ignacio bustamante, ceo mar 2011 bmo... · bmo global metals & mining conference 1 march 2011....
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Ignacio BIgnacio Buustamastamante, CEOnte, CEOBMO Global Metals & Mining Conference BMO Global Metals & Mining Conference
1 March 2011 1 March 2011
1
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. 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.
Arcata Pallancata AresInmaculadaAzucaCrespo
San Jose
Peru
Mexico
ArgentinaChile
Moris
Hochschild’s advantageous positioning
Current operations
Advanced Projects
• A leading precious metals producer in the Americas– 3 of the 12 largest primary silver mines in the world– Operations in Peru, Argentina and Mexico– Long term core asset production:20‐23m oz Ag Eq
• FTSE 250 with market cap of US$3.0bn– Ticker: HOC
• Significant organic project pipeline– 3 Advanced Projects– 8 potential “Company Makers”– 26 drill targets in 2011 throughout Latin America– US$70 million exploration budget in 2011
• Cash position of about US$500m as at February 2011– Following payment of $115m syndicated loan
+40 years of production experience of high margin, precious metal assets2
Drill sites
Continued strategic and operational delivery…
2010: A historic year for Hochschild
2010 production targets achieved
Strong progress at our 3 Advanced Projects
Significant improvement in LOM at all operations
Disposal of 35% stake in Lake Shore Gold
Cash of about US$500m
2011: Key focus on organic growth
• Exploration investment increased to US$70m in 2011
• Advanced Projects in feasibility
• Extensive ongoing drilling campaign in 4 countries – 8 potential ‘Company Makers’– 26 drill targets
New operations expected to deliver +12m oz per annum from 20133
10
15
20
25
30
35
2011E 2012E 2013E 2014E 2015E
Attribu
table Ag Eq
moz
Current operations New operations
SOLID ASSET BASE: ~20 – 23 MOZ AG EQ PER YEAR FROM CURRENT OPERATIONSSOLID ASSET BASE: ~20 SOLID ASSET BASE: ~20 –– 23 MOZ AG EQ 23 MOZ AG EQ PER YEAR FROM CURRENT OPERATIONSPER YEAR FROM CURRENT OPERATIONS
Optimise LOM
Improve productivity
Arcata
Pallancata
San Jose
Land packagePeopleIncentivesBudget
Early stage Strong geological potentialHighly accretiveControl
Strategy
Bolt‐on M&A
4
3 Advanced Projects
8 Company Makers
Solid pipeline
Core Assets
3
2
1Exploration
Project pipeline
M&A
M&A
Strong emphasis on exploration‐led growth
7.15.9
8.5
FY08 H110FY09
• Resource life of mine at main operations is now approx 8.5 years* (core assets)
• Reserve cut‐off grades applied to resources
• High conversion rate from resources to reserves
7.46.4
8.3
6.25.2
7.0
6.2
8.4
Arcata LOM
Pallancata LOM
San Jose LOM
44%
FY08 Oct10FY09
FY08 H110FY09
FY08 FY10FY09
Main OperationsLOM
Core Assets: maximising LOM1
Potential to further increase resources at core assets5
* Preliminary unaudited figures
12.5*
Core Assets: Arcata
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1
LIMAPeru
Arcata
• Located in Arequipa, Southern Peru
• 100% owned
• Production commenced in 1964
• Produces silver & gold concentrate and doré
• World class district +447moz Ag eq endowment
• New high grade veins continue to be found
Units 2010
PRODUCTION Total moz. Ag eq. 9.7
AVG. GRADE Ag (g/t) 439
Au (g/t) 1.40
RESOURCES Total moz. Ag eq. 79.4
LOM RESOURCES Years 8.3
CAPACITY Tpd 1,750
Flagship mine with strong exploration potential
Core Assets: Pallancata
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1
LIMAPeru
Pallancata
• Located in Ayacucho, Southern Peru
• 60% Hochschild/40% International Minerals Corp. (IMZ)
• Production commenced in Q307
• 100% concentrate
• 2010 Ag eq production up 19% on 2009
• Significant brownfield expansion potential
Units 2010
PRODUCTION Total moz. Ag eq. 12.3
AVG. GRADE* Ag (g/t) 344
Au (g/t) 1.41
RESOURCES Total moz. Ag eq. 108.9
LOM RESOURCES Years 7.0
CAPACITY Tpd 3,000
Further Peruvian success story with strong exploration potential
