Hochschild Financial Performance Update

Notes to the interim condensed consolidated financial statements

 

1    Corporate Information

Hochschild Mining plc (the "Company") is a public limited company incorporated on 11 April 2006 under the Companies Act 1985 as a limited company and registered in England and Wales with registered number 05777693. The Company's registered office is located at 46 Albemarle Street, London W1S 4JL, United Kingdom. Its ordinary shares are traded on the London Stock Exchange.

 

The Group's principal business is the mining, processing and sale of silver and gold. The Group has three operating mines (Ares, Arcata and Pallancata) and a plant (Selene used to treat ore from the Pallancata mine) located in Southern Peru, one operating mine (San Jose) located in Argentina and one plant (Moris) located in Mexico. The Group also has a portfolio of projects located across Peru, Argentina, Mexico and Chile at various stages of development.

 

These interim condensed consolidated financial statements were approved for issue on behalf of the Board of Directors on 14 November 2013.

 

2    Significant Accounting Policies

(a)    Basis of preparation

These interim condensed consolidated financial statements set out the Group's financial position as at 30 September 2013 and 31 December 2012 and its financial performance and cash flows for the periods ended 30 September 2013 and 30 September 2012.

 

They have been prepared in accordance with IAS 34 Interim Financial Reporting in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Accordingly, the interim condensed consolidated financial statements do not include all the information required for full annual financial statements and therefore, should be read in conjunction with the Group's 2012 annual consolidated financial statements as published in the 2012 Annual Report.

 

The interim condensed consolidated financial statements do not constitute statutory accounts as defined in the Companies Act 2006.  The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2012.  A copy of the statutory accounts for that year, which were prepared in accordance with IFRS as adopted by the European Union has been delivered to the Registrar of Companies. The auditors' report under section 495 of the Companies Act 2006 in relation to those accounts was unmodified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.

 

The impact of the seasonality or cyclicality of operations is not regarded as significant on the interim condensed consolidated financial statements.

 

The interim condensed consolidated financial statements are presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated.

 

(b)    Changes in accounting policies and disclosures

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statement for the year ended 31 December 2012, except for the adoption of the following standards and interpretations:

·     IFRS 13 "Fair value measurement", applicable for annual periods beginning on or after 1 January 2013

 

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements.

 

IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The amendment affects disclosure but has no impact on the Group's financial position and performance. Refer to note 13 for the additional disclosures on fair value measurement.

 

·     IAS 1 "Financial statements presentation - Presentation of items in other comprehensive income", applicable for annual periods beginning on or after 1 July 2012

 

The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or recycled) to profit and loss at a future point in time would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group's financial position and performance.

 

·     IAS 19 "Employee benefits (amendment)", applicable for annual periods beginning on or after 1 January 2013

 

The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The application of this new standard has no impact on the Group's financial position or performance.

 

·     IFRIC 20 "Stripping costs in the production phase of a surface mine", applicable for annual periods beginning on or after 1 January 2013

 

This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. There can be two benefits accruing to the entity from the stripping activity: usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. When the benefit from the stripping activity is the production of inventory, an entity is required to account for the stripping activity costs as part of the cost of inventory. When the benefit is the improved access to ore, the entity recognises these costs as a non-current asset only if certain criteria are met, which is referred to as the stripping activity asset. The amendment has no material impact on the Group's financial position and performance.

 

·     "Improvements to IFRSs (issued in May 2012)", applicable for annual periods beginning on or after 1 January 2013

 

The IASB issued improvements to IFRSs, including IAS 1 Presentation of Financial Statements, IAS 16 Property Plant and Equipment, IAS 32 Financial Instruments, Presentation, and IAS 34 Interim Financial Reporting.

 

The Group made an assessment of the changes and determined there is no significant impact in its financial position and performance.

