RBC Capital Markets Silver Conference New York &...

29
Hochschild Mining plc RBC Capital Markets Silver Conference New York & Toronto 11 & 12 December 2007

Transcript of RBC Capital Markets Silver Conference New York &...

Page 1: RBC Capital Markets Silver Conference New York & …library.corporate-ir.net/library/20/204/204920/items/273065/HOC_RBC... · RBC Capital Markets Silver Conference New York & Toronto

Hochschild Mining plc

RBC Capital Markets Silver ConferenceNew York & Toronto 11 & 12 December 2007

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DisclaimerSome 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.

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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)

• $300 million net cash as of 30 June 2007

• Low cash costs $3.92/oz Ag and $159/oz Au (co-product basis)

• 100% unhedged

• Significant emphasis on exploration

• Strong track record on corporate social responsibility

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Corporate information

65%

25%

8% 2%UKUSCanadaRoW

3

Stock exchange listing LSE Main Board

Ordinary shares in issue 307,350,266

Free float 32%

Institutional shareholders >3% Blackrock

Stock information

Institutional ownership split

Trading statisticsMarket cap US$2.8bn

3 mo. ADTV 529,178 shares

3 mo. ADTV $4.0m per day

52-wk high/low (p) 511 (7Nov07) / 294 (31May07)

Share price performance

80

100

120

140

Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-070

1,000

2,000

3,000

4,000

5,000Volume Hochschild Gold Silver

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The 4th largest primary silver producer…

12

13

13

13

14

14

16

17

17

22

37

40

47

Hochschild

Pan American

Volcan

Goldcorp

Coeur d'Alene

Rio Tinto

Grupo Mexico

Buenaventura

Polymetal

Kazakhmys

BHP Billiton

KGHM Polska Miedz

Industrias Peñoles

No. Company 2006 production (moz Ag) % of global¹

1 Industrias Peñoles

2 KGHM Polska Miedz

3 BHP Billiton

4 Kazakhmys

5 Polymetal

6 Buenaventura

7 Grupo Mexico

8 Rio Tinto

9 Coeur d'Alene

10 Goldcorp

11 Volcan

12 Pan American

13 Hochschild

7%

6%

6%

3%

3%

3%

3%

2%

2%

2%

2%

2%

2%12

13

14

17

Hochschild

PanAmerican

Coeur

Polymetal

Pan American

Hochschild

Coeur

Polymetal

Primary silver producers

Source: Silver Institute, CRU ¹ World excluding China

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…and a mid-sized producer of gold

400

314

268

261

256

246

196

168

135

Randgold

Yamana

Meridian

Peter Hambro

Polymetal

Agnico Eagle

Hochschild Mining

Highland Gold

High River

Select companies 2006 production (koz Au) % of global

Randgold

Yamana

Peter Hambro

Polymetal

Hochschild Mining

Highland Gold

High River

0.5%

0.3%

0.3%

0.3%

0.3%

0.2%

0.2%

Source: GFMS, Company filings

Agnico Eagle

Meridian

0.4%

0.2%

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A roadmap for growth

0

15

30

45

'06 H1 H2 '07 '08 '09 '10 '11

Moz

Ag E

q.

23

11

~26

>50

… to double production by 2011

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Investing…

Arcata expansion Q408 Increase capacity to 618 ktpa from 420 ktpaCapex ~$26 million

San José expansion Q308 Increase capacity to 530 ktpa from 265 ktpaCapex ~$40 million

San Felipe Complete feasibility 2008 Commence production late 2009 Capex ~$110 million

Exploration~$20 million per annum on greenfield exploration

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Focusing on the Americas

x

Resource delineation

Development projects

LegendMine

Six operating mines in three countries & San Felipe in Mexico

x

San Felipe (70%) Resource delineation Polymetalic deposit Production 2009 M&I: 3.7 moz Ag / 119 kt Zn / 52 kt Pb

Moris (70%) Open pit Gold dore Since Q307 P&P: 99 koz Au / 0.3 moz Ag

Pallancata (60%) Underground Silver/gold concentrate Since Q307 P&P 11.6 moz Ag / 46 koz Au

San José (51%) Underground Gold/silver dore Since Q207 P&P 18.6 moz Ag / 298 koz Au

Arcata (100%) Underground Silver/gold concentrateSince 1964 ’06 prod: 4.7 moz Ag / 12 koz Au P&P 27.5 moz Ag / 71 koz Au

Ares (100%) Underground Gold/silver dore Since 1998 06’ prod: 156 koz Au / 2.7 moz Ag P&P 221 koz Au / 6.1 moz Ag

Selene (100%) Underground Silver /gold dore Since 2003 ‘06 prod: 28 koz Au / 4 moz Ag P&P 53 moz Au / 7.9 moz Ag

x

x

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Arcata — a world class silver deposit

