- Hochschild Mining

Hochschild Mining plc
Deutsche Bank
BRICS Metals & Mining Conference
London, 12 – 13 November 2007
Disclaimer
Some statements contained in this presentation or in documents referred to in it are or
may be forward-looking 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.
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.
1
Agenda
Company overview
Financial overview
Operational overview
Appendix
2
Hochschild Mining — a snapshot
• Over 40 years of underground precious metal mining &
exploration in the Americas
• 2006 IPO to fund growth strategy~115% over the next 5 years
• Listed on the London Stock Exchange (HOC LN)
• 4th largest primary silver producer (2006 11.6 moz Ag)
• Mid-sized gold producer (2006 196 koz Au)
• Significant emphasis on exploration
• Strong track record on corporate social responsibility
3
The 4th largest primary silver
producer…
No. Company
2006 production (moz Ag)
% of global¹
7%
1
Industrias
Peñoles
Industrias
Peñoles
2
KGHM
Polska
Miedz
KGHM
Polska
Miedz
3
BHP BillitonBHP Billiton
4
Kazakhmys Kazakhmys
5
Polymetal
Polymetal
17
3%
6
Buenaventura
Buenaventura
17
3%
7
Grupo Mexico
Grupo Mexico
16
3%
8
Rio Tinto
Rio Tinto
14
9
Coeur d'Alene
Coeur d'Alene
14
Primary silver producers
2%
Goldcorp
13
Polymetal
Polymetal
2%
Volcan
13
Coeur Coeur
10 Goldcorp
11 Volcan
12 Pan American
Pan American
13 Hochschild Hochschild
Source: Silver Institute, CRU
¹ World excluding China
47
6%
40
6%
37
3%
22
13
12
2%
Pan
Pan American
American
Hochschild
Hochschild
17
14
2%
13
2%
12
2%
4
…and a mid-sized producer of
gold
Select companies
2006 production (koz Au)
% of global
Randgold
Randgold
Meridian
Meridian
268
0.3%
Peter HambroPeter Hambro
261
0.3%
400
Agnico Eagle Agnico Eagle
Hochschild
Hochschild Mining
Mining
Highland GoldHighland Gold
High River
High River
246
196
168
135
0.5%
0.3%
0.2%
0.2%
0.2%
Source: GFMS, Company filings
5
Significant production growth
Doubling production in the next 5 years
>50
Moz Ag Eq.
45
30
~26
23
15
11
0
2006
H107
H207E
2007E
2008E
2009E
2010E
2011E
6
Focusing on the Americas
Six operating mines in three countries & five exploration offices
San Felipe (70%)
Resource delineation
Polymetalic deposit
Production 2009
Exploration Offices
Argentina
Chile
Mexico
Peru
USA
Legend
x Mine
Development projects
Resource delineation
Moris (70%)
Open pit mine
Gold dore
Since Q307
x
Pallancata (60%)
Underground mine
Silver/gold conc.
Since Q307
Arcata (100%)
Underground mine
Silver/gold conc.
Since 1964
x
Selene (100%)
Underground mine
Silver/gold dore
Since2003
x
Ares (100%)
Underground min
Gold/silver dore
Since 1998
San José (51%)
Underground mine
Gold/silver dore
Since Q207
7
Exploiting our niche — high
grade underground mining
Alexia Vein
Mariana Vein
Macarena
•
Proving up R&R more
expensive than open pit
•
Long reserve life of mine
not economically rationale
•
Industry average reserve
life of 4 years1
•
Arcata has had average
mine life of 3 years since
1990 and has been in
production for over 40
years
Ramal 2 Vein
¹ Source: JPMorgan Research
8
Growing our asset base
Exploration philosophy & goals
Reserve growth (6 months)
1,000
• Focus on high grade, low cost deposits /
targets
600
80
70
koz Au
800
• Consistent & rigorous approach for
measuring value creation of exploration
through technical excellence
60
50
40
400
30
20
200
10
0
0
Dec-06
• Best international industry practices
As at 30 June 2007
Gold (+5%)
Silver (+23%)
moz Ag
• Maintain a highly motivated, technically
proficient, well funded exploration team
with a successful track record
Silver (moz) Gold (koz)
Proven & Probable Reserve
72.1
787.8
Measured & Indicated Resources
82.1
871.3
Inferred
57.4
222.9
Jun-07
Zinc (kt)
Lead (kt)
17.1
8.2
9
Extending reserve life
Stated goal: 4 year reserve life + 4 year resource tail at all mines
5
Average reserve life
4.1
3.7
4
3
2.8
2
1
0
At IPO
End 2006
Mid 2007
10
Diversification
Resources by country
Resources by commodity
12%
11%
2% 1%
19%
27%
58%
69%
Peru
Argentina
Mexico
Silver
Gold
Zinc
Lead
Copper
11
Responsibility towards employees, the
environment and local communities
Health & safety
•
Finalizing adoption of U.S.
