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Hochschild Mining PLC

Hochschild Mining Plc deliver strong first half operational performance

Hochschild Mining Plc (LON:HOC) today announced its Interim Results for the six months ended 30 June 2019.

Financial highlights

  • Revenue of $354.5 million (H1 2018: $372.3 million)[1]
  • Adjusted EBITDA of $153.7 million (H1 2018: $161.9 million)[2]
  • Pre-exceptional profit before income tax of $41.5 million (H1 2018: $54.9 million)
  • Post-exceptional profit before income tax of $29.5 million (H1 2018: $38.6 million)
  • Adjusted basic earnings per share of $0.04 (H1 2018: $0.05)[3]
  • Cash and cash equivalent balance of $95.4 million as at 30 June 2019 (31 December 2018: $79.7 million)
  • Gross debt of $157.8 million as at 30 June 2019 (31 December 2018: $157.1 million)
  • Net debt of $62.4 million as at 30 June 2019 (31 December 2018: $77.4 million)
  • Interim dividend of 2.0 cents per share totalling $10.2 million (H1 2018: 1.965 cents per share totalling $10.0 million)

H1 2019 operational delivery

  • All-in sustaining costs (AISC) from operations of $921 per gold equivalent ounce (H1 2018: $909 per ounce) or $11.4 per silver equivalent ounce (H1 2018: $11.2 per ounce)[4]
  • 2nd highest half-year of attributable production in Hochschild’s history: 245,325 gold equivalent ounces or 19.9 million silver equivalent ounces (H1 2018: 256,939 gold equivalent ounces or 20.8 million silver equivalent ounces)
  • Record production of 135,033 gold equivalent ounces at Inmaculada (H1 2018: 134,789 ounces)

Exploration highlights

  • Several new veins discovered to the west of Angela at Inmaculada
  • Infill drilling ongoing at Inmaculada – Millet grade already increasing
  • Drilling started at Palca zone
  • New programmes scheduled for H2 at Cochaloma, Pablo Sur and Corina

H2 2019 outlook[5]

  • On track to deliver overall 2019 production target of 457,000 gold equivalent ounces (37.0 million silver equivalent ounces)
  • 2019 all-in sustaining costs on track to meet $960-$1,000 per gold equivalent ounce guidance ($11.8-12.3 per silver equivalent ounce)
$000 unless statedSix months to 30 June 2019Six months to 30 June 2018% change
Attributable silver production (koz)8,6879,674(10)
Attributable gold production (koz)138138
Revenue354,450372,328(5)
Adjusted EBITDA153,734161,906(5)
Profit from continuing operations (pre-exceptional)25,08522,24213
Profit from continuing operations (post-exceptional)16,66110,71855
Basic earnings per share (pre-exceptional) $0.040.05(20)
Basic earnings per share (post-exceptional) $0.030.03

IGNACIO BUSTAMANTE, CHIEF EXECUTIVE OFFICER SAID:

“Hochschild has delivered another strong first half operational performance with the second highest level of production in our history and solid cost control leaving us firmly on track to meet our 2019 goals. In parallel, we are in the middle of another busy period of brownfield exploration with new veins discovered at Inmaculada and the first campaign at the Palca zone already underway whilst further programmes are due in the second half at all our operations as well as in new areas such as Corina, Cochaloma and Pablo Sur. Healthy cashflow generation has continued to strengthen our balance sheet and we are therefore in a good position to execute our brownfield and greenfield strategy in addition to assessing acquisitions and investing in our innovation programme.

Safety

I am delighted to report that our Safety Culture Transformation Plan which was launched in 2017 is continuing to deliver positive results. This wide-ranging programme, which encompasses frequent training sessions at all levels and enhancements to our risk management systems, has undoubtedly contributed to the longest continuous period in our corporate history in which there have been zero lost time accidents – over 120 days. This is reflected in our safety frequency index for the first half of 0.51 (H1 2018: 2.1) which is the lowest of any six-month period since 2007. We will continue to implement decisively the Transformation Plan to underline our commitment to safety first.

Operations

Hochschild’s output in the first half of 2019 was 245,325 gold equivalent ounces (19.9 million silver equivalent ounces) almost matching our record in H1 2018 (256,939 gold equivalent ounces) and this was achieved despite the absence of the Arcata mine which was placed on temporary care and maintenance in February 2019. This result was mainly due to consistent performance from all our mines and leaves us in a strong position to meet our full-year target of 457,000 gold equivalent ounces or 37.0 million silver equivalent ounces. Inmaculada delivered a record half-year production of 135,033 gold equivalent ounces (H1 2018: 134,789 ounces) driven by better than expected grades and also boosted by inventory in process at the beginning of the year leaving the mine well ahead of the run rate to meet its forecasted 241,000 gold equivalent ounces. All-in sustaining costs at $726 per gold equivalent ounce were lower than guidance reflecting the good operational performance of the mine. However, with ore grades normalising in the second half, we reiterate our full year cost guidance of $790-$830 per gold equivalent ounce.

