20 April 2023

 

 

Hochschild Mining PLC

 

Preliminary Results

Year ended 31 December 2022

HOCHSCHILD MINING PLC RESULTS FOR YEAR ENDED 31 DECEMBER 2022

 

2022 Financial performance

§ Revenue of $735.6 million (2021: $811.4 million)^[1]

§ Adjusted EBITDA of $249.6 million (2021: $382.8 million)^[2]

§ Profit before income tax (pre-exceptional) of $24.3 million (2021: $148.7 million)

§ Profit before income tax (post-exceptional) of $25.8 million (2021: $137.3 million)

§ Basic earnings per share (pre-exceptional) of $0.01 (2021: $0.14)

§ Basic earnings per share (post-exceptional) of $0.01 (2021: $0.15)

§ Cash and cash equivalent balance of $143.8 million as at 31 December 2022 (2021: $386.8 million)

§ Net debt of $175.1 million as at 31 December 2022 (2021: net cash of $86.3 million)

2022 Operational resilience^[3]  

§ Peruvian government decision on Inmaculada Modified Environmental Impact Assessment expected during Q2 2023

§ All-in sustaining costs (AISC) from operations of $1,364 per gold equivalent ounce (2021: $1,153) or $18.9 per silver equivalent ounce (2021: $16.0) in line with full year cost guidance of $1,330-$1,370 per gold equivalent ounce or $18.5-19.0 per silver equivalent ounce[4]

§ Full year attributable production of 358,826 gold equivalent ounces (25.8 million silver equivalent ounces)

§ Solid operational performance despite moderate impact in Q4 from Peru social disruptio

2022 Exploration & Project Highlights

§ 2022 Attributable Reserve & Resource additions:

o  Reserves up 35%

o  Resources up 18%

§ Inferred Mineral Resource of 51.2 million silver equivalent ounces announced at Royropata Zone, Pallancata

o  Average width of 5 metres at a combined Ag Eq grade of 848g/t

§ Mara Rosa project in Brazil advancing on schedule and on budget - total project progress at over 70% with first production anticipated in H1 2024

o  27,600oz of gold hedged from March to December 2024 at a price of $2,100 per ounce

§ Option over Snip project in Canada recently terminated

2022 ESG KPIs

§ Lost Time Injury Frequency Rate of 1.37 (2021: 1.26)[5]

§ Accident Severity Index of 93 (2021: 676)[6]

§ Water consumption of 171lt/person/day (2021: 193lt/person/day)

§ Domestic waste generation of 1.05 kg/person/day (2021: 1.00kg/person/day)

§ ECO score of 5.27 out of 6 (2021: 5.29)[7]

2023 Outlook

§ Production target:

o  301,000-314,0000 gold equivalent ounces (25.0-26.0 million silver equivalent ounces) using 83x gold silver ratio

§ All-in sustaining costs target:

o  $1,370-$1,450 per gold equivalent ounce ($16.5-$17.5 per silver equivalent ounce) using 83x gold silver ratio

§ Total sustaining and development capital expenditure expected to be approximately $125-135 million

§ Mara Rosa project capital expenditure expected to be approximately $100-110 million

§ 29,250 ounces of gold hedged for the remainder of 2023 at a price of $2,047 per ounce

 

$000 unless stated	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% change
Attributable silver production (koz)	11,003	12,174	(10)
Attributable gold production (koz)	206	221	(7)
Revenue	735,643	811,387	(9)
Adjusted EBITDA	249,605	382,837	(35)
Profit from continuing operations (pre-exceptional)	6,745	67,450	(90)
Profit from continuing operations (post-exceptional)	4,832	71,106	(93)
Basic earnings per share (pre-exceptional) $	0.01	0.14	(93)
Basic earnings per share (post-exceptional) $	0.01	0.15	(93)

________________________________________________________________________________________

 

A presentation will be held for analysts and investors at 9.30am (UK time) on Thursday 20 April 2023 at the offices of Hudson Sandler,

25 Charterhouse Square, London, EC1M 6AE

 

The presentation and a link to the live audio webcast of the presentation can be found at the Hochschild website: 

www.hochschildmining.com

or:

https://stream.brrmedia.co.uk/broadcast/63c585b88b28b235f03655a4

 

To join the event via conference call, please see dial in details below:

UK Toll-Free Number: 0808 109 0700

International Dial in: +44 (0)330 551 0200

US/Canada Toll-Free Number: 866-580-3963

Password: Hochschild Full Year Results

________________________________________________________________________________________

 

Enquiries:

 

Hochschild Mining PLC

Charles Gordon                                                                                                                                                                                                                               +44 (0)20 3709 3264

Head of Investor Relations

 

Hudson Sandler

Charlie Jack                                                                                                                                                                                                                                    +44 (0)20 7796 4133

Public Relations

________________________________________________________________________________________

Non-IFRS Financial Performance Measures

The Company has included certain non-IFRS measures in this news release. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardised meaning prescribed under IFRS, and therefore may not be comparable to other issuers.

 

About Hochschild Mining PLC

Hochschild Mining PLC is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) and crosstrades on the OTCQX Best Market in the U.S. (HCHDF), with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also owns the Mara Rosa Advanced Project in Brazil as well as numerous long-term projects throughout the Americas.

 

Forward looking statements

This announcement may contain forward looking statements. 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, for various reasons, be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.

 

The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the Listing Rules and applicable law, the Board of Hochschild Mining PLC does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast.

 

Note

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (Regulation (EU) No.596/2014). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

 

LEI: 549300JK10TVQ3CCJQ89

 

CHAIRMAN'S STATEMENT

During the past year, our Company has been directly and indirectly impacted by a range of political, social and regulatory challenges. However, the Board and I want to congratulate our management team and all our colleagues on a highly creditable operational performance and ensuring that our steadfast commitment to the environment, stakeholders and communities remains a firm and an integral part of our corporate purpose. At the time of writing, we are still waiting for the final decision from the Peruvian Government on the Modification of the Environmental Impact Assessment ("MEIA") for Inmaculada but I would particularly like to thank the teams involved in four years of hard work. It has proved to be an enormous undertaking, but I am sure that, whatever the decision, Inmaculada will remain a key part of Hochschild's strategy for decades to come.

 

We continued with our focus on safety and are delighted that, in 2022, our key performance indicators highlighted a strong performance in this area with both the accident frequency rate and accident severity indices demonstrating the successful implementation of our safety culture plan. As mentioned last year, following a trial period, we launched the Seguscore in 2022 which is being used to appraise the safety performance of each mining unit based on, not only using our traditional measures but also on the result of internal and external safety audits. 

 

Acknowledging the impact of our activities on the environment, I am proud that through the "Green Challenges" set for our operations, we were able to reduce our water consumption to the lowest level since 2015. This should not be considered a one-off achievement but a reflection of an environmentally conscious culture that has evolved since the adoption of our internal measure, the ECO Score. Work is also on track to establish later this year our 2030 interim targets in order to achieve Net Zero by 2050.

 

We have continued with our valuable community relations initiatives which, in line with the Company's approach, see resources dedicated to education, health and nutrition, and sustainable development. During the year, we facilitated the delivery of technical skills training through the establishment of three digital centres in communities in southern Peru as part of our Future Connection programme which has already benefited over 180 students. We also worked in collaboration with the Peruvian Health Ministry in our "Always Healthy" programme which ran campaigns staffed by a multi-disciplinary team of medical practitioners thereby extending the reach of healthcare services. Our Community Relations team has also continued with the various programmes we have put in place to support local farmers in marketing and selling their produce which, in certain cases, are destined for international markets.

 

2022 was another important year for strategic development. In April, we completed the acquisition of Amarillo Gold with its Mara Rosa gold project in Brazil, which is due to commence production in the first half of 2024. Since then, we have made excellent progress at the project with over 70% constructed already and we are on schedule and in line with our budget. We also delivered a Preliminary Economic Assessment on our Snip project in British Columbia, Canada which showed positive investment returns at conservative gold prices. However, in line with Hochschild's capital allocation strategy where the focus is on the Mara Rosa construction, we recently made the decision to terminate the option on the project.

 

Turning to our operations, the team had to contend with substantial disruption during the year, including a fire in the crushing area at San Jose, continued Covid-related labour restrictions in Argentina and local and national social disturbances in Peru.  However, we are proud that we were able to maintain a constructive dialogue with our communities and once again able to deliver a robust operating performance, only moderately below our annual production target and in line on costs. In addition, precious metal prices remained relatively high, so our business continued to generate strong cashflow, especially in the fourth quarter, and we therefore are in a good position to deliver on our capital commitments, including construction at Mara Rosa.

