dthdeutsche brics cfc onference - hocplc.com nov 2012 deutsche... · mining mcewen mining acquired...
TRANSCRIPT
Commencing our next Commencing our next j th hj th hmajor growth phasemajor growth phase
Hochschild Mining plcHochschild Mining plcD t h BRICS C fDeutsche BRICS Conference7 November 2012
DisclaimerDisclaimer
Some statements contained in this presentation or in documents referred to in it are or may be forward‐Some statements contained in this presentation or in documents referred to in it are or may be forwardlooking 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 ormay 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.
1
Hochschild’s advantageous positioningHochschild s advantageous positioning
A leading precious metals producer in the Americas Location– 3 of the 14 largest primary silver mines in the world– Operations in Peru, Argentina and Mexico– Exploration offices in Peru, Chile, Argentina, Mexico
d f ( b) ( )
Mexico
MorisCurrent operations
D ill it
Key
Advanced Projects– 2012 production target of 20.0m Ag. Eq oz (attrib) (H1 2012:10.2m oz)– FTSE 250 with market cap of US$2.6bn
Focus on growth through exploration
Drill sites
– Two Advanced Projects on track to deliver 50% growth– Record US$90 million exploration budget in 2012– 14 potential “Company Makers”– 13 “Medium Scale” projects
Arcata Pallancata AresInmaculadaCrespoAzuca
PeruSouthern Peru Cluster
– 13 Medium Scale projects
Strong financial position– Cash balance of approximately US$477m
Minority investments of over US$351m*
Azuca
Argentina
Chile
– Minority investments of over US$351m*San Jose
2Almost 50 years production experience in high margin, precious metal assets
*As at 30 Sept 2012
Hochschild strategy keyHochschild strategy key
• 2012 production target of 20.0m Ag. Eq oz (attrib) on track
Core Assets
(attrib) on track
• Full year resource LOM and grade improvement targets on track
E plorationOptimise LOMOptimise LOMImprove productivityImprove productivity
Arcata Arcata PallancataPallancata
• Good progress at Inmaculada and Crespo Advanced Projects
• Full year drilling and exploration target on
ExplorationImprove productivityImprove productivitySan San JoseJose
Land packageLand packagePeoplePeopleIncentivesIncentivesBudgetBudget
3 3 Advanced ProjectsAdvanced Projects14 14 Company MakersCompany Makers
13 Medium Scale Projects13 Medium Scale ProjectsSolid pipelineSolid pipeline
Early stage Early stage Geological potentialGeological potential BoltBolt‐‐on M&Aon M&A
Core Core AssetsAssets
• Substantial flexible cash position
M&A
schedule Geological potentialGeological potentialHighly accretiveHighly accretiveControlControl
BoltBolt‐‐on M&A on M&A
• Substantial flexible cash position
• Opportunistic acquisition strategy
2012 strategic progress continuing as expected 3
Competitive advantage: Southern Peru Cluster
Competitive advantage: Strong presence in Southern Peru
Competitive advantage: Southern Peru Cluster
• Almost 50 years experience
• Unrivalled operating/political knowledge
• Extensive land package in key districts LIMAPeru
• Extensive land package in key districts
• Experienced geological team
• Excellent regional reputation
• Solid infrastructure network in place
CUZCOCUZCO
APURIMACAPURIMAC
• Solid infrastructure network in place
• Good relationships with local suppliers
• Strong community relations programmeInmaculadaInmaculada
CrespoCrespo
AzucaAzuca
