Hochschild Mining : Interim Results

20 August 2014

Hochschild Mining plc

Interim Results for the six months ended 30 June 2014

Profit before net finance income, FX and tax of $25.7 million (H1 2013: $1.2 million)

Profit before tax of $9.1 million (H1 2013: $(10.3 million))

EPS of $(0.01) (H1 2013: $(0.10))

Cashflow optimisation programme exceeding expectations - approx. $270 million of savings achieved :

o Production costs reduced by $94 million versus initial 2013 guidance

o Administration costs reduced by $34 million versus 2012

o Sustaining capital expenditure reduced by $67 million versus initial 2013 guidance

o Exploration costs reduced by $53 million versus initial 2013 guidance

Operational highlights

H1 2014 attributable production of 11.9 million silver equivalent ounces

Progress continues at flagship Inmaculada project:

o 68% overall project completion; plant at 33%

o Mine development, infrastructure, energy and engineering targets almost complete

Outlook

Inmaculada plant set to commence commissioning at end of 2014

2014 production target of 21.0 million attributable silver equivalent ounces on track

· 0-5% reduction in all-in sustaining costs expected for 2014 vs. 2013

Commenting on the results, Eduardo Hochschild, Executive Chairman, said:

"Hochschild has continued to operate in an uncertain precious metal pricing environment but the Board is encouraged that over the last year, the organisation as a whole, has responded with a programme of measures that has substantially exceeded our initial projections and places the Company in a far firmer financial position. We are now looking forward to the commissioning of our latest mine and a return to value accretive growth.

The Board recognises that whilst there has been a marked improvement in the Company's financial results, the current level of capital expenditure required by the Inmaculada project restricts the potential to pay an interim dividend. We remain committed to the long term principle of delivering shareholder returns and the Board intends to once again reassess the position subject to the overall full year financial results."

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A live conference call & audio webcast will be held at 2pm (London time) on Wednesday 20 August 2014 for analysts and investors. Details as follows:

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

http://www.media-server.com/m/p/6w42kwyd

Conference call dial in details:

UK: +44(0)20 3427 1914 (Please use the following confirmation code: 2818807 ).

A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone number:

UK: +44 (0)20 3427 0598 (Access code: 2818807 )

The On Demand version of the webcast will be available within two hours after the end of the presentation and is accessible using the same webcast link.

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Enquiries:

Hochschild Mining plc

Charles Gordon                                                                          +44 (0)20 3714 9044

Head of Investor Relations

RLM Finsbury

Charles Chichester                                                                    +44 (0)20 7251 3801

Public Relations

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About Hochschild Mining plc:

Hochschild Mining plc is a leading precious metals company listed on the London Stock Exchange (HOCM.L / HOC LN) with a primary focus on the exploration, mining, processing and sale of silver and gold. Hochschild has almost fifty years' experience in the mining of precious metal epithermal vein deposits and currently operates three underground epithermal vein mines, two located in southern Peru and one in southern Argentina. Hochschild also has numerous long-term projects throughout the Americas.

CHIEF EXECUTIVE OFFICER'S STATEMENT

I am pleased to report that the cash optimisation programme carried out over the last year has exceeded expectations and Hochschild is now in a much better position in today's lower precious metal price environment. As the interim results demonstrate, the Company has shown its resilience and discipline with improved profitability despite lower price levels. We have also continued to invest for the future, and I can report that progress has continued to be made with the construction of our key Inmaculada project. When this mine reaches full capacity next year it will herald a new phase of low cost growth for the Company.  

Hochschild's operational teams delivered a robust half, producing 11.9 million silver equivalent ounces at a much lower overall cost. Despite the average price of silver achieved falling by a further 11% year-on year, we have produced a 4% rise in first half EBITDA to just over $94 million, an impressive result reflecting the ongoing success of our cost reduction initiatives. The increase in finance costs is related to the bond issued in January to fund the construction of Inmaculada and the soon-to-be-repaid convertible bond due in October. However, once the new mine commences production and the convertible repaid, the significance of this charge will be less important. We were still able to deliver a turnaround in profit before tax from a significant loss last year to $9.1 million for this half. From an income tax standpoint, we were also impacted by a charge resulting from the Argentine peso devaluation and the consequent decrease in the value of our peso-denominated tax base. On a net basis, I am pleased that we have seen a strong improvement from last year's pre-exceptional loss of $25 million.