 

In 2022, the brownfield exploration team made a significant discovery close to Pallancata, within the Royropata zone. Although it is outside the permitted area and will require approximately three years to receive the necessary government approvals, the size of the resource is already over 50 million silver equivalent ounces with significant exploration upside. We are confident that this new zone will be the future of mining in the area in the medium to-long-term, despite the likely necessity to place the mine on temporary care and maintenance at some stage in 2023. At San Jose, we have also been able to replace resources once again whilst at Inmaculada, the team is planning a busy year of drilling subject to the Inmaculada MEIA approval.

 

During the year, we saw changes in the composition of the Board with the retirement of Graham Birch and Dionisio Romero, who stepped down as Non-Executive Directors at the 2022 AGM. In their place, we welcomed Mike Sylvestre and Nicolas Hochschild. 

 

At the forthcoming AGM, Nicolas and Eileen Kamerick will be stepping down from the Board. Nicolas will be taking up the role of Corporate Development Manager within the Company, reporting to the Director of Technical Services. We look forward to continuing to work with Nicolas in his new role. Eileen will be leaving the Board after a tenure of over six years. I would like to take this opportunity to express my gratitude to Eileen for chairing the Audit Committee with the utmost diligence and for her commitment to the Company. On behalf of the Directors, we wish Eileen all the very best for the future. Jill Gardiner has agreed to chair the Audit Committee on an interim basis with Mike Sylvestre also joining the committee.

 

Outlook

In 2022, precious metal prices experienced considerable volatility. Gold rose to over $2,000/ounce in the first quarter of the year as the Ukraine war started but then fell steadily by 20% to just over $1,600 by November as expectation of global interest rate rises became the theme. A rebound in December left the metal flat versus 2021 with silver rising by 3% during the year. These increases have continued in the first quarter of 2023 and consequently, we are confident that when combined with our operational track record and good cost control, we can maintain significant levels of profitability and continued good cash flow. Strong balance sheet discipline will be crucial as construction at Mara Rosa continues towards its completion in 2024 and therefore the Board feels that it would be imprudent to pay a final dividend for 2022 at this stage but will reassess the potential for capital return at the interim results in August.

 

I would like to express gratitude to all stakeholders for their ongoing support in what has been a tough period for the Company. I also want to emphasise that we are clear-eyed in viewing the task ahead of us. We will position the Company's strategy in line with the Peruvian government's decision on the Inmaculada's MEIA extension and we hope that it will provide renewed impetus. We look forward to a year of opportunity and to maintaining the very highest levels of safety, environmental stewardship, responsible business practices and community support as we work to deliver on our commitments to all stakeholders.

 

Eduardo Hochschild, Chairman

19 April 2023

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

The volatile political, economic and social situation has continued to impact Peru in recent months, and this has resulted in a tough operating environment for Hochschild's two mines. However, the team's response has once again been something to be proud of. We remain confident that the permitting process for Inmaculada's MEIA will conclude during Q2 2023 and believe the outcome will be positive. We believe this world class deposit will continue to underpin our Company for many decades to come and are looking forward to reigniting the successful exploration programme and continuing to invest in the Ayacucho region and its communities.

 

However, in advance of the government's decision, the Company has been preparing for a number of scenarios and the resulting financing requirements going forward. These include planning in the event of an outright MEIA denial and the resulting requirement to resubmit the permit application as well as the potential for additional short-to-medium term delays. We have also recently taken advantage of precious metal price strength to hedge a total of 29,250 ounces of gold at a forward price of $2,047 per ounce in order to realise a degree of cashflow certainty for the remainder of the year. In addition, for 2024 we have also hedged a further 27,600 ounces of gold for the period between March and December at a forward price of $2,100 per ounce. We believe that such a strategy is appropriate whilst construction at Mara Rosa is ongoing.

 

ESG

We remain resolutely committed to our sustainability strategy, making consistent progress year-to-year in serving our communities, protecting the environment, promoting health and safety, supporting our people, and ensuring responsible business practices. In line with our decision to publish a standalone sustainability report every other year, the Annual Report includes a sustainability section that provides a detailed account of the progress made in all these critical fronts. I am proud to report that our progress in ESG has been externally recognised by several ESG rating agencies. I look forward to next year's standalone sustainability report where we will be able to further highlight our leadership in ESG-related matters. 

 

Operations

Hochschild's output in 2022 continued our good track record. Overall attributable production was 358,826 gold equivalent ounces (25.8 million silver equivalent ounces) which was, as expected lower than the 2021 figure of 390,496 gold equivalent ounces (28.1 million silver equivalent ounces) mainly due to scheduled grade reductions at Inmaculada and Pallancata. This was produced at an all-in sustaining cost of $1,364 per gold equivalent ounce ($18.9 per silver equivalent ounce) which was slightly higher than 2021 reflecting the lower grades at both the Peruvian assets but boosted by the implementation of a cost optimisation plan to contend with inflationary pressures and commodity price volatility.

 

Despite substantial community disruption in the final quarter, the team at Inmaculada had another commendable year producing 237,289 gold equivalent ounces (2021: 252,337 ounces) at $1,058 per gold equivalent ounce. At Pallancata, production in 2022 reflected a mining area that is almost depleted with delivery of 3.2 million silver equivalent ounces (2021: 4.2 million ounces) at a cost of $32.4 per silver equivalent ounce. In Argentina, there was more disruption at San Jose from Covid as well as a fire in the mine's crushing area which temporarily affected operations but, nevertheless, production was only marginally below the 2021 figure at 11.0 million silver equivalent ounces (2021: 11.3 million ounces), with costs at $21.7 per silver equivalent ounce.

 

Projects

We completed the purchase of Amarillo Gold in Brazil on 1 April 2022 and have made strong progress at the Mara Rosa project since taking control. We are now over 70% of the way through the build, with many long lead-time items purchased and construction of the plant and other site infrastructure well advanced. We remain on track for first production at this low-cost project in the first half of 2024 and have also been drilling several prospective exploration targets in the surrounding area which, in time, may provide the long-term upside for the project.

 

Work at the Snip project in Canada progressed well during the year and included metallurgy, processing plant designs and resource model updates as well as an additional drill campaign. This culminated in the completion of a Preliminary Economic Assessment at the end of the year which provided the basis for potential next steps on the project. However, early in April 2023, we decided to terminate the option on the project due to the need to concentrate on other capital allocation priorities, including expenditure in Brazil and brownfield exploration at the mines.

 

Exploration

The brownfield programme for 2022 was focused on Pallancata and San Jose and I am pleased to report that our team have had another highly successful campaign, replacing resources at San Jose, and delivering a major discovery close to Pallancata. The initial discovered resource from the new Royropata zone to the west of existing operations was over 50 million silver equivalent ounces. We have already commenced the permitting process and are excited that, with strong exploration upside potential and high-grade structures (848 grammes per tonne silver equivalent) and widths averaging five metres, the new zone can be the driver of Pallancata's medium-to-long-term future.

 

Financial position

Production has remained reliable and with the existing strong price environment, the Company is generating healthy cashflow. Cash and cash equivalents of $143.8 million at the end of December (2021: $386.8 million) reflected the net payment of approximately C$135 million for Amarillo Gold and expenditure of just over $21 million at the Snip project. This has led to a net debt position of $175.1 million (31 December 2021: $86.3 million net cash). In addition, the Company closed a $200 million committed medium-term debt facility with BBVA and Scotiabank in December 2022. The loan has a maturity of five years and two year of grace period, at a cost SOFR + 2.05%. The facility will be become available on receipt of the Inmaculada MEIA approval.

 

Financial results

Total Group production was lower versus 2021 and, combined with a 6% fall in the silver price received and a flat year-on-year gold price, revenue decreased by 9% to $735.6 million (2021: $811.4 million). All-in sustaining costs were in line with guidance at $1,364 per gold equivalent ounce or $18.9 per silver equivalent ounce (2021: $1,153 per ounce/$16.0 per ounce). Adjusted EBITDA of $249.6 million (2021: $382.8 million) mostly reflects reduced production levels and increased cost of sales. Pre-exceptional earnings per share of $0.01 (2021: $0.14 per share) includes the impact of an increase in exploration expenses due to project expenditure at Snip in Canada and a reduction in income tax mainly due to the lower profitability. Post-exceptional earnings per share was lower at $0.01 (2021: $0.15 earnings per share) and includes an impairment of the investment in Aclara Resources Inc. of $9.9 million, the reversal of impairment loss in Pallancata of $15.5 million resulting from the new resources discovered in Royropata, and the impairment of the Azuca project's evaluation and exploration costs of $4.2 million. The net after-tax effect of exceptional items is a loss of $1.9 million.

