Broker Note, Hochschild Mining, 23/01/2007 (Cannacord Adams)

Damien Hackett Metals and Mining -- Precious Metals and Minerals
44.20.7050.6641
Hochschild Mining Plc

damien.hackett@canaccordadams.com
Nicholas Pickens
44.20.7050.6646
nicholas.pickens@canaccordadams.com Specialists from Latin America in narrow-
vein, high-value mining
BUY
Figure 1: Production and cash flow growth (2003-2012E)
HOC : LSE : £3.95
60 300
TARGET PRICE: £4.50
50 250
EBITDA and Cash Flow (US$M)

Total Production (Moz)
40 200
Inside
Company Overview ..................................... 3 30 150
Valuation ..................................................... 7
Application of Funds ..........................13 20 100
Investment Risks ................................13
Company History and Structure ..............15 10 50
Company Assets .......................................17
Peru .....................................................17 0 0
2003 2004 2005 2006e 2007e 2008e 2009e 2010e 2011e 2012e
Mexico .................................................29
Silver Production Gold and base metals (Ag equiv)
Argentina .............................................34 EBITDA Cash from Operations
Market Position.........................................37
Silver Market Overview ............................41 Source: Canaccord Adams estimates, company data
Share price data COB 22 January 2007. We initiate coverage on Hochschild Mining with a BUY recommendation. HOC is a
silver and gold mining company with over 40 years of experience and was the fourth-
largest producer of primary silver in the world in 2005 with production totaling 10.5
million ounces of silver plus 232,000 ounces of gold. We expect silver production to
increase by at least 95% thru 2009, Figure 1.
We set our initiating target price for 2007 at £4.50 based on our analysis of comparable
company financials, which suggests a current price of £3.67 rising to £4.82 in 2008; a
10 times multiple of cash, which suggests a price of £3.68 for 2007 rising to £5.15 in
2008; and our NAV estimate of £3.55/share based on our expectation of declining
commodity prices. With current precious metal prices carried forward, our NAV
estimate for the stock is £4.80/share.
Canaccord Adams is the global capital markets group of Canaccord Capital Inc. (CCI : TSX|AIM)
The recommendations and opinions expressed in this Investment Research accurately reflect the Investment Analyst’s personal,
independent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important
information, please see the Important Disclosures section in the appendix of this document or visit
http://www.canaccordadams.com/research/Disclosure.htm.
23 January 2007 2007-010

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Company Statistics Price Chart
52-week Range: £3.50-4.04 400
Avg. Daily Vol. (000): 1000

390
Market Capitalization (M): 1,223.5
Shares Out. (M) basic: 307.3 380
Shares Out (M) (fully diluted) 307.3

370
360
350
340
330
02-Nov 07-Nov 12-Nov 17-Nov 22-Nov 27-Nov 02-Dec 07-Dec 12-Dec
HOC.L GBp FTSE 350 Mining
Earnings Summary Company Description

FYE Dec 2004A 2005A 2006E 2007E 2008E
Sales $m 159 151 254 302 461
Hochschild Mining is a silver and gold mining company with
EBITDA $m 49 63 133 147 245
Net profit adj. $m 15 33 73 85 107 over 40 years of experience in mining precious metals. It
Free cash (1) $/share 0.01 0.04 0.27 0.37 0.49 has three operating mining assets in Peru, one advanced
Cash flow after capex $/share -0.03 -0.02 0.11 0.17 0.07 mining project in each of Peru, Argentina and Mexico and
EPS (diluted) $/share 0.05 0.15 0.24 0.28 0.35
Dividend $/share na na na 0.08 0.10
one early stage project in Mexico.
The Group was the fourth largest producer of primary silver

EV / EBITDA x 2.1 34.9 14.8 13.2 7.8
PER x na na 32.8 28.3 22.5 in the world in 2005 with production totaling 10.5 million
Free cash yield % na na 3.5 4.7 6.3 ounces of silver (plus 232,000 ounces of gold) and has seen
Yield after capex % na na 1.45 2.22 1.99
production expand by 80% over the previous three years.
Dividend yield % na na na 1.1 1.3
The company is focused on high-grade, mid-scale
EBITDA margin % 31.1 42.0 52.2 48.6 53.2
EBIT margin % 16.7 31.0 44.6 37.4 45.1
underground mining while the company’s policy is to mine
Gearing (2) % 98.2 66.3 -233.2 -209.6 -147.4 at run of mine grades in all operations and not to hedge
ROE (3) % 1,084.8 127.6 21.7 13.0 14.3 product prices.
ROIC (4) % 8.3 26.1 62.6 54.3 67.6
Price to book x - 42.3 3.9 3.5 3.0
1. Operating cash flow before investment and financing.

2. Net debt over total capital.
3. Adjusted earnings pre exceptionals and goodwill over shareholder equity.
4. Adjusted net income over PP & E plus working capital.
Hochschild Mining plc 23 January 2007

3
COMPANY OVERVIEW
INTRODUCTION
Hochschild Mining is a silver and gold mining company with over 40 years of experience
in mining precious metals. It has 3,100 employees, three operating mining assets in
Peru, one advanced mining project in each of Peru, Argentina and Mexico, and one early
stage project in Mexico, Figure 2. The Group was the fourth largest producer of primary
silver in the world in 2005 with production totaling 10.5 million ounces of silver (plus
232,000 ounces of gold) and has seen production expand by 80% over the previous three
years. The company is focused on high-grade, mid-scale underground mining with
production in 2005 recovered from narrow-vein ore grading on average, 373g/t of silver
and 4.98g/t gold. The company’s policy is to mine at life of mine grades in all operations
and not to hedge product prices.
Figure 2: Summary of company assets

Asset Status Description Product Start Date Ownership
PERU
Arcata Mine UG mine. Ag, Au concentrate 1964 100%
Ares Mine UG mine Au, Ag doré 1998 100%
Selene Mine UG mine Ag, Au doré 2003 100%
Pallancatta Advanced Project UG mine Ag, Au doré 2007 60%
Sipán Closed Open pit Au, Ag doré Closed 100%
ARGENTINA
San José Advanced Project UG mine Au, Ag doré 2007 51%
MEXICO
Mina Moris1 Advanced Project Mothballed open pit/heap leach Au, Ag doré, Pb-Zn concentrate 20071 70%
San Felipe Medium-term Project UG mine Ag, Pb, Zn, Cu concentrates 2009 70%
1) Mina Moris initially operated between 1996-99 by Minera Manhatten S.A. de C.V
Source: Company data
Management has plans to diversify and further increase production in the near term, in
the case of silver by at least 95% through 2009 via a combination of expansions to
existing operations and project development. In addition, the company plans to pursue
value accretive acquisitions, initially with a target value in the range US$150-250
million. This would see the company evolve from its current configuration of 100%
dependence on three Peruvian operations to at least seven separate mines in three
countries where less than 50% of production would be from Peru. With the seven mines
in Figure 2 fully developed, we calculate that the company’s share of precious metal
production could double from 24.4 million ounces of silver equivalent in 2005 to more
than 50 million ounces silver equivalent over the next five years.
There also appear to be significant production growth opportunities beyond the seven
mines in Figure 2. The company’s development pipeline holds interests in at least 20
other properties, ranging from prospects to defined targets across four countries in Latin
America: Mexico, Peru, Argentina and Chile. Argentina ranks highly in the company’s
development plans because of the geological reality of the eastern slopes of the Andes
despite limited past mining activity. Peru, Mexico and Chile on the other hand have
significant and widely documented mining potential.
23 January 2007 Hochschild Mining plc