AYACUCHOAYACUCHO
SeleneSelene
ICAICA
PUNOPUNOPallancataPallancata
Distance (km) Pallancata Arcata Selene
Inmaculada 60 214 89
InmaculadaInmaculadaAresAres
ArcataArcata
Azuca 136 85 114
Crespo 157 34 134 50km
AREQUIPAAREQUIPA
4Leveraging our Southern Peru cluster to drive near term growth
Southern Peru Cluster: Arcata
Long‐term sustainability Further potential
Southern Peru Cluster: Arcata
•H1 2012 solid production of 3.6m oz Ag Eq
• Unit costs up 14%* :―Dore project adds four % points―Rising personnel expenses & energy costs
• Low grade MacarenaWaste Dammaterial volumes to increase inLow grade Macarena Waste Dam material volumes to increase in H2
• Dore project on track for completion in Q3
• Strong long‐term geological potential
DDH306‐S‐12:1.15m @6.87 g/t Au & 2,387.39 g/t Ag Key statistics H1 2012
Production (moz Ag eq) 3.6
Avg. Ag grade (g/t) 308
Avg. Au grade (g/t)* 0.91
Capacity (t d) 1 750
DDH312‐S‐12:1.08m @3.38 g/t Au & 1,261.64 g/t AgDDH304‐S‐12: [email protected] g/t Au & 2,815.12 g/t AgDDH301‐S‐12: [email protected] g/t Au & 1,059.53 g/t Ag
y
Capacity (tpd) 1,750
Unit cost ($/t)* 80.5
• High grade resource discovered in Tunel 4 area 11 5 ?
Life‐of‐Mine (yrs)
• Vein system accessible from existing mine infrastructure
• Set to improve average grade quality in long‐term
• Q3 2012: discovery of Katty vein
6.4 7.49.6
11.5 ?
2008 2009 2010 2011 2012
Arcata set for the long term5
* Costs per tonne excludes royalties
Southern Peru Cluster: Pallancata
Long‐term sustainability Further potential Ownership:60% Hochschild / 40% International Minerals Corp
Southern Peru Cluster: Pallancata
•H1 2012 production of 4.3 moz Ag Eq
• Lower grades due to:―Temporary delays in mine execution plan ―Policy of mining close to average reserve grade
•Mine plan delays not expected to continue in H2
DLLU‐A26:3.79m @4.44 g/t Au & 1,061 g/t AgDLBO‐A05:[email protected] g/t Au & 79.66 g/t Ag
Mine plan delays not expected to continue in H2
• Unit cost per tonne up 25%*:―Increased lower grade volumes from narrower veins―industry‐wide wage increases, higher backfill process cement consumption, higher energy costs
Key statistics H1 2012
Production (moz Ag eq) 4.3
Avg. Ag grade (g/t) 256
Avg. Au grade (g/t) 1.04
Capacity (t d) 3 000
DLPE‐A83:[email protected] g/t Au & 1,088.24 g/t Ag
Capacity (tpd) 3,000
Unit cost ($/t)* 65.7
• Exploration focused on identifying wider structures and Life‐of‐Mine (yrs)
5.2 6.2 6.9 7.4?
2008 2009 2010 2011 2012
incorporation of new higher grade resources
• Positive results in two new vein systems ‐ Bolsa/Huararani areas
Near‐mine exploration on track to add additional high grade resources6
* Costs per tonne excludes royalties
Argentina: San Jose
Long‐term sustainability Further potential Ownership:51% Hochschild/49% McEwen Mining Inc.
Argentina: San Jose
•Strong production of 5.4 moz Ag Eq up 4%• Temporary accumulation of concentrate due to impact of industry‐wide regulatory changes
• Exports resumed – sales backlog reflected in H2 figures• Unit cost per tonne up only 4%
―Extraction of low grade, low cost development material―Relative devaluation of peso
• Full year unit cost guidance at 15‐20% increase
Key statistics H1 2012
Production (moz Ag eq) 5.4
Avg. Ag grade (g/t) 423
Avg. Au grade (g/t) 5.98
Capacity (t d) 1 500
SJD‐1100:[email protected] g/t Au & 382.30 g/t AgSJD‐1121:[email protected] g/t Au & 1,186.36 g/t Ag
11 4 12 2 ?