 

Outlook

We expect attributable production in 2023 of between 301,000-314,000 gold equivalent ounces (25.0 to 26.0 million silver equivalent ounces) assuming the silver to gold ratio of 83:1 (the average ratio for 2022). This will be driven by: 204,000-211,000 gold equivalent ounces from Inmaculada; an attributable contribution of 6.1 to 6.3 million silver equivalent ounces from San Jose; and 2.0-2.9 million ounces from Pallancata. All-in sustaining costs for operations are expected at between $1,370 and $1,450 per gold equivalent ounce ($16.5 to $17.5 per silver equivalent ounce). This forecast reflects slightly lower output and a rise in mine development costs at Inmaculada in addition to a further reduced contribution at Pallancata before its anticipated move to care and maintenance later in 2023.

 

The achievement of the Inmaculada MEIA will be a key milestone for our Company and we are looking forward to the next twenty years and more from this world class mine. Although 2023 has started with more political and social volatility in Peru, we believe that Hochschild's longstanding focus on our ESG initiatives will stand us in good stead to withstand any future challenges. We remain excited by the year ahead with our Brazil construction moving ahead quickly and strong exploration potential at all our existing deposits.

 

Ignacio Bustamante, Chief Executive Officer

19 April 2023

 

 

OPERATING REVIEW

 

OPERATIONS

Note: 2022 and 2021 equivalent figures calculated using the previous Company gold/silver ratio of 72x. All 2023 forecasts assume the average gold/silver ratio for 2022 of 83x.

 

Production

In 2022, Hochschild delivered attributable production of 358,826 gold equivalent ounces or 25.8 million silver equivalent ounces, moderately below the Company's 2022 guidance due to the reduced contribution at Pallancata resulting from lower grades which could not be fully offset by higher output at Inmaculada. This was due to local community disturbances in Q4 along with the wider political and subsequent civil unrest in Peru since December.

 

The overall attributable production target for 2023 is 301,000-314,000 gold equivalent ounces or 25.0-26.0 million silver equivalent ounces.

 

Total 2022 group production

	Year ended 31 Dec 2022	Year ended 31 Dec 2021
Silver production (koz)	13,596	14,746
Gold production (koz)	244.63	262.39
Total silver equivalent (koz)	31,209	33,638
Total gold equivalent (koz)	433.46	467.19
Silver sold (koz)	13,536	14,712
Gold sold (koz)	242.89	260.71

Total production includes 100% of all production, including production attributable to Hochschild's minority shareholder at San Jose.

 

Attributable 2022 group production

	Year ended 31 Dec 2022	Year ended 31 Dec 2021
Silver production (koz)	11,003	12,174
Gold production (koz)	206.01	221.42
Silver equivalent (koz)	25,835	28,116
Gold equivalent (koz)	358.83	390.50

Attributable production includes 100% of all production from Inmaculada, Pallancata and 51% from San Jose.

 

Attributable 2023 Production forecast split

Operation	Oz Au Eq	Moz Ag Eq
Inmaculada	204,000-211,000	16.9-17.5
Pallancata	24,000-27,000	2.0-2.2
San Jose	73,000-76,000	6.1-6.3
Total	301,000-314,000	25.0-26.0

 

Costs

All-in sustaining cost from operations in 2022 was $1,364 per gold equivalent ounce or $18.9 per silver equivalent ounce (2021: $1,153 per gold equivalent ounce or $16.0 per silver equivalent ounce), higher than 2021 mainly as a result of: expected lower average grades at Inmaculada and Pallancata; higher costs at Inmaculada and Pallancata resulting from using a higher proportion of conventional mining methods as well from local inflation; and higher costs in San Jose mainly due to local inflation and expenditure related to the accessing incremental resources. These was partially offset by local currency devaluation in Argentina.

 

The all-in sustaining cost from operations in 2023 is expected to be between $1,370 and $1,450 per gold equivalent ounce (or $16.5 and $17.5 per silver equivalent ounce).

 

 

2023 AISC forecast split

Operation	$/oz Au Eq	$/oz Ag Eq
Inmaculada	1,260-1,320	15.2-15.9
Pallancata	2,050-2,310	24.7-27.8
San Jose	1,400-1,470	17.0-17.7
Total from operations	1,370-1,450	16.5-17.5

 

Inmaculada

The 100% owned Inmaculada gold/silver underground operation is located in the Department of Ayacucho in southern Peru. It commenced operations in June 2015.

 

Inmaculada summary	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% change
Ore production (tonnes)	1,329,177	1,349,892	(2)
Average silver grade (g/t)	156	174	(10)
Average gold grade (g/t)	3.81	4.05	(6)
Silver produced (koz)	5,936	6,236	(5)
Gold produced (koz)	154.85	165.73	(7)
Silver equivalent produced (koz)	17,085	18,168	(6)
Gold equivalent produced (koz)	237.29	252.34	(6)
Silver sold (koz)	5,918	6,216	(5)
Gold sold (koz)	154.93	165.86	(7)
Unit cost ($/t)	118.7	99.2	18
Total cash cost ($/oz Au co-product)	693	557	24
All-in sustaining cost ($/oz Au Eq)	1,058	917	15

 

Production

The Inmaculada mine delivered Inmaculada has delivered gold equivalent production of 237,289 ounces (2021: 252,337 ounces), in line with the upwards revised forecast published in August 2022 and slightly reduced versus 2021 owing to budgeted lower grades.

 

Costs

All-in sustaining costs were $1,058 per gold equivalent ounce (2021: $917 per ounce) with the increase versus 2021 due to scheduled lower grades and higher production costs resulting from the use of more semi-mechanised mining methods with a higher extraction cost and from inflation affecting mainly fuel, reagents, and supplies.

 

Pallancata

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 2022	Year ended 31 Dec 2021	% change
Ore production (tonnes)	559,799	530,681	5
Average silver grade (g/t)	151	212	(29)
Average gold grade (g/t)	0.69	0.84	(18)
Silver produced (koz)	2,368	3,261	(27)
Gold produced (koz)	10.98	13.05	(16)
Silver equivalent produced (koz)	3,158	4,200	(25)
Gold equivalent produced (koz)	43.86	58.33	(25)
Silver sold (koz)	2,315	3,263	(29)
Gold sold (koz)	10.76	13.03	(17)
Unit cost ($/t)	131.9	124.8	6
Total cash cost ($/oz Ag co-product)	26.6	19.2	39
All-in sustaining cost ($/oz Ag Eq)	32.4	23.8	36

 

Production

In 2022, Pallancata produced 3.2 million silver equivalent ounces (2021: 4.2 million ounces) with the reduction versus 2021 and versus the revised forecast (3.4 -3.6 million ounces) due to the effects of lower-than-expected grades in line with the current declining production profile.

 

Costs

All-in sustaining costs were at $32.5 per silver equivalent ounce (2021: $23.8 per ounce) with the significant increase year-on-year due to lower grades, a higher proportion of conventional mining resulting in higher production costs and local inflation.

 

San Jose

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.

 

San Jose summary	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% change
Ore production (tonnes)	507,189	539,229	(6)
Average silver grade (g/t)	369	344	7
Average gold grade (g/t)	5.55	5.47	1
Silver produced (koz)	5,292	5,250	1
Gold produced (koz)	78.80	83.62	(6)
Silver equivalent produced (koz)	10,966	11,270	(3)
Gold equivalent produced (koz)	152.31	156.53	(3)
Silver sold (koz)	5,303	5,233	1
Gold sold (koz)	77.20	81.83	(6)
Unit cost ($/t)	285.0	229.0	24
Total cash cost ($/oz Ag co-product)	14.4	13.3	8
All-in sustaining cost ($/oz Ag Eq)	21.7	18.4	18

 

Production

San Jose's production in 2022 totalled 11.0 million silver equivalent ounces (2021: 11.3 million ounces) with the decrease versus 2021 reflecting first quarter Covid-related employee absences and a fire in the crushing area, both of which temporarily affected operations and explain the reduction in tonnage. This was partially offset by better-than-budgeted grades.

 

Costs

All-in sustaining costs were at $21.7 per silver equivalent ounce (2021: $18.4 per ounce) with the rise versus 2021 due to local inflation affecting production costs, higher mine development capital expenditure to access new areas and lower production. This was partially offset by local currency devaluation.

