
Company provided certain financial guarantees on behalf of Minera Ares (note 9).
2
Relates to loans receivable by and payable to HM Holdings. The loan payable is repayable on demand and is free of interest. During the year the Company received cash proceeds
from loans of US$28,000,000. A dividend of US$303,385,000 was received in September 2021 offsetting against amounts payable to HM Holdings (refer to note 13).
In February 2022, the Company received a support letter from HM Holdings indicating that it will not request a repayment of the interest-free loan of US$12,000,000 for the period to
31 March 2023.
The fair values of the receivables and payables approximate their book values. Transactions between the Company and these
companies are on an arm’s length basis.
(b) Compensation of key management personnel of the Company
Key management personnel include the Directors who receive remuneration. The amount of this remuneration totals US$1,149,000
(2020: US$1,030,000).
12
Dividends paid and proposed
2021
US$000
2020
US$000
Dividends paid and proposed during the year
Equity dividends on ordinary shares:
Final dividend for 2020: 2.335 US cents per share (2019: nil US cents per share)
12,002
-
Interim dividend for 2021: 1.95 US cents per share (2020: 4.000 US cents per share)
10,020
20,556
Total dividends paid in cash
22,022
20,556
Dividends in specie paid with Aclara shares (note 5)
94,945
-
Total dividends paid on ordinary shares
116,967
20,556
Proposed dividends on ordinary shares:
Final dividend for 2021: 2.335 US cents per share (2020: 2.335 US cents per share)
12,000
12,002
In August 2021, the Board became aware of an issue concerning technical compliance with the Companies Act 2006 in relation to
the 2017 final dividend, the 2018 interim and final dividends, the 2019 interim dividend, and the 2020 interim and final dividends (the
‘Relevant Dividends’). In particular, the Relevant Dividends were paid to shareholders when the Company did not have adequate
distributable reserves.
Significant corrective transactions (namely, a capital reduction and dividend distribution by HM Holdings) were implemented by the
Company in September 2021, shortly after discovery of the issue. Had these internal corporate transactions been implemented
prior to the payment of the 2017 final dividend, adequate distributable reserves would have been available to the Company.
As previously reported, the Board intends to put resolutions to shareholders at a General Meeting to i) complete the rectification of
this past issue and ii) increase further, to the extent practicable, the level of Distributable Reserves available to the Company.
Dividends per share
The interim dividend paid in September 2021 was US$10,020,000 (1.954 US cents per share). A dividend in specie amounting to
US$94,945,000 was paid in December 2021 (refer to note 5).
A proposed dividend in respect of the year ending 31 December 2021 of 2.335 US cents per share, amounting to a total dividend of
US$12,000,000, is subject to approval at the Annual General Meeting to be held on 26 May 2022 and is not recognised as a liability
as at 31 December 2021.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
CONTINUED
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13
Finance income
2021
US$000
2020
US$000
Dividends received
397,069
-
Interests on deposits
1
1
Income from guarantee
310
295
Total
397,380
296
Dividends received
During 2021 HM Holdings declared total dividends amounting to US$397,069,000 as follows:
– On 28 September 2021, a dividend of US$303,385,000 which was offset against amounts payable to HM Holdings for the
same amount.
– On 3 December 2021, a dividend in specie with fair value of US$93,684,000 was received, representing 70,606,502 shares in Aclara
(refer to note 5).
14
Financial risk management
The Company is exposed to a variety of risks and uncertainties which may have an impact on the achievement of financial and
economic objectives. These risks include strategic, operational and financial risk and are further categorised into risk areas to
facilitate risk assessment.
The Company is not exposed to significant sources of commodity price, equity or interest rate risk.
(a) Foreign currency risk
Due to the operations of the Company, it has cash and cash equivalents and trade payables denominated in pounds sterling.
Accordingly, the financial results of the Company may be affected by exchange rate fluctuations. The Company does not use
derivative instruments to manage its foreign currency risks. The following table demonstrates the sensitivity of financial assets and
liabilities, at the reporting date denominated in their respective currencies, to a reasonably possible change in the US dollar
exchange rate, with all other variables held constant, of the Company’s profit before tax and the Company’s equity.