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

 

 

3    Segment Reporting

The following tables present revenue, profit and asset information for the Group's operating segments for the nine months ended 30 September 2013 and 2012 respectively:

                                          

Nine months ended 30 September 2013 (Unaudited)		Ares US$000		Arcata US$000		Pallancata US$000		San Jose US$000		Moris US$000		Exploration and Advanced Projects US$000		Other US$000		Adjustments and eliminations US$000		Total US$000
Revenue from external customers		39,145		102,524		131,933		182,031		10,764		-		49		-		466,446
Inter segment revenue		-		-		-		-		-		-		5,583		(5,583)		-
Total revenue		39,145		102,524		131,933		182,031		10,764		-		5,632		(5,583)		466,446
Segment profit/(loss)		(1,379)		25,422		37,447		37,437		2,552		(46,383)		4,143		4,321		63,560
Others(1)																		(139,829)
Profit/(loss) from continuing operations before income tax																		(76,269)
As at  30 September 2013 (Unaudited)
Assets
Capital expenditure		3,321		34,676		34,972		40,675		924		76,446		8,286		-		199,300
Current assets		14,186		15,952		40,914		67,582		1,737		2,997		385		-		143,753
Other non-current assets		4,247		141,050		152,839		211,581		1,091		550,578		27,617		-		1,089,003
Total segment assets		18,433		157,002		193,753		279,163		2,828		553,575		28,002		-		1,232,756
Not reportable assets(2)		-		-		-		-		-		-		491,657		-		491,657
Total assets		18,433		157,002		193,753		279,163		2,828		553,575		519,659		-		1,724,413

 

(1)   Comprised of administrative expenses of US$46,116,000, other income of US$1,902,000, other expenses of US$4,003,000, impairment of assets of US$77,530,000, share of profit of associates and joint ventures of US$5,921,000, gain on transfer from investments accounted under the equity method to available-for-sale financial assets of US$107,942,000, finance income of US$8,162,000, finance costs of US$120,459,000, and foreign exchange loss of US$15,648,000.

(2)   Not reportable assets are comprised of available-for-sale financial assets of US$92,191,000, other receivables of US$96,877,000, income tax receivable of US$28,043,000, deferred income tax assets of US$1,244,000, other financial assets of US$Nil, and cash and cash equivalents of US$273,302,000.

 

 

Nine months ended 30 September 2012 (Unaudited)		Ares US$000		Arcata US$000		Pallancata US$000		San Jose US$000		Moris US$000		Exploration and Advanced Projects US$000		Other US$000		Adjustments and eliminations US$000		Total US$000
Revenue from external customers		38,738		129,604		190,290		232,437		11,110		-		479		-		602,658
Inter segment revenue		-		-		-		-		-		-		4,776		(4,776)		-
Total revenue		38,738		129,604		190,290		232,437		11,110		-		5,255		(4,776)		602,658
Segment profit/(loss)		4,682		64,870		101,943		100,699		4,975		(49,746)		3,192		387		231,002
Others(1)																		(56,517)
Profit/(loss) from continuing operations before income tax																		174,485
As at  31 December 2012
Assets
Capital expenditure		7,476		52,791		56,871		71,188		846		213,380		17,833		-		420,385
Current assets		12,569		14,374		54,078		72,605		7,459		3,239		524		-		164,848
Other non-current assets		11,035		127,091		156,199		251,813		839		500,599		29,439		-		1,077,015
Total segment assets		23,604		141,465		210,277		324,418		8,298		503,838		29,963		-		1,241,863
Not reportable assets(2)		-		-		-		-		-		-		578,121		-		578,121
Total assets		23,604		141,465		210,277		324,418		8,298		503,838		608,084		-		1,819,984

 

(1)   Comprised of administrative expenses of US$51,272,000, other income of US$5,425,000, other expenses of US$4,826,000, impairment of assets of US$177,000, share of profit of associates and joint ventures of US$5,182,000, finance income of US$1,196,000, finance costs of US$11,494,000, and foreign exchange loss of US$551,000.

(2)   Not reportable assets are comprised of investments accounted under the equity method of US$78,188,000, available-for-sale financial assets of US$30,609,000, other receivables of US$86,351,000, income tax receivable of US$23,023,000, deferred income tax assets of US$856,000, other financial assets of US$150,000 and cash and cash equivalents of US$358,944,000.