On the financing side, our balance sheet has sufficient capacity to complete the construction of Inmaculada and fund the convertible loan repayment due in October of this year. I am also pleased that we have recently demonstrated our financial flexibility with the signing of a term sheet for a $100 million medium term credit facility at advantageous rates which, subject to closing, will provide more financial short term support if required as we enter a key stage of development with capital expenditure at its peak. Local short term credit lines remain mostly undrawn. We have also taken advantage of short periods of commodity price improvement to hedge almost 30% of our production for 2014 in order to realise a degree of cashflow certainty whilst project construction is in progress.

The Inmaculada project itself has made good progress in the first half as it moves towards completion at the end of the year. The EPC contractor commenced construction of the plant early in the second quarter and achieved almost 33% completion by the end of July although progress has been impacted by poor weather earlier in the year and slower than expected on-site recruitment. We have also had a busy period in terms of the other deliverables with procurement of all main equipment complete and another three kilometres of tunneling and raise boring also carried out bringing the total achieved for the entire project to over 13 kilometres. In addition, work on the transmission lines is complete and connection to the national grid was achieved at the end of May.

We implemented the cashflow optimisation programme a year ago with a target of approximately $200 million of efficiencies spread over H2 2013 and the first half of 2014 and I can now report that we have exceeded expectations with approximately $270 million of savings from across the organisation. At the operational level, where we have realised over $90 million of efficiencies, we have improved our supply chain negotiations, optimised a wide array of workforce practices and implemented several initiatives to lower ongoing costs at both the mining and processing operations. Sustaining capital expenditure has also been significantly reduced with only $56 million spent year-to-date versus an original 2013 full year budget of $180 million. In administration, we have continued to achieve significant savings in professional fees, further headcount reductions and the minimisation of compensatory schemes and travel expenses. In addition, the exploration and Advanced Project teams have undergone a substantial reorganisation which has now delivered over $50 million of savings versus our original 2013 budget. We remain focused on the delivery of further efficiencies and are targeting opportunities from operational areas such as mine planning, metallurgy, dilution control and procurement.

In line with the achievements from the above programme, the operations have enjoyed another solid half in terms of production and costs. The three main operations, Arcata and Pallancata in Peru and San Jose in Argentina, improved their collective ounce contribution versus the same period of last year and we were also able to deliver a better than expected final production result from the now closed Ares mine. On the operational cost side, all-in sustaining costs (AISC) at our main operations were reduced by 16% to $16.8 per silver equivalent ounce versus the first half of last year although we do expect that a number of annual cost items to be processed in the second half will limit the overall 2014 reduction to our current forecast of 0-5%.

The short term outlook for our underlying markets remains uncertain but with the beginning of Inmaculada's operation imminent , the cash optimisation programme generating better than expected results and the financial position of the Company secure, I am confident that we can look forward to an exciting twelve months as our latest capital project delivers new growth for the Company and our shareholders.

Ignacio Bustamante

Chief Executive Officer

19 August 2014

OPERATING REVIEW

CURRENT OPERATIONS

Production

In the first half of 2014, the Company delivered attributable production of 11.9 million silver equivalent ounces, including 8.5 million ounces of silver and 55.5 thousand ounces of gold and is on track to meet its full year production target of 21.0 million attributable silver equivalent ounces.

Costs

The Company's all-in sustaining costs (AISC) at its main operations were reduced by 16% in H1 2014 to $16.8 per ounce driven by operational initiatives resulting from the cashflow optimisation programme, an ongoing decrease in industry cost inflation and grade improvements particularly in Peru.7 Unit cost per tonne at its main Peruvian operations was reduced to $74.0 (H1 2013: $75.5). In Argentina, unit cost per tonne was reduced by 13% to $200.0 (H1 2013: $229.9). Please see page 14 of the Financial Review for further details on costs. 

Main operations

Arcata: Peru

The 100% owned Arcata underground operation is located in the Department of Arequipa in southern Peru. It commenced production in 1964.

Production and sales

At Arcata, total silver equivalent production in the first half of 2014 increased by 24% to 3.4 million ounces (H1 2013: 2.8 million ounces) driven by higher grades and recoveries resulting from a greater proportion of material from stopes and developments, partially replacing, as expected, volumes processed from the low-grade Macarena Waste Dam Deposit which was almost entirely depleted by the end of the half. Arcata also benefited (in the first quarter) from the processing of stock mined in 2013. Due to better commercial terms for concentrate versus dore in 2014, the Company has decided to produce only concentrate this year.

