1c annual results final
TRANSCRIPT
HOCHSCHILD MINING Annual Results 2013
12 March 2014
DISCLAIMER
2
Some statements contained in this presentation or in documents referred to in it are or may be forward-looking statements. Actual results may differ from those expressed in such statements, depending on a variety of factors.
Past performance of the Company or its shares cannot be relied on as a guide to future performance.
Any forward-looking information contained in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect, and accordingly, actual results may vary.
This presentation does not constitute, or form part of or contain any invitation or offer to any person to underwrite, subscribe for, otherwise acquire, or dispose of any shares in Hochschild Mining plc or advise persons to do so in any jurisdiction, nor shall it, or any part of it, form the basis of or be relied on in any connection with or act as an inducement to enter into any contract or commitment therefore. No reliance may be placed for any purpose whatsoever on the information or opinions contained in this document or on its completeness and no liability whatsoever is accepted for any loss howsoever arising from any use of this document or its contents otherwise in connection therewith. Nothing in this presentation is to be construed as a profit forecast.
This presentation has been prepared in compliance with English law and English courts will have exclusive jurisdiction over any disputes arising from or connected with this presentation.
HOCHSCHILD MINING: MOVING AHEAD, GAINING MOMENTUM
3
Acquisition of minorities in our lowest cost mine and flagship growth project
What have we accomplished in the last year?
Rapidly initiated major cashflow optimisation
programme
Corporate refinancing swiftly completed
Focus for 2014
Delivery of high value 100% owned
Inmaculada project
+ + Target further savings
in administration, operations & exploration
Manage conservative balance sheet +
Target further brownfield
exploration upside
4
Swiftly taken measures already delivered $145m of cost savings
ANNUAL RESULTS 2013
• Revenue of $622m • Adjusted EBITDA of $195m • EPS of ($0.15) • Final dividend suspended
Financial highlights
Cashflow optimisation programme
• Production costs reduced by $48m vs guidance • Admin costs reduced by $19m versus 2012 • Sustaining capex reduced by $33m vs guidance • Exploration costs reduced by $25m vs guidance
Financial position
• Cash balance of $291m* • Short term borrowings reduced to $18m* • 7 year 7.75% $350m Senior Notes issued
*As at 28 Feb 2014. Short terms borrowings do not include Hochschild’s convertible bond.
HOCHSCHILD MINING Ramon Barua, CFO
12 March 2014
6
P&L
$m (pre-exceptional) 2013 2012 variance
Revenue 622.2 818.0 (195.8)
Cost of sales (466.8) (420.3) 46.5
Gross profit 155.4 397.6 (242.2)
Administrative exp. (54.4) (73.0) (18.6)
Selling exp. (28.8) (39.5) (10.7)
Exploration exp. (42.9) (64.6) (21.7)
Others net (11.6) (0.8) 10.8
Finance net (1.0) (10.9) (9.9)
FX loss (19.8) (1.2) 18.6
Tax (45.0) (85.5) (40.5)
Net (loss)/profit (42.1) 128.6 (170.7)
Attrib. net profit (50.3) 64.8 (115.1)
EPS (0.15) 0.19 (0.34)
128.6
(42.1)
9.0
(158.5)
(16.1)
12.1
21.7
(18.6)
(20.3)
2012 Net profit
Volumes Prices Depreciation &
Amortization
Admin Exploration FX Others 2013 Net profit
2013 vs 2012 net profit reconciliation
$m (pre-excep post tax)
7
EXCEPTIONAL ITEMS
Main positive items ($m) Pre-tax Tax Post-tax Comment
Gain on reclassification of GRC shares
107.9 - 107.9 GRC reclassification from investment to available-for-sale financial asset
Reversal of impairment 14.4 - 14.4 Reversal of San Felipe impairment
TOTAL (122.5) 35.9 (86.6)
Main negative items ($m) Pre-tax Tax Post-tax Comment
Impairment of investments (124.9) - (124.9) GRC ($105.3m), IMZ (US$12.9m), Other ($6.7m)
