PDF (2936KB) - Hochschild Mining plc
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HOCHSCHILD MINING<br />
Bank of America Merrill Lynch<br />
Global Metals, <strong>Mining</strong> & Steel Conference<br />
14-16 May 2013
DISCLAIMER<br />
Some statements contained in this presentation or in documents referred to in it are or may be forwardlooking<br />
statements. Actual results may differ from those expressed in such statements, depending on a<br />
variety of factors.<br />
Past performance of the Company or its shares cannot be relied on as a guide to future performance.<br />
Any forward-looking information contained in this presentation has been prepared on the basis of a number<br />
of assumptions which may prove to be incorrect, and accordingly, actual results may vary.<br />
This presentation does not constitute, or form part of or contain any invitation or offer to any person to<br />
underwrite, subscribe for, otherwise acquire, or dispose of any shares in <strong>Hochschild</strong> <strong>Mining</strong> <strong>plc</strong> or advise<br />
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<br />
connection with or act as an inducement to enter into any contract or commitment therefore. No reliance<br />
may be placed for any purpose whatsoever on the information or opinions contained in this document or<br />
on its completeness and no liability whatsoever is accepted for any loss howsoever arising from any use of<br />
this document or its contents otherwise in connection therewith. Nothing in this presentation is to be<br />
construed as a profit forecast.<br />
This presentation has been prepared in compliance with English law and English courts will have exclusive<br />
jurisdiction over any disputes arising from or connected with this presentation.<br />
2
HOCHSCHILD MINING<br />
A unique proposition<br />
Location<br />
• 20m oz silver producer in the Americas<br />
– 3 of the 13 largest primary silver mines in the world<br />
• Two near-term projects set to deliver 50% growth<br />
– 10m oz+ production from Inmaculada & Crespo<br />
Moris<br />
Mexico<br />
Key<br />
Current operations<br />
Advanced Projects<br />
• Strong focused exploration pipeline<br />
– Extensive gold & silver opportunities across the Americas<br />
• Opportunistic acquisition strategy<br />
– Market weakness providing opportunities<br />
• Cashflow optimisation action plan ongoing<br />
Southern Peru Cluster<br />
Arcata<br />
Pallancata<br />
Ares<br />
Inmaculada<br />
Crespo<br />
Azuca<br />
Volcan<br />
Peru<br />
Chile<br />
Argentina<br />
• Strong financial position<br />
– Cash balance of approximately $329m*<br />
San Jose<br />
Experience in<br />
Americas<br />
Commitment<br />
to Exploration<br />
Core Asset<br />
Strength<br />
Solid<br />
financial<br />
position<br />
Almost 50 years of operational, geological and regional experience<br />
3<br />
*As at 31 March 2013.
KEY THEMES<br />
Why are we different?<br />
Experience in<br />
Americas<br />
Commitment<br />
to Exploration<br />
Core Asset<br />
Strength<br />
Solid<br />
Financial<br />
Position<br />
• More than 100 years in the<br />
Americas<br />
• Key operating, exploration, and<br />
business development<br />
knowledge<br />
• Extensive knowledge of local<br />
communities, institutions,<br />
suppliers, permitting processes<br />
• Long-term commitment to<br />
generating value through<br />
exploration<br />
• 1m hectares of premium<br />
geological land in Americas<br />
• One of the strongest and most<br />
experienced exploration teams<br />
in Americas<br />
• Focus on productivity<br />
• All annual production targets<br />
met since 2006<br />
• Successful brownfield<br />
programme doubling LOM<br />
• Strong potential remains at all<br />
core operations<br />
• Cash balance of $329m*<br />
• Cashflow optimisation action<br />
plan to demonstrate flexibility<br />
of business model to ensure<br />
ongoing profitability<br />
• $140 million loan facility<br />
announced for Inmaculada<br />
@LIBOR +3%<br />
Strongly positioned for profitable growth<br />
4<br />
*As at 31 March 2013.