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Alexia Vein Mariana Vein

Ramal 2 Vein

Macarena

• Commenced production in 1964– Since 1990 produced over

100 moz Ag & 390 koz Au– 2006 production: 4.7 moz Ag

& 12 koz Au• High grade silver resource

– M&I 29.8 moz Ag & 77 koz Au

– 586 g/t Ag & 1.5 g/t Au• Capacity expansion completed

ahead of schedule– 350 ktpa 420 ktpa in Q2

2007– Further expansion 618

ktpa in Q408• Significant mineralized potential

provides upside

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Exploring the region

Quevar (JV)

Tignamar

Sierra Mojina (JV)

El Pocito (JV)

Calderón

El Pino (JV)

Generative

Prospect

Existing mining operations

Resource delineation

Feasibility completed

San Felipe

Target definition

Peñon Blanco

Moctezuma Pozos

El GachiAzuca

Paraíso Puesto Chacon

Claudia

Development projects

Ares Arcata Selene

San José Pallancata

Moris

Gonzalito

Manantiales

La Flora Tres Chepas Gavilanes Ccello Punta

596,470 Has. 77,600 Has. 181,425 Has. 60,889 Has.

Patahuasi

San Luis del Cordero

New opportunities To Divest / Drop / JV

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Exploration offices in Peru, Argentina, Mexico, Chile and the USA

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Responsibility towards employees, the environment and local communities

Health & safety 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

Environmental• Environmental Management

System certified to ISO 14001 standards

• Reforestation program 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 – Second Place— 2004 – National Prize— 2005 – National Prize— 2006 – Second Place

• Finalizing adoption of U.S. Department of Labor OSHAS 18001 standards

Sipán today

Sipán before

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Delivering IPO commitments

• 100% hedge free

• Strong financial capacity

• 100% long-term debt repaid

• Actively looking for acquisitions

• Dividends declared & paid

• Capacity expansions completed in Ares and Arcata, and Selene on schedule

• San José, Moris and Pallancata in production on time

• San Felipe moved to feasibility stage

• Close to 26 moz Ag eq. in 2007

• On track to produce 50 moz Ag eq. in 2011

• 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

Operations

Explorations

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Finance

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Appendix

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Financial highlights

$ 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

Financial strength to pursue our growth strategy

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.

13

Legacy hedges expired in June 2007

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(20)%

(10)%

0%

10%

20%

30%

40%

50%

60%

Hochschild HighlandGold

Polymetal

Hochschild price performance vs. peers (2007 to date)

Commodities & indicesNA gold peers

NA silver peersUK peers

(20)%

(10)%

0%

10%

20%

30%

40%

50%

60%

Hochschild Hecla PanAmerican

CoeurD'Alene

ApexSilver

(20)%

(10)%

0%

10%

20%

30%

Hochschild GoldCorp Newmont Kinross

(20)%

(10)%

0%

10%

20%

30%

40%

50%

Hochschild Silver Gold FTSE 250 FTSE 350Mining

Hochs- child

Agnico Eagle

Gold Corp

Barrick New- mont

Yamana Gold

Kinross

Source: Datastream, 1 January 2007 to 19 November 200714

Peter Hambro

PolyusRand-gold

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Comparable companies trading multiples

Share price

(local) Market

cap. ($m) EV ($m)

EBITDA 2007E

margin (%)

EV/EBITDA EV/EBIT P/E

YE Dec 2007E 2008E 2007E 2008E 2007E 2008E

Hochschild 428.3 2,698 2,430 51.9% 14.0x 8.5x 19.2x 13.0x 29.6x 23.7x

Highland Gold 135.0 539 635 32.8% 18.4x 11.7x 30.6x 21.3x n.a. 49.0x

Peter Hambro 1,318.0 2,193 2,309 49.8% 28.0x 12.0x 31.4x 13.2x 46.3x 21.3x

Randgold 1,802.0 2,561 2,499 39.5% 22.3x 19.4x 25.2x 22.7x 38.9x 37.8x

Average of UK peers 1,764 1,814 40.7% 22.9x 14.4x 29.1x 19.1x 42.6x 36.0x

North American peers

AgnicoEagle 47.8 6,616 6,131 55.0% 23.3x 21.3x 27.8x 25.7x 46.3x 40.5x

Barrick 38.3 33,797 34,712 41.6% 13.1x 10.8x 20.2x 14.2x 29.1x 21.9x

Goldcorp 30.1 21,604 22,297 50.9% 18.5x 16.8x 27.4x 25.5x 39.6x 38.2x

Coeur D'Alene 3.9 1,096 1,003 42.0% 10.5x 5.3x 13.6x 6.4x 15.6x 8.4x

Hecla Mining 11.1 1,341 1,160 36.9% 14.4x 14.4x 24.1x 22.3x 33.1x 28.4x

Kinross 16.6 10,014 10,390 39.1% 24.2x 14.5x 38.1x 20.8x 51.3x 32.8x

Newmont 48.6 22,430 24,696 35.6% 12.7x 9.5x 20.2x 14.3x 43.1x 26.3x

Pan American 31.4 2,438 2,299 44.0% 17.6x 11.4x 20.3x 16.0x 29.0x 19.1x

Average of North American peers 12,417 12,836 43.1% 16.8x 13.0x 24.0x 18.2x 35.9x 27.0x