Asset Impairments (104.1) 33.3 (70.8) Impairment of San Jose ($40.9m), Azuca ($30.3m), Crespo ($29.1) & Ares ($3.8m)
Employee redundancy expenses (8.3) 2.0 (6.3) Redundancy benefits paid resulting from cash optimisation programme
8
ALL-IN SUSTAINING COSTS REDUCED BY 14% AT MAIN OPERATIONS
Main operation AISC reconciliation (pre-exceptional)
$/oz Ag Eq
Cashflow optimisation programme reducing all-in sustaining costs
21.7 1.57 0.33 0.31
0.32 0.20 0.36
18.6
AISC 2012 Arcata dore Commercial discounts Selling expenses Capex Exploration Admin AISC 2013
-14%
Exploration costs reduced by $25m to $52m in 2013
Exploration budget reduced to approx. $30m for 2014
Majority to be spent on brownfield exploration
Focus on most promising greenfield projects
Admin expenses reduced by $19m in 2013
Reduced headcount + Revised compensation schemes
Professional & other admin fees minimised
Reduction in Board size/Directors’ fees/exec remuneration
Approx. $200m of annualised savings targeted Ongoing targets
CASHFLOW OPTIMISATION PROGRAMME ON TRACK
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Focus on high value Inmaculada
Crespo project delayed - $80m of capex delayed
Volcan & Azuca project exploration suspended
Sustaining capex reduced by 18% to $147m in 2013
2014 sustaining capex budget of $130m
Production costs reduced by $48m in 2013
Main operation AISC forecast to fall by 0-5% in 2014
$145m already delivered
2014e
$30m
2013
$52m
2014e
≈$50m
2013
$54m
2014e
$130m
2013
$147m
2014e
$200m
2013
$120m
359
291
72
350
39 17
(271)
( 133 )
(71) (20) (19) (18) (14)
31 Dec 2012 Cash balance
Equity Bond GRC San Felipe IMZ Project capex Working capital &
others
FX Transaction fees
Dividends Andina 28 Feb 2014 Cash balance
10
Growth strategy financed
BALANCE SHEET ANALYSIS
Movement in cash balance
$m
Robust financial position
11
Growth strategy financed
CORPORATE REFINANCING COMPLETED
* Market value (as at 31 January 2014) of investments accounted for as available for sale financial assets **As at 28 Feb 2014. Does not include Hochschild’s convertible bond.
• Strong cash position: $291m
• Minority investments valued at $52.4m
• Inmaculada project fully funded
• $115m convertible bond (due Oct 14) fully funded
• Re-financing process completed
• $350m 7.75% Senior Notes issued due 2021
• Short term debt reduced to $17.8m**
• Forward sale of 4moz Ag Eq oz for 2014 ―2m Ag oz @ $22/oz ―33,000 Au oz @ 1,338/oz
HOCHSCHILD MINING Ignacio Bustamante, CEO
12 March 2014
13
Long-term strategy model
WE MAINTAIN OUR CONSISTENT STRATEGY THROUGH THE CYCLE
ACQUISITIONS
EXPLORATION
CORE ASSETS
OPERATING RESPONSIBLY
• Early stage
• Geological potential
• Highly accretive
• Control
• Arcata, Pallancata, San Jose
• 2014 target: 21.0moz (Ag Eq)
• Productivity/Resource quality strategy
• Advanced Project: Inmaculada
• Growth project: Crespo
• Growth project: Volcan & Azuca
• Focused exploration budget
Keeping to our core principles
CORE ASSETS: STRONG PRODUCTION BASE
• Consistent 2013 production performance at
core assets ― 2013 production target achieved: 20.5moz (Ag Eq)
― Main operation AISC reduced by 14% in 2013
• 2014 production target set at 21.0moz (Ag Eq)
― Further reductions in AISC expected in 2014
• Strong brownfield results ― Life-of-Mine increased to 10 yrs - 11% increase at Pallancata
― Geological potential at main operations still very promising
• Focus of brownfield programme for 2014 on
potential resource drilling improving LOM
quality
• Conservative cut-off and prices maintained (US$/Oz Au 1,200 and US$/Oz Ag 20)2
14
Current production Resource Life-of-Mine1
1Main operations were audited by P&E Consulting. 2Inmaculada reserves as published in the Feasibility Study released on 11 January 2012. Prices used for reserves calculation: Au: $1,100/oz and Ag: $18/oz.