Year
Increase/
decrease in
US$/other
currencies rate
Effect
on profit
before tax
US$000
Effect
on equity
US$000
2021
Pounds sterling
+/-10%
-/+49
–
2020
Pounds sterling
+/-10%
+/-14
–
(b) Credit risk
The Company is primarily exposed to credit risk in transactions in cash which are primarily limited to cash balances deposited in
banks and accounts receivable at the statement of financial position date. The Company has evaluated and introduced efforts to
try to mitigate credit risk exposure.
To manage credit risk associated with cash balances deposited in banks, the Company is:
– increasing banking relationships with large, established and well-capitalised institutions in order to secure access to credit and to
diversify credit risk;
– investing cash in short-term, highly liquid and low-risk instruments (term deposits);
– maintaining excess cash abroad in hard currency.
Credit risk concentrations exist when changes in economic, industrial or geographic factors take place, affecting in the same
manner the Company’s counterparties whose added risk exposure is significant to the Company’s total credit exposure. Receivable
balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant. The
maximum exposure is the carrying amount as disclosed in note 6.
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14
Financial risk management
continued
(c) Liquidity risk
Liquidity risk arises from the Company’s inability to obtain the funds it requires to comply with its commitments. Management
constantly monitors the Company’s level of short- and medium-term liquidity in order to ensure appropriate financing is available
for its operations.
The Company is funded by HM Holdings through loans in order to meet its obligations. Liquidity is supported by the balance
of cash and cash equivalents held by the Company of US$528,000 (2020: US$748,000) and the financial support provided by
Minera Ares (see note 2(b). The Company also serves as principal funding conduit for the Group’s capital raising activities such
as equity issuances.
The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period to the
contractual maturity date:
Less than
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
At 31 December 2021
Trade and other payables
18,134
–
–
–
18,134
At 31 December 2020
Trade and other payables
291,482
–
–
–
291,482
The table below analyses the maximum amounts payable under financial guarantees provided to Minera Ares (note 9), considering
that if the guarantees were to be called, the guaranteed amounts would be due immediately:
Less than
1 year
US$000
Between
1 and
2 years
US$000
Between
2 and
5 years
US$000
Over
5 years
US$000
Total
US$000
At 31 December 2021
Financial guarantees
1
300,000,000
–
–
–
300,000,000
At 31 December 2020
Financial guarantees
1
200,000,000
–
–
–
200,000,000
1 Not including any accumulated interest that may be payable at the call date.
(d) Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order
to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the
cost of capital. Management considers as part of its capital the financial sources of funding from shareholders and third parties
(notes 8 and 9). In order to ensure an appropriate return for shareholders’ capital invested in the Company, management monitors
capital thoroughly and evaluates all material projects and potential acquisitions before submission to the Board for ultimate
approval, where applicable.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
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Group (US$000)
Inmaculada
San Jose
Pallancata
Consolidation
adjustment
and others
Total/HOC
Revenue
452,835
258,972
99,116
464
811,387
Cost of sales (pre consolidation)
(225,492)
(192,163)
(98,153)
5,525
(510,283)
Consolidation adjustment
6,135
(400)
(210)
(5,525)
–
Cost of sales (post consolidation)
(219,357)
(192,563)
(98,363)
–
(510,283)
Production cost excluding depreciation
(134,110)
(122,449)
(66,859)
–
(323,418)
Depreciation in production cost
(76,828)
(49,054)
(22,960)
–
(148,842)
Workers’ profit sharing
(3,489)
–
(3,023)
–
(6,512)
Other items
(5,545)
(20,332)
(5,314)
–
(31,191)
Change in inventories
615
(728)
(207)
–
(320)
Gross profit
227,343
66,809
963
5,989
301,104
Administrative expenses
–
–
–
(51,905)
(51,905)
Exploration expenses
–
–
–
(39,848)
(39,848)
Selling expenses
(616)
(14,195)
(620)
–
(15,431)
Other income/(expenses)
–
–
–
(172)
(172)
Operating profit before impairment
226,727
52,614
343
(85,936)
193,748
Impairment and write-off of non-current assets
–
–
–
(25,709)
(25,709)
Share of post-tax losses from associate
–
–
–
(169)
(169)
Finance income
–
–
–
3,946
3,946
Finance costs
–
–
–
(32,061)
(32,061)
Foreign exchange loss
–
–
–
(2,424)
(2,424)
Profit/(loss) from continuing operations before
income tax
226,727
52,614
343
(142,353)
137,331
Income tax
(66,225)
(66,225)
Profit/(loss) for the year from continuing operations
226,727
52,614
343
(208,578)
71,106
1
On a post-exceptional basis.