 

4      Revenue

		Nine months ended 30 September
		2013 (Unaudited) US$000		2012 (Unaudited) US$000
Gold (from dore bars)		87,696		83,677
Silver (from dore bars)		135,357		96,728
Gold (from concentrate)		78,578		102,151
Silver (from concentrate)		164,766		319,623
Services		49		479
		466,446		602,658

 

5    Cost of sales before exceptional items

Included in cost of sales are:

		Nine months ended 30 September
		2013 (Unaudited) US$000		2012 (Unaudited) US$000
Depreciation and amortisation		104,508		87,615
Personnel expenses		93,126		104,473
Mining royalty		6,168		7,508
Change in products in process and finished goods		2,792		(17,633)

 

 

6    Exceptional items

Exceptional items relate to: 

		Nine months ended 30 September
		2013  (Unaudited) US$000				2012 (Unaudited) US$000
Cost of sales
Termination benefits1		(2,466	)		-
Total		(2,466	)		-
Administrative expenses
Termination benefits1		(2,351	)		-
Total		(2,351	)		-
Exploration expenses
Termination benefits1		(3,456	)		-
Total		(3,456	)		-
Other income
Termination benefits2		-			1,099
Total		-			1,099
Impairment and write-off of assets (net)
Impairment and write-off of assets3		(91,930	)		(416		)
Reversal of write-off and impairment of assets4		14,400			239
Total		(77,530	)		(177		)
Share of post-tax gains of associates and joint ventures accounted under equity method5		-			99
Total		-			99
Gain on transfer from investment accounted under the equity method to available-for-sale financial assets6		107,942			-
Total		107,942			-
Finance costs
Loss from changes in the fair value of financial instruments7		(104,958	)		(1,091		)
Loss on sale of available-for-sale financial assets8		(3,746	)		-
Total		(108,704	)		(1,091		)

1      Termination benefits paid to the workers between April and September 2013 following the restructuring plan approved by management during the first half of 2013, amounting to US$8,273,000.

2      Reversal of the provision of termination benefits of the workers of Moris mine of US$1,099,000. At 30 September 2012 the restructuring plan agreed at 31 December 2011 was not in effect, and Moris was still in operation.               

3      As at 30 September 2013 corresponds to the impairment of the San José mine unit of US$40,869,000, the Azuca project of US$30,290,000, the Crespo project of US$17,000,000 and the Ares unit of US$3,771,000. As at 30 September 2012 corresponds to the write-off of assets in Compañía Minera Ares of US$416,000.

4      As at 30 September 2013 corresponds to the reversal of the impairment of San Felipe property of US$14,400,000. As at 30 September 2012 corresponds to the gain of US$239,000 generated by the reversal of the write-off recorded in 2010 related to the 100% dore project at the San Jose mine.

5      Gain from dilution of US$99,000 generated by the Group´s investment in Gold Resource Corp.

6      Gain on the reclassification of Gold Resource Corp ('GRC') shares from an investment accounted for under the equity method to an available-for-sale financial asset of US$107,942,000, as a result of the Company ceasing to have the ability to exercise significant influence over GRC (refer to note 11).

7      As at 30 September 2013 corresponds to the impairment of investments in Gold Resource Corp. of US$85,591,000, International Minerals of US$12,920,000, Pembrook Mining Corp. of US$5,745,000, Mariana Resources Ltd. of US$281,000, Northern Superior Resources Inc. of US$226,000, Iron Creek Capital Corp. of US$169,000, Empire Petroleum Corp. of US$22,000 and Brionor Resources of US$4,000.  As at 30 September 2012 corresponds to the losses arising from the fair value adjustments in relation to warrants in Iron Creek Capital Corp. of US$26,000 and the impairment of Brionor Resources and Iron Creek Capital Corp. of US$67,000 and US$998,000 respectively.

8      The loss on sale of the investment in Gold Resource Corp. of US$3,746,000. On 11 July 2013, the Group sold 3,375,000 shares for a total consideration of US$25,650,000.