 

ADVANCED PROJECT: MARA ROSA

On 22 March 2022, the Company announced that it had received shareholder approval for the acquisition of Amarillo Gold Inc. in Brazil with completion occurring on 1 April 2022.

 

On 10 August, the Company announced that the Goiás state's environmental authority, the State Secretariat for the Environment and Sustainable Development (SEMAD), had granted the key permit to enable the Company to start construction of the processing plant. It also allowed all the required site infrastructure for progressing the project's critical paths.

 

The progressed subsequently progressed according to schedule and budget with total project progress now standing at over 70% and detailed engineering almost complete. The Company continues to expect first production in H1 2024.

 

Earthworks

Site clearance for the processing plant and earthworks are at an advanced stage (92% and 96% respectively) whilst the reservoir is fully operational and already receiving pumped water from the pit. All sites being prepared for the processing plant have been finished on time therefore allowing civil works to start according to schedule.

 

Procurement

Currently purchase orders have been issued for 93% of the project equipment. Deliveries are on schedule with key equipment such as the crusher, conveyor belts, HDPE pipes, aluminium cabling for transmission lines, hydrocyclones, agitators and equipment for the wastewater treatment station already received. Key material packages that are pending include pipes and valves which are expected to be closed in the first quarter.

 

Processing plant

The civil works contractor is fully mobilised and work on the plant site area is at 32% completion rate. The concrete base for the grinding area is complete with walls and equipment columns currently progressing and expected to be finished by the end of February whilst deliveries for the tanks are due the same month.

 

Infrastructure

Construction of infrastructure for the main access route is ongoing to allow delivery of materials and heavy equipment. A preliminary drainage system that will guarantee access to critical path areas was completed in Q4 whilst the main project drainage system is 60% complete.

 

The power supply for the mine will be provided by the building of a 67km, 138kv transmission line from the Porangatu substation with work currently 45% advanced and expected to be completed by June 2023.

 

Sustainability

Environmental controls to monitor construction work have been implemented to ensure compliance with applicable permits. In September, the "Knowledge Trail" was inaugurated with the presence of local authorities and the Hochschild COO. The trail consists of an open ecological area with 13 stations highlighting local history, culture, archaeological and environmental information, and project history. The trail will be used as a learning tool by local schools among other local stakeholders and to date almost 500 people have visited. Local supplier and labour training programmes are continuing with over 80 local suppliers already on standby.

 

Health and Safety

Hochschild's health and safety corporate standards are currently being implemented at the project, including the introduction of the Company's Seguscore safety indicator. The project has recently surpassed one million injury-free working hours and year-to-date Frequency and Severity Indexes are currently at zero. Finally, Covid-19 prevention protocols are in place with no positive cases recorded to date.

 

DEVELOPMENT PROJECT: SNIP

At the Snip project in British Columbia, Canada, exploration recommenced during the first quarter of 2022, with approximately 2,500m drilled from underground. Work also began on the Preliminary Economic Assessment (PEA), which was awarded to Ausenco Engineering Canada. This included metallurgical test work, an evaluation of ARD potential in waste samples, and a flowsheet trade-off study. In addition, a new 2-year Environmental Baseline program was approved and data collection began.

 

On 1 March 2022, Hochschild issued an updated mineral resource estimate. Indicated mineral resources more than tripled to 840,000 ounces and inferred resources almost doubled to 723,000 ounces (compared to the previous 2020 estimate) as a result of approximately 28,000m of drilling and the application of Hochschild's standard approach to resource evaluation. Following on from that, approximately 10,300m was drilled from underground in the second and third quarters. Results received during Q3 had the following highlights:

 

Vein	Results (Twin hole)
208	UG22-279: 4.3m @ 125.7g/t Au & 13g/t Ag
212	UG22-290: 2.1m @ 8.4g/t Au & 2g/t Ag
213	UG22-278: 2.3m @ 11.5g/t Au & 19g/t Ag
214	UG22-284: 4.5m @ 48.4g/t Au & 18g/t Ag
219	UG22-290: 3.8m @ 9.5g/t Au & 2g/t Ag
228	UG22-290: 2.5m @ 6.5g/t Au & 4g/t Ag
230	UG22-284: 4.1m @ 11.0g/t Au & 3g/t Ag

 

Vein	Results (Infill hole)
215	UG22-317: 3.9m @ 33.4g/t Au & 3g/t Ag
219	UG22-330: 4.8m @ 45.1g/t Au & 14g/t Ag
219	UG22-332: 4.0m @ 12.8g/t Au & 2g/t Ag
231	UG22-300: 3.7m @ 9.2g/t Au & 8g/t Ag
240	UG22-334: 4.3m @ 31.7g/t Au & 9g/t Ag

 

A Communications and Engagement Agreement with the Tahltan Central Government was signed at the beginning of 2022 with constructive discussions between the two parties continuing throughout the remainder of the year which included a project site visit by a leadership delegation site in August.

 

At the end of the year, the PEA was completed by Ausenco. Highlights are given below.

 

Mineral Resource Estimate (effective as of 20 June 2022)

Category	Domain	Tonnes                    (000)	Au Grade                 (g/t)	Total Au Metal Content (000 oz)
Indicated	Twin Main	3,847	9.8	1,217
	Twin West	293	8.1	76
Total Indicated		4,140	9.7	1,293
Inferred	Twin Main	829	12.3	329
	Twin West	207	11.0	73
Total Inferred		1,036	12.1	402

Notes

1   These mineral resources are not mineral reserves and do not have demonstrated economic viability.

2   The independent qualified person MRE, as defined by National Instrument ("NI") 43-101 guidelines, is Marc Jutras P.Eng., M.A.Sc., Principal, Mineral Resources at Ginto Consulting Inc.

3   Follows CIM definitions (2014) for mineral resources.

4   Results are presented in-situ and undiluted and considered to have reasonable prospects for economic extraction.

5   Reported for an underground scenario at a cut-off grade of 3.0 g/t

6   The number of tonnes and ounces were rounded to the nearest thousand.

7   Estimates are in total for the property and have not been adjusted to reflect the proportion attributable to Hochschild on the basis of its joint venture participation.

 

The update of the mineral resources of the project follows a drilling campaign of 83 surface and underground holes carried out in 2021 and 2022. The drill hole database is comprised of 3,507 historical drill holes and 415 holes drilled by Skeena from 2016 to 2021 and 69 holes drilled by Hochschild in 2022. The historical holes were validated from a set of twin holes drilled by Skeena in 2021 and Hochschild in 2022.

 

Mining

The Snip Project contemplates the underground exploitation of the Mineral Resources of both Twin Main and Twin West deposit at a planned rate of 1,350 to 1,500 tpd over an eight-year period. Total mineralised material in the Life of Mine (LOM) is 3.7mt @ 7.1 g/t Au, with an average gold production of 100 koz per year. A pre-production period of two years, including rehabilitation and dewatering of existing tunnels and the ramp-up period in year two, will allow for the start of full production beginning in year three.

 

Processing

The process plant design is based on composite samples that represent the underground mining plan. The circuit selected is a gravity and whole ore leach process to produce gold doré bars. The plant is designed for a through put of 1,350 tpd based on availability of 92%. The metallurgical recovery is estimated at 96%. The process flowsheet consisted of: three-stage crushing and ball mill grinding circuits; gravity and leach + carbon-in-leach (L/CIL) circuits; desorption and carbon regeneration; electrowinning and smelting; and cyanide destruction of tailings using SO₂/air process.

 

Capital Costs

The total initial capital cost is C$346.5m and the life-of-mine sustaining cost is C$239.9m. The initial capital costs are summarised below:

 

Initial capital costs

Description	C$m
Underground Mine	113.7
Process Plant	52.5
Tailings Storage Facility	35.4
Infrastructure	47.1
Total Direct Costs	248.7
Indirect costs	39.5
Contingency	58.3
Total	346.5

 

Project economics

The overall economics of the Project have been evaluated using a gold price of US$1,700/oz, CAD/USD rate of 0.75 and a discount rate of 5%. Snip's valuation has been estimated at C$183m post-tax NPV, with an IRR of 17%. The payback period is expected to be 4 years from the start of production.

 

Key project economics

Description	Units	Value
Au Payable	000oz	797
Processed Tonnes	Mt	3.65
Au Grade	g/t	7.08
After-tax valuation indicators
Undiscounted cash flow	C$m	373
NPV@5%	C$m	183
Payback period	years	4
IRR	%	17
Project Capital (initial)	C$m	347
AISC	C$/oz Au	1,081

 

Termination

Due to the need to focus capital elsewhere in Hochschild's portfolio, on 5 April 2023, the Company announced that it had given notice to Skeena Resources Limited ("Skeena") to terminate the option to earn-in a 60% interest in Snip. Termination of the option became effective immediately and, as a result, Hochschild has no liability to complete the Aggregate Expenditure Requirement.