CONSISTENT STRATEGY<br />
Long-term strategy model<br />
Strategy<br />
Recent progress<br />
Core Assets<br />
― Improve productivity<br />
― Optimise resources<br />
• 2012 production target of 20.0m Ag. Eq oz<br />
(attrib) achieved<br />
• 2013 target of 20.0m Ag Eq. Oz on track<br />
• Focus on productivity and increased<br />
resource quality at core assets<br />
Operating<br />
Responsibly<br />
CORE ASSETS<br />
EXPLORATION<br />
Exploration<br />
― Land package<br />
― People<br />
― Incentives<br />
― Budget<br />
• Inmaculada/Crespo Advanced Projects<br />
progressing well<br />
• Focused 2013 exploration strategy<br />
• 2013 budget revised to $55m<br />
ACQUISITIONS<br />
Acquisitions<br />
― Early stage<br />
― Geological potential<br />
― Highly accretive<br />
― Control<br />
• Substantial flexible cash position<br />
• Opportunistic acquisition strategy<br />
• Downturn to provide further opportunities?<br />
Strong financial position underpins long term strategy<br />
5
REDUCING DISCRETIONARY EXPENDITURE AND CUTTING OPERATING COSTS<br />
Key cost items<br />
Opportunities for cashflow optimisation<br />
ADMINISTRATION<br />
EXPLORATION<br />
ADVANCED PROJECTS<br />
CORPORATE CAPEX<br />
ADMIN EXPENSES<br />
DRILLING PROGRAMMES<br />
SUPPORT<br />
INMACULADA<br />
CRESPO<br />
AZUCA<br />
VOLCAN<br />
• Central costs reduced<br />
• Professional & other admin fees minimised<br />
• 2013 exploration budget reduced to $55m<br />
• Greenfield strategy prioritised<br />
• Focus on resource potential not LOM increases<br />
• Advanced Project exploration work temporarily suspended<br />
• Inmaculada/Crespo schedule maintained<br />
• Azuca remains exploration project<br />
• Volcan geological re-modelling ongoing<br />
OPERATIONS<br />
OPERATIONAL CAPEX<br />
PRODUCTION COST<br />
• Mine development work prioritised<br />
• Contractor/equipment/material suppliers renegotiations ongoing<br />
• Expected 2013 cost per tonne increase in Peru revised to 10-15%<br />
• Expected 2013 cost per tonne increase in Argentina maintained at 10-15%<br />
• 2013 maintenance capex reduced to $160m<br />
• Employee profit sharing correlated with price environment<br />
• Strict monitoring of Ares/Moris/Macarena profitability<br />
<strong>Hochschild</strong> structured to react rapidly to volatile market conditions<br />
6
CURRENT ASSETS<br />
Solid start to 2013<br />
• On track to achieve 2013 20m oz target<br />
• Cost per tonne increase revised to 10-15% range in Peru<br />
• Arcata:<br />
― Dore project completed – 100% dore<br />
― <strong>Mining</strong> close to average reserve grade<br />
― Increased volumes in Q1 from low grade Macarena Waste Dam deposit –<br />
to be gradually replaced by tonnage from stopes/mine development<br />
• Pallancata:<br />
― Processing more mineral from narrower structures, higher mine dilution<br />
• San Jose:<br />
― 2012 production up 3%<br />
― 10% capacity increase for 2013 to 1,650tpd<br />
― Cost per tonne increase maintained at 10-15% range<br />
• Continued focus on reduction of costs in:<br />
― Mine development<br />
― Contractors<br />
― Equipment & services<br />
― Materials<br />
2012 current asset production split (Moz Ag Eq attributable)<br />
5.8<br />
San Jose<br />
5.7<br />
7.1<br />
Other<br />
2.6<br />
Pallancata<br />
5.4<br />
Main operations life-of-mine (yrs)<br />
8.7<br />
Arcata<br />
6.6<br />
9.7 9.8<br />
2008 2009 2010 2011 2012<br />
Long-term sustainable production base<br />
7
BROWNFIELD EXPLORATION<br />
Significant areas still to be explored<br />
• Focus on long-term sustainability/predictability<br />
• Main operations<br />
― Resource life replenished at all three operations<br />
― High grade discoveries at all three operations<br />
• 2013 exploration focus:<br />
― Definition of structures with high quality resources from<br />
known vein systems<br />
― Identification of new high grade veins<br />
― Maintain LOM<br />
• Further drilling at Ares/Moris – promising<br />
intercepts received<br />
Further potential<br />
Arcata<br />
San Jose<br />
Pallancata<br />
Near-mine exploration on track to add additional high grade resources<br />
8
INMACULADA ADVANCED PROJECT<br />
<strong>Hochschild</strong>’s most exciting Advanced Project<br />
Progress<br />
Ownership:60% <strong>Hochschild</strong> / 40% International Minerals Corp<br />