 

7    Finance income and finance cost before exceptional items

The Group recognised the following finance income and finance cost before exceptional items:

		Nine months ended 30 September
		2013  (Unaudited) US$000				2012 (Unaudited) US$000
Finance income:
Interest on deposits and liquidity funds		5,130			798
Interest on loans		112			196
Dividends		2,671			-
Others		249			202
		8,162			1,196
Finance cost:
Interest on bank loans and long-term debt		(2,766	)		(1,612		)
Interest on convertible bond		(6,795	)		(6,682		)
Unwind of discount rate		(1,268	)		(1,239		)
Others		(926	)		(870		)
		(11,755	)		(10,403		)

 

 

 

8    Income tax expense

		Nine months ended 30 September
		2013 (Unaudited) US$000		2012 (Unaudited) US$000
Current income tax expense		3,364		36,250
Current mining royalty charge		1,714		2,820
Current special mining tax charge		755		3,265
Deferred income tax relating to origination and reversal of temporary differences		(6,668)		24,878
Withholding taxes		667		1,043
Total taxation charge in the income statement		(168)		68,256

 

The tax related to items charged or credited to equity is as follows:

		Nine months ended 30 September
		2013 (Unaudited) US$000		2012 (Unaudited) US$000
Deferred income tax relating to origination and reversal of temporary differences		-		(615)
Total taxation credit in the statement of comprehensive income		-		(615)

 

 

9    Property, plant and equipment

During the nine months ended 30 September 2013, the Group acquired assets for a cost of US$182,913,000 (2012: US$176,996,000). The additions for the nine month period ended 30 September 2013 relate to:

 

		Mining properties and development US$000		Other property plant and equipment US$000
San Jose		24,649		15,898
Pallancata		20,313		10,361
Inmaculada		26,734		25,502
Arcata		20,600		10,458
Crespo		5,903		9,889
Empresa de transmision Aymaraes		-		6,343
Others		2,582		3,681
		100,781		82,132

 

Assets with a net book value of US$1,606,000 were disposed of by the Group during the nine month period ended 30 September 2013 (2012: US$293,000) resulting in a net loss on disposal of US$75,000 (2012: loss on disposal of US$40,000).

 

For the nine month period ended 30 September 2013, the depreciation charge on property, plant and equipment was US$106,272,000 (2012: US$88,090,000).

 

The Group recorded an impairment of US$821,000 with respect to the Azuca project, US$10,384,000 with respect to the Crespo project, US$34,228,000 with respect to the San José mine unit and US$3,771,000 with respect to the Ares mine unit.

 

10   Evaluation, exploration and intangible assets

a)   Evaluation and exploration assets: During the nine month period ended 30 September 2013, the Group capitalised evaluation and explorations costs of US$16,387,000 (2012: US$30,018,000). The additions relate to:

			US$000
Azuca			3,922
San Jose			127
Pallancata			4,290
Inmaculada			607
Arcata			3,618
Crespo			143
El Dorado			3,708
Others			(28)
			16,387

 

There were transfers from evaluation and exploration assets to property plant and equipment during the period of US$35,853,000.

 

The Group recorded an impairment with respect to the Azuca project (US$29,469,000), the Crespo project (US$5,508,000) and the San José mine unit (US$2,282,000), and partially reversed the impairment of the San Felipe project by US$14,400,000.

 

b)   Intangible assets: During the nine month period ended 30 September 2013, additions of intangibles amounted to US$1,203,000 (2012: US$88,000). The additions for the nine month period ended 30 September 2013 relate to the Crespo project of US$678,000 and Empresa de transmission Aymaraes of US$521,000.

 

For the nine month period ended 30 September 2013, the amortisation charge on intangibles was US$1,296,000 (2012: US$1,153,000).

 

There were transfers from property, plant and equipment to intangibles during the period of US$4,794,000.

 

The Group recorded an impairment in relation to all of the goodwill of $2,091,000 and other intangibles of $2,268,000 related to the San Jose mine unit, and US$1,108,000 related to the Crespo project.

 

 

11   Available-for-sale financial assets

		As at 30 September 2013 (Unaudited) US$000		As at 31 December 2012 US$000
Opening balance		30,609		40,769
Additions		-		-
Reclassification  from investments accounted under the equity method1		189,417		-
Fair value change recorded in equity		(102,185)		(10,160)
Disposals2		(25,650)		-
Closing balance3		92,191		30,609

 

9      Corresponds to the gain on the reclassification of the Group's Gold Resource Corp. shares from an associate accounted for under the equity method to an available-for-sale financial asset on 27 March 2013. Equity accounting of the investment was discontinued as a result of developments during the period that led the Company to conclude that it no longer had the ability to influence significantly that company's strategic, operational and financial direction. Consequently, the asset is now recognised as an available-for-sale asset at fair value.