 

In addition, Hochschild provided confirmation to Skeena that it had satisfied the Minimum Annual Expenditure Requirement in respect of the 12-month period that commenced on 14 October 2022. Accordingly, no cash payment is due from Hochschild to Skeena under the terms of the option agreement.

 

DEVELOPMENT PROJECT: VOLCAN

In early 2022, the Company restructured its 100% ownership of the Volcan project in Chile under a newly-established Canadian company, Tiernan Gold Corp.

 

During the year, work continued to advance the project. This included updating the Mineral Resource Estimate as well as developing an optimised mine and project development plan. During the third quarter, the Company advanced several trade-off studies aimed at creating additional project value. The results of the engineering work were outlined in a new PEA completed by Ausenco with highlights, as follows:

 

§ Open pit mining with 293 Mt of mineralised material mined over a 14 year mine life;

§ 451 Mt of waste mined during the life of mine (1.5:1 strip ratio);

§ Processing of mineralised material by three-stages of crushing followed by heap leaching and gold dore production;

§ Annual processing rate of 22 Mtpa producing an average of 350,000 oz per year of gold for the first five years and a life of mine total of 3.82 million ounces of gold recovered;

§ Initial capital cost of $900 million and average All-in-Sustaining Costs of $1,002/oz;

§ After tax net present value (5% @ $1,800/oz gold) of $826 million with IRR of 20.5%.

 

The Company is currently evaluating strategic alternatives for Tiernan.

 

BROWNFIELD EXPLORATION: PALLANCATA ROYROPATA RESOURCE

In the third quarter of the year, Hochschild announce a major discovery west of current operations at Pallancata. The new area, named Royropata is part of the extended Royropata system.

 

An initial Inferred Mineral Resource Estimate for the Royropata Zone to the west of the existing Pallancata mine was completed in Q4. The Company estimates that the zone contains an Inferred Mineral Resource of 1.88 million tonnes at an average grade of 667 g/t Ag and 2.42 g/t Au containing 51.2 million silver equivalent ("Ag Eq") ounces at a combined Ag Eq grade of 848 g/t (see table below).

 

The programme started in 2019 with two long drill holes, with the second drill hole intercepting 37.6m of quartz vein without economic values. In 2022, after a period of geologic interpretation and 9,800m of drilling, a new vein system, including the Marco West, (the main structure) Laura, Demian, Royropata 1, and Royropata 2 veins was discovered (see maps below). The Royropata system is a tabular sinistral strike-slip fault filled by hydrothermal quartz with crustiform, coloform, banded, and breccia textures. The vein strikes 80-90° and dips 60° to 75° to the southeast, reaching 750m in length and 200m in depth. The host rocks are dacitic tuffs, andesitic tuffs, and andesitic flow. The contained minerals are mainly: pyrargyrite, proustite, argentite, electrum, and pearceite-polybasite at the precious metal level. The principal gangue mineral is quartz and carbonates and silicified tuff fragments with an argillic alteration. The Marco vein remains open to the southwest for another 900m according to the current geological interpretation.

 

Audited Royropata Inferred Mineral Resource Estimate

Vein	Tonnes (k)	Ag (g/t)	Au (g/t)	Ag Eq (g/t)	Ag Eq (moz)
Marco West	1,497	763	2.81	973	46.8
Laura	247	203	0.62	250	2.0
Royropata 2	80	495	1.48	606	1.6
Demian	27	444	1.55	560	0.5
Royropata 1	26	285	0.81	346	0.3
Total/Average	1,876	667	2.42	848	51.2

Notes

1   Mineral Resources are 100% attributable to Hochschild.

2   Metal prices used for the Mineral Resources calculations: Au: US$1,800/oz, Ag: US$24/oz.

3   AgEq = (Au x 75) + Ag.

4   AgEq Cut-off: 99 g/t AgEq.

5   Totals have been rounded to the appropriate number of significant figures.

 

2023 next steps

In 2023, the Company will develop the Mineral Resource including infill drilling to convert the Inferred Minerals Resources to Indicated and will also proceed with basic engineering as well as the environmental permitting process, including baseline studies.  In addition, over the next few quarters, the brownfield team will also target the upside potential in the Royropata zone, including the extension of the Marco vein, the Royropata veins and the Yanacochita and Bolsa structures according to ongoing permitting progress. These veins are expected to add significant additional resources.

 

EXPLORATION

Inmaculada

In the first half of the year, most of the drilling at Inmaculada was potential drilling at the Huarmapata area and resource drilling in the Josefa vein with the best results from Josefa which them merited further drilling in the second half. In addition, there was 2,900m of infill drilling in the Juliana, Susana-Beatriz, Bety, Barbara and Noelia structures. Much of the planned brownfield exploration work including surface drilling work was curtailed in 2022 by a lack of permits.

 

Vein	Results (resource drilling)
Josefa	IMM22-139: 2.8m @ 1.9g/t Au & 43g/t Ag IMM-22-172: 1.5m @ 6.1g/t Au & 186g/t Ag
Josefa Piso	IMM-22-171A: 1.6m @ 8.5g/t Au & 104g/t Ag IMM-22-172: 0.8m @ 6.9g/t Au & 13g/t Ag
Cloty	IMM-22-172: 0.8m @ 3.9g/t Au & 90g/t Ag

 

San Jose

During the year, 18,150 of potential drilling was executed around the mine area and in the Saavedra area in the Ayelen, Ayelen SE, Maura and Maura East veins, among others, in addition to 2,800m of infill drilling in the Julia, Isabel, Odion, Molle and Perla veins. The Company also started to explore the Ciclon project (700m of drilling) further away in the Santa Cruz province.

 

Vein	Results (potential/resource drilling)
Celina	SJD-2451: 1.5m @ 6.0g/t Au & 236g/t Ag SJD-2453: 1.2m @ 8.3g/t Au & 561g/t Ag
Celina Piso	SJD-2453: 1.1m @ 2.8g/t Au & 546g/t Ag
Jimena	SJD-2463: 5.2m @ 1.6g/t Au & 47g/t Ag SJD-2465: 2.4m @ 2.8g/t Au & 48g/t Ag
Agostina	SJD-2468: 4.1m @ 7.5g/t Au & 84g/t Ag SJD-2469: 5.4m @ 3.3g/t Au & 29g/t Ag SJD-2471: 1.9m @ 1.6g/t Au & 68g/t Ag
Ayelen SE	SJM-594: 1.5m @ 6.9g/t Au & 648g/t Ag SJD-2529: 2.4m @ 3.9g/t Au & 363g/t Ag SJD-2531: 2.6m @ 10.0g/t Au & 1,321g/t Ag
Maura	SJD-2554: 1.1m @ 4.7g/t Au & 102g/t Ag SJD-2556: 0.8m @ 5.5/t Au & 103g/t Ag SJD-2563: 1.3m @ 6.3g/t Au & 109g/t Ag SJD-2570: 1.0m @ 15.1g/t Au & 123g/t Ag SJD-2572: 2.5m @ 4.0g/t Au & 216g/t Ag
Ciclon	DCE22-02: 2.9m @ 1.0g/t Au & 615g/t Ag
Olivia	SJM-609: 1.1m @ 3.0g/t Au & 357g/t Ag

 

In 2022 as a whole 19.3 million silver equivalent ounces have been added to the San Jose resource base at a silver equivalent grade of 983 grams per tonne.

 

 

FINANCIAL REVIEW

The reporting currency of Hochschild Mining PLC is U.S. dollars. In discussions of financial performance, the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years.

 

Revenue

Gross revenue [8]

Gross revenue from continuing operations decreased by 10% to $751.3 million in 2022 (2021: $831.0 million) mainly due to the lower production and average realised silver price. Output was mainly impacted by: lower expected grades in Pallancata and Inmaculada; lower treated tonnage in San Jose due to Covid-related employee absences in Q1 and a fire in the crushing area which temporarily affected operations; and lower treated tonnage in Inmaculada resulting from the local and national disruption in Peru in Q4.  These were partially offset by a slightly higher average realised gold price.

 

Gold

Gross revenue from gold in 2022 decreased to $435.1 million (2021: $464.3 million) due to the 7% decrease in gold sales resulting from lower gold produced at all operations. This was partially offset by a 1% increase in the average realised gold price.