PROFIT BY OPERATION
1
(SEGMENT REPORT RECONCILIATION) AS AT 31 DECEMBER 2021
Strategic Report
Financial Statements
Governance
Further Information
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Hochschild Mining PLC
Annual Report & Accounts 2021
Ore reserves and mineral resources estimates
Hochschild Mining PLC reports its mineral resources and reserves estimates in accordance with the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves 2012 edition (“the JORC Code”). This establishes minimum
standards, recommendations and guidelines for the public reporting of exploration results and mineral resources and reserves
estimates. In doing so it emphasises the importance of principles of transparency, materiality and confidence. The information on
ore reserves and mineral resources on pages 198 to 200 was prepared by or under the supervision of Competent Persons (as
defined in the JORC Code). Competent Persons are required to have sufficient relevant experience and understanding of the style
of mineralisation, types of deposits and mining methods in the area of activity for which they are qualified as a Competent Person
under the JORC Code. The Competent Person must sign off their respective estimates of the original mineral resource and ore
reserve statements for the various operations and consent to the inclusion of that information in this report, as well as the form and
context in which it appears.
Hochschild Mining PLC employs its own Competent Person who has audited all the estimates set out in this report. Hochschild
Mining Group companies are subject to a comprehensive programme of audits which aim to provide assurance in respect of ore
reserve and mineral resource estimates. These audits are conducted by Competent Persons provided by independent consultants.
The frequency and depth of an audit depends on the risks and/or uncertainties associated with that particular ore reserve and
mineral resource, the overall value thereof and the time that has lapsed since the previous independent third-party audit.
The JORC Code requires the use of reasonable economic assumptions. These include long-term commodity price forecasts (which,
in the Group’s case, are prepared by ex-house specialists largely using estimates of future supply and demand and long-term
economic outlooks).
Ore reserve estimates are dynamic and are influenced by changing economic conditions, technical issues, environmental
regulations and any other relevant new information and therefore these can vary from year-to-year. Mineral resource estimates can
also change and tend to be influenced mostly by new information pertaining to the understanding of the deposit and secondly the
conversion to ore reserves.
The estimates of ore reserves and mineral resources are shown as at 31 December 2021, unless otherwise stated. Mineral resources
that are reported include those mineral resources that have been modified to produce ore reserves. All tonnage and grade
information has been rounded to reflect the relative uncertainty in the estimates; there may therefore be small differences. The
prices used for the reserves calculation were: Au Price: US$1,800 per ounce and Ag Price: US$26.0 per ounce.
Attributable metal reserves as at 31 December 2021
Reserve category
Proved and
probable
(t)
Ag
(g/t)
Au
(g/t)
Ag
(moz)
Au
(koz)
Ag Eq
(moz)
OPERATIONS
1
Inmaculada
Proved
1,637,395
168
4.1
8.9
213.8
24.3
Probable
5,002,635
140
3.3
22.5
527.4
60.5
Total
6,640,030
147
3.5
31.4
741.3
84.7
Pallancata
Proved
524,132
265
1.2
4.5
19.9
5.9
Probable
393,336
187
0.9
2.4
11.2
3.2
Total
917,468
231
1.1
6.8
31.1
9.1
San Jose
Proved
396,524
368
5.7
4.7
72.5
9.9
Probable
365,792
314
5.7
3.7
66.8
8.5
Total
762,315
342
5.7
8.4
139.4
18.4
GRAND TOTAL
Proved
2,558,050
219
3.7
18.0
306.3
40.1
Probable
5,761,763
154
3.3
28.6
605.5
72.2
TOTAL
8,319,813
174
3.4
46.6
911.8
112.2
Note: Where reserves are attributable to a joint venture partner, reserve figures reflect the Company’s ownership only. Includes discounts for ore loss and dilution.