5.8 7.1
8.7 9.7 9.8 10.0
2008 2009 2010 2011 2012 2013
(Yrs)
INMACULADA/PALLANCATA MINORITIES ACQUISITION COMPLETED
• Low risk, high potential return
• Transaction monitored since 2010
• Consolidation of assets already controlled and operated by Hochschild
• 100% ownership of largest cashflow generator & flagship project
• Set to lower Hochschild’s AISC
• Delivers production at no additional admin cost to Hochschild
• Strong geological potential in both assets
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1
2
3
4
5
6
7
8
9
2011 2012 2013
IMZ share price C$
Transaction announcement
21.7 22.3
18.6 18.3 17.1
10
15
20
25
30
2012 2013 original assumptions
2013 2014 (e) Inmaculada full production(e)
$/oz Ag Eq Main operation All-in sustaining cost (attributable)
Strategic acquisition completed with no integration risk
Adding more lower cost production
Cash optimisation programme
Inmaculada
ADVANCED PROJECT: INMACULADA PROGRESSING WELL
• Gold-silver project located in Southern Peru Cluster
• 112 km from Pallancata
• Expected avg annual production: 64% Gold/36% Silver
• On track to begin commissioning in Q4 2014
• Environmental Impact Statement (EIS) and construction permit already approved
Overview Many more years of production potential
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Production Data Total
Initial reserve Life of-Mine 6.3 yrs
Initial resource Life-of-Mine 11.3 yrs
Average Annual Gold/Silver Eq Production 194k oz/11.6m oz
Operating Costs and Capex
Direct Production Cost per Tonne $74/t
Cash Cost (Au, co-product) $527/oz
Cash Cost (Ag, co-product) $8.3/oz
Pre-Production Capex $373m
Feasibility Study Jan 2012: Operating Summary
Quellopata system
Angela vein
Selected key intercepts
[email protected] g/t Au & 1,851 g/t Ag [email protected] g/t Au & 531 g/t Ag
[email protected] g/t Au & 188 g/t Ag
[email protected] g/t Au & 81 g/t Ag [email protected] g/t Au & 81 g/t Ag
3.50m@ 7.12g/t Au & 369g/t Ag 1.50m@ 6.34g/t Au & 180g/t Ag
3.12m@ 31.55g/t Au & 199g/t Ag
[email protected] g/t Au & 153 g/t Ag
[email protected] g/t Au & 214 g/t Ag
Upside outside current Angela resource base
Plant progress: Main Equipment
51%
89%
100%
100%
88%
80%
87%
75%
49%
98%
11%
12%
20%
13%
25%
Overall progress
Construction (Plant, Dumps & Tailings)
Contracts & Procurement
EIS approval
Permitting (water, land, licenses)
Engineering
Mine Development (tunnels)
Electricity transmission line
Infrastructure & Access
Completed Remaining
17
17
Commissioning on track for Q4 2014
Overall project progress
INMACULADA ADVANCED PROJECT
Wet Vibrating Screen: Delivered May 2013
Oxygen Plant: Delivered July 2013
Slurry Samplers: Delivered Oct 2013
Primary Crusher: Delivered Oct 2013
Cyclone Cluster: Delivered Nov 2013
Agitators: Delivered Nov 2013
Flocculant Mixing System: Delivered Nov 2013
Clarifier & Thickeners: Delivered Nov 2013
Merrill Crowe Plant: Delivered Dec 2013
SAG Mill: Delivered Jan 2014
Ball Mill: Delivered Jan 2014
• Lime Slaker System: Due March 2014
INMACULADA MINE DEVELOPMENT: OVER 10KM OF TUNNELS ALREADY DEVELOPED
18
INMACULADA INFRASTRUCTURE AND ENERGY REQUIREMENTS ON TRACK
19
PRODUCTION IMPACT
Production uplift
20
*2017 production forecast includes an indicative contribution from the delayed Crespo growth project
Commencing 4 years of growth
0
10
20
30
40
2013 2014 2015 2016 2017
Expected attributable production capacity
20.5 21.0
M Ag eq oz
28.0
32.0
34.7
Crespo Inmaculada Ageing operations Core operations
GROWTH PROJECTS PIPELINE
21
Strong portfolio of projects across the Americas Volcan (100% owned)
• Acquired as future strategic resource
• Large Chilean gold deposit
• Water rights purchased by Andina
• 9.6m oz of gold resources
• Open pit project in S.Peru Cluster
• Expected 2.7m Ag Eq p.a.