Capacity (tpd) 1,500
Unit cost ($/t)* 185.3
• 44,000m exploration drilling completed in H1 2012Life‐of‐Mine (yrs)
6.28.4
11.4 12.2 ?
2008 2009 2010 2011 2012
• H2 2012: Southern area geological map to be completed
• Further 46,000m exploration drilling planned in H2
• Q3 2012: discovery of Emilia vein within the known San Jose area
Exploration success significantly increasing resources7
* Costs per tonne excludes royalties
Argentina: San Jose
A high grade district Three years of exploration success
Argentina: San Jose
San Jose*
Oct 2009Oct 2009 Oct 2010Oct 2010
100% HOC
3.2 moz Au eq at 13.5 g/t Au eq
100% HOC
CoeurD´Alene Aug 2012Aug 2012Aug 2011Aug 2011
C N (G ld )*
McEwenMining
McEwenMining
Acquired by Goldcorp in 2010:
CAD$3.6bn
Cerro Negro (Goldcorp)*6.1 moz Au eq at 8.5 g/t Au eq
Exploration success has significantly increased resources8
*Total endowment (Metals Economic Group)
Southern Peru Cluster: Inmaculada Advanced Project
• Hochschild’s most exciting Advanced ProjectHochschild s most exciting Advanced Project
• On track to deliver 7.0m oz Ag eq. p.a. (attrib)
• 2012 progress:― Plant construction contract awarded within budget ($142m)
― Construction of three exploration tunnels commenced (over 2,000m drilled to
date)
― Completion of main access road due by end 2012
― Project engineering on track j g g
― Work commenced on electricity transmission line
• Social development initiatives on track ― EIS approved by government in September 2012
• Permit approval process increasingly complex― Strong governmental support remains for project development
― Recent permit process modifications could create uncertainty on precise timing
for receiving construction permit
• 31,000m of drilling to be completed in H2 2012― Exploration focused on definition and incorporation of potential systems
outside current resource area
9
9Strong potential to exceed Pallancata scale
Inmaculada upsideInmaculada upside
Further potential along Angela
Plenty of untested targets
TararunquiPararani
MinascuchoSan Salvador
Huarmapata
Padre - Padre
Anta ‐ Patari
QuellopataLOU12‐001: 3.50m @ 7.12g/t Au & 369g/t AgLOU12‐004: 1.50m @ 6.34g/t Au & 180g/t AgLOU12‐009: 3.12m @ 31.55g/t Au & 199g/t Ag
10Only current Angela vein resources included in Feasibility Study
Southern Peru Cluster: Crespo Advanced Project
• On track to deliver 2.7m oz Ag eq. p.a. from 2014
• Engineering contracts for plant, leach pads, waste dump and g g p p p
parts of infrastructure awarded to local contractor
• Social development initiatives on track― Public audience completed successfully (April 2012)
― Community relations support programmes in place
― EIS approval set for H2
• Permit approval process increasingly complex― Strong governmental support remains for project developmentStrong governmental support remains for project development
― Recent permit process modifications could create uncertainty on precise
timing for receiving construction permit
• 5,400m drilling programme due for H2
11
11Open pit, heap leach operation
High quality project pipelineHigh quality project pipeline
% split of 2012 l i b d
• Current operations: 30%
d d %
Project pipeline exploration budget
• Advanced Projects: 19%
• Greenfield: 35%
― Company Makers: 22%Company Makers: 22%
― Medium Scale: 10%