On the 8thAugust 2014, the Arcata operation stopped production following strike action over 2014 remuneration arrangements. The dispute, initiated by one of the Peruvian labour unions, is expected to be declared illegal by the Ministry of Labour. A significant percentage of the workforce has now returned to work and the Company does not currently expect the dispute to impact the mine's full year production forecast.

Table Showing Contribution from Macarena Waste Dam Deposit

In H1 2014, the dore produced at Arcata was sold to INTL Commodities, Johnson Matthey, Auramet and HSBC whilst the concentrate produced at the operation was sold to Consorcio Minero, Trafigura and Glencore.

Costs

In H1 2014, the unit cost per tonne at Arcata at $82.2 per tonne was flat versus the same period last year with the overall effects of the ongoing cost savings initiatives partially offset by the planned fall in the processing of the low cost Macarena material. However, all-in sustaining costs fell by 20% to $17.9 per ounce (H1 2013: $22.3 per ounce) due to a decline in production costs and sustaining capex resulting from cashflow optimisation programme initiatives as well as better grades.

Exploration

In H1 2014, 4,331 metres of drilling were carried out at Arcata. A detailed surface mapping and sampling campaign has been completed covering the Tunel 4, Marciano, Veta D and Looby areas covering a total of 1,330 ha. A drilling campaign with the aim of adding new resources began in early May with five drill holes carried out at the Irma, Pamela and Paralelas veins. Significant intercepts during the half included:

Pallancata: Peru

The 100% owned Pallancata silver/gold property is located in the Department of Ayacucho in southern Peru, approximately 160 kilometres from the Arcata operation. Pallancata commenced production in 2007 and up until December 2013, Hochschild held a controlling interest of 60%, with International Minerals Corporation ("IMZ") as minority shareholder. Following the purchase of IMZ, Hochschild now owns 100% of the operation. Ore from Pallancata is transported 22 kilometres to the Selene plant for processing.

Production and sales

At the 100% owned Pallancata operation, consistent tonnage and silver and gold grades led to similar production versus the first half of 2013. Total silver equivalent production was 4.4 million silver equivalent ounces (H1 2013: 4.4 million ounces).

In H1 2014, the silver/gold concentrate from Pallancata was sold to Teck Metals Ltd., LS-Nikko Copper Inc and Glencore. 

Costs

Cost per tonne at Pallancata decreased to $68.1 in H1 2014 versus the same period last year ($69.0 per tonne). As at Arcata, costs were positively impacted by the cashflow optimisation programme although the impact was partially offset by a higher proportion of mineral extracted using conventional methods due to narrower veins. All-in sustaining costs fell by 15% versus the same period of 2013 with the positive effects of the cash optimisation programme reducing sustaining and development capital expenditure as well as administrative expenses.

Exploration

In H1 2014, 3,939 metres of drilling were carried out at Pallancata. The first half programme, which focused on mapping and sampling a total of 1,200 ha, was concentrated on the Yurika, Jakeline, Pilar, Jessica, Emilia, Tatiana, Vianka, Isis and Huararani vein systems. New surface structures Tatiana, Vianca and Larisa have also been recognised. In addition, drilling has been ongoing at two holes in the Vianca-Claudia and Yurika vein systems.

San Jose: Argentina

The San Jose silver/gold mine is located in Argentina, in the province of Santa Cruz, 1,750 kilometres south-southwest of Buenos Aires and commenced production in 2007. Hochschild holds a controlling interest of 51% and is the mine operator with McEwen Mining Inc(formerly Minera Andes Inc.) holding the remaining 49%.

* The Company has a 51% interest in San Jose

Production and sales

At the San Jose operation, total silver equivalent production for the first half was 5.6 million ounces (H1 2013: 5.7 million ounces) with lower silver and gold grades offset by increased tonnage versus the first half of 2013.

In H1 2014, the dore produced at San Jose was sold to Argor Heraeus and Republic Metals whilst the concentrate produced at the operation was sold to Aurubis AG, LS-Nikko Copper Inc, Consorcio Minero and Trafigura.