Department of Labor OSHAS 18001
standards
Ares Mining Unit
•
National Safety Contest:
—
2003 – National Prize
—
2005 – Third Place
Arcata Mining Unit
—
2004 – Second Place
•
National Safety Contest:
—
1998 – Second Place
—
1999 – National Prize
—
2000 – Second Place
—
2005 – Second Place
—
Trophy “JOHN T.RYAN”
—
2001 – Underground Mining
—
2002 – Underground Mining
Selene Mining Unit
•
National Safety Contest:
—
—
—
—
2003
2004
2005
2006
–
–
–
–
Second Place
National Prize
National Prize
Second Place
Environmental
•
Environmental Management
System certified to ISO 14001
standards
•
Reforestation program
Community
•
TECSUP (leading technical institute
in Peru)
•
Self-sustaining programs
•
Healthcare campaigns
•
Schools
•
Alpaca Genetic Improvement
Program
•
Community training programs
focused on developing technical
skills for future employment
•
Ongoing negotiations with local
communities for current & future
development
Sipán before
Sipán today
12
Agenda
Company overview
Financial overview
Operational overview
Appendix
13
Financial highlights
Financial strength to pursue our growth strategy
$ million unless stated
H107
H106
FY06
Revenue
$121
$101
$211
Adjusted EBITDA1
$56
$56
$108
Adjusted EBITDA1 margin
46%
56%
51%
Earnings per share2
$0.10
$0.09
$0.19
Operating cash flow
$21
$34
$126
Net cash position
$300
($78)
$406
¹ Adjusted EBITDA is calculated as profit from continuing operations before exceptional items, net finance costs and income tax plus depreciation, amortization
and exploration costs other than personnel and other expenses
2 Earnings per share using the weighted average number of shares outstanding for the period (2006: 243 million; 2005: 230 million). Current share
outstanding 307 million.
14
Main actions to achieve 2007 &
2011 production targets
Investing heavily for growth: ~$310 million capex (2006—2009)
Action
Capex US$m
Ares
2007: increased capacity by 16%
0.3
Capital spend
2006
Arcata
2007: increased capacity by 20%
2009: increasing capacity by 25%
0.2
26
2007
2007/2008
Selene
2007: increased capacity by 100%
10
2007
San José
Q207: commenced production
2008: increasing capacity by 100%
96
38
2006/2007
2007/2008
Moris
Q307: commenced production
15
2007
Pallancata
Q307: commenced production
20
2007
San Felipe
Mid-07: entered feasibility
Q409: scheduled commencement
2
~ 110
2007
2008/2009
15
Stock price performance…
100% un-hedged exposure to gold and silver
Rebased to 100
Volume
Hoc hsc hild
Gold
Volume (000s)
Silver
5,000
140
4,500
130
4,000
3,500
120
3,000
2,500
110
2,000
100
1,500
1,000
90
500
80
Nov- 06
0
Dec - 06
Jan- 07
Feb- 07
Mar- 07
May- 07
Jun- 07
Jul- 07
Aug- 07
Sep- 07
Oc t- 07
16
…relative to our peers
IPO to date
HOC: 350p – 474p
UK peers
Hochschild
49.7%
Peter Hambro
Highland Gold
NA peers
50.8%
Meridian
32.2%
Commodities
Silver
Indices
DJ Euro Stoxx
16.5%
7.4%
(22.4)%
10.8%
26.9%
Silver
16.8%
12.3%
Average
23.1%
43.8%
17.7%
24.5%
Gold
29.5%
FTSE 350 Mining
27.9%
Apex Silver
Average
21.0%
Average
TSX
Hecla
Coeur D’Alene
(20.8)%
Gold
23.2%
Pan American
19.9%
Average
48.2%
(27.2)%
Meridian
23.0%
Apex Silver
48.7%
Average
12.9%
Hecla
Coeur D’Alene
Randgold
Highland Gold
(34.2)%
Pan American
17.3%
Peter Hambro
23.3%
Average
HOC: 404p – 474p
Hochschild
35.4%
Randgold
2007 to date
19.6%
FTSE 350 Mining
TSX
46.4%
10.6%
DJ Euro Stoxx
7.0%
S&P 500
9.9%
S&P 500
5.9%
FTSE 250
9.1%
FTSE 250
Average
12.2%
18.5%
Average
1.4%
14.3%
Source: Datastream, 6 November 2007
17
Agenda
Company overview
Financial overview
Operational overview
Appendix
18
Arcata — Peru (100%)
Reserves & resources
Reserves
Resources
4,000
10
8
6
2,000
LOM
Tonne (kt)
3,000
4
1,000
2
0
0
Dec-03
Dec-04
Dec-05
Dec-06
Jun-07
Production
Ag (Moz)
2
8
6
4.3
7.2
4.3
5.2
4
3.5
6
5.0
8
7.2
Au koz
10
10
11.0
11.9
12
7.8
Au (koz)
14
4
Ag moz
• High grade silver resource
– 586 g/t Ag & 1.5 g/t Au
• Capacity expansion completed ahead of