4
The company follows three important and differentiating pillars of management

philosophy:
• RESPONSIBILITY – for safety, the environment and social relationships in the

communities in which it operates. Concerns such as these have kept the company
out of high risk areas such as Bolivia, Colombia and parts of Venezuela and have
focused management on qualitative measures of responsibility rather than
quantitative measures of expenditure.
• EXCELLENCE – in all technical aspects of operation from exploration to tailings

management. The company’s expertise and efficiency has come from decades of
experience in small-scale, narrow vein mining.
• PROFITABILITY – derived from its focus on high margin operations which target
cash costs of less than US$2.5/oz of silver equivalent and a capital cost of US$1/oz
silver equivalent of developed reserve. It has posted cash operating margins in the
range of 45-50% of revenue over the last three years, before administration,
exploration and other expenses.
The company listed on the main board of the London Stock Exchange in November 2006
as Hochschild Mining plc (HOC), with a free float of 29% of the company’s stock, 25% as
new issue plus a further 4% of secondary shares as part of the “greenshoe” at listing.
Money raised is intended for expansion, development and acquisition and we expect the
company’s solid reputation in the region to help add to the expansion opportunities
already in the pipeline.
The company came to market because it saw possible project development opportunities
in the region exceeding its own cash flow. We expect the funds raised to bring forward
planned project development, while in our view, the company is also likely to use its now
publicly traded shares as acquisition currency to enhance organic growth via value
accretive acquisitions consistent with the company’s growth strategy.
Reserves and resources

Hochschild Mining estimates its precious metal resources at 221 million ounces of silver
equivalent (3.7 million ounces of gold equivalent) from 3.849 million tonnes of ore with
an average grade of 374gm/t silver and 5.0gm/t gold, Figure 3.
Figure 3: Attributable reserves and resources as at November 2006

Project Reserves Silver Gold Silver eq Gold eq Million ounces Silver equivalent O'ship
‘000t gm/t gm/t gm/t gm/t P&P M&I Inferred R&R %
Arcata 930 462 1.26 538 9 16 19 24 43 100
Ares 835 327 12.24 1061 17.7 29 30 1 31 100
Selene 799 377 2.56 530 8.8 14 14 5 18 100
San Jose 642 418 7.9 892 14.9 19 19 7 26 51
Pallancata 643 263 1.09 328 5.5 6 7 15 22 60
Moris — — — — 10 — 10 70
San Felipe — — — — — 70 70 70
Total 3,849 374 4.99 673 11.2 84 99 122 221 —
The company also appears to have a different approach to exploration from many major
mining companies. We believe its long-term and sustained commitment to exploration,

5
through various commodity price cycles, is an approach best suited to preserving

intellectual capital and building an integrated project portfolio. It is similar to the
commitment made by Rio Tinto, for example, and one that has yielded the company
success across a range of minerals and metals.
Hochschild’s approach is to focus on precious metals, in particular deposits with high

grade, and these typically occur as narrow vein deposits. The Andean fault zone along
the South American plate boundary is a classic environment for such occurrences.
Figure 4: Group production summary

Production 2006e 2007e 2008e 2009e 2010e 2011e 2012e
Silver 000 ozs 11,604 13,086 24,123 26,941 28,370 28,370 28,370
Gold 000 ozs 196 206 280 224 207 207 207
Zinc 000 t - - - 36 66 66 66
Lead 000 t - - - 10 19 19 19
Copper 000 t - - - 1 2 2 2
Revenue
Silver $000's 132,604 168,169 287,112 292,670 265,981 265,981 265,981
Gold $000's 121,279 133,553 174,162 127,794 113,140 113,140 113,140
Zinc $000's - - - 73,479 104,127 89,665 89,665
Lead $000's - - - 10,589 19,000 19,000 19,000
Copper $000's - - - 3,195 4,888 4,213 4,213
Total revenue $000's 253,883 301,722 461,273 507,728 507,135 491,999 491,999
Revenue split
Silver % 52.2 55.7 62.2 57.6 52.4 54.1 54.1
Gold % 47.8 44.3 37.8 25.2 22.3 23.0 23.0
Zinc % - - - 14.5 20.5 18.2 18.2
Lead % - - - 2.1 3.7 3.9 3.9
Copper % - - - 0.6 1.0 0.9 0.9
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0
EBITDA $000's 132,561 146,778 245,189 274,081 232,176 211,221 208,069

Margin % 52% 49% 53% 54% 46% 43% 42%
Source: Canaccord Adams estimates
With this style of mineralisation, we believe there is little value for investors in life-of-
mine reserve delineation – the classic porphyry model for North America, for example.
Hochschild’s targeted mineralisation does not lend itself to such a practice while over 20
years of proven reserve and resource replenishment suggests it is unnecessary. For each
of the 15 years since 1990, the company’s current practices of reserve delineation have,
on average, more than replaced its expanding production over that period, see
“Company Assets” section for more details.
The company appears to us to understand an age-old practice in narrow vein mining

“drill for structure and drift for grade”. By far the majority of the company’s mineral
resources have been discovered and delineated from underground operations rather
than from pre-production surface drilling. Further, we consider that Hochschild’s
digitised geological database, right down to core storage and sample preparation, reflects
its focus on “excellence” in all aspects of the operations. This rigorous approach to
exploration supports a more efficient and less subjective approach to target generation,

6
which, in our view, increases management focus on reserves and resources and, in turn,
enhances cash flow and profitability.
Figure 5: Group financial summary