Costs

At San Jose, unit cost per tonne decreased by 13% versus H1 2013 to $200.0. This was due to the impact of the cash optimisation initiatives and a stronger than expected devaluation of the Argentine peso offsetting the effects of continuing high local inflation and a number of brief stoppages at the mine during the first half. All-in sustaining costs were reduced by 15% versus the same period of 2013 with cash optimisation initiatives helping to reduce sustaining and development capital expenditure by some 23% year-on-year.

Exploration

In 2014, the 2,000 metre potential drilling campaign has been focused on the definition of the new Ayelen, Nuevo 1 and Karina veins as well as drilling in the Los Pinos area. The team has already completed detailed surface mapping and sampling over the Los Pinos vein and identified another structure, Los Pinitos In addition, mapping of the Coyi and Nueva Ramona Rubia veins has identified additional corridors for the next drilling campaigns to focus on whilst further structures have been identified in the Sigmoide sector (located to the north east side) and to the west in the El Retiro Zone 4.

Other operations

Ares: Peru

The Ares mine, which commenced production in 1998, is a 100% owned operation located approximately 25 kilometres from Hochschild's Arcata mine in southern Peru.

Production and sales

The Company's Ares mine in Peru was closed in the second quarter with remaining production in the period delivering a better-than-expected total silver equivalent production of 626 thousand ounces (Q2 2013: 511 thousand ounces) driven by consistent grades. Total production for the first half was 1.2 million silver equivalent ounces (H1 2013: 1.0 million ounces)

100% of Ares' production is processed into dore, which was sold to Johnson Matthey and INTL Commodities in H1 2014.

Exploration

In 2014, exploration work has been focused on generating targets within the Ares-Arcata corridor and a 2,000 metre drilling campaign is taking place. A detailed surface mapping and sampling campaign has also been conducted at Ares North West covering an area of 55 ha which brings the total mapped area at the deposit to date to 3,731 ha.

Geological mapping to the south west of Ares is currently being carried out to identify drill targets for the next campaign with the required environmental permits in the process of being obtained.

PROJECT REVIEW

Inmaculada

At the Inmaculada project, the EPC contractor Graña y Montero started construction of the plant in late March and by the end of July, progress has reached almost 33%. Procurement of all main equipment has been completed and delivery to site is expected to be concluded by the end of August.

During the period, a further 2,226 metres of tunneling and 637 metres of raise boring were carried out with the total achieved for the entire project at 13,296 metres. Detailed engineering for the paste backfill is complete with filters, pumps and thickeners on order whilst work on the transmission lines has also finished with connection to the Peruvian national grid system carried out on 31 May 2014.

As of the end of June, mapping is being carried out at the Puquiopata and Huarmapata veins with a drilling campaign expected to follow. In addition, re-logging of the Angela vein system continues in order to optimise the geological model. The 2014 plan also includes a 5,000 metres drilling campaign in the Mayte vein corridor as well as near mine exploration at selected targets, in order to expand the current resources . A sampling and mapping campaign is also planned.

EXPLORATION REVIEW

The Company has an exploration budget of almost $30 million for 2014, representing 63,500 metres. This is being split between exploration work at the Company's existing operations, the Inmaculada Advanced Project and greenfield opportunities in Peru and Mexico. The main focus will continue to be on brownfield exploration.

In 2014, exploration work at the core operations is principally focused on identifying new potential and near-mine high grade areas to further improve the resource quality whilst at the Inmaculada Advanced Project, efforts are focused on identifying new potential high grade areas.

Hochschild's greenfield strategy for 2014 remains focused, as previously announced, on only the most promising prospects, specifically in Peru and Mexico.

Mexico

Pachuca

At the Pachuca Company Maker project in Mexico, the JV with Solitario Exploration & Royalty Corp has been focusing on the northwestern extension of the historical vein mining district. The 2014 plan includes testing the actual extensions of prior intercepts tested by the previous operator. A total 2,454 metres were drilled on 13 holes during the 2013 and 2014 campaigns. However, despite some drill holes showing economic gold and silver grades, continuous mineralisation could not be identified and therefore the project has been transferred back to Solitario.

Riverside Joint Venture

The exploration team has accepted two targets generated by Riverside, the JV partners in the western Sonora in Mexico. The projects are called Bohemia and Cajon and whereas Bohemia exhibits mineralised veins, orogenic type mineralisation has been observed at Cajon with highly frequent small mineralised veins off a detachment fault. Target definition is ongoing.Positive sampling campaigns have shown similar characteristics to the San Francisco mine, also in the Sonora district.