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Core Assets: San Jose 1
San Jose
• Located in Santa Cruz, Southern Argentina
• 51% Hochschild/49% Minera Andes (MAI)
• Production commenced in Q307; capacity doubled to 1,500tpd in 2008
• 50% concentrate / 50% doré
• High grade mineral district
Units 2010
PRODUCTION Total moz. Ag eq 10.4
AVG. GRADE* Ag (g/t) 397
Au (g/t) 6.14
RESOURCES Total moz. Ag eq. 109.9
LOM RESOURCES* Years 12.5
CAPACITY Tpd 1,500
50,500 ha property only partially explored* Oct 2010 figure
* Total endowment
100% HOC
100% HOC
Acquired by Goldcorp in 2010:
US$3.6bn
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1
Significant upside exploration potential
San Jose*3.1 moz Au eq at 12.8 g/t Au eq
Cerro Negro (Andean)6.2 moz Au eq at 9.1 g/t Au eq
San Jose: more value through exploration
1.84mt
0.70mt Existing veins
New veins & extensions
Resources at 31 Dec 2009 4.43mt
• Recent exploration success announced in Oct 2010 significantly increased resources
• Comparable transaction supports strong valuation
Cerro Negro: high grade district Maximising LOM at San Jose
2009
2010 additions
Inmaculada Ares
CrespoAzuca
Pallancata
AREQUIPA
CUSCO
APURIMAC
AYACUCHO
Arcata
Selene
CUSCO
MADRE
DE DIOS
ICA
HUANCAVELICA
JUNIN
LIMA
Advanced Projects: Southern Peru cluster2
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Peru
Leveraging our Southern Peru cluster to drive near term growth
• Strong presence in Southern Peru
• Competitive advantage:
– 40+ years of experience in precious metals mining
– Unrivalled regional knowledge of operating/political landscape
– Extensive land package in key geological districts
– Experienced geological team aligned with company strategy
– Excellent regional reputation
– Solid infrastructure network in place
– Good relationships with local suppliers/engineering firms
– Excellent community relations programme Distance (km) Ares Arcata Selene
Inmaculada 219 192 90
Azuca 111 85 114
Crespo 61 34 122
Advanced Projects: Key stages2
11 Potential to add over 12m attributable oz from end 2013
Project Scoping Feasibility Construction Production
Inmaculada Q4 2011 2012/2013 Q4 2013
Crespo Q4 2011 2012/2013 Q4 2013
Azuca Q1 2012 2012/2013 Q4 2013
6.6 moz Ag Eq (Avg p.a.attributable production)
3.5 moz Ag Eq (Avg p.a. production)
2.3 moz Ag Eq (Avg p.a. production)
Production based on current resources
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2 Advanced Projects: Inmaculada (Peru)
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• 60% owned project at feasibility stage
• Acquisition cost of US$ 84 per Au oz
• Estimated pre‐operating investment of US$168m
• Initial scoping study showing strong resource base:– Approximately 50m oz Ag Eq (M&I) resources already– Approximately 70m oz Ag Eq Inferred – Angela vein structure at 6 metre width– Mineralisation over 2,000m strike length and still open
Strong potential to exceed Pallancata scale
SCOPING STUDY ECONOMICS
Au: $1,000/oz
Ag: $17/oz
Au: $1,400/oz
Ag: $24/oz
NPV (Non‐discounted)* $m 660 1,148
NPV @ 5% $m 434 787
IRR % 41% 63%
* All NPV figures quoted pre‐tax
Announcement (25/02/2011)
59% increase in M&I resources to 76.0m oz Ag Eq
29% increase in Ag Eq grades to 498g/t
12% increase in total resources to 128.3m oz Ag Eq
Announcement (25/02/2011)
59% increase in M&I resources to 76.0m oz Ag Eq
29% increase in Ag Eq grades to 498g/t
12% increase in total resources to 128.3m oz Ag Eq
Advanced Projects: Azuca (Peru) 2
SCOPING STUDY ECONOMICS
Au: $1,000/oz
Ag: $17/oz
Au: $1,400/oz
Ag: $24/oz
NPV (Non‐discounted)* $m 107 304
NPV @ 5% $m 61 208
IRR % 21% 57%
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• 100% owned project
• Estimated pre‐operating investment of US$75m
• Significant geological potential:– 3 new veins discovered in 2010– Total inferred resources: 60.8m oz (Ag Eq)– Arcata sized district system: +300m oz Ag Eq?