FYE Dec 2006e 2007e 2008e 2009e 2010e 2011e 2012e
Sales $000's 253,883 301,722 461,273 507,728 507,135 491,999 491,999
Other income $000's 0 0 0 0 0 0 0
Operating costs $000's 121,322 154,943 216,084 233,647 274,960 280,778 283,930
EBITDA $000's 132,561 146,778 245,189 274,081 232,176 211,221 208,069
D, D & A $000's 19,311 34,007 37,205 57,328 52,141 46,345 43,194
EBIT $000's 113,250 112,771 207,985 216,753 180,034 164,877 164,875
Interest $000's 5,894 -15,861 -14,964 -14,536 -18,362 -23,410 -28,646
Pre tax profit $000's 107,356 128,633 222,948 231,289 198,396 188,286 193,521
Income tax $000's 34,354 41,162 71,343 74,013 63,487 60,252 61,927
Profit from cont.. operations $000's 73,002 87,470 151,605 157,277 134,909 128,035 131,594
Discontinued $000's 0 0 0 0 0 0 0
Minority interest $000's 0 2,770 44,915 53,586 38,486 36,529 37,073
Net profit to shareholders $000's 73,002 84,700 106,690 103,691 96,423 91,506 94,521
Shares on issue x mill 307.4 307.4 307.4 307.4 307.4 307.4 307.4
Earnings per share $/share 0.24 0.28 0.35 0.34 0.31 0.30 0.31
Payout ratio % nmf 30% 30% 30% 30% 30% 30%

Dividend per share $/share 0.08 0.10 0.10 0.09 0.09 0.09

7
VALUATION
Net Asset Value
We have derived a range of values for the net assets of Hochschild Mining plc using a
sum-of-the-parts, net present value based calculation for each of the current and planned
operations, Figure 6, based on a discount rate of 10%. In addition, we have ascribed a
value to all defined targets and prospects not included in our cash flow analysis at a
nominal 20% of the estimated value of producing assets. A total contribution of 20% is
what we believe to be reasonable for up to 25 prospects with similar geological
characteristics to producing assets but with, as yet, limited drill confirmation of
mineralisation. We have not applied a completion risk to the present value of advanced
projects given that they are in the later stages of development and given management’s
experience and record of bringing on new projects.
Figure 6: Hochschild Mining net asset value estimate

Net Asset Value Summary
Net Present Values (Attributable): US$M LOW MID HIGH
Arcata (100%) 282 330 379
Selene (100%) 116 128 140
Ares (100%) 209 248 286
Pallancatta (60%) 78 98 118
San Jose (51%) 183 219 255
Mina Moris (70%) 58 73 88
San Filipe (70%) 123 169 215
Defined production 1,048 1,265 1,481
Defined targets and prospects @ 20% 210 253 296
Group level and other:

Group G&A -325 -325 -325
Current assets Jun '06 107 107 107
Current liabilities Jun '06 -152 -152 -152
Long-term liabilities Jun '06 -92 -92 -92
Net Asset Value US$M 796 1,056 1,316
Pre-IPO value with market premium 50% 1,194 1,584 1,974
Cash raised US$M 514 514 514

Less IPO expenses 3% -15 -15 -15
Post-IPO value with market premium US$M 1,692 2,082 2,472
Shares on issue x mill 307.350 307.350 307.350
£/Share @ exchange rate of 1.91 2.88 3.55 4.21
Source: Canaccord Adams analysis
Our current base-case, net asset value for the company is £3.55/share based on our
commodity price assumptions and a £/US$ exchange rate of 1.91, Figure 6. The
commodity price assumptions that underpin this valuation are shown in Figure 7 while
our “high” and “low” case valuations in Figure 6 have been derived from a 10% variation
in commodity prices. Our analysis shows our valuation varies by 19% for a 10% change
in the profile of key commodity prices.

8
Figure 7: Canaccord price assumptions metal prices

2006 2007e 2008e 2009e 2010e 2011e 2012e
Gold US$/oz 622.60 650.00 625.00 575.00 550.00 550.00 550.00
Silver US$/oz 11.58 13.00 12.00 11.00 9.50 9.50 9.50
Copper $/lb 3.06 2.50 2.18 1.75 1.45 1.25 1.25
Lead $/lb 0.58 0.72 0.54 0.46 0.45 0.45 0.45
Zinc $/lb 1.48 1.88 1.36 0.94 0.72 0.62 0.62
Source: Canaccord Adams estimates, Bloomberg
Some might argue for a lower discount rate than our 10% per annum given that more
than 70% of the company’s revenue is derived from gold and silver – both a natural
hedge against inflation and seen to be a store of value in more difficult economic times.
An 8% discount rate against our estimated project cash flows would deliver a value for
the company of £3.88/share compared to our mid-point £3.55/share at a 10%pa discount
in Figure 6, while a 5% per annum discount rate would deliver a value of £4.48/share.
Market pricing on sector-average comparables

We believe a single-point, present day NAV calculation masks potential underlying
growth in a stock. We consider that the process simply delivers a value at a point in time
and an opportunity for short-term investors to close out any market mis-pricing. We
suggest it is more helpful to show investors how we believe potential value accrues over
time from expanding production, earnings, cash flows and the PV of residual cash flow
after capital has been invested.
Figure 8 presents such parameters for Hochschild Mining out to 2012 based on market
average multiples, see “Market Position” in this report, but with production restricted to
just the seven current and sanctioned operations in Figure 6. Clearly, we would expect
upside potential from other new projects and potential acquisitions:
• We price production at US$65/oz for an estimate of EV, after consideration of other

gold and silver producers, Figure 37;
• EBITDA is priced at 15 times also as an estimate of EV, with 15 being more or less
comparable to other silver and gold producers, Figures 39 and 40;
• We price earnings at 25 times as an estimate of market capitalisation with 25 being

the average of a suite of comparable silver and gold producers.
We suggest it is appropriate to include multiples of EBITDA and earnings for gold

companies as we are comparing income in US$ and not metal production, and for
Hochschild in 2007, we expect gold revenue to account for more than 40% of revenue

9
Figure 8: Market valuation of Hochschild Mining

US$ M 2006e 2007e 2008e 2009e 2010e 2011e 2012e
Silver prod'n Koz 11,604 13,086 24,123 26,941 28,370 28,370 28,370
Gold prod'n Koz 196 206 280 224 207 207 207
EV/Prod'n 65 617 1,327 2,039 2,351 2,563 2,672 2,774
EV/EBITDA 15 1,852 2,678 4,148 4,711 4,202 3,996 4,051
PE Ratio 25 1,825 2,117 2,667 2,592 2,411 2,288 2,363
NAV+premium US$M 1,531 2,504 2,471 2,659 2,701 2,786 2,870
Average US$M 1,456 2,157 2,831 3,078 2,969 2,935 3,014
Per share £/share 2.48 3.67 4.82 5.24 5.06 5.00 5.13
The average valuation for Hochschild Mining based on the four methods for 2007E is
£3.67/share, on our numbers, rising to £4.82/share for 2008.
It is important to note that our analysis also shows that expected growth in this company
from existing projects only, can offset our expected decline in gold and silver to
US$550/oz and US$9.50/oz respectively by 2010, and support a value for the company at
around £5.00/share over the next five years, Figures 8 and 9.
Figure 9: Value growth in Hochschild Mining (2006E-2012E)
10.00
8.00
Market value (£/share)
6.00
4.00
2.00
0.00
2006e 2007e 2008e 2009e 2010e 2011e 2012e
In our opinion, this ability to offset the effect of declining commodity prices points to
significant possible upside in value for the shares if precious metal prices maintain
current levels or even appreciate further as some forecasters suggest.
If current precious metal prices were maintained then our £3.67/share valuation for
2007 would become £3.99/share, rising to £6.98/share by 2010 based on this
methodology.