10    Corresponds to the sale of 3,375,000 shares of Gold Resource Corporation for a total consideration of US$25,650,000 (US$7.6 per share).

11    As at 30 September 2013, the carrying value represents the fair value of shares of Gold Resource Corp. (US$74,431,000), International Minerals Corporation (US$9,671,000), Pembrook Mining Corp. (US$6,000,000), Mirasol Resources Ltd. (US$617,000), Northern Superior Resources Inc. (US$490,000), Mariana Resources Ltd. (US$558,000), Iron Creek Capital Corp (US$136,000), Brionor Resources (US$109,000), and Empire Petroleum Corp (US$179,000).

 

12   Other financial assets and liabilities

		As at 30 September 2013 (Unaudited) US$000		As at 31 December 2012 US$000
Other financial assets
Bonds		-		149
Warrants in Iron Creek Capital Corp.		-		1
Other financial assets		-		150
Other financial liabilities
Embedded derivatives1		601		6,891
Other financial liabilities		601		6,891

 

1      Sales of concentrate and certain gold and silver volumes are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of time usually linked to the length of time it takes for the smelter to refine and sell the concentrate or for the refiner to process the dore into gold and silver, with the Group either paying or receiving the difference between the provisional price and the final price. At 30 September 2013 and at 31 December 2012 the provisional price adjustment resulted in a liability due to decreases in forward prices of gold and silver.

 

13   Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

 

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

 

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

 

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 

 

At 30 September 2013 and 31 December 2012, the Group held the following financial instruments measured at fair value:

 

	As at 30 September 2013 (Unaudited) US$000			Level 1 US$000				Level 2 US$000				Level 3 US$000
Assets measured at fair value
Equity shares (note 11)	92,191			86,191				-				6,000
Warrants	-			-				-				-
Bonds	-			-				-				-
	92,191			86,191				-				6,000
Liabilities measured at fair value
Embedded derivatives (note 12)	(601)			-				-				(601)
	(601)			-				-				(601)

 

	As at 31 December 2012 US$000			Level 1 US$000				Level 2       US$000				Level 3 US$000
Assets measured at fair value
Equity shares (note 11)	30,609			18,600				-				12,009
Warrants	1			-				1				-
Bonds	149			-				149				-
	30,759			18,600				150				12,009
Liabilities measured at fair value
Embedded derivatives (note 12)	(6,891)			-				-				(6,891)
	(6,891)			-				-				(6,891)

During the periods ending 30 September 2013 and 31 December 2012, there were no transfers between these levels.

 

The reconciliation of the financial instruments categorised as level 3 is as follows:

				Embedded derivatives liabilities   US$000				Equity shares US$000
Balance at 1 January 2012				(12,831)				11,841
Gain from the period recognised in revenue				5,940				-
Fair value change through equity				-				168
Balance 31 December 2012				(6,891)				12,009
Gain from the period recognised in revenue				6,290				-
Impairment through profit and loss (finance costs)				-				(5,745)
Recycling fair value adjustment from equity				-				(264)
Balance 30 September 2013 (Unaudited)				(601)				6,000

Valuation techniques:

 

Level 2: Bonds are measured based on observable data from financial institutions.

 

Level 3: Comprises embedded derivatives and equity shares of Pembrook Mining Corp.

 

Embedded derivatives: Sales of concentrates and doré bars are "provisionally priced" and revenue is initially recognised using this provisional price and the Group's best estimate of the contained metal. Revenue is subject to final price and metal content adjustments subsequent to the date of delivery. This price exposure is considered to be an embedded derivative and is separated from the sales contract. At each reporting date the provisionally priced metal content is revalued based on the forward selling price for the quotational period stipulated in the relevant sales contract. The selling price of metals can be reliably measured as these are actively traded on international exchanges but the estimated metal content is a non observable input to this valuation. At 30 September 2013 the fair value of embedded derivatives within sales contracts was US$(601,000) (31 December 2012: US$(6,891,000)). The revaluation effects of embedded derivatives arising from these sales contracts are recorded as an adjustment to revenue.