• EIS already approved
• Remaining capex of $80m
Crespo (100% owned)
MEXICO
CHILE
ARGENTINA
PERU
Long term growth optionality
• Several veins delineated
• Over 100m oz of silver Eq resources
• Geological potential in district
• Large overall land package
Azuca (100% owned)
Current valuation
Current mkt cap: $1.2bn
Upside in current Hochschild valuation
22
$0.62bn
$1.2bn
Cash and minority
investments
Current producing assets
THE HOCHSCHILD PROPOSITION
$350m
$850m
Near-term upside
70% production growth
Inmaculada Total Resources: 150m oz
Ag Eq
Crespo Total Resources: 50m oz
Ag Eq
Long-term upside
Peru & N.Chile
Azuca Total Resources: 103m oz
Ag Eq
Volcan Total Resources: 9.5m oz
Au
Exploration optionality
Extensive project pipeline
Investment in Latin American exploration potential
SUMMARY: POSITIONED FOR GROWTH
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CASH OPTIMSATION PROGRAMME DELIVERING
Strong operational flexibility to adapt to diverse market conditions
LOCAL ADVANTAGE Cluster in rich, mining friendly southern Peru region
SOLID RESOURCE BASE Proven ability to replace resources through brownfield exploration
CONSERVATIVE FINANCIAL POLICIES
Corporate refinancing swiftly completed
STRONG GROWTH POTENTIAL
Low risk acquisition and project development expected to bolster cashflow generation and lower average costs
COMPANY HISTORY Leading Peruvian mining house with +100 years of mining experience & 50 years of successful mining operations
EXPLORATION OPTIONALITY
Pipeline of opportunities spread across the Americas
46 Albemarle Street, London, W1S 4JL, United Kingdom – Tel: + 44 207 907 2930 www.hocplc.com
Charlie Gordon +44 207 907 2934 [email protected]
CORE ASSETS
• Located in Southern Peru Cluster - 4,600 MASL
• Underground operation - commenced in 1964
• Conventional and mechanised (trackless) cut-and-fill mining
• 2013 LOM: 11.6yrs
• 2013 All-in sustaining costs: $20.9/oz
• Current plant capacity: 2,500 t/day
Arcata
25
100% owned Pallancata 100% owned
• Located in Southern Peru Cluster
• Underground operation – commenced in 2007
• Mined using cut and fill
• 2013 LOM: 8.2yrs
• 2013 All-in sustaining costs: $16.7/oz
• Current plant capacity: 3,000 t/day
San Jose 51% owned
• Located in Argentina, in Santa Cruz province
• Underground operation – commenced in 2007
• Low sulphidation type with quartz sulphide veins with economic silver and gold values
• 2013 LOM: 11.8yrs
• 2013 All-in sustaining costs: $19.0/oz
• Current plant capacity: 1,650 t/day
2013 2012 % change
Ore production (tonnes) 900,861 773,498 16
Average silver grade (g/t) 217 271 (20)
Average gold grade (g/t) 0.74 0.83 (11)
Silver produced (koz) 4,984 5,526 (10)
Gold produced (koz) 16.83 17.27 (3)
Silver equivalent produced (koz) 5,994 6,562 (9)
Unit cost ($/t) 81.3 86.3 (6)
Total cash cost ($/oz Ag co-product) 12.7 14.5 (12)
All-in sustaining cost ($/oz) 20.9 23.9 (13)
2013 2012 % change
Ore production (tonnes) 1,088,712 1,094,250 (1)
Average silver grade (g/t) 264 256 3
Average gold grade (g/t) 1.13 1.09 4
Silver produced (koz) 7,628 7,441 3
Gold produced (koz) 27.83 26.23 6
Silver equivalent produced (koz) 9,298 9,014 3
Unit cost ($/t) 68.3 67.2 2
Total cash cost ($/oz Ag co-product) 10.3 11.4 (10)
All-in sustaining cost ($/oz) 16.7 19.5 (14)
2013 2012 % change
Ore production (tonnes) 536,937 509,851 5
Average silver grade (g/t) 425 417 2
Average gold grade (g/t) 6.42 5.79 11
Silver produced (koz) 6,357 5,953 7
Gold produced (koz) 98.83 85.77 15
Silver equivalent produced (koz) 12,286 11,099 11
Unit cost ($/t) 210.0 202.2 4
Total cash cost ($/oz Ag co-product) 13.4 14.4 (7)
All-in sustaining cost ($/oz) 19.0 22.1 (14)