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Pricing for growth

We expect Hochschild Mining to enjoy substantial production growth to 2009 from
existing projects – on our numbers almost a 100% lift in terms of silver output over the
next three years assuming the new projects come on stream and existing projects are
expanded to full potential, Figure 8. This production growth is not as spectacular as that
which we see in say, Yamana Gold (AUY: BUY) or Peter Hambro Mining (POG: BUY),
Figure 11, but on our estimates it is stronger than the average of other gold and silver
producers. Based on a 28% per annum expansion in sliver output from 2006 to 2009
we estimate a PEG ratio of 0.92 for Hochschild, which suggests to us that at a PE of 28
times 2007E earnings, the stock does not look expensive, see Figure 10.
Figure 10: Growth ratio analysis for silver producers

Company Ag equiv (Koz ) Growth % pa P/E EV/EBITDA PEG Ratio
2006E 2009E 2006E-09E 2007E 2007E
Pan American Silver 24,000 30,000 8 15x 17x 1.93
Coeur d'Alene Mines(1) 22,000 35,900 18 15x 9x 0.87
Hecla Mining(1) 22,000 22,000 - 28x 9x na
Hochschild 23,348 48,839 28 28x 13 0.92
Source: Canaccord Adams estimates, 1. First Call, Datastream
As an aside, neither Yamana Gold nor Peter Hambro Mining appear expensive on our
numbers either compared to their peers given the production growth we estimate is on
offer. PEG ratios of 0.31 and 0.63 respectively, based on our production growth
estimates, would seem to support our claim, Figure 11. At a PEG ratio of 0.92,
Hochschild Mining is second only to Yamana and Peter Hambro Mining in terms of
attractively priced growth potential, on our estimates.
Figure 11: Growth ratio analysis for gold producers

Company Au equiv (Koz) Growth% pa P/E EV/EBITDA PEG Ratio
2006E 2009E 2006E-09E 2007E 2007E
Barrick Gold 8,777 8,725 (0.1) 17x 9x na
Buenaventura(1) 8x 10x na
Goldcorp 1,650 2,509 15 27x 18x 1.82
Hochschild 389 814 28 28x 13x 0.92
Kinross 1,450 1,876 9 22x 13x 2.49
Meridian 296 361 7 27x 16x 3.95
PeterHambro 256 1,069 61 38x 25x 0.63
YamanaGold 313 800 37 11x 50x 0.31
Source: Canaccord Adams estimates, 1. First Call, Datastream

11
Cash flow valuation
Figure 12: Net cash flow and projected share price
500,000 10.0
400,000 8.0
300,000 6.0
200,000 4.0
100,000 2.0
0 0.0
2006e 2007e 2008e 2009e 2010e 2011e 2012e
Net cash flow US$000 (LHS) £/share FD (RHS) 8x 12x
We also price Hochschild’s shares on a multiple of net cash flow from operations.
Figures 12 and 13 show our estimates of Hochschild’s cash flow from operations with a
8% CAGR over the six years under review from US$149.7 million in 2006 to US$237.6
million in 2012, in spite of our expectations of declining commodity prices.
We have priced the stock each year to 2012 at 10 times cash flow for that year and
added the previous year’s cash balance. We suggest a multiple of 10 is appropriate given
Hochschild is primarily a silver producer, which as a precious/industrial metal places it
between base metal producers that trade around 8 times and platinum producers that
trade around 12 times net cash flow. Based on our estimate of US$164.4 million as cash
flow from operations in 2007 and a cash balance of US$518 million at year end 2006,
we estimate an appropriate market price for Hochschild Mining at £3.68/share, Figure
13. Subsequent to raising $514 million in November 2006, we estimate IPO expenses
absorbed $15 million while the company reduced debt by $40 million.
Figure 13: Net cash flow and projected share price

Unit 2006e 2007e 2008e 2009e 2010e 2011e 2012e
Cash flow from operations US$000's 149,667 164,426 232,904 261,666 251,006 241,593 237,557
Priced at multiple of fwd cash flow US$000's 1,496,674 1,644,256 2,329,044 2,616,656 2,510,056 2,415,928 2,375,565
Cash balance US$000's 518,001 696,321 829,140 1,019,553 1,241,563 1,463,065 1,671,636
Exchange rate US$/£ 1.91 1.91 1.91 1.91 1.91 1.91 1.91
Value per share £/share 2.55 3.68 5.15 5.87 6.01 6.23 6.54

12
Conclusion
In summary, the three valuation methods have delivered indications of a current market
price for the stock in the range £3.55 - 3.68 per share. At the low end of the range is our
NAV for the company at £3.55/share based on declining commodity price projections but
note that the methodology also indicates a value of £4.80/share if current precious metal
prices are carried forward or £4.21/share with a commodity price profile just 10%
higher than we are forecasting.
Near the top end of the range is a current market value of £3.67/share based on
comparable market parameters - the market value of production, EV/EBITDA and price/
earnings multiples – a method which also suggests a comparable market price in 2008 of
£4.82/share.
Also at the top end of our valuation range we have a current market price of £3.68/share
based on a multiple of 10 times 2007E cash flow from operations, rising to £5.15/share
based on 2008E cash flow.
Although the current price for Hochschild Mining stock at £3.95/share may have
captured a little of the underlying future growth that we see in this company, we suggest
a market price of £4.50/share during 2007 can be justified on the basis of value that we
believe is yet to be extracted from existing operations and projects.

13
APPLICATION OF FUNDS
Figure 14: Use of proceeds

Maximising Existing Operations of next 5 years US$M 140
Expenditure by Operation % Subtotal
Arcata 40% 56
Ares 30% 42
Selene 30% 100% 42 140
Expenditure by Utilisation
Mining Development 80% 112
Plant, Property, Equipment 20% 100% 28 140
Timing of expenditure
First 2 years 35% 49
Following 2 years 55% 77
Remainder 10% 100% 14 140
Growth of Project Pipeline US$M 250

Expenditure by Project % Subtotal
San José 40% 100
San Felipe /Moris Mine 45% 113
Pallancata 15% 100% 38 250
Expenditure by Utilisation
Mining Development 40-50% 100-125
Plant, Property, Equipment 50-60% 100% 125-150 250
Timing of expenditure
First 2 years 70% 175
Remainder 30% 100% 75 250
Repayment of Debt US$M 40
Acquisitions & Additional Growth Remainder

Utilisation
Two Feasibility Studies
Further exploration studies in South America
Strategic acquisitions where opportunities arise
Source: Figures in grey shading from Company presentation, Others Canaccord Adams estimates
INVESTMENT RISKS
The following comprise risks to our target price and rating.
Mining risk
We note that Hochschild Mining is ISO 14001 certified on all its mines. However, there are
inherent dangers associated with underground, narrow vein mining. Extraction is difficult
and the process is carried out in an environment that is not always predictable. Whilst the
management team and mine operators may be effective in identifying risks and well able to
take measures in order to mitigate them, it is impossible to remove the possibility of an
unexpected event occurring that could impact on the operation of a mine. There are also
risks associated with the use of mining contractors for operations, although the company
employs a number of mining contracting companies and is not over reliant on one company.