 

Silver

Gross revenue from silver decreased in 2022 to $315.5 million (2021: $366.2 million) mainly due to a 6% decrease in the average realised silver price and lower silver production at Pallancata and Inmaculada due to lower tonnage treated and grades.

 

Gross average realised sales prices

The following table provides figures for average realised prices (before the deduction of commercial discounts) and ounces sold for 2022 and 2021:

 

Average realised prices	Year ended 31 Dec 2022	Year ended 31 Dec 2021
Silver ounces sold (koz)	13,536	14,712
Avg. realised silver price ($/oz)	23.3	24.9
Gold ounces sold (koz)	242.89	260.71
Avg. realised gold price ($/oz)	1,791	1,781

 

4.0 million silver ounces of 2022 production were hedged at $26.86 per ounce, boosting the realised price. On 10 November 2021, the Company hedged 3.3 million ounces of 2023 silver production at $25.00 per ounce.

 

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 2022, the Group recorded commercial discounts of $15.7 million (2021: $19.6 million) with the fall explained by the decrease in production. The ratio of commercial discounts to gross revenue in 2022 was 2%, in line with 2021.

 

Net revenue

Net revenue was $735.6 million (2021: $811.4 million), comprising net gold revenue of $429.8 million (2021: $457.8 million) and net silver revenue of $305.2 million (2021: $353.1 million). In 2022, gold accounted for 58% and silver 42% of the Company's consolidated net revenue (2021: gold 56% and silver 44%).

 

Reconciliation of gross revenue by mine to Group net revenue

$000	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% change
Silver revenue
Inmaculada	137,033	156,675	(13)
Pallancata	62,986	82,727	(24)
San Jose	115,477	126,790	(9)
Commercial discounts	(10,334)	(13,088)	(21)
Net silver revenue	305,162	353,104	(14)
Gold revenue
Inmaculada	276,895	296,160	(7)
Pallancata	19,459	22,989	(15)
San Jose	138,782	145,187	(4)
Commercial discounts	(5,335)	(6,517)	(18)
Net gold revenue	429,801	457,819	(6)
Other revenue	680	464	47
Net revenue	735,643	811,387	(9)

 

Cost of sales

Total cost of sales before exceptional items was $527.6 million in 2022 (2021: $487.8 million). The direct production cost excluding depreciation was higher at $384.2 million (2021: $323.4 million) mainly due to inflation impacting fuel, reagents and supplies and the use of a higher proportion of conventional mining methods. Depreciation in production cost decreased to $137.7 million (2021: $148.8 million) due to lower extracted volumes across all operations. Fixed costs incurred during total or partial production stoppages in Argentina and Peru were $8.0 million in 2022 (2021: $8.7 million).

 

$000	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% change
Direct production cost excluding depreciation	384,183	323,418	19
Depreciation in production cost	137,747	148,842	(7)
Other items and workers profit sharing	3,321	6,512	(49)
Fixed costs during operational stoppages and reduced capacity	8,023	8,680	(8)
Change in inventories	(5,631)	320	(1,860)
Cost of sales	527,643	487,772	8

 

Fixed costs during operational stoppages and reduced capacity

$000	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% Change
Personnel	4,498	7,607	(41)
Third party services	3,090	995	211
Supplies	146	-	-
Depreciation and amortisation	2	-	-
Others	287	78	268
Cost of sales	8,023	8,680	(8)

 

Unit cost per tonne

The Company reported unit cost per tonne at its operations of $158.7 per tonne in 2022, a 19% increase versus 2021 ($133.5 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 in San Jose mainly due to inflation and from expenditure related to the accessing and mining of incremental resources.

 

Unit cost per tonne by operation (including royalties)[9]:

Operating unit ($/tonne)	Year ended 31 Dec 2022	Year ended 31 Dec 2021	% change
Peru	122.9	106.5	15
Inmaculada	118.7	99.2	20
Pallancata	131.9	124.8	6
Argentina
San Jose	285.0	229.0	24
Total	158.7	133.5	19

 

Cash costs

Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales.

 

Cash cost reconciliation[10]

Year ended 31 Dec 2022

$000 unless otherwise indicated	Inmaculada	Pallancata	San Jose	Total
Group cash cost	162,397	80,756	170,585	413,738
(+) Cost of sales[11]	239,277	83,926	193,840	517,043
(-) Depreciation and amortisation in cost of sales	(80,633)	(8,671)	(47,123)	(136,427)
(+) Selling expenses	796	622	12,614	14,032
(+) Commercial deductions[12]	2,957	4,879	11,254	19,090
Gold	2,131	969	4,630	7,730
Silver	826	3,910	6,624	11,360
Revenue	413,928	77,566	243,469	734,963
Gold	276,895	18,490	134,416	429,801
Silver	137,033	59,076	109,053	305,162
Ounces sold
Gold	154.9	10.8	77.2	242.9
Silver	5,918	2,315	5,303	13,536
Group cash cost ($/oz)
Co product Au	701	1,789	1,220	996
Co product Ag	9.1	26.6	14.4	12.7
By product Au	158	1,652	711	400
By product Ag	(19.7)	26.5	6.0	(1.8)

 

Year ended 31 Dec 2021

$000 unless otherwise indicated	Inmaculada	Pallancata	San Jose	Total
Group cash cost	141,316	80,354	150,663	372,333
(+) Cost of sales[13]	213,812	93,049	172,231	479,092
(-) Depreciation and amortisation in cost of sales	(76,372)	(19,915)	(49,195)	(145,482)
(+) Selling expenses	616	620	14,195	15,431
(+) Commercial deductions[14]	3,260	6,600	13,432	23,292
Gold	2,164	1,034	5,717	8,915
Silver	1,096	5,566	7,715	14,377
Revenue	452,835	99,116	258,972	810,923
Gold	296,160	21,955	139,704	457,819
Silver	156,675	77,161	119,268	353,104
Ounces sold
Gold	165.9	13.0	81.8	260.7
Silver	6,216	3,263	5,233	14,712
Group cash cost ($/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)

 

Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.

 

All-in sustaining cost reconciliation[15]

All-in sustaining cash costs per silver equivalent ounce

 

Year ended 31 Dec 2022

$000 unless otherwise indicated	Inmaculada	Pallancata	San Jose	Main Operations	Corporate & others	Total
(+) Direct production cost excluding depreciation	156,551	75,472	152,160	384,183	-	384,183
(+) Other items and workers profit sharing in cost of sales	1,777	1,544	-	3,321	-	3,321
(+) Operating and exploration capex for units[16]	78,176	12,340	47,604	138,120	584	138,704
(+) Brownfield exploration expenses	2,946	6,000	7,700	16,646	2,537	19,183
(+) Administrative expenses (excl depreciation)	3,894	729	6,242	10,865	41,266	52,131
(+) Royalties and special mining tax[17]	4,032	756	-	4,788	2,658	7,446
Sub-total	247,376	96,841	213,706	557,923	47,045	604,968
Au ounces produced	154,846	10,977	78,803	244,626	-	244,626
Ag ounces produced (000s)	5,936	2,368	5,292	13,596		13,596
Ounces produced (Ag Eq 000s oz)	17,085	3,158	10,966	31,209	-	31,209
Sub-total ($/oz Ag Eq)	14.5	30.7	19.5	17.9	1.5	19.4
(+) Commercial deductions	2,957	4,879	11,254	19,090	-	19,090
(+) Selling expenses	796	622	12,614	14,032	-	14,032
Sub-total	3,753	5,501	23,868	33,122	-	33,122
Au ounces sold	154,930	10,759	77,204	242,893	-	242,893
Ag ounces sold (000s)	5,918	2,315	5,303	13,536	-	13,536
Ounces sold (Ag Eq 000s oz)	17,073	3,090	10,862	31,025	-	31,025
Sub-total ($/oz Ag Eq)	0.2	1.8	2.2	1.1	-	1.1
All-in sustaining costs ($/oz Ag Eq)	14.7	32.4	21.7	18.9	1.5	20.4
All-in sustaining costs ($/oz Au Eq)	1,058	2,336	1,561	1,364	109	1,473

 

 

