HOCHSCHILD MINING Bank of America Merrill Lynch Global Metals, Mining & Steel Conference May 2013

Transcription

1 HOCHSCHILD MINING Bank of America Merrill Lynch Global Metals, Mining & Steel Conference May 2013

2 DISCLAIMER 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 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. 2

3 HOCHSCHILD MINING A unique proposition Location 20m oz silver producer in the Americas 3 of the 13 largest primary silver mines in the world Two near-term projects set to deliver 50% growth 10m oz+ production from Inmaculada & Crespo Moris Mexico Key Current operations Advanced Projects Strong focused exploration pipeline Extensive gold & silver opportunities across the Americas Opportunistic acquisition strategy Market weakness providing opportunities Cashflow optimisation action plan ongoing Southern Peru Cluster Arcata Pallancata Ares Inmaculada Crespo Azuca Volcan Peru Chile Argentina Strong financial position Cash balance of approximately $329m* San Jose Experience in Americas Commitment to Exploration Core Asset Strength Solid financial position Almost 50 years of operational, geological and regional experience 3 *As at 31 March 2013.

4 KEY THEMES Why are we different? Experience in Americas Commitment to Exploration Core Asset Strength Solid Financial Position More than 100 years in the Americas Key operating, exploration, and business development knowledge Extensive knowledge of local communities, institutions, suppliers, permitting processes Long-term commitment to generating value through exploration 1m hectares of premium geological land in Americas One of the strongest and most experienced exploration teams in Americas Focus on productivity All annual production targets met since 2006 Successful brownfield programme doubling LOM Strong potential remains at all core operations Cash balance of $329m* Cashflow optimisation action plan to demonstrate flexibility of business model to ensure ongoing profitability $140 million loan facility announced for +3% Strongly positioned for profitable growth 4 *As at 31 March 2013.

5 CONSISTENT STRATEGY Long-term strategy model Strategy Recent progress Core Assets Improve productivity Optimise resources 2012 production target of 20.0m Ag. Eq oz (attrib) achieved 2013 target of 20.0m Ag Eq. Oz on track Focus on productivity and increased resource quality at core assets Operating Responsibly CORE ASSETS EXPLORATION Exploration Land package People Incentives Budget Inmaculada/Crespo Advanced Projects progressing well Focused 2013 exploration strategy 2013 budget revised to $55m ACQUISITIONS Acquisitions Early stage Geological potential Highly accretive Control Substantial flexible cash position Opportunistic acquisition strategy Downturn to provide further opportunities? Strong financial position underpins long term strategy 5

6 REDUCING DISCRETIONARY EXPENDITURE AND CUTTING OPERATING COSTS Key cost items Opportunities for cashflow optimisation ADMINISTRATION EXPLORATION ADVANCED PROJECTS CORPORATE CAPEX ADMIN EXPENSES DRILLING PROGRAMMES SUPPORT INMACULADA CRESPO AZUCA VOLCAN Central costs reduced Professional & other admin fees minimised 2013 exploration budget reduced to $55m Greenfield strategy prioritised Focus on resource potential not LOM increases Advanced Project exploration work temporarily suspended Inmaculada/Crespo schedule maintained Azuca remains exploration project Volcan geological re-modelling ongoing OPERATIONS OPERATIONAL CAPEX PRODUCTION COST Mine development work prioritised Contractor/equipment/material suppliers renegotiations ongoing Expected 2013 cost per tonne increase in Peru revised to 10-15% Expected 2013 cost per tonne increase in Argentina maintained at 10-15% 2013 maintenance capex reduced to $160m Employee profit sharing correlated with price environment Strict monitoring of Ares/Moris/Macarena profitability Hochschild structured to react rapidly to volatile market conditions 6

7 CURRENT ASSETS Solid start to 2013 On track to achieve m oz target Cost per tonne increase revised to 10-15% range in Peru Arcata: Dore project completed 100% dore Mining close to average reserve grade Increased volumes in Q1 from low grade Macarena Waste Dam deposit to be gradually replaced by tonnage from stopes/mine development Pallancata: Processing more mineral from narrower structures, higher mine dilution San Jose: 2012 production up 3% 10% capacity increase for 2013 to 1,650tpd Cost per tonne increase maintained at 10-15% range Continued focus on reduction of costs in: Mine development Contractors Equipment & services Materials 2012 current asset production split (Moz Ag Eq attributable) 5.8 San Jose Other 2.6 Pallancata 5.4 Main operations life-of-mine (yrs) 8.7 Arcata Long-term sustainable production base 7

8 BROWNFIELD EXPLORATION Significant areas still to be explored Focus on long-term sustainability/predictability Main operations Resource life replenished at all three operations High grade discoveries at all three operations 2013 exploration focus: Definition of structures with high quality resources from known vein systems Identification of new high grade veins Maintain LOM Further drilling at Ares/Moris promising intercepts received Further potential Arcata San Jose Pallancata Near-mine exploration on track to add additional high grade resources 8

9 INMACULADA ADVANCED PROJECT Hochschild s most exciting Advanced Project Progress Ownership:60% Hochschild / 40% International Minerals Corp Set to deliver 7.0m oz Ag eq. p.a. (attrib) Progress to date: Plant construction contract awarded within budget ($142m) Construction of three exploration tunnels commenced (3.7km) Completion of main access road due early 2013 Detailed project engineering on track Work continuing on electricity transmission line Social development initiatives on track EIS approved by government Permit approval process: Strong governmental support remains for project development Permit application submitted Final mill construction permit expected in H Commissioning expected in H Total capex: $370m $140 million secured loan facility announced Partially finances initial capital expenditure LIBOR +3% 0% 50% 100% Infrastructure & Access 38% 62% Electricity transmission line 26% 74% Mine Development (tunnels) 42% 58% Engineering 52% 48% Permitting (water, land, licenses) 53% 47% EIS approval 100% Contracts & Procurement 51% Construction (Plant, Dumps & Tailings) 100% Overall progress 27% 73% Completed Remaining Strong project even under stress conditions 9 9