14
Reserve and resource risk

Hochschild’s proven and probable reserves have been reviewed by an independent
consultant and are compliant with the Joint Ore Reserves Committee (JORC). Based on
the company’s historical track record and taking into account the type of deposit, our
analysis assumes production beyond the current reserve base. We recognise the
company’s reserve replacement program has more than replaced production of the past
20 years; however this past success does not guarantee reserve replacement in the
future. There are therefore risks associated with replacement of reserves.
Development risk
A proportion of the company’s value lies in the development of new projects which carry
a completion risk. Delays in the development schedule or increases in capital
requirements for example, may negatively impact our suggested valuation range.
Country risk
There are risks associated with unforeseen political intervention, such as an increase in
royalties, restriction on business practices, changes in permitting legislation or
expropriation of mineral assets and operations. Following a year of elections, some
investors may feel increasing uncertainty over the changing political face of Latin
America, particularly those whom perceive a movement towards the left and are wary of
nationalisation. We note that Peru has a democratic government, recently voting in a
moderate-left politician Alan Garcia as President over the more extreme Peruvian
Nationalist Party. In Mexico, leader of the conservative National Action Party Felipe
Calderon was declared winner of presidential elections in July 2006, with victory over
his left-wing rival and in Argentina, the current government, led by left-leaning Nestor
Kirchner, has been in power since 2003. Although much improved, all three countries
have some history of social unrest and there are risks associated with the transition to a
new government.
Economic risk
Our suggested valuation range is impacted by our long-term price assumptions for silver,
gold, copper, lead and zinc. We have indicated the impact of price on our valuation
using low, medium and high price scenarios (Valuation section). Our net present value
calculation assumes a discount rate of 10% per annum; however should the weighted
average cost of capital differ our estimated value range would also change. Peru
experienced high inflation rates, exchange rate instability in the 1980s and 1990s and
Argentina fell into deep recession and economic collapse in 2001. A re-occurrence of
these environments could impact our valuation range.

15
COMPANY HISTORY
The Hochschild name is synonymous with mining in South America. The Group was
founded in Chile nearly 100 years ago, with operations largely focused on the
commercialisation of some of the world’s largest mines in Chile. The company expanded
into Bolivian tin mining following World War II and later acquired Mantos Blancos in Chile
during the 1970s; this was subsequently sold to Anglo American in 1984 along with most
of the Group’s other South American operations.
Luis Hochschild (father of the current CEO Eduardo Hochschild) in the same year that all
South American operations were sold to Anglo American, bought back the Peruvian
operations. The Arcata mine in Peru, which commenced production in 1964, is still
operated by the company today. Eduardo Hochschild became head of Hochschild Mining
in 1998 and under his guidance the company began extensive exploration on its prospects
in Peru. Mining commenced at Sipán in 1997 followed by commissioning of the Ares
sliver-gold mine in 1998 while the Selene operation commenced in 2003.
In 2001, the Group began building its project portfolio and extending its asset base outside
Peru. It opened an exploration office in Mexico, followed by further offices in Argentina
and Chile in 2003 and 2004 respectively.
CORPORATE STRUCTURE
Figure 15: Company structure Post-IPO
UK plc
100%
UK Hold co
100% 100% 100% 100% 100%
Perú Argentina México Chile MH Nevada

Hold co Hold co Hold co Hold co (Delaware)
100% 100% 100% 100% 100% 51% 100% 100%
Compañia Arcata Ares Sipán MH Argentina Minera Santa Minera MH Chile

Minera (Perú) (Perú) (Perú) (Argentina) Cruz Hochschild (Chile)
Coriorco (Argentina) (México)
60%
Compañia
Minera
Suyamarcs

16
DIRECTORS AND MANAGEMENT

Eduardo Hochschild - Executive Chairman
Eduardo Hochschild joined the Hochschild Mining Group in 1987. He was head of the
Hochschild Mining Group between 1998-2006 and has been Executive Chairman since
2006. He holds directorships with Banco de Crédito del Peru, Compañía de Seguros El
Pacífico, Asian Pacific Economic Council Business Advisory Committee, Sociedad Nacional
de Minería y Petroleo, COMEX, Patronato Universidad Nacional de Ingeniería y de la
Universidad de Ciencias Aplicadas, TECSUP & Conferencia Episcopal Peruana.
Mr.Hochschild also holds a B.Sc. degree in Physics and Mechanical Engineering from Tufts
University, USA.
Alberto Beeck - Executive Director

Alberto Beeck joined the Hochschild Mining Group in 1998. Previously he served as
Managing Director and Head of Latin American Investment Banking for Barings, Inc. in
New York and Baring Brothers in London (1992-97), Vice President of Dillon, Read Ltd
(1988-92) and Vice President of Lehman Brothers, Inc. (1982-88). Mr. Beeck holds a B.Sc.
degree in Mechanical Engineering from Purdue University, and an MBA in Finance and
International Business from Columbia University.
Roberto Dañino - Executive Director

Roberto Dañino joined the Hochschild Mining Group in1995, where he remained until
2001. Since 2001 he has held positions as Senior Vice President and General Counsel of
the World Bank Group (2003-06), Prime Minister of Peru (2001-02) and Ambassador to the
United States (2002-03). Previously he was a partner at Wilmer, Cutler & Pickering and
Rogers & Wells and Chairman of the firms’ Latin American Practice Groups (1993-2001)
and Founding General Counsel of the Inter-American Investment Corporation (1989-93).
Mr. Dañino holds an SJD (abd) and LLM from Harvard Law School and JD from the
Pontificia Universidad Católica del Peru.
Miguel Aramburun - General Manager, Mining Division

Miguel Aramburun joined the Hochschild Mining Group in 1995 as General Manager of
Compañía Minera Pativilca. He has been General Manager of the Hochschild Mining
Group since 2006. He was Chief Financial Officer of the Hochschild Mining Group (2002-
05) and Mr. Aramburun holds an MBA from Stanford University and BA Industrial
Engineering, from Pontificia Universidad Católica del Peru.
Jorge Benavides - General Manager, Exploration and Geology Division

Jorge Benavides joined the Hochschild Mining Group in 2001 as Exploration and Geology
Manager. He has nearly 30 years experience in the mining industry, including with Phelps
Dodge Mining Company in South America. Mr. Benavides holds a MSc. from Stanford
University and a B.Sc. in Geological Engineering from the Colorado School of Mines.
Ignacio Rosado - Chief Financial Officer

Ignacio Rosado has been CFO of the Hochschild Mining Group since 2005. Previously he
has held positions as a Senior Engagement Manager, McKinsey & Company (2000-05),
Project Manager at Banco de Crédito del Peru (1995-96) and Corporate Banker at Banco
Wiese (1993-94). Mr. Rosado holds an MBA from the University of Michigan Business
School and a B.Sc. in Economics from the Universidad del Pacífico del Peru.