• Set to deliver 7.0m oz Ag eq. p.a. (attrib)<br />
• Progress to date:<br />
― Plant construction contract awarded within budget ($142m)<br />
― Construction of three exploration tunnels commenced (3.7km)<br />
― Completion of main access road due early 2013<br />
― Detailed project engineering on track<br />
― Work continuing on electricity transmission line<br />
• Social development initiatives on track<br />
― EIS approved by government<br />
• Permit approval process:<br />
― Strong governmental support remains for project development<br />
― Permit application submitted<br />
― Final mill construction permit expected in H2 2013<br />
― Commissioning expected in H2 2014<br />
• Total capex: $370m<br />
• $140 million secured loan facility announced<br />
― Partially finances initial capital expenditure<br />
― LIBOR +3%<br />
0% 50% 100%<br />
Infrastructure & Access<br />
Electricity transmission line<br />
38%<br />
26%<br />
62%<br />
74%<br />
Mine Development (tunnels)<br />
42%<br />
58%<br />
Engineering<br />
52%<br />
48%<br />
Permitting (water, land, licenses)<br />
53%<br />
47%<br />
EIS approval<br />
100%<br />
Contracts & Procurement<br />
51%<br />
Construction (Plant, Dumps & Tailings)<br />
100%<br />
Overall progress 27%<br />
73%<br />
Completed Remaining<br />
Strong project even under stress conditions<br />
9<br />
9
INMACULADA UPSIDE<br />
2012 exploration demonstrated...<br />
• Strong potential to increase<br />
current resource base<br />
• Angela vein open in both<br />
directions<br />
• Mirella, Susana and Martha veins<br />
set to add further resources<br />
• Room to further grow initial<br />
resource area in surrounding<br />
Quellopata area<br />
Padre - Padre<br />
Pararani<br />
Tararunqui<br />
• Large number of untested targets<br />
in overall land package<br />
San Salvador<br />
Minascucho<br />
Huarmapata<br />
• 2013 focus on potential resources<br />
Quellopata<br />
LOU12-001: 3.50m @ 7.12g/t Au & 369g/t Ag<br />
LOU12-004: 1.50m @ 6.34g/t Au & 180g/t Ag<br />
LOU12-009: 3.12m @ 31.55g/t Au & 199g/t Ag<br />
Anta - Patari<br />
Only current Angela vein resources included in Feasibility Study<br />
10
CRESPO ADVANCED PROJECT<br />
Open pit, heap leach operation<br />
• Set to deliver 2.7m oz Ag eq. p.a. from 2014<br />
• Engineering contracts for plant, leach pads,<br />
waste dump and parts of infrastructure<br />
awarded to local contractor<br />
• Social development initiatives on track<br />
― Public audience completed successfully (April 2012)<br />
― Community relations support programmes in place<br />
• Permit approval process:<br />
― Strong governmental support remains for project development<br />
― Surface water study + surface land agreement approved Dec/Jan<br />
― Final mill construction permit expected in H2 2013<br />
― Commissioning expected in H2 2014<br />
• Total capex: $111m<br />
Progress<br />
0% 50% 100%<br />
Infrastructure & Access<br />
Electricity transmission line<br />
19%<br />
15%<br />
81%<br />
85%<br />
Engineering<br />
69%<br />
31%<br />
Permitting (water, land, licenses)<br />
49%<br />
51%<br />
EIS approval<br />
70%<br />
30%<br />
Contracts & Procurement 30%<br />
Construction (mine, plant, pads)<br />
100%<br />
Overall progress 21%<br />
79%<br />
Completed Remaining<br />
Similar to <strong>Hochschild</strong>’s Moris operation in Mexico<br />
11<br />
11
12<br />
12<br />
BOTH PROJECTS PRESENT STRONG INVESTMENT CASE<br />
Total post-tax NPVs @5%<br />
800<br />
700<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
US$m<br />
0<br />
IRR: 19%<br />
260 260<br />
238 238 238<br />
Measured & Indicated<br />
Resources (FS)<br />
Inmaculada<br />
IRR: 24%<br />
498<br />
+Inferred<br />
@Au:US$1,450/oz & Ag:US$24/oz<br />
IRR: 25%<br />
720<br />
222<br />
+Incremental 50% of<br />
Total Resources<br />
• Single wide vein – low mining cost<br />
• Long experience in geological landscape, metallurgy, local<br />
community engagement<br />
• No additional central costs<br />
Robust returns at conservative assumptions<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
US$m<br />
IRR: 12%<br />
50<br />
83<br />
16 16<br />
34 34 34<br />
Measured & Indicated<br />
Resources (FS)<br />
Crespo<br />
IRR: 14%<br />
+Inferred<br />
IRR: 17%<br />
33<br />
+Incremental 50% of<br />
Total Resources<br />
• Simple, straightforward mining<br />
• Very good gold recoveries<br />
• Proximity to existing operations reduces execution risk<br />
• No additional central costs
ANDINA MINERALS ACQUISITION<br />
Long term advantages<br />
• Assets in Chile - key targeted mining jurisdiction<br />
― Strategically located in prolific Maricunga Gold Belt<br />
• 120k metres drilling already completed over last 5 yrs<br />
• Water rights purchased by Andina in 2008 for C$26.6m<br />
• In line with disciplined acquisition criteria<br />
• Long-term optionality<br />
Asset location<br />
Chile<br />
Peru<br />
Pampa Buenos Aires<br />
Encrucijada<br />
Volcan<br />
Chile<br />
Pre-Feasibility Study Mineral Resources (Feb 2011)<br />
Early Stage: pre-feasibility<br />
Geological potential<br />
Highly accretive: below NAV<br />
Control: 100%<br />
Classification<br />
Tonnes<br />
Total In-Pit Resource<br />
Gold grade<br />
(g/t Au)<br />
Contained gold<br />
ounces<br />
Measured 105,918,000 0.738 2,511,000<br />
Indicated 283,763,000 0.698 6,367,000<br />
Measured & Indicated 389,681,000 0.709 8,878,000<br />
Inferred 41,553,000 0.502 671,000<br />
13<br />
Strong long-term potential in one of the world’s most supportive mining jurisdictions
HIGH QUALITY PROJECT PIPELINE<br />
Project pipeline<br />
Revised exploration budget<br />
$55m split between<br />
• Current operations (24%)<br />
• Advanced Projects (11%)<br />
• Greenfield (53%)<br />
― Company Makers<br />
― Medium Scale<br />
― Generative/land package<br />
• Support (12%)<br />
• Cashflow optimisation<br />
action plan:<br />
― Brownfield focus on potential<br />
resources<br />
― Greenfield focus on critical<br />
projects<br />
― Rationalising exploration team<br />
Projects spread across four key countries in the Americas<br />
14
STRONG AND FLEXIBLE FINANCIAL POSITION<br />
Sources of cash 2012<br />
Uses of cash<br />
2013<br />
Cash generation*<br />
$434m<br />
$385m<br />
Cash balance<br />
$329m**<br />
Maintenance capex<br />
$173m<br />
Exploration<br />
$98m<br />
Dividend<br />
$20m<br />
Project capex<br />
$117m<br />
M&A<br />
$103m (Andina)<br />
• Conserve capital<br />
Action Plan<br />
• Cutting operating/admin costs<br />
• Reviewing discretionary expenditure<br />
Maintenance capex<br />
Revised: $160m<br />
Exploration<br />
Revised: $55m<br />
Project capex<br />
$190m (2014e: $173m)<br />
M&A<br />
Bolt-on M&A<br />
15<br />
*2012 Adjusted EBITDA<br />
**As at 31 March 2013<br />
Minority investments<br />
$170m<br />
Growth strategy financed<br />
No further investment
THE HOCHSCHILD PROPOSITION<br />
Current valuation<br />
Current mkt cap: $1.4bn<br />
Cash and minority<br />
investments<br />
$0.62bn<br />
$500m<br />
Near-term upside<br />
50% production growth<br />
Inmaculada<br />
Total Resources: 150m oz<br />
Ag Eq<br />
Crespo<br />
Total Resources: 50m oz<br />
Ag Eq<br />
<br />
<br />
Long-term upside<br />
Volcan<br />
•9.5moz Au resources<br />
•Northern Chile<br />
•$10/oz cost<br />
<br />
Exploration optionality<br />
Extensive project pipeline<br />
Investment in<br />
Latin American<br />
exploration potential<br />
<br />
$900m<br />
$1.2bn<br />
Current producing assets<br />
Upside in current <strong>Hochschild</strong> valuation<br />
16
SUMMARY<br />
<strong>Hochschild</strong> remains in a strong position<br />
• Strong and stable production base<br />
• Near-term growth prospects<br />
• Long-term optionality<br />
• Broad and diverse exploration pipeline<br />
• All current capex requirements, dividend and<br />
exploration programme fully funded<br />
• 2012: Production target once again achieved<br />
• 20m oz target maintained for 2013<br />
• 50% increase by end 2014<br />
• Andina acquisition completed in Feb 2013<br />
• Budget of $55m for 2013<br />
• $329m cash position*<br />
• Minority investments of $170m<br />
17<br />
17<br />
*As at 31 March 2013.<br />
Commencing our next major growth phase
46 Albemarle Street, London, W1S 4JL, United Kingdom – Tel: + 44 207 907 2930<br />
www.hoc<strong>plc</strong>.com<br />
Charles Gordon<br />
+44 207 907 2934<br />
charles.gordon@hoc<strong>plc</strong>.com<br />
Marianna Adams<br />
+44 207 907 2933<br />
marianna.adams@hoc<strong>plc</strong>.com
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