Azuca district potential to match Arcata* All NPV figures quoted pre‐tax
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2 Advanced Projects: Crespo (Peru)
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• 100% owned project
• Total resources of 49.4m oz (Ag Eq)*– Scoping study only used 31.3m of M&I resources
• Estimated pre‐operating investment of US$65m
• Strong exploration potential
Simple open pit, heap leach operation *Includes measured, indicated and inferred resources**All NPV figures quoted pre‐tax
SCOPING STUDY ECONOMICS
Au: $1,000/oz
Ag: $17/oz
Au: $1,400/oz
Ag: $24/oz
NPV (Non‐discounted)** $m 54 167
NPV @ 5% $m 32 117
IRR % 19% 47%
Crespo pit design
2
15
Pipeline: Unique focus on the Americas
• 2011: Extensive and targeted greenfield drill programme: – 335,000 metres– 26 targets– Four countries ‐ Peru, Argentina, Chile &Mexico
Strong prospective presence across the Americas
2011Exploration budget: $70m
12%
52%
17%
19%
Peru Argentina Chile Mexico
2011Greenfield Exploration by country
Peru
Mexico
Argentina
Chile
Mercurio
Valeriano
Victoria
Corazon de Tinieblas
JosnitoroApachetaPariguanasSabina
Company Makers
49%
36%
15%GreenfieldBrownfieldAdvanced projects
Victoria
Mercurio
Key targets
Key prospects
Valeriano
JosnitoroApachetaCorazon De Tinieblas
Parihuana
High quality project pipeline2
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Medium scale
Inmaculada
CURRENT OPERATIONS
> 1 MILLION HECTARES GENERATIVE
ADVANCED PROJECTS
PROSPECTS
Ares
DRILL TARGETS
Peru ChileCompany Makers
Arcata Pallancata San JoseMoris
Azuca Crespo
MexicoArgentina
Further 40% increase in exploration budget versus 2010
CricketAstanaIbelSan Martin
Encrucijada
Cerro Blanco
MosquitoLa Flora
Key targets
Key prospects
Medium
Scale
Com
pany
Com
pany
M
aker
sM
aker
s
Victoria, Chile ‐ Company Makers2
17 Highly prospective Domeyko fault zone
• Ownership: 60% Hochschild/40% Iron Creek
• Domekyo fault zone hosts majority of copper porphyries in northern Chile
• Vida target: [email protected] g/t Au, 29g/t Ag
• Vaquillas target: [email protected]/t Au , 57g/t Ag
• Total drilling of 10,000m budgeted for 2011
Mine Company Endowment
Escondida BHP/Rio3Moz Au; +78Moz Ag; +144Blbs Cu
El Peñon Yamana+7Moz Au; +170Moz Ag
Guanaco Austral Gold+3Moz Au; +6Moz Ag
*All endowment figures from Metals Economics Group
Chile
Valeriano, Chile ‐ Company Makers2
18 Investment in key geological location
• Option agreement signed Nov 2010
• Acquisition cost of US$5.5m
• Right to increase stake to 100%
• Historical drilling results (pre 1997): – 100m at 1.37 g/t Au at 19m depth– 41m at 0.61 g/t Au, 12 g/t Ag and 0.30% Cu, at 70m
depth
Chile
Mine Company Endowment
El Morro Xstrata+5Moz Au; +4Blbs Cu
Pascua‐Lama Barrick+20Moz Au; +700Moz Ag
*All endowment figures from Metals Economics Group
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• 100% owned
• 36,388 hectare prospect
• DH5: –86m @20 g/t Ag, 0.22% Cu, 0.49% Pb, 1.40% Zn….
…includes: 3.5m@300 g/t Ag, 4.36% Cu, 1.18% Pb, 7.49% Cu
• Located between two high grade mines:
Mercurio, Mexico ‐ Company Makers2
19 Highly prospective land package
Mexico
Mine Company Endowment
Sombrerete Grupo Mexico +180Moz Ag
La Colorada Pan American
Silver+104Moz Ag; +1Blbs Zn;
Fresnillo Fresnillo+1Moz Au; +915Moz Ag; +3Blbs Zn;
*All endowment figures from Metals Economics Group
• Copper projects acquired as part of Southwestern Resources
• Significant land package in southern Peru
• Dedicated team/budget assigned to highly prospective copper properties
• Strategic decision to be made following drill completion
Copper projects 2
20 Potential to add value
Peru
Mine Company Endowment
Las Bambas Xstrata+2Moz Au;
+154 Moz Ag; +21Blbs Cu
Tintaya Xstrata+2Moz Au; +39Moz Ag; +12Blbs Cu
*All endowment figures from Metals Economics Group
Corporate development: realising value
Solid M&A track record
3
21
Lake Shore Gold (Canada)– Net proceeds of approx $454m ‐ 34% gain on average purchase priceGold Resource Corp (Mexico)– Market value of US$361m – unrealised gain of 416%Inmaculada (Peru)– Acquisition cost of US$84/oz (Au Eq)Valeriano (Chile)– Highly prospective Company Maker ‐ acquisition cost of US$5.5mSouthwestern Resources– Delivered Crespo, Copper projects & Liam property package for net investment of US$2m
361*
Substantial net cash position
+
Disciplined acquisition criteriaDisciplined acquisition criteria
=Opportunistic acquisition strategy
Strong balance sheetStrong balance sheet
Early stage Strong geological potential
Highly accretiveControl
High potential for value creation
22
• Excellent asset base
• Solid Advanced Projects
• Promising exploration pipeline
• Clearly defined strategy
• Strong financial position
• Leverage to precious metals
Well positioned for future growth
0
100
200
300
400
500
2006 2007 2008 2009 2010*
Arcata San Jose Pallancata Ares/Selene/Moris Azuca Crespo Inmaculada
140%
185
444
342
250208
Million Attribu
table Ag Eq
oz
Growing resource base: 25% CAGR since IPO
*As of June 2010. Includes new discoveries at San Jose