17
COMPANY ASSETS
Hochschild Mining owns and operates three silver-gold underground mines in southern
Peru, Arcata, Ares and Selene, which produced 10.5 million ounces of silver and 232.6
thousand ounces of gold during 2005. The company also has a majority interest in two
advanced development projects, San José in Argentina and Pallancata in Peru plus two
early-stage development projects in Mexico, Moris and San Felipe. In addition the
company has long-term prospects throughout Latin America (Figure 16).
Figure 16: Company projects

San Felipe
Mina Moris
Sierra Mojina
San Luis del Cordero
Calderón
El Pino Pozos
La Enramada
Las Tortugas
Pocito
Selene Mine
Cerro Blanco Arcata Mine
Pallancata Ares Mine
Tincos xx Paraiso
San Andrés Frontera
Minaspata Azuca Tacna
San Martín
Paracoya
Julia
Quevar
Cerro Blanco
Ambargasta
Sierra de las Minas
Legend
x Mine
Resource delineation
Development
Puesto Chacón
Target definition
Prospect San José
Producing assets
Projects
Source: Company presentation
PERU
Peru is central to the company’s current production capabilities. All three operating mines
owned by the company are located in close proximity in Southern Peru while Pallancata,
one of the advanced development projects, is adjacent to the Selene mine and thus offers
synergy benefits. The properties lie between 4,600-5,000 metres above sea-level in the
Puquio-Cayollma Belt and all the deposits display similar mineralisation characteristics.
Arcata and Selene each produce a silver concentrate with contained gold, while Ares
produces a refined silver-gold doré. The Selene mine has been producing doré since
October 2006 and thus retaining more downstream value from its mined products.
The company also owns the Sipán mine, which closed in 2004, and holds rights for eight
other prospects in Peru, including San Martin, located between Arcata and Selene.
Hochschild also previously owned the Caylloma silver mine, but sold the property to
Fortune Silver Mines in June 2005.

18
Figure 17: Mines and advanced projects in Peru
!(
Selene (! Pallancata
Arcata
Ares
Source: Company presentation, Canaccord Adams
Geology
The deposits are located in the Puquio-Caylloma Belt and are associated with Cenozoic
volcanic deposits and intrusions. The style of mineralisation is typically epithermal – ore
zones within volcanic host rocks and related to mineralised quartz vein systems. Target
vein structures lie within Tertiary-age volcanics and are associated with several episodes of
mineralization, which accounts for slight variations in relative abundances of precious
metals observed between different deposits. Average vein thicknesses range between 0.8-
4.0 metres in width and the majority of vein systems that are included in the resource base
tend to be silver rich, although local variations do occur with areas of lower silver:gold
ratios. The unique characteristics of epithermal orebodies have a strong bearing on the
method by which these deposits are defined and developed:
• Mining of narrow vein deposits is inherently difficult and dilution of ore with host rock
is inevitable. The extent to which the ore is diluted is a function of vein width, the host
rock competency and of course the skill of the mining team. For some of the narrow
vein systems, dilution can be upward of 30%.
• Unlike continuous orebodies, reserve and resource definition through a surface

diamond drilling alone is not feasible. Instead, the structure and frequency of these
vein systems is interpreted on a regional scale through surface drilling and this
provides the basis for targeting new prospects. Only once underground development
has begun can reserves be proven.
These deposits are often typecast as costly and dangerous to mine. However, Hochschild
has a proven track record and narrow vein mining expertise built on 40 years of mining
experience. Further, it has a strong safety record in these operations.
Reserves and Resources - “Drill for structure, drift for grade”

The company’s reserves have historically reflected only a limited number of years of future
operations, typically around three years of production. This is not uncommon for
epithermal style deposits. The company’s approach to reserve delineation is a function of
the ore geology; deep diamond drilling from surface is expensive and the frequency of drill
holes required to achieve statistically proven reserves is very high. Upgrades in the
measured and indicated reserve base are reliant on underground mine development and
extensive underground drilling; however, inferred resources suggest a much longer
productive mine-life.

19
In Peru, the company has a strategy of exploring new ground within the concession area
and adjacent to mines, often the best place to find additional resources. Preliminary work
is typically undertaken with long surface drill holes to define an inferred resource – the
company currently has several contracted diamond drill rigs around the Peruvian
operations.
In our view, the ability of the company to more than replace production with reserves
consistently over the last 15 years goes some way towards mitigating any risk that might
be attributed by some to a relatively short life-of-mine proven reserve. We note the
company has more than replaced production year-on-year since production of the mines
began, Figure 18. On average, over all of the company’s operations since mining began,
the company has replaced 37% of total reserves by new reserves each year. With a three
year proven reserve, the company has produced 33% of its reserves each year while
adding 37% of its proven reserve.
Figure 18: Reserve replacement (LHS: Ore in Kt, RHS: Life of mine in years)
Arcata Ares Selene
Ore ('000 Lif e of Mine Ore ('000 Lif e of Mine Ore ('000 Lif e of Mine
t onnes) (Yrs) t onnes) (Y rs) tonnes) (Yrs)
2000 8.0 1200 7.0 1200 7.0
1000 6.0 1000 6.0

1500 6.0
5.0 5.0
800 800
4.0 4.0
1000 4.0 600 600
3.0 3.0
400 400
2.0 2.0
500 2.0 200 200
1.0 1.0
0 0
0.0 0.0
0 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 1990 1992 1994 1996 1998 2000 2002 2004 2006
1990 1992 1994 1996 1998 2000 2002 2004 2006 -200 -1.0 -200 -1.0
-500 -2.0 -400 -2.0 -400 -2.0