 

Equity shares: The unquoted shares of Pembrook Mining Corp are measured based on a combination of observable and unobservable market data.

 

14   Cash and cash equivalents

		As at 30 September 2013  (Unaudited) US$000		As at 31 December 2012 US$000
Cash at bank		984		322
Liquidity funds1		4,934		72,803
Current demand deposit accounts2		47,561		61,654
Time deposits3		219,823		224,165
Cash and cash equivalents		273,302		358,944

 

1      The liquidity funds are mainly invested in certificate of deposits, commercial papers and floating rate notes with a weighted average maturity of 9 days as at 30 September 2013 (as at 31 December 2012: 5 days). In addition, liquidity funds include US Treasury bonds amounting to US$Nil (as at 31 December 2012: US$49,967,000)

2      Relates to bank accounts which are readily accessible to the Group and bear interest.

3      These deposits have an average maturity of 145 days and are readily accessible to the Group (as at 31 December 2012: 36 days).

 

15   Borrowings

        The movement in borrowings during the period to 30 September 2013 is as follows:

	As at 1 January 2013 US$000		Additions US$000		Repayments US$000		Reclassifications US$000		As at 30 September 2013 (Unaudited) US$000
Current
Bank loans	360		126,660		(38,361)		-		88,6591
Convertible bond payable	6,613		763		(6,606)		5,843		6,613
	6,973		127,423		(44,967)		5,843		95,272
Non-current
Convertible bond payable	106,850		6,032		(100)		(5,843)		106,939
	106,850		6,032		(100)		(5,843)		106,939
Accrued Interest:	(9,636)		(7,197)		6,606		-		(10,227)
Net of accrued interest	104,187		126,258		(38,461)		-		191,984

 

1      Mainly relates to pre-shipment loans for a total amount of US$26,756,000 advanced to Minera Santa Cruz S.A. (at 31 December 2012: US$Nil) and US$61,500,000 of Minera Suyamarca S.A.C. (at 31 December 2012: US$Nil) These obligations accrue an effective annual interest rate ranging from 1.28% to 24.50% and are guaranteed by the inventories and the trade receivables of the Company (at 31 December 2012: Nil). Pre-shipment loans are credit lines given by banks to meet payment obligations arising from the exports of the Group.

 

16      Dividends paid and declared

			Nine months ended 30 September  (Unaudited)
			2013 US$000	2012  US$000
			US$(000)
Declared and paid during the period:
Equity dividends on ordinary shares:
Final dividend for 2012: US$0.03 (2011: US$0.03)			10,139	10,139
Dividends paid to non-controlling interest: US$0.05 (2012: US$0.05)			6,000	30,877
2013 Interim dividend: US$Nil (2012: US$0.03)			-	10,139
Dividends paid			16,139	51,155
Declared dividend to be paid:
2013 Interim dividend: US$Nil (2012: US$Nil)			-	-

 

A final dividend in respect of the year ended 31 December 2012 of US$0.03 per share, amounting to a total dividend of US$10,139,237 was approved by shareholders at the Annual General Meeting held on 30 May 2013. The Directors of the Company have not declared an interim dividend in respect of the year ending 31 December 2013.

 

17   Related party transactions

During the period, in addition to the normal arrangements the Group has with its related parties, the Group recognised a dividend from its former associate, Gold Resource Corporation of US$4,961,925 (30 September 2012: US$7,459,707). At 30 September 2013 the dividend receivable from Gold Resource Corporation amounted to US$337,556 (31 December 2012: US$877,612).

 

18   Commitments

a)     Mining rights purchase options

During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third parties.  Generally, under the terms of these agreements, the Group has the option to acquire the concession or invest in the entity holding the concession.  In order to exercise the option the Group must satisfy certain financial and other obligations over the agreement term.  The option lapses in the event that the Group does not meet the financial requirements.  At any point in time, the Group may cancel the agreements without penalty, except in certain specific circumstances.