At Pallancata, we have now shifted production over to the much wider Pablo vein and consequently output improved by almost 16% versus H1 2018 to 4.9 million silver equivalent ounces (H1 2018: 4.2 million ounces) with the mine’s all-in sustaining cost at a competitive $12.3 per silver equivalent ounce (H1 2018: $11.7 per ounce). In Argentina, better than expected grades led to the reliable San Jose operation increasing production by 5% in the first half to 7.1 million silver equivalent ounces (H1 2018: 6.8 million ounces) with costs in line with expectations at $14.4 per silver equivalent ounce (H1 2018: $14.0 per ounce).

Exploration

The 2019 brownfield programme is underway and includes drilling in and around the Angela vein at Inmaculada with current results identifying new structures to the west which we expect to yield substantial additional resources. Furthermore, we are confident that infill drilling being carried out at the new veins discovered in 2018 will improve grade consistency. We have also begun a surface drill programme to the north-west of Inmaculada at the Palca zone, with early results demonstrating mineralisation and a significant number of further targets to be drilled in the second half. During this period, we can also look forward to campaigns at Cochaloma to the south-west, at Pablo Sur close to where we are currently mining and at the promising Corina zone to the north of the Selene plant, where we have already begun a 3,500 metre drilling programme. Finally, at San Jose we have carried out further exploration of the polymetallic Aguas Vivas deposit in the north-west and will focus in the second half on structures to the south of the San Jose mine and magnetometry work on the area near to Newmont Goldcorp’s Cerro Negro deposit.

Financial results

Total Group production was moderately lower versus H1 2018 and with a 7% fall in the average silver price achieved only partially offset by a 2% rise in the gold price achieved, revenue reduced slightly to $354.5 million (H1 2018: $372.3 million). All-in sustaining costs were lower than expected at $11.4 per silver equivalent ounce (H1 2018: $11.2 per ounce) but the budgeted rise in exploration expenses and also in selling expenses (resulting from the reintroduction of export taxes in Argentina in Q3 2018) has led to Adjusted EBITDA of $153.7 million (H1 2018: $161.9 million). These increases in expenses were not fully offset by falling interest costs and a reduced tax charge and therefore pre-exceptional earnings per share were moderately lower at $0.04 (H1 2018: $0.05). Post-exceptional earnings per share was held steady at $0.03 (H1 2018: $0.03) mainly due to the payment of the premium of $11.4 million to redeem the senior notes in H1 2018 being offset by this year’s exceptional costs of $11.9 million associated with the temporary closure of the Arcata mine in February 2019.

Financial position

Our balance sheet remains in a strong position with cash and cash equivalents of approximately $95.4 million at the end of June (31 December 2018: $79.7 million) and gross debt of $157.8 million (31 December 2018: $157.1 million). In July 2019, we were able to refinance $150.0 million of short term debt with local Peruvian banks resulting in a significant reduction in the average borrowing rate from 3.1% to 2%.

Outlook

In mid-June, the gold price started to rise significantly on the back of global uncertainty and a fall in the US dollar and reached levels not seen in six years. Silver also rose in July and therefore we expect the Company’s second half cashflow generation to be healthy provided the price strength is maintained. However, we are also confident that Hochschild’s ongoing solid operational performance, disciplined cost control and a strong balance sheet leave us in an advantageous position to execute a busy second half of brownfield and greenfield activity and continue to assess value accretive acquisitions. The Board is pleased to declare an interim dividend of 2.0 cents per share ($10.2 million) which reflects the ongoing successful strategic and operational performance.”

Hochschild Mining’s live conference call & audio webcast will be held at 2.30pm (London time) on Wednesday 14 August 2019 for analysts and investors.

For a live webcast of the presentation please click on the link below:

https://webcasting.brrmedia.co.uk/broadcast/5cb0a5b9eb566331974d6a39

Conference call dial in details:

UK: +44 (0)330 336 9125 (Please use the following confirmation code: 6706139).

Notes:

[1]Revenue presented in the financial statements is disclosed as net revenue and is calculated as gross revenue less commercial discounts plus services revenue

[2]Refer to page 12 of the Financial Review for a definition of Adjusted EBITDA

[2]On a pre-exceptional basis

[4]All-in sustaining cost (AISC) per silver equivalent ounce: Calculated before exceptional items and includes cost of sales less depreciation in production cost and change in inventories, administrative expenses, brownfield exploration, operating and exploration capex and royalties (presented with income tax) divided by silver equivalent ounces produced, plus commercial deductions and selling expenses divided by silver equivalent ounces sold using a gold/silver ratio of 81:1. The Arcata operation is excluded from the calculation of the AISC from operations in H1 2019.

[5]All equivalent figures assume the average gold/silver ratio of 81:1.

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