Peru

During the first half, the Company's exploration efforts in Peru focused on optimising the existing portfolio and reviewing any industry opportunities. One of these is the Corina project, located 15-20 km from the Selene plant and owned by Lara Exploration Ltd. The agreement drawn up includes an option giving Hochschild full ownership of the project over four years.

In addition, promising geochemical results have been obtained from the Ibel prospect in Peru.

FINANCIAL REVIEW

Key performance indicators   

(before exceptional items, unless otherwise indicated)

The reporting currency of Hochschild Mining plc is U.S. dollars. In discussions of financial performance the Group removes the effect of exceptional items, unless otherwise indicated, and in the income statement results are shown both pre and post such exceptional items. Exceptional items are those items, which due to their nature or the expected infrequency of the events giving rise to them, need to be disclosed separately on the face of the income statement to enable a better understanding of the financial performance of the Group and to facilitate comparison with prior years.

Revenue

Gross revenue

Gross revenue from continuing operations decreased 5% to $308.1 million in H1 2014 (H1 2013: $325.2 million) driven by the significant fall in precious metal prices.

Silver

Gross revenue from silver was broadly flat in H1 2014 versus the same period of 2013 at $206.8 million (H1 2013: $210.9 million) with lower metal prices offsetting the increase in the total amount of silver ounces sold which rose by 10% to 10,086 koz (H1 2013: 9,153 koz).

Gold

Gross revenue from gold decreased 11% in H1 2014 to $101.3 million (H1 2013: $114.3 million) also as a result of lower prices and also to some extent by a 9% decrease in gold sales with gold ounces sold in H1 2014 at 76.3 koz (H1 2013: 83.6 koz).

Gross average realised sales prices

The following table provides figures for average realised prices and ounces sold for H1 2014 and H1 2013:

In March 2014, the Company signed agreements to hedge the sale of 2,000,000 ounces of silver at $22/ounce and 33,000 ounces of gold at $1,338/ounce, during the period from March to December 2014. Subsequently in June, the Company signed additional agreements to hedge the sale of a further 2,000,000 ounces of silver at $21/ounce, during the period from July to December 2014.

Commercial discounts

Commercial discounts refer to refinery treatment charges, refining fees and payable deductions for processing concentrates, and are discounted from gross revenue on a per tonne basis (treatment charge), per ounce basis (refining fees) or as a percentage of gross revenue (payable deductions). In H1 2014, the Group recorded commercial discounts of $26.2 million (H1 2013: $16.6 million). This increase is explained the decision to sell 100% of production from Arcata as concentrate due to improved commercial terms. The ratio of commercial discounts to gross revenue in H1 2014 increased to 9% (H1 2013: 5%).

Net revenue

Net revenue decreased by 9% to $282.0 million (H1 2013: $308.6 million), comprising silver revenue of $186.2 million and gold revenue of $95.8 million. In H1 2014, silver accounted for 66% and gold 34% of the Company's consolidated net revenue compared to 64% and 36% respectively in H1 2013.

Revenue by mine

Costs

Total pre-exceptional cost of sales decreased by 10% to $209.4 million in H1 2014 (H1 2013: $233.4 million). Direct production costs decreased by 14% in H1 2014, to $131.3 million (H1 2013: $153.0 million) principally due to the positive effects of the Company's ongoing cash optimisation programme. Depreciation in H1 2014 was $58.9 million (H1 2013: $65.0 million) with the decrease mainly due to lower future capex depreciation resulting from a lower level of metres expected to be developed in 2014. O ther items, which principally includes workers' profit sharing, was $3.0 million in H1 2014 (H1 2013: $3.7 million) with change in inventories at $16.3 million in H1 2014 (H1 2013: $11.6 million).

Unit cost per tonne

The Company reported unit cost per tonne at its main operations of $102.8 in H1 2014, a reduction of 5% compared to H1 2013 (H1 2014: $107.7). For further explanation on the increase in unit cost per tonne please refer to page 6 of the Operating Review.

Cash costs

Cash costs include cost of sales, commercial deductions and selling expenses before exceptional items, less depreciation included in cost of sales.

Cash costs are calculated based on pre-exceptional figures. Co-product cash cost per ounce is the cash cost allocated to the primary metal (allocation based on proportion of revenue), divided by the ounces sold of the primary metal. By-product cash cost per ounce is the total cash cost minus revenue and commercial discounts of the by-product divided by the ounces sold of the primary metal.