Production Resources Reserves LOM Production Resources Reserves LOM
Resources Production Reserves LOM
Source: Company data, Canaccord Adams
Our valuation of these mining assets is based partly on the life-of-mine discounted cash
flow. Given the company’s long history of replacing reserve ounces, in most cases we have
assumed a longer life-of-mine in our analysis than the current reserve statements would
suggest.
Figure 19: Peru – Proven and probable reserves (as at June 2006)
Reserves (Kt) Ag Au Ag Ag eq.
Proved Probable Total (g/t) (g/t) mmoz Mmoz
Selene Mine 763 37 799 377 3 10 4
Aracata Mine 647 283 930 462 1 14 2
Ares Mine 642 193 835 327 12 9 20
Pallancata Project - 643 643 263 1 5 1
Total 2,052 1,156 3,207 366 4 38 27
We note that since 1999, the company has applied the JORC classification system to delineate its reserves.
Prior to this, a Peruvian system was applied and this has resulted in some variation in the historical average
LOM of reserves.
Source: Company reports

20
Arcata Mine
Arcata is located in the Arequipa region of Peru, 800km from Lima, at an altitude of 4,400
metres and is 100% owned by Hochschild. The mine commenced production in 1964 and
production has averaged 4.3 million ounces of silver and 6.5 thousand ounces of gold per
year since 2003.
Three vein systems (The Mariana, Ramal 2 and Macarena) are currently being mined by
conventional, trackless cut-and-fill breast or overhand stoping methods with timber
supports. The veins have a minimum mining width of 0.8 metres and maximum of 3.0
metres. Each orebody has been accessed via discrete inclines and ramps to a depth of 500
metres. Ore is loaded from passes into 22t haulage trucks – distances to the plant are
between 4.5km and 5km depending on the system.
The processing facilities at Arcata have a capacity of 350ktpa of ore following an expansion
from 280ktpa in 1980. Two further expansions are planned, with throughput expected by
the company to increase to 420ktpa in January 2007 for a minimum of capital, perhaps as
little as US$200,000 and then expand by a further 25% to approximately 530ktpa in 2009
for a cost of US$10 million. Processing consists of a conventional crushing, grinding and
flotation circuit which produces a silver concentrate, containing approximately 400oz/t of
silver and gold in concentrate. Processing recoveries are relatively low compared to the
other two operations (~88.5% Ag and 83.5% Au) due to arsenic in the ore. We estimate
ongoing sustaining development of approximately US$6.0 million per annum, but we
expect full operating costs to fall from US$55/t at current throughput of 350ktpa to US$48/t
when fully developed at 530ktpa. Further detail is shown in Figure 21.
Figure 20: Arcata mine

21
Figure 21: Arcata – forecast assumptions and economic analysis
12 5
Gross Sales Revenue
4.5
10
4
3.5
8
3
6 2.5
2
4
1.5
1
2
0.5
0 0
2003 2004 2005 2006 2007 2008 2009 2010 Silver Gold
Equiv Silver Production (Moz) - LHS
Total Cash Cost ($/oz Ag - RHS
Mining Sales Operating Costs Valuation

Mine closure year 2025 Smelting conc $/t conc 112.5 Admin $/t 5 Discount Rate NPV (US$M)
Recovery silver % 89% Refining Ag $/oz 0.30 Gen services $/t 11 5% $ 453
Recovery gold % 84% Refining Au $/oz 6.00 Plant $/t 4 8% $ 371
Sale product % conc % 100% Freight & Ins $/kg dore 0.00 Mine $/t 26 10% $ 330
Concentrate grade oz/t 400 Payable silver % 97.0% Geology $/t 2 12% $ 296
Payable gold % 96.0% Total Op Cost $/t 48
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Annual throughput 000's t 314 350 420 530 530 530 530 530 530 530 530 530 530
Silver production 000's oz 4,754 4,581 5,640 8,143 7,540 7,540 7,540 7,540 7,540 7,540 7,540 7,540 7,540
Gold production 000's oz 12 12 15 24 23 23 23 23 23 23 23 23 23
Cash costs $/oz Ag 4.07 4.59 4.01 3.54 3.69 3.69 3.69 3.69 3.69 3.69 3.69 3.69 3.69
Cash costs $/oz Au 219 230 209 185 214 214 214 214 214 214 214 214 214
Net sales $000's 56,476 61,543 69,734 93,406 75,299 75,293 75,288 75,285 75,284 75,282 75,282 75,281 75,281
Cash operating costs $000's 17,253 19,250 20,160 25,440 25,440 25,440 25,440 25,440 25,440 25,440 25,440 25,440 25,440
EBITDA $000's 39,223 42,293 49,574 67,966 49,859 49,853 49,848 49,845 49,844 49,842 49,842 49,841 49,841
EBIT $000's 31,138 34,027 40,352 58,996 41,929 42,598 43,033 43,315 43,499 43,618 43,696 43,746 43,779
Net Profit $000's 20,554 22,462 26,636 38,943 27,678 28,119 28,406 28,593 28,714 28,793 28,844 28,877 28,899
Capex $000's 6,200 11,000 11,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000
Project cash flow $000's 22,439 30,727 35,859 47,913 35,608 35,374 35,222 35,123 35,058 35,017 34,989 34,972 34,960
Source: Company reports, Canaccord Adams estimates for 2006-2018

22
Ares Mine
The 100% owned Ares concession was discovered in 1988 following interpretation of
aerial photography and covers over 22,700 hectares. In the early 1990s, geological
mapping, geochemical mapping, surface drilling and subsequent underground drilling
were undertaken. By 1995, at least two vein systems had been defined, including the
Victoria Vein, now being mined, and the Tanis Vein.
Mineralogy of the Ares ore is significantly different from both Arcata and Selene in that it
contains a much higher abundance of gold relative to silver. The operation was
commissioned in 1998 and produced 3.1 million ounces of contained metal in doré
during 2005 (2.9 million ounces of silver and 199 thousand ounces of gold).
The Victoria Vein system has a minimum designed mining width of 0.8 metres, a
maximum width of 15 metres and averages 2.13 metres in thickness. As with Arcata,
each system is accessed via discrete inclines which are connected underground to a
depth of 275 metres below surface. A conventional trackless cut-and-fill breast or
overhand stoping mining method is utilised. The ore is loaded from ore passes in to 22t
trucks and hauled 4km and 5km depending on the system. Dilution at Ares is
comparatively low at 10% or less owing to the competent wall-rock.
Ore is delivered to an on-site cyanide leaching plant which feeds pregnant solution to
Merril Crowe plant to produce doré; recoveries being achieved are approximately 93%
for silver and 96% for gold. The plant is currently operating at 280ktpa of ore, however
the company plans to increase throughput to 325ktpa in 2007, little more than a de-
bottlenecking exercise. We expect production to decrease slightly from current levels as
silver grades fall from around 410g/t to below 250g/t over the long-term, Figure 21.
We estimate sustaining development at this mine will be approximately US$3.5 million

per annum while we expect operating costs to remain relatively constant around current
levels of US$68/t of mill feed. Further detail is shown in Figure 23.
Figure 22: Ares mine