Year ended 31 Dec 2021

$000 unless otherwise indicated	Inmaculada	Pallancata	San Jose	Main operations	Corporate & others	Total
(+) Direct production cost excluding depreciation	134,110	66,859	122,449	323,418	-	323,418
(+) Other items and workers profit sharing in cost of sales	3,489	3,023	-	6,512	-	6,512
(+) Operating and exploration capex for units[18]	76,512	14,526	41,325	132,363	1,735	134,098
(+) Brownfield exploration expenses	3,276	5,993	9,654	18,923	3,658	22,581
(+) Administrative expenses (excl depreciation)	4,909	1,075	6,104	12,088	38,783	50,871
(+) Royalties and special mining tax[19]	5,190	1,136	-	6,326	5,916	12,242
Sub-total	227,486	92,612	179,532	499,630	50,092	549,722
Au ounces produced	165,730	13,045	83,615	262,390	-	262,390
Ag ounces produced (000s)	6,236	3,261	5,250	14,746		14,746
Ounces produced (Ag Eq 000s oz)	18,168	4,200	11,270	33,638	-	33,638
Sub-total ($/oz Ag Eq)	12.5	22.1	15.9	14.9	1.4	16.3
(+) 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	260,715	-	260,714
Ag ounces sold (000s)	6,216	3,263	5,233	14,712	-	14,712
Ounces sold (Ag Eq 000s oz)	18,158	4,201	11,124	33,483	-	33,483
Sub-total ($/oz Ag Eq)	0.2	1.7	2.5	1.2	-	1.2
All-in sustaining costs ($/oz Ag Eq)	12.7	23.8	18.4	16.0	1.5	17.5
All-in sustaining costs ($/oz Au Eq)	917	1,711	1,325	1,153	105	1,258

 

 

Administrative expenses

Administrative expenses were higher at $54.2 million (2021: $51.9 million) mainly due to higher personnel expenses and travel expenses, and administrative expenses related to the Mara Rosa project.

 

Exploration expenses

In 2022, exploration expenses increased to $56.8 million (2021: $39.9 million) mainly due to the Snip project's exploration expenses of $20.8 million (2021: Nil), partially offset by lower exploration expenses across all mines of $3.9 million.

 

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resources to the Inferred or Measured and Indicated categories. In 2022, the Company capitalised $0.7 million relating to brownfield exploration compared to $6.1 million in 2021, bringing the total investment in exploration for 2022 to $57.6 million (2021: $46.0 million). 

 

Selling expenses

Selling expenses decreased to $14.0 million (2021: $15.4 million) mainly due to lower volumes sold in Argentina.

 

Other income/expenses

Other income before exceptional items was lower at $3.3 million (2021: $8.4 million) mainly due to decreased gains on the sale of equipment of $3.0 million and $2.0 million of higher income on the recovery of provisions in 2021.

 

Other expenses before exceptional items were lower at $39.3 million (2021: $44.6 million) with the reduction mainly due to lower increases in provision for mine closure of $17.8 million (2021: $22.1 million), lower expenses from a voluntary redundancy programme in Argentina of $1.3 million (2021: $8.3 million). These were partially offset by: an increase in care and maintenance costs to $7.4 million (H1 2021: $5.7 million); higher labour contingencies in Argentina of $3.1 million (2021: $0.8 million); increased provision for administrative fines of $1.6 million (2021: $0.1 million), and the insurance deductible plus expenses not covered by insurance relating to the fire in San Jose of $0.9 million.

 

Adjusted EBITDA

Adjusted EBITDA decreased by 35% to $249.6 million (2021: $382.8 million) mainly due to the decrease in revenue resulting from lower gold and silver production, and the lower average realised silver price. In addition, there was an increase in production costs mainly due to inflation, higher mine development capex and the use of a higher proportion of conventional mining methods.

 

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 2022	Year ended 31 Dec 2021	% change
Profit from continuing operations before exceptional items, net finance income/(cost), foreign exchange loss and income tax	45,190	179,438	(75)
Depreciation and amortisation in cost of sales	136,427	145,482	(6)
Depreciation and amortisation in administrative expenses and other expenses	2,135	2,184	(2)
Exploration expenses	56,826	39,848	43
Personnel and other exploration related fixed expenses	(10,602)	(7,099)	49
Other non-cash income, net [20]	19,629	22,958	(15)
Adjusted EBITDA	249,605	382,811	(35)
Adjusted EBITDA margin	34%	47%	(28)

 

Finance income

Finance income before exceptional items of $5.2 million increased from 2021 ($3.9 million) mainly due to higher interest on deposits of $2.4 million (2021: $1.6 million).

 

Finance costs

Finance costs before exceptional items decreased from $32.1 million in 2021 to $21.8 million in 2022 principally due to: lower foreign exchange transaction costs to acquire $5.2 million dollars in Argentina of $5.0 million (2021: $15.3 million); the capitalisation of $4.9 million interest expenses that are directly attributable to the construction of Mara Rosa; and the cancelation of the Libor rate swap of the refinanced $200 million medium-term loan of $3.8 million in 2021. These effects were partially offset by higher interest paid of $12.9 million in 2022 (2021: $5.7 million) mainly due to an additional $100 million medium-term loan drawn down in December 2021 and higher interest rates, and the fair value loss on financial investments of $2.1 million (2021: $0.8 million).

 

Foreign exchange (losses)/gains

The Group recognised a foreign exchange loss of $2.6 million (2021: $2.4 million loss) as a result of exposures in currencies other than the functional currency.

 

Income tax

The Company's pre-exceptional income tax charge was $17.6 million (2021: $81.3 million). The significant decrease in the charge is mainly explained by lower profitability versus 2021.

 

The effective tax rate (pre-exceptional) for the period was 72.3% (2021: 54.7%), compared to the weighted average statutory income tax rate of 35.6% (2021: 30.9%). The high effective tax rate in 2022 versus the average statutory rate is mainly explained by: the impact of non-recognised tax losses in non-operating companies increasing the rate by 36.5%, Royalties and the Special Mining Tax which increased the effective rate by 21.8%; partially offset by the effect of foreign exchange in Peru and Argentina decreasing the rate by 19.2%.

 

Exceptional items

Exceptional items in 2022 totalled a $1.9 million loss after tax (2021: $3.7 million loss after tax) related to: the impairment of the investment in Aclara Resources Inc. of $9.9 million; the reversal of impairment loss in Pallancata of $15.5 million resulting from the new resources discovered in the Royropata zone; and the impairment of the Azuca project's evaluation and exploration costs of $4.2 million.

 

The tax effect of these exceptional items was a $3.3 million tax loss (2021: $15.1 million tax gain). The net attributable loss of exceptional items was $1.9 million.

 

Cash flow and balance sheet review         

Cash flow:

$000	Year ended 31 Dec 2022	Year ended 31 Dec 2021	Change
Net cash generated from operating activities	102,918	282,520	(179,602)
Net cash used in investing activities	(337,580)	(183,434)	(154,146)
Cash flows generated generated/(used in) from financing activities	(6,588)	59,307	(65,895)
Foreign exchange adjustment	(1,695)	(3,487)	1,792
Net increase in cash and cash equivalents during the year	(242,945)	154,906	(397,851)

 

Net cash generated from operating activities decreased from $282.5 million in 2021 to $102.9 million in 2022 mainly due to lower Adjusted EBITDA of $249.6 million (2021: $382.8 million), and an increased working capital position.

 

Net cash used in investing activities increased from $183.4 million in 2021 to $337.6 million in 2022 mainly due to the acquisition cost of Mara Rosa and subsequent capex of $193.2 million. This effect was partially offset by the purchase of Aclara shares for $20.0 million in 2021, and lower foreign exchange transaction costs to acquire dollars in Argentina of $5.0 million (2021: $15.3 million).

 

Cash from financing activities decreased to an outflow of $6.6 million from an inflow of $59.3 million in 2021, primarily due to the additional medium-term loan of $100.0 million drawn down in December 2021, partially offset by proceeds from Minera Santa Cruz stock market promissory notes of $14.5 million, and lower dividends to non-controlling interest of $0.3 million (2021: $9.8 million).

 

Working capital

$000	As at 31 December 2022	As at 31 December 2021
Trade and other receivables	85,408	69,749
Inventories	61,440	49,184
Derivative financial assets/(liabilities)	2,186	14,073
Income tax payable, net	7,100	(22,322)
Trade and other payables	(144,102)	(133,482)
Provisions	(24,177)	(32,058)
Working capital	(12,145)	(54,856)

 

The Group's working capital position increased by $42.7 million from $(54.9) million to $(12.1) million. The key drivers of the increase were: higher income tax payable of $29.4 million; higher trade and other receivables of $15.7 million; and lower derivative financial assets of $11.9 million.           

 

Net (debt)/cash

$000 unless otherwise indicated	As at 31 December 2022	As at 31 December 2021
Cash and cash equivalents	143,844	386,789
Non-current borrowings	(275,000)	(300,000)
Current borrowings [21]	(43,989)	(499)
Net cash / (net debt)	(175,145)	86,290

 

The Group's reported net debt position was $175.1 million as at 31 December 2022 (31 December 2021: net cash of $86.3 million). The decrease is mainly explained by: the acquisition cost of Mara Rosa and subsequent construction capex of $193.2 million; the Snip project's exploration expenses of $19.6 million; and temporary changes in working capital.