schedule
– 350 ktpa Æ 420 ktpa in Q2 2007
– Further expansion Æ 618 ktpa in Q408
• Significant mineralized potential provides upside
• 2007 Exploration budget: $4.5 million program
to expand R&R base in anticipation of expansion
2
0
0
2003
2004
2005
2006
9 mo. 07
19
Ares — Peru (100%)
Reserves & resources
Reserves
Resources
1,200
4
3
800
600
2
400
LOM
Tonne (kt)
1,000
1
200
0
0
Dec-03
Dec-04
Dec-05
Dec-06
Jun-07
Production
* June 2007
4
3
80
2
1.8
108.1
2.7
155.5
2.9
184.7
193.2
2.7
120
2.6
Au koz
160
Ag (Moz)
198.5
Au (koz)
200
40
0
Ag moz
• Mature high grade gold deposit
– 7.67 g/t Au & 211 g/t Ag
• 2007 exploration budget: $1.5 million
directed towards extensive exploration of
surrounding areas
• Decreasing mine grade but maintaining mine
life with increased capacity
• Capacity expansion completed on time and
budget on Q1 2007 to 325 ktpa
1
0
2003
2004
2005
2006
9 mo. 07
20
Selene — Peru (100%)
Reserves & resources
Resources
6
2,000
5
4
1,500
3
1,000
LOM
Tonne (kt)
Reserves
2,500
2
500
1
0
0
Dec-03
Dec-04
Dec-05
Dec-06
Jun-07
Production
3.7
15
5
2
1
0.4
10
3
2.7
28.3
4
18.0
2.9
27.5
28.1
20
4.3
Au koz
25
Ag (Moz)
3.3
Au (koz)
30
Ag moz
• Grades
– 284 g/t Ag & 1.9 g/t Au
• Continue to develop the Explorador vein
• 2007 Exploration budget: $2.6 million focused on
the expansion of R&R in the Explorador, Tumiri and
Sofia veins
• Expanding plant capacity on schedule
– Q3 2007 Æ 700 ktpa
• Expansion to accommodate Pallancata ore
0
0
2003
2004
2005
2006
9 mo. 07
21
San José — Argentina (51%)
• Mine installations and development completed
and operational
• Production commenced Q207
• 2007 Exploration budget:
– HOC: $3.8 million
– Minera Andes: $1.96 million
– Program to expand resources in the Frea,
Kospi, Odin A&B Veins as well as test
potential mineralization in other targets
• Jun 2007 R&R total (HOC 51%)
– Reserves: 2.7 Mt @ 416 g/t Ag, 6.7 g/t Au
– Resources*: 2.6 Mt @ 490 g/t Ag, 7.8 g/t Au
– LOM (R&R): 10.3 years
• Q308 planned expansion to double capacity
• Successful entrance into a new country
• Successfully building relations with local
communities
* Measured + indicated + inferred, includes reserves
22
Pallancata — Peru (60%)
• Commenced production on schedule in Q307
• Underground development advancing according
to plan
• Power line and road access to the Selene
processing plant completed
• 2007 Exploration budget: $3.4 million HOC +
$1.6 million IMC (JV partner) designed to
expand reserves and resources in the
Pallancata and Mariana veins
• Future exploration targets: The Mercedes,
Virgen del Carmen and San Javier veins
• Jun 2007 R&R total (HOC 60%)
– Reserves: 2.2 Mt @ 272 g/t Ag, 1.08 g/t Au
– Resources*: 3.4 Mt @ 382 g/t Ag, 1.5 g/t Au
– LOM (R&R): 16.5 years
• 2008 planned expansion to 350 ktpa
* Measured + indicated + inferred, includes reserves
23
Moris — Mexico (70%)
• Commenced production on schedule in Q307 @
1 mtpa capacity open pit crush & heap leach
operation
• 2007 exploration budget:
– HOC: $0.8 million
– EXMIN: $321,000
– Program to explore La Nopalera, El Cajón
and South Crestón targets to increase
resources and test district potential
• Jun 2007 R&R total ( Hoc 70%)
– Reserves: 2.9 Mt @ 1.51 g/t Au
– Resources*: 4.7 Mt @ 1.3 g/t Au
– LOM (R&R): 2.8 years
* Measured + indicated + inferred, includes reserves
24
Exploring the region
Exploration offices in Peru, Argentina, Mexico, Chile and the USA
Ares
Arcata
Selene
San José
Pallancata
Moris
New opportunities
Existing mining
operations
To Divest / Drop / JV
Development
projects
Feasibility completed
San Felipe
Quevar (JV)
Tignamar
Resource
delineation
Calderón
El Pino (JV)
Azuca
Manantiales
Puesto Chacon
Claudia
El Gachi
Peñon Blanco
Moctezuma
Gonzalito
La Flora Tres Chepas
Pozos
Sierra Mojina (JV)
Target
definition
El Pocito (JV)
San Luis del
Cordero
Paraíso
Gavilanes Ccello Punta
Prospect
Patahuasi
Generative
596,470 Has.