23
Figure 23: Ares – forecast assumptions and economic analysis
300 350
Gross Sales Revenue
250 300
250
200
200
150
150
100
100
50 50
0 0
2003 2004 2005 2006 2007 2008 2009 2010
Equiv Gold Production (koz) - LHS Silver Gold
Total Cash Cost ($/oz Au - RHS

Mine closure year 2025 Smelting dore $/kg 6.11 Admin $/t 10 Discount Rate NPV (US$M)
Recovery gold % 96% Refining Au $/oz 0 Plant $/t 15 8% $ 267
Sale product % conc % 0% Freight & Ins $/kg dore 7 Mine $/t 28 10% $ 248
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cash costs $/oz Ag 1.78 1.99 2.41 4.12 4.42 4.42 4.42 4.42 4.42 4.42 4.42 4.42 4.42
Cash costs $/oz Au 96 99 126 215 256 256 256 256 256 256 256 256 256
Net sales $000's 123,067 128,419 105,537 56,150 44,546 44,545 44,545 44,545 44,545 44,545 44,545 44,545 44,545
EBITDA $000's 103,406 108,019 83,437 34,050 22,446 22,445 22,445 22,445 22,445 22,445 22,445 22,445 22,445
EBIT $000's 99,223 104,006 79,603 30,333 18,805 18,854 18,886 18,906 18,920 18,928 18,934 18,938 18,940
Net Profit $000's 65,908 69,114 52,754 20,023 12,413 12,445 12,466 12,480 12,489 12,495 12,498 12,501 12,502
Capex $000's 3,900 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Source: Canaccord Adams estimates for 2006-2018

24
Selene Mine
The Selene mine is 100% owned by the company and is located in Cotanuse District,
Figure 24: Selene Mine 650km from Lima and at an altitude of 4,600 metres above sea-level. Operations
commenced in November 2003.
The deposit is associated with a 5-6km geological structure interpreted as a collapsed

caldera and the concession area itself covers an area of 19,540 hectares. The regional
structure hosts the Explorador-Tumiri-Aycha vein system and these mineralised zones
are currently the focus of mining and development. The mining method at Selene is
similar to the other Peruvian underground operations, utilising standard cut-and-fill
overhand stoping. Current workings are at a depth of 350km below surface and haulage
Source: Company presentation distances from stope to plant are approximately 1.3km.
Mineralised veins are relatively thin; in the Explorador system, thicknesses range from
0.8-5.0 metres and average around 2.0 metres. However, the ore body benefits from a
relatively competent host rock, reducing the risk of excessive dilution and based on
historical mining, a dilution factor of 10% is a reasonable assumption.
The processing plant is similar to that at Arcarta, following a standard crushing,

screening, grinding and flotation route to produce a silver-gold bulk concentrate.
However, since October 2006 concentrate from Selene has been treated at Ares to
produce doré. As such, the company has been gaining access to more of the value chain
from its metal production and benefiting from a reduction in working capital by virtue of
the reduced metal in inventory.
The Selene mine and concentrator currently have capacity of 350ktpa, however the
company plans to expand the plant to 700ktpa in 2007 so as to be able to treat 350ktpa
of ore from the nearby Pallancata project due for production from 2007. The plant will
then be expanded a further 180ktpa to 880ktpa so as to accommodate an expansion of
the Selene mining operation from 350ktpa to 530ktpa. We estimate the total cost of the
plant expansion at US$10 million, half of which will be allocated to the development cost
of Pallancata.
We estimate sustaining development at the Selene mine will be approximately US$3.0

million per annum while we expect operating costs will fall 13% from US$44/t of mill
feed in the current configuration to US$38.6/t when fully developed in 2010. Further
detail is shown in Figure 25.
The Selene mine pays a 2% NSR royalty as a carried-interest royalty to its previous
owners but will benefit from the economies of scale through the plant when Pallancata
comes on stream from 2007.

25
Figure 25: Selene – forecast assumptions and economic analysis
7 6
Gross Sales Revenue
6 5
5
4
4
3
3
2
2
1 1
0 0
2003 2004 2005 2006 2007 2008 2009 2010
Silver Gold

Mine closure year 2025 Smelting dore $/kg 6.11 Admin $/t 5.6 Discount Rate NPV (US$M)
Sale product % conc % 0 Freight & Ins $/kg dore 7 Mine $/t 16 10% $ 128
Payable gold % 99.75% Total Op Cost $/t 38.6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cash costs $/oz Ag 2.83 3.08 2.71 3.48 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80
Cash costs $/oz Au 152 154 141 182 220 220 220 220 220 220 220 220 220
Net sales $000's 60,771 30,377 27,786 19,520 14,986 14,982 14,979 14,977 14,976 14,975 14,975 14,975 14,974
EBITDA $000's 44,729 22,457 20,838 12,572 8,038 8,034 8,031 8,029 8,028 8,027 8,027 8,027 8,026
EBIT $000's 39,829 16,472 15,023 7,742 3,849 4,261 4,529 4,703 4,816 4,889 4,937 4,968 4,989
Net Profit $000's 26,291 13,573 15,306 10,499 7,929 8,202 8,378 8,493 8,568 8,617 8,648 8,669 8,682
Capex $000's 8,000 8,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

26
Pallancata Project
In June 2006, Hochschild signed a joint venture agreement with International Minerals
Corporation (a TSX listed company) for 60% ownership of the Pallancata project – with
Hochschild as the operator. The deposit is located approximately 17km from the Selene
mine and is considered to be part of the same mineralised structure. Old colonial
workings are found in the concession area and current reserves of 643,267 tonnes at
263g/t silver and 1.09g/t gold are associated with a mineralised vein system stretching
over 2km along strike. Beyond the current resource, hosted by the “West Breccia”
structure, surface sampling programmes at more workings to the north have returned
promising results and constitute future exploration targets. The company intends to use
Pallancata ore to supplement feed to the Selene concentrator as the plant undergoes
expansion. The current mine plan envisages mining methods similar to the other
Peruvian operations; trackless cut-and-fill and overhand stoping. Mining widths will
range between 0.8-25 metres, averaging five metres. Three stopes are scheduled to
rotate in the production cycle and ore will be loaded on to 22t trucks and transported
directly to the primary crusher at Selene mine.
Initial construction permits were granted in August 2006 with first production scheduled to
commence in 2007. The total capital expenditure requirement will be US$10.5 million
being the JV share of the plant expansion at Selene plus approximately US$3.0 million per
annum for ongoing development. Costs for transporting ore from the mine to the plant at
Selene are estimated by us to be US$5/t of ore and this is included in the total estimated
operating cost of US$52/t of ore milled, which includes a management fee for the JV
operation of 10% of all generating costs to Hochschild Mining. The