1 Operations were audited by P&E Consulting.
RESERVES AND RESOURCES
198
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Hochschild Mining PLC
Annual Report & Accounts 2021
Attributable metal resources as at 31 December 2021
1,2
Resource category
Tonnes (t)
Ag (g/t)
Au (g/t)
Ag Eq (g/t)
Ag (moz)
Au (koz)
Ag Eq (moz)
OPERATIONS
Inmaculada
Measured
1,938,000
199
4.89
551
12.4
304.7
34.3
Indicated
5,987,000
160
3.88
440
30.8
747.6
84.6
Total
7,925,000
169
4.13
467
43.2
1,052.3
118.9
Inferred
11,989,000
102
2.57
286
39.2
988.7
110.3
Pallancata
Measured
1,273,000
330
1.50
439
13.5
61.6
17.9
Indicated
846,000
246
1.18
331
6.7
32.2
9.0
Total
2,119,000
297
1.38
396
20.2
93.7
27.0
Inferred
1,845,000
230
0.98
300
13.6
58.3
17.8
San Jose
Measured
790,500
481
7.67
1,034
12.2
195.0
26.3
Indicated
611,490
358
6.21
805
7.0
122.0
15.8
Total
1,401,990
427
7.04
934
19.3
317.0
42.1
Inferred
937,890
332
5.22
708
10.0
157.4
21.4
GROWTH PROJECTS
Crespo
Measured
5,211,000
47
0.47
81
7.9
78.6
13.6
Indicated
17,298,000
38
0.40
66
21.0
222.5
37.0
Total
22,509,000
40
0.42
70
28.8
301.0
50.5
Inferred
775,000
46
0.57
87
1.1
14.2
2.2
Azuca
Measured
191,000
244
0.77
299
1.5
4.7
1.8
Indicated
6,859,000
187
0.77
242
41.2
168.8
53.3
Total
7,050,000
188
0.77
243
42.7
173.5
55.2
Inferred
6,946,000
170
0.89
234
37.9
199.5
52.3
Volcan
Measured
105,918,000
–
0.738
53
–
2,513.1
180.9
Indicated
283,763,000
–
0.698
50
–
6,368.0
458.5
Total
389,681,000
–
0.709
51
–
8,881.1
639.4
Inferred
41,553,000
–
0.502
36
–
670.7
48.3
Arcata
Measured
834,000
438
1.34
535
11.7
36.1
14.3
Indicated
1,304,000
411
1.36
508
17.2
56.9
21.3
Total
2,138,000
421
1.35
519
29.0
92.9
35.6
Inferred
3,533,000
370
1.26
461
42.1
142.6
52.4
GRAND TOTAL
Measured
116,156,500
16
0.86
77
59.3
3,193.7
289.2
Indicated
316,668,490
12
0.76
67
123.9
7,717.9
679.6
Total
432,824,990
13
0.78
70
183.1
10,911.6
968.8
Inferred
67,578,890
66
1.03
140
143.9
2,231.4
304.6
1
Prices used for resources calculation: Au: $1,800/oz and Ag: $26.0/oz and Ag/Au ratio of 72x.
2
Tables represents 100 % of the Mineral Resource. Resources are inclusive of Reserves.
Strategic Report
Financial Statements
Governance
Further Information
199
|
Hochschild Mining PLC
Annual Report & Accounts 2021
Change in attributable reserves and resources
Ag equivalent content (million ounces)
Category
Percentage
attributable
December
2021
December
2020
Att.
1
December
2021
Att.