77,600 Has.
181,425 Has.
60,888.99 Has.
25
San Felipe — Mexico (70%)
• Mexico – 70% earn in JV
• Polymetalic deposit
• High grade resources: Total Jun 2007 (HOC
70%)
– 2.3 Mt @ 7.34% Zn, 3.21% Pb, 0.42% Cu
and 71 g/t Ag*
• 18,627 meters drilled, more than the half of it
in 2007 in the Ventana ore-body
• Significant upside in 7 other out-cropping
targets
• Commence feasibility mid-2007
• Capacity 700 ktpa late 2009 to 1,080 ktpa by
late 2010
* Measured + indicated + inferred, includes reserves
26
El Gachi — Mexico (70%)
• El Gachi providing additional upside to San
Felipe,
• 60 km from San Felipe
• 2.5 to 8.0 m “manto” identified in the
property
• Historic (no JORC) resource of ± 100 K TM @
400 – 500 gr Ag & 15 – 20 % Pb + Zn
* Measured + indicated + inferred, includes reserves
• Significant upside potential
27
Azuca — Peru (100%)
• >5 km of plus metre wide
veins mapped
• Encouraging results from
previous Hochschild drilling
programs on the Azuca 1
and Minaspata veins (eg.
0.61m @ 5.06 g/t Au and
917 g/t Ag, and 1.45 m @
10 g/t Au and 488 g/t Ag
respectively)
• +5 g/t drill intercepts
published by another
exploration company on an
adjacent property (part of
same vein district)
* Measured + indicated + inferred, includes reserves
28
Delivering IPO commitments
Finance
• 100% hedge free
• Strong financial capacity
– $310 milllion capex for operations
(2006 – 2009)
– $500 – $750 million available for
acquisitions
Operations
• Unit costs contained despite industry
pressures
• Capacity expansions completed in Ares and
Arcata, and Selene on schedule
• San José, Moris and Pallancata in production
on time
• 100% long-term debt repaid
• San Felipe moved to feasibility stage
• Actively looking for acquisitions
• Close to 26 moz Ag eq. in 2007
• Dividends declared & paid
• On track to produce 50 moz Ag eq. in 2011
Explorations
• Reserves increased by 15% in H107
• Resources increased by 9% in H107
• Avg. LOM up from 3.7 years to 4.1 years in
H107
• Strong project pipeline
29
Agenda
Company overview
Financials & valuation
Operations & projects
Appendix
30
Corporate information
Stock information
Stock exchange listing
Ordinary shares in issue
Trading statistics
London Stock Exchange
US$2.26bn
307,350,266
3 mo. ADTV
529,178 shares
29%
3 mo. ADTV
$4.0m per day
Free float
Institutional
shareholders >3%
Market cap
Blackrock
52-wk high/low (p) 511 (7Nov07) / 299 (13Jun07)
Institutional ownership split
UK
US
Canada
RoW
8% 2%
25%
65%
31
Analyst coverage
Institution
Tgt price
Recommendation
Cazenove
423
Outperform
Goldman Sachs
423
Neutral
UBS
500
Buy
Citi
425
Buy
Canaccord Adams
450
Buy
HSBC
400
Neutral
JP Morgan
434
Overweight
Buy
Hold
Sell
30%
70%
32
Executive Directors &
Management
Eduardo Hochschild
Executive Chairman
Javier Durand
Roberto Dañino
Legal Manager
Deputy Chairman & Executive
Director
José Augusto Palma
Alberto Beeck
Senior Adviser, Executive
Committee
Executive Director, Strategy &
Corporate Development
Ignacio Bustamente
Miguel Aramburú
Chief Operating Officer
Jorge Benavides
Chief Executive of Exploration
& Geology Officer
Ignacio Rosado
General Manager,
Operations Peru
Isac Burstein
Corporate Exploration Manager
Raymond Jannas
Corporate Exploration Manager
Chief Financial Officer
33
Hochschild Mining plc
Deutsche Bank
BRICS Metals & Mining Conference
London, 12 – 13 November 2007