 

$000	Year ended 31 Dec 2022	Year ended 31 Dec 2021
Inmaculada	78,176	76,512
Pallancata	13,518	14,250
San Jose	50,112	43,666
Operations	141,806	134,428
Mara Rosa	193,218	-
Aclara	-	11,476
Other	4,842	7,957
Total	339,866	153,861

 

2022 capital expenditure of $339.9 million (2021: $153.9 million) mainly comprised the acquisition cost of Mara Rosa and subsequent capex of $193.2 million and operational capex of $141.8 million (2021: $134.4 million). Operational capex was higher mainly due to higher capex for development work at Pallancata to access newly economic resources which have further extended the mine life, and higher mine development capital expenditure in San Jose.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that to the best of their knowledge:

o  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

o  the Management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

 

Consolidated income statement

For the year ended 31 December 2022

 

				Year ended 31 December 2022						Year ended 31 December 2021
		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
Revenue		5		735,643		-		735,643		811,387		-		811,387
Cost of sales		6		(527,643)		-		(527,643)		(487,772)		(22,511)		(510,283)
Gross profit				208,000		-		208,000		323,615		(22,511)		301,104
Administrative expenses		7		(54,158)		-		(54,158)		(51,905)		-		(51,905)
Exploration expenses		8		(56,826)		-		(56,826)		(39,848)		-		(39,848)
Selling expenses		9		(14,032)		-		(14,032)		(15,431)		-		(15,431)
Other income		12		3,340		-		3,340		8,435		37,461		45,896
Other expenses		12		(39,302)		-		(39,302)		(44,565)		(1,503)		(46,068)
(Impairment)/reversal of impairment and write-off of non-current assets, net				(1,832)		11,363		9,531		(863)		(24,846)		(25,709)
Profit/(loss) before net finance income/(cost), foreign exchange loss and income tax				45,190		11,363		56,553		179,438		(11,399)		168,039
Share of loss of an associate		19		(1,677)		(9,923)		(11,600)		(169)		-		(169)
Finance income		13		5,211		-		5,211		3,946		-		3,946
Finance costs		13		(21,776)		-		(21,776)		(32,061)		-		(32,061)
Foreign exchange loss, net				(2,622)		-		(2,622)		(2,424)		-		(2,424)
Profit/(loss) from before income tax				24,326		1,440		25,766		148,730		(11,399)		137,331
Income tax (expense)/benefit		14		(17,581)		(3,353)		(20,934)		(81,280)		15,055		(66,225)
Profit/(loss) for the year				6,745		(1,913)		4,832		67,450		3,656		71,106
Attributable to:
Equity shareholders of the Parent				4,874		(1,913)		2,961		69,567		7,367		76,934
Non-controlling interests				1,871		-		1,871		(2,117)		(3,711)		(5,828)
				6,745		(1,913)		4,832		67,450		3,656		71,106
Basic earnings/(loss) per ordinary share for the year (expressed in US dollars per share)		15		0.01		-		0.01		0.14		0.01		0.15
Diluted earnings/(loss) per ordinary share for the year (expressed in US dollars per share)		15		0.01		-		0.01		0.13		0.01		0.14

 

Consolidated statement of comprehensive income

For the year ended 31 December 2022

 

 

				Year ended 31 December
		Notes		2022 US$000		2021 US$000
Profit for the year				4,832		71,106
Other comprehensive income that might be reclassified to profit or loss in subsequent periods, net of tax:
Net (loss)/gain on cash flow hedges		38(a), 38(g)		(16,929)		25,028
Deferred tax benefit/(charge) on cash flow hedges		30		4,994		(7,383)
Exchange differences on translating foreign operations				(12,739)		(21,282)
Cumulative exchange differences gain transferred to the income statement on disposal of foreign operations		4		-		9,995
Share of other comprehensive income/(loss) of an associate		19		1,283		(9)
				(23,391	)	6,349
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods, net of tax:
Net (loss)/gain on equity instruments at fair value through other comprehensive income ('OCI')		20		(152)		261
				(152)		261
Other comprehensive (loss)/income for the year, net of tax				(23,543)		6,610
Total comprehensive (loss)/income for the year				(18,711)		77,716
Total comprehensive (loss)/income attributable to:
Equity shareholders of the Parent				(20,582)		83,544
Non-controlling interests				1,871		(5,828)
				(18,711)		77,716

 

 

Consolidated statement of financial position

As at 31 December 2022

		Notes		As at 31 December 2022 US$000		As at 31 December 2021 US$000
ASSETS
Non-current assets
Property, plant and equipment		16		926,913		738,119
Evaluation and exploration assets		17		123,462		123,304
Intangible assets		18		19,328		18,094
Investment in an associate		19		33,242		43,559
Financial assets at fair value through OCI		20		509		661
Financial assets at fair value through profit and loss		21		1,015		3,155
Trade and other receivables		22		6,498		2,470
Derivative financial assets		38(a)		-		5,042
Deferred income tax assets		30		4,213		484
				1,115,180		934,888
Current assets
Inventories		23		61,440		49,184
Trade and other receivables		22		85,408		69,749
Derivative financial assets		38(a)		2,186		14,073
Income tax receivable		14		9,226		32
Cash and cash equivalents		24		143,844		386,789
				302,104		519,827
Total assets				1,417,284		1,454,715
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Parent
Equity share capital		29		9,061		226,506
Share premium		29		-		438,041
Other reserves				(238,800)		(217,657)
Retained earnings				886,980		248,664
				657,241		695,554
Non-controlling interests				65,475		63,890
Total equity				722,716		759,444
Non-current liabilities
Trade and other payables		25		1,623		2,815
Borrowings		27		275,000		300,000
Provisions		28		123,506		116,835
Deferred income tax liabilities		30		80,045		87,228
				480,174		506,878
Current liabilities
Trade and other payables		25		144,102		133,482
Borrowings		27		43,989		499
Provisions		28		24,177		32,058
Income tax payable		14		2,126		22,354
				214,394		188,393
Total liabilities				694,568		695,271
Total equity and liabilities				1,417,284		1,454,715

 

These financial statements were approved by the Board of Directors on 19 April 2023 and signed on its behalf by:

Ignacio Bustamante

Chief Executive Officer

19 April 2023

 

 

Consolidated statement of cash flows

For the year ended 31 December 2022

				Year ended 31 December
		Notes		2022 US$000		2021 US$000
Cash flows from operating activities
Cash generated from operations		34		144,271		319,588
Interest received				2,409		1,938
Interest paid		27		(12,962)		(5,720)
Payment of mine closure costs		28		(10,409)		(9,083)
Income tax, special mining tax and mining royalty paid1				(20,391)		(22,021)
Net cash generated from operating activities				102,918		284,702
Cash flows from investing activities
Purchase of property, plant and equipment				(210,372)		(130,965)
Purchase of evaluation and exploration assets		17		(122,988)		(21,398)
Purchase of intangibles				(353)
Purchase of financial assets at fair value through OCI		20		-		(7)
Purchase of investment in associate				-		(19,995)
Purchase of financial assets at fair value through profit and loss		21		-		(3,308)
Purchase of Argentinian bonds		13		(10,204)		(33,469)
Proceeds from sale of Argentinian bonds		13		5,248		18,133
Proceeds from sale of financial assets at fair value through OCI		20		-		9
Proceeds from sale of financial assets at fair value though profit and loss		21		-		4,726
Proceeds from sale of property, plant and equipment				1,089		3,393
Cash and cash equivalent of demerged entity		4		-		(553)
Net cash used in investing activities				(337,580)		(183,434)
Cash flows from financing activities
Proceeds from borrowings		27		28,911		105,954
Repayment of borrowings		27		(11,557)		(14,793)
Payment of lease liabilities		26		(1,639)		(2,182)
Dividends paid to non-controlling interests		31		(286)		(9,832)
Dividends paid		31		(22,017)		(22,022)
Cash flows (used in)/generated from financing activities				(6,588)		57,125
Net (decrease)/increase in cash and cash equivalents during the year				(241,250)		158,393
Exchange difference				(1,695)		(3,487)
Cash and cash equivalents at beginning of year				386,789		231,883
Cash and cash equivalents at end of year		24		143,844		386,789

1   Taxes paid have been offset with value added tax (VAT) credits of US$nil (2021:US$3,478,000).