 

The Group continually reviews its requirements under the agreements and determines on an annual basis whether to proceed with the financial commitment. Based on management's current intention regarding these projects, the commitments at the balance sheet date are as follows:

 

	As at 30 September 2013 US$000			As at 31 December 2012 US$000
Less than one year	2,436			3,363
Later than one year	20,644			32,188

 

b)   Capital commitments

The future capital commitments of the Group are as follows:

	As at 30 September 2013 US$000		As at 31 December 2012 US$000
Peru	74,773		64,603
Argentina	12,786		11,907
	87,559		76,510

 

19   Subsequent events

a)   Agreement to acquire non-controlling interests

On 1 October 2013, Hochschild Mining plc entered into a binding agreement to acquire the 40% interests held by International Mineral Corporation ("IMZ") in the Pallancata mine and Inmaculada advanced project in Peru (the "Peruvian Assets", and collectively the "Acquisition"). Prior to the Acquisition, Hochschild holds a 60% interest in the Peruvian Assets.

In connection with the Acquisition, each IMZ shareholder (other than Hochschild or its affiliates) will receive a cash payment of $2.38 per IMZ share (for aggregate cash consideration of $271 million) and each IMZ shareholder (including Hochschild or its affiliates) will receive one common share of a  newly incorporated British Columbia, Canada company ("SpinCo") per share. Under the terms of the Acquisition, Hochschild will acquire the Peruvian Assets for a total value of approximately $280 million, taking into account the cash payment of $271 million, the market value of Hochschild's existing 3.2% shareholding in IMZ, and the 3.2% shareholding in SpinCo which Hochschild will retain.

 Assuming all conditions are satisfied or waived (where applicable), Hochschild currently expects the acquisition to be completed by 31 December 2013.

 

b)     Issuance of Hochschild Mining plc shares         

Hochschild Mining plc completed an equity placing of 29,000,000 new ordinary shares of £0.25 each in Hochschild Mining plc at a price of £1.55 per placing share, raising gross proceeds of approximately US$72.8 million.

The placing shares issued represent approximately 8.6% of Hochschild's issued ordinary share capital prior to the placing.

Settlement of payment for the placing shares issued pursuant to the placing, as well as admission, took place on 7 October 2013.

 

OTHER FINANCIAL INFORMATION

	As at 30 September 2013	As at 30 September 2012
Adjusted EBITDA (Dollars in Thousands)1	164,831	309,891
Adjusted EBITDA margin (%)2	35%	51%
Total debt (Dollars in Thousands)3	204,410	137,073
Interest expenses (Dollars in Thousands)	9,561	8,294
Leverage (Total debt / Last 12 months EBITDA)	0.79x	0.31x
Net Leverage (Net total debt4/ Last 12 months EBITDA)	(0.27)x	(0.76)x
Interest coverage ratio (Last 12 months EBITDA / Interest Expenses)	20.56x	39.00x

¹Adjusted EBITDA is calculated on a pre-exceptional basis as profit for the year from continuing operations, income tax expense, foreign exchange loss, finance costs, finance income, share of profit / (losses) of associates and joint ventures accounted for under the equity method, exploration and expenses and depreciation and amortisation. ² Adjusted EBITDA divided by net revenue.

³Includes the principal outstanding on our debt.

⁴ Net Total debt is Total debt less cash and cash equivalents.

 

 

OPERATING DATA

 

	Nine months ended 30 September 2013 (unaudited)
Silver production (000 oz)
Ares	563
Arcata	3,647
Pallancata	5,430
San José	4,616
Moris	24
Gold production (000 oz)
Ares	18.50
Arcata	12.51
Pallancata	20.86
San José	72.30
Moris	7.25
Silver Co-product cash cost ($/oz)1
Ares	21.44
Arcata	13.10
Pallancata	10.54
San José	13.65
Moris	18.19

¹Co-product silver cash costs are total cash costs multiplied by the percentage of revenue from silver, divided by the number of silver ounces sold in the applicable period. Cash costs are calculated to include cost of sales, treatment charges, and selling expenses before exceptional items, less depreciation included in costs of sales