― Generative: 3%
• Support: 16%
― Administrative: 12%
Technical: 4%― Technical: 4%
1229% increase in exploration budget versus 2011: record $90m
Company Makers
Mercurio ( )Victoria/Encrucijada N h Chil C l M i
Company Makers
•60% Hochschild/40% Iron Creek• Close to Escondida, & El Penon• Vida target:
―[email protected] g/t Au, 29g/t Ag
Mercurio (100%)• 36,388 hectare prospect• Close to high grade Fresnillo /Sombrerete• 2,900m drilling completed in H1 2012
―DDHME 12‐35:From 404m‐[email protected] g/t Ag, 8% C 9 % b 3 6%
Victoria/Encrucijada Northern Chile Central Mexico
• Vaquillas target: ―[email protected]/t Au , 57g/t Ag
• 3,700m drilling completed in H1 2012• 3,400m planned at Victoria• 1,700m drilled at Encrucijada in H1 2012
1.8% Cu, 9.4% Pb, 13.6% Zn―DDHME 12‐36:From 345m‐2.4 [email protected] g/t Ag, 4.8% Pb, 4.7% Zn, 1.8% Cu
• H2 2012 drilling (5,100m) focused on Santa Rosa/Virginia vein areas and N.E structural zone (barite vein)
Apacheta (100%)Valeriano (100%) Northern Chile Southern Peru
• Close to El Morro & Pascua‐Lama• Historical drilling results:
―pre 1997 – Phelps Dodge, Barrick ―[email protected] g/t Au @19m depth―[email protected]/t Au, 12g/t Ag & 0.3% Cu@70m depth
• 2,600m drilling completed in H1 2012
• Location: Southern Peru• High and intermediate sulphidation systems• 2,500m drilling completed in H1 2012• Initial exploration programme at Apacheta1 complete
• H2 2012 aim to obtaining social permits for• Over 5000m drilling planned for 2012 • H2 2012 aim to obtaining social permits for Apacheta 2 drilling programme
1335% of 2012 exploration budget on greenfield projects
Strong and flexible financial positionStrong and flexible financial position
S f h U f h
Cash generation
$168m H1 2012EBITDA
Sources of cash Uses of cash
Project capex (2012‐2013)≈US$425m (US$335m attrib)
Cash balance
$ EBITDA
Maintenance capexUS$150 (H1 2012 $76 )
$477m(as at 30/09/12)
≈US$150m (H1 2012: $76m) Exploration≈2012e: US$90m (H1 2012: $38.4m)
Minority investments
M&AB lt M&A$351m+
(as at 30/09/12)Dividend payoutH1 2012: $0.03 per share
Bolt‐on M&A
14Growth strategy financed and capital structure improved
The Hochschild propositionThe Hochschild proposition
N t id
Exploration optionality
50% production growth
Extensive project pipeline
Current valuation
Near‐term upside
$90m investment in Latin American Current mkt cap: $2 2bn
Cash and minority investments
InmaculadaTotal Resources: 150m oz Ag Eq
CrespoTotal Reso rces 58m o Ag Eq
exploration potential Current mkt cap: $2.2bn
$0.84bnTotal Resources: 58m oz Ag Eq
Current producing assets
$1.4bn
Upside in current Hochschild valuation15
SummarySummary
• 2012 production target on track
Key remarks
• Strong focus on cost control
• H2 2012 exploration aims:• H2 2012 exploration aims:– Continue with Inmaculada and Crespo progress– Meet 2012 life‐of‐mine & grade improvement targets– Complete ambitious greenfield drilling programme
/– Bolster pipeline with further acquisitions/land purchases
• Robust financial position ‐ cash balance of $477m*
• Preparing for the jump to 30m ounces
16Commencing our next major growth phase
*As at 30 Sept 2012
Hochschild Mining plcHochschild Mining plc
Charles Gordon
+44 207 907 2934
Contact us
+44 207 907 [email protected]
Marianna Adams+44 207 907 [email protected]