1
Net difference
% change
Inmaculada
Resource
100%
195.8
229.3
33.5
17.1%
Reserve
79.3
84.7
5.4
6.9%
Pallancata
Resource
100%
47.8
44.8
(3.0)
(6.3%)
Reserve
7.1
9.1
2.0
27.8%
San Jose
Resource
51%
65.2
63.4
(1.8)
(2.7%)
Reserve
14.2
18.4
4.2
29.5%
Crespo
Resource
100%
52.7
52.7
–
–
Reserve
–
–
–
–
Azuca
Resource
100%
107.5
107.5
–
–
Reserve
–
–
–
–
Volcan
Resource
100%
687.7
687.7
–
–
Reserve
–
–
–
–
Arcata
Resource
100%
88.0
88.0
–
–
Reserve
–
–
–
–
Total
Resource
1,244.7
1,273.4
28.7
2.3%
Reserve
100.6
112.2
11.6
11.5%
1
Attributable reserves and resources based on the Group’s percentage ownership of its joint venture projects.
RESERVES AND RESOURCES
CONTINUED
200
|
Hochschild Mining PLC
Annual Report & Accounts 2021
Company website
Hochschild Mining PLC Interim and Annual Reports and results announcements are available via the internet on our website at
www.hochschildmining.com. Shareholders can also access the latest information about the Company and press announcements as
they are released, together with details of future events and how to obtain further information.
Registrars
The Registrars can be contacted as follows for information about the AGM, shareholdings, and dividends and to report changes in
personal details:
By email
By post
Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL
By telephone
(+44 (0)) 371 664 0300
Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at
the applicable international rate. Lines are open between 9am-5:30pm, Monday to Friday excluding public holidays in England
and Wales.
Currency option and dividend mandate
Shareholders wishing to receive their dividend in US dollars should contact the Company’s registrars to request a currency election
form. This form should be completed and returned to the registrars by 13 May 2022 in respect of the 2021 final dividend.
The Company’s registrars can also arrange for the dividend to be paid directly into a shareholder’s UK bank account. This
arrangement is only available in respect of dividends paid in UK pounds sterling. To take advantage of this facility in respect of the
2021 final dividend, a dividend mandate form, also available from the Company’s registrars, should be completed and returned to
the registrars by 13 May 2022. Alternatively you can register your bank details via Signal Shares, a secure online site where you can
manage your shareholding quickly and easily. To register for Signal Shares just visit www.signalshares.com. All you need is your
investor code, which can be found on your share certificate or a previous dividend confirmation voucher. Shareholders who have
already completed one or both of these forms need take no further action.
Financial calendar
Dividend dates
2022
Ex-dividend date
5 May
Record date
6 May
Deadline for return of currency election forms
13 May
Payment date
7 June
17 Cavendish Square
London
W1G 0PH
United Kingdom
SHAREHOLDER INFORMATION
Strategic Report
Financial Statements
Governance
Further Information
201
|
Hochschild Mining PLC
Annual Report & Accounts 2021
This Annual Report contains certain forward looking statements, including such statements within the meaning of Section 27A of
the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, such
forward looking statements may relate to matters such as the business, strategy, investments, production, major projects and their
contribution to expected production and other plans of Hochschild Mining PLC and its current goals, assumptions and expectations
relating to its future financial condition, performance and results.
Forward looking statements include, without limitation, statements typically containing words such as ‘intends’, ‘expects’,
‘anticipates’, ‘targets’, ‘plans’, ‘estimates’ and words of similar import. By their nature, forward looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results,
performance or achievements of Hochschild Mining PLC may be materially different from any future results, performance or
achievements expressed or implied by such forward looking statements. Factors that could cause or contribute to differences
between the actual results, performance or achievements of Hochschild Mining PLC and current expectations include, but are not
limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate
fluctuations and general economic conditions. Past performance is no guide to future performance and persons needing advice
should consult an independent financial adviser.
The forward looking statements reflect knowledge and information available at the date of preparation of this Annual Report.
Except as required by the Listing Rules and applicable law, Hochschild Mining PLC does not undertake any obligation to update or
change any forward looking statements to reflect events occurring after the date of this Annual Report. Nothing in this Annual
Report should be construed as a profit forecast.
FORWARD LOOKING STATEMENTS
202
|
Hochschild Mining PLC
Annual Report & Accounts 2021
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Hochschild Mining PLC
Annual Report & Accounts 2021