10 INMACULADA UPSIDE 2012 exploration demonstrated... Strong potential to increase current resource base Angela vein open in both directions Mirella, Susana and Martha veins set to add further resources Room to further grow initial resource area in surrounding Quellopata area Padre - Padre Pararani Tararunqui Large number of untested targets in overall land package San Salvador Minascucho Huarmapata 2013 focus on potential resources Quellopata LOU12-001: 7.12g/t Au & 369g/t Ag LOU12-004: 6.34g/t Au & 180g/t Ag LOU12-009: 31.55g/t Au & 199g/t Ag Anta - Patari Only current Angela vein resources included in Feasibility Study 10

11 CRESPO ADVANCED PROJECT Open pit, heap leach operation Set to deliver 2.7m oz Ag eq. p.a. from 2014 Engineering contracts for plant, leach pads, waste dump and parts of infrastructure awarded to local contractor Social development initiatives on track Public audience completed successfully (April 2012) Community relations support programmes in place Permit approval process: Strong governmental support remains for project development Surface water study + surface land agreement approved Dec/Jan Final mill construction permit expected in H Commissioning expected in H Total capex: $111m Progress 0% 50% 100% Infrastructure & Access 19% 81% Electricity transmission line 15% 85% Engineering 69% 31% Permitting (water, land, licenses) 49% 51% EIS approval 70% 30% Contracts & Procurement 30% Construction (mine, plant, pads) 100% Overall progress 21% 79% Completed Remaining Similar to Hochschild s Moris operation in Mexico 11 11

12 12 12 BOTH PROJECTS PRESENT STRONG INVESTMENT CASE Total post-tax US$m 0 IRR: 19% Measured & Indicated Resources (FS) Inmaculada IRR: 24% 498 & Ag:US$24/oz IRR: 25% Incremental 50% of Total Resources Single wide vein low mining cost Long experience in geological landscape, metallurgy, local community engagement No additional central costs Robust returns at conservative assumptions US$m IRR: 12% Measured & Indicated Resources (FS) Crespo IRR: 14% +Inferred IRR: 17% 33 +Incremental 50% of Total Resources Simple, straightforward mining Very good gold recoveries Proximity to existing operations reduces execution risk No additional central costs

13 ANDINA MINERALS ACQUISITION Long term advantages Assets in Chile - key targeted mining jurisdiction Strategically located in prolific Maricunga Gold Belt 120k metres drilling already completed over last 5 yrs Water rights purchased by Andina in 2008 for C$26.6m In line with disciplined acquisition criteria Long-term optionality Asset location Chile Peru Pampa Buenos Aires Encrucijada Volcan Chile Pre-Feasibility Study Mineral Resources (Feb 2011) Early Stage: pre-feasibility Geological potential Highly accretive: below NAV Control: 100% Classification Tonnes Total In-Pit Resource Gold grade (g/t Au) Contained gold ounces Measured 105,918, ,511,000 Indicated 283,763, ,367,000 Measured & Indicated 389,681, ,878,000 Inferred 41,553, , Strong long-term potential in one of the world s most supportive mining jurisdictions

14 HIGH QUALITY PROJECT PIPELINE Project pipeline Revised exploration budget $55m split between Current operations (24%) Advanced Projects (11%) Greenfield (53%) Company Makers Medium Scale Generative/land package Support (12%) Cashflow optimisation action plan: Brownfield focus on potential resources Greenfield focus on critical projects Rationalising exploration team Projects spread across four key countries in the Americas 14

15 STRONG AND FLEXIBLE FINANCIAL POSITION Sources of cash 2012 Uses of cash 2013 Cash generation* $434m $385m Cash balance $329m** Maintenance capex $173m Exploration $98m Dividend $20m Project capex $117m M&A $103m (Andina) Conserve capital Action Plan Cutting operating/admin costs Reviewing discretionary expenditure Maintenance capex Revised: $160m Exploration Revised: $55m Project capex $190m (2014e: $173m) M&A Bolt-on M&A 15 *2012 Adjusted EBITDA **As at 31 March 2013 Minority investments $170m Growth strategy financed No further investment

16 THE HOCHSCHILD PROPOSITION Current valuation Current mkt cap: $1.4bn Cash and minority investments $0.62bn $500m Near-term upside 50% production growth Inmaculada Total Resources: 150m oz Ag Eq Crespo Total Resources: 50m oz Ag Eq Long-term upside Volcan 9.5moz Au resources Northern Chile $10/oz cost Exploration optionality Extensive project pipeline Investment in Latin American exploration potential $900m $1.2bn Current producing assets Upside in current Hochschild valuation 16

17 SUMMARY Hochschild remains in a strong position Strong and stable production base Near-term growth prospects Long-term optionality Broad and diverse exploration pipeline All current capex requirements, dividend and exploration programme fully funded 2012: Production target once again achieved 20m oz target maintained for % increase by end 2014 Andina acquisition completed in Feb 2013 Budget of $55m for 2013 $329m cash position* Minority investments of $170m *As at 31 March Commencing our next major growth phase

18 46 Albemarle Street, London, W1S 4JL, United Kingdom Tel: Charles Gordon charles.gordon@hocplc.com Marianna Adams marianna.adams@hocplc.com