All-in sustaining cost reconciliation

All-in sustaining cash costs per silver equivalent ounce

Six months to 30 June 2014

Six months to 30 June 2013

Administrative expenses

Administrative expenses before exceptional items were reduced by 26% to $21.4 million (H1 2013: $29.0 million) primarily due to the ongoing impact of the cashflow optimisation programme. Post-exceptional administrative expenses in H1 2014 totalled $22.2 million.

Exploration expenses

In H1 2014, pre-exceptional exploration expenses, decreased by 71% to $8.2 million (H1 2013: $27.8 million) again due to the effects of the cashflow optimisation programme. Post-exceptional exploration expenses in H1 2014 totalled $8.7 million.

In addition, the Group capitalises part of its brownfield exploration, which mostly relates to costs incurred converting potential resource to the Inferred or Measured and Indicated category. In H1 2014, the Company capitalised $1.2 million relating to brownfield exploration compared to $0.3 million in H1 2013, bringing the total investment in exploration for 2013 to $9.4 million (H1 2013: $28.1 million). $79.6 million was also invested in the Company's Advanced and Growth Projects.

Selling expenses

Selling expenses were lower than H1 2013 at $14.5 million (H1 2013: $16.4 million) as a result of lower prices. Selling expenses mainly consist of export duties at San Jose with export duties in Argentina levied at 10% of revenue for concentrate and 5% of revenue for dore.

Other income/expenses

Other income before exceptional items was $2.0 million (H1 2013: $3.5 million), whilst other expenses before exceptional items reached $4.8 million (H1 2013: $4.3 million) mainly due the new reserves tax in Argentina.

Profit from continuing operations before exceptional items, net finance costs, foreign exchange loss and income tax

Profit from continuing operations before exceptional items, net finance costs and income tax increased to $25.7 million (H1 2013: $1.2 million) as a result of the factors detailed above.

Adjusted EBITDA

Adjusted EBITDA increased by 4% despite lower silver and gold prices over the period to $94.3 million (H1 2013: $90.4 million) principally due to lower cost of sales and administrative expenses.

Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation and exploration expenses other than personnel and other exploration related fixed expenses.

Finance income

Finance income before exceptional items of $1.8 million was reduced from H1 2013 ($5.3 million) mainly due to lower interest received on deposits and liquidity funds ($2.6 million) as well as lower dividends received from Gold Resource Corporation ($1.2 million).

Finance costs

Finance costs before exceptional items increased to $18.1 million in H1 2014 (H1 2013: $7.3 million) principally due to the interest due on $350 million of Senior Notes (issued in January 2014 via the Company's wholly owned subsidiary, Compañía Minera Ares S.A.C) with a coupon rate of 7.75% due for repayment in 2021.

Foreign exchange losses

The Group recognised a foreign exchange loss of $0.3 million (H1 2013: $15.4 million loss) as a result of exposures in currencies other than the functional currency.

Income tax

The Company's pre-exceptional income tax was $10.7 million (H1 2013: $14.9 million). H1 2014 income tax was negatively affected by the reduction of the local currency tax base in Argentina resulting from the devaluation of the Argentinean Peso (US$ 5.9 million).

Exceptional items

Exceptional items in H1 2014 totalled $(10.2) million after tax (H1 2013: $(13.2) million). The tables below detail the exceptional items excluding the exceptional tax effect that amounted to $2.3 million.

Exceptional items in H1 2014 totalled ($12.5) million before tax (H1 2013: $38.4 million). This mainly comprises the following items: 

Negative exceptional items:

Cash flow & balance sheet review     

Cash flow:

Operating cash flow increased from $4.3 million in H1 2013 to $44.2 million in H1 2014, mainly due to cost reductions. Net cash used in investing activities remained flat at $(127.0) million in H1 2014 from $(130.5) million in H1 2013 due to lower operational expenditures in line with the implementation of the cashflow optimisation programme during H1 2014 ($(56.9) million vs. $(79.3) million in H1 2013), offset by higher project capex at Inmaculada during H1 2014 ($(75.6) million vs. $(40.0) million in H1 2013. Finally, cash used in financing activities increased to $27.4 million from $20.8 million in H1 2013, primarily as a result of the proceeds from the $350 million Senior Notes, partially offset by repayment of the bridge loan facility ($270.0 million) and short term debt in Peru ($30.0 million) and Argentina. As a result, total cash generated increased from $(105.4) million in H1 2013 to $(55.5) million in H1 2014 ($49.9 million difference).