17
Hochschild Mining plcHochschild Mining plcAppendix
Southern Peru Cluster: d dAzuca Advanced Project
Vivian Veronika Millo(50%)
Yanamayo
Millo(50%)
yColombiana
Azuca w
Cl 1
Cl 2
Azuca Ramal 2 (R2)
Veta Azuca E
Cl 2
Millo(50%)
Azuca district potential to match Arcata19
H1 2012 P&LH1 2012 P&L
$m (pre‐exceptional) H1 2012 H1 2011 variance % change
Revenue 354.5 496.8 (142.3) (29)
Cost of sales (174.4) (195.6) 21.3 (11)
Gross profit 180.2 301.1 (121.0) (40)
Administrative exp. (34.1) (30.6) (3.6) 11
Selling exp. (15.9) (17.7) 1.8 (10)
Exploration exp. (30.3) (19.0) (11.3) 59
Others net (1.9) 1.8 (3.6) (206)
Finance net (3.9) (9.3) 5.4 (58)
Tax (39.5) (79.5) 40.0 (50)
Net profit 54.6 146.8 (92.2) (63)
Attrib. net profit 28.4 92.0 (63.5) (69)
EPS 0.08 0.27 (0.19) (70)
20
H1 2012 Net profit reconciliationH1 2012 Net profit reconciliation
Net Profit H1 2012 vs H1 2011 (pre‐exceptional)
$m
147
53 43
21 9
7 32
53 55
7 3 11
H1 2011 Net profit Volumes Prices San Jose inventory Production cost Administrative Exploration Others H1 2012 Net profitH1 2011 Net profit Volumes Prices San Jose inventory Production cost Administrative expenses
Exploration expenses
Others H1 2012 Net profit
21
H1 2012 Unit costsH1 2012 Unit costs
Arcata• Unit cost up 10% vs H1 2011 Excluding additional dore cost
– Including dore impact increase was 14%– Higher wage costs (industry inflation)– Higher energy costs
Operating unit ($/tonne)
H1 2012 H1 2011 % change
Main Operations 97 6 83 8 16
Unit cost per tonne by operation (excluding royalties)
– Local currency appreciation (+4%)
Pallancata• Unit cost up 25% vs H1 2011:
– Move to narrower/increased number of veins:I d l i t & i i
Main Operations 97.6 83.8 16
Peru 71.6 59.7 20
Arcata 80.5 70.8 14 Increased personnel, mine support & mine services
– Higher wage costs (industry inflation) – Higher cement consumption (backfill)– Increased energy costs
San Jose
Pallancata 65.7 52.5 25
Argentina (San Jose) 185.3 177.7 4
• Unit cost up only 4% vs H1 2011%:– Local inflation at 25‐30%– Increased tonnage principally from low cost/low grade development material
– Devaluation of Argentinean peso (‐9%)
Ares 130.4 118.5 10
Moris ‐ 17.8 ‐Offset by
Full year unit cost guidance• Maintained in Peru at +15%• Revised to 15‐20% in Argentina
22
H1 2012 Cash cost reconciliationH1 2012 Cash cost reconciliation
Main operation cash cost reconciliation (pre‐exceptional)
$/oz Ag co product
1.7 1.0
1.80 2
+6%
12.1 12.80.2
H1 2011 Cash Cost Higher direct costs Lower grades Lower Ag prices: Rev. Mix, lower royalties & WPS
Other H1 2012 Cash Cost
23
H1 2012 CapexH1 2012 Capex
$m H1 2012 H1 2011C t ti $m H1 2012 H1 2011
Arcata 21.9 12.8
Ares 3.2 1.0
Current operations
• Operating capex: $76m–Arcata capex up by $9m: Dore project
Selene 0.9 1.3
Pallancata 25.9 22.6
San Jose 32 2 24 5
Dore projectPlant expansion to treat Macarena material
–San Jose capex up by $8m:Additional mine development
San Jose 32.2 24.5
Moris ‐ 0.5
Inmaculada 21.0 3.8
• Capitalised exploration (operations): $8m
Advanced Projects
• Project development: $26m:Crespo 5.8 2.3
Azuca 4.7 15.9
• Project development: $26m:–Mine development–Project administration–Engineering studies
Other 0.6 0.7
Total 116.2 85.4
• Capitalised exploration (projects): $6m
24