South American peers

Buenaventura 157.4 7,201 7,000 53.5% 17.9x 17.8x 19.7x 19.8x 19.2x 17.2x

Peñoles 234.3 8,519 9,224 21.3% 10.7x 8.7x 12.9x 12.1x 21.8x 17.1x

Average of South American peers 7,860 8,112 37.4% 14.3x 13.3x 16.3x 16.0x 20.5x 17.2x

Source: Brokers’ consensus and Datastream as of 19 November 2007

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Diversification

19%

12%

69%

Peru Argentina Mexico

Resources by country

16

Resources by commodity

58%27%

11%1%2%

Silver Gold Zinc Lead Copper

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Growing our asset base

0

200

400

600

800

1,000

Dec-06 Jun-07

koz

Au

0

10

20

30

40

50

60

70

80

moz A

g

Gold (+5%)Silver (+23%)

As at 30 June 2007

Proven & Probable Reserve

Measured & Indicated Resources

Inferred

Silver (moz)

72.1

82.1

57.4

Gold (koz)

787.8

871.3

222.9

Zinc (kt)

17.1

Lead (kt)

8.2

Reserve growth (6 months)

17

• Maintain a highly motivated, technically proficient, well funded exploration team with a successful track record

• Focus on high grade, low cost deposits / targets

• Consistent & rigorous approach for measuring value creation of exploration through technical excellence

• Best international industry practices

Exploration philosophy & goals

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Eduardo HochschildExecutive Chairman

Alberto BeeckExecutive Director, Strategy &

Corporate Development

Roberto DañinoDeputy Chairman & Executive

Director

Miguel AramburúChief Operating Officer

Jorge BenavidesChief Executive of Exploration

& Geology Officer

Ignacio RosadoChief Financial Officer

Javier DurandLegal Manager

Ignacio BustamenteGeneral Manager, Operations Peru

José Augusto PalmaSenior Adviser, Executive

Committee

Isac BursteinBusiness Development Manager

Raymond Jannas Corporate Exploration Manager

Executive Directors & Management

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7.2

5.2

7.2

11.9

11.0

3.5

5.0

4.3

7.8

4.3

0

2

4

6

8

10

12

14

2003 2004 2005 2006 9 mo. 07

Au k

oz

0

2

4

6

8

10

Ag m

oz

Au (koz) Ag (Moz)

19

Arcata — Peru (100%)

0

1,000

2,000

3,000

4,000

Dec-03 Dec-04 Dec-05 Dec-06 Jun-07

Tonne (

kt)

0

2

4

6

8

10

LOM

Reserves Resources

• High grade silver resource – 586 g/t Ag & 1.5 g/t Au

• Capacity expansion completed ahead of schedule– 350 ktpa 420 ktpa in Q2 2007– Further expansion 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• Produces silver/gold concentrate

Production

19

Reserves & resources

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184.7

193.2

198.5

155.5

108.1

2.6 2.7 2.9

2.7

1.8

0

40

80

120

160

200

2003 2004 2005 2006 9 mo. 07

Au k

oz

0

1

2

3

4

Ag m

oz

Au (koz) Ag (Moz)

Ares — Peru (100%)

0

200

400

600

800

1,000

1,200

Dec-03 Dec-04 Dec-05 Dec-06 Jun-07

Tonne (

kt)

0

1

2

3

4

LOM

Reserves Resources

• 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

• Produces gold/silver dore

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Production

Reserves & resources

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28.1

27.5

28.3

18.0

4.3

2.9

3.3

3.7

2.7

0.4

0

5

10

15

20

25

30

2003 2004 2005 2006 9 mo. 07

Au k

oz

0

1

2

3

4

Ag m

oz

Au (koz) Ag (Moz)

21

Selene — Peru (100%)

0

500

1,000

1,500

2,000

2,500

Dec-03 Dec-04 Dec-05 Dec-06 Jun-07

Tonne (

kt)

0

1

2

3

4

5

6

LOM

Reserves Resources

• 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 700 ktpa

• Expansion to accommodate Pallancata ore• Produces silver/gold dore (processed at Ares plant)

Production

Reserves & resources

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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

• Produces silver/gold concentrate

• Successful entrance into a new country

• Successfully building relations with local communities

* Measured + indicated + inferred, includes reserves

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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

• Produces silver/gold concentrate (milled at Selene)

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* Measured + indicated + inferred, includes reserves

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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

• Produces dore

24

* Measured + indicated + inferred, includes reserves

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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

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* Measured + indicated + inferred, includes reserves

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El Gachi — Mexico (70%)

26

* Measured + indicated + inferred, includes reserves

• 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

• Significant upside potential

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Azuca — Peru (100%)

27

* Measured + indicated + inferred, includes reserves

• >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)

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Hochschild Mining plc

RBC Capital Markets Silver ConferenceNew York & Toronto 11 & 12 December 2007