Working capital

The Company's working capital position increased to $93.5 million in H1 2014 from $57.9 million in H1 2013. This was primarily explained by higher trade and other receivables ($38.6 million) due to longer concentrate sales collection periods at Arcata. Also, net other financial assets increased to $5.2 million in H1 2014 from $(16.1) million in H1 2013 due to recognised gain from hedge agreements.

Net cash

The Group reported net cash of $(255.3) million as at 30 June 2014 (H1 2013: $91.6 million). Changes were driven by: i) lower cash and cash equivalents of $13.7 million due to the acquisition of International Minerals Corporation in 2013 ($271 million) and capex at Inmaculada ($134 million), partially offset by proceeds from the $350 million Senior Notes issued in January 2014 and the equity placing in October 2013 ($71.3 million); ii) higher long term borrowings resulting from the Senior Notes issue.

The Company's short-term borrowings are its $115 million convertible bond that has a current conversion price of £ 3.80 due in October 2014and short term debt raised in Argentina.

Capital expenditure

H1 2014 capital expenditure of $137.0 million (H1 2013: $138.2 million) includes operating capex of $55.7 million, capitalised exploration costs of $1.2 million in respect of the Group's operating mines, $75.6 million capitalised in Inmaculada, $2.5 million capitalised in Crespo, $1.6 million in Azuca and Volcan, and administrative capital expenditure of $0.4 million.

RISKS

The principal risks and uncertainties facing the Company in respect of the year ended 31 December 2013 are set out in detail in the Risk Management section of the 2013 Annual Report and in Note 36 to the 2013 Consolidated Financial Statements.

The key risks disclosed in the 2013 Annual Report (available atwww.hochschildmining.com) are categorisedas:

o  Financial risks which include commodity price risk and counterparty credit risk;

o Operational risks including the risks associated with operational performance, delivery of projects, business  interruption, exploration & reserve and resource replacement and personnel;

o Macro-economic risks which include political, legal and regulatory risks; and

o Sustainability risks including risks associated with health and safety, environmental and community relations.

These risks continue to apply to the Company in respect of the remaining six months of the financial year. 

In terms of the changes in the profile of these risks, the Board recognises the heightened level of financial risk that results from the combination of (i) a volatile precious metals pricing environment and (ii) the Company's forthcoming commitments which include the maturity of the convertible bond in October and the capital demands of the Inmaculada project as it enters its final stages before production commences. 

The Company's risk management strategy overseen by the Board has prompted a number of actions taken by management to mitigate this risk which primarily include:

o implementation of the Cash Optimisation Plan which has led to material savings that are sustainable going forward; and

o the successful negotiation, subsequent to 30 June 2014, of a term sheet for the arrangement of a $100m medium term loan facility which, on closing, together with undrawn short-term credit lines, will provide the Company with further financial flexibility.

The Board expects that the Group's financial position will improve significantly after the commencement of production at Inmaculada which in addition to increasing the Group's total production, will increase margins given its lower costs of production relative to the Group's other mines. 

GOING CONCERN

Having considered cash flow projections under a number of gold and silver pricing scenarios which take into account, among other things, the convertible bond maturity and the expenditure required at Inmaculada on the one hand and the mitigating actions taken by management described above on the other hand, the Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, adoption of the going concern basis in the preparation of the financial statements contained herein is considered to be appropriate. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that, to the best of their knowledge, the interim condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7 and 4.2.8.

A list of current Directors and their functions is maintained on the Company's website.

For and on behalf of the Board

Ignacio Bustamante
Chief Executive Officer

19 August 2014

INDEPENDENT REVIEW REPORT TO HOCHSCHILD MINING PLC

Introduction

We have been engaged by Hochschild Mining plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended  30 June 2014 which comprises the Interim condensed consolidated income statement, the Interim condensed consolidated statement of comprehensive income, the Interim condensed consolidated statement of financial position, the Interim condensed consolidated statement of cash flows, the Interim condensed consolidated statement of changes in equity and the related notes 1 to 19. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP
London
19 August 2014

Interim condensed consolidated income statement

Interim condensed consolidated statement of comprehensive income

Interim condensed consolidated statement of financial position

Interim condensed consolidated statement of cash flows

Interim condensed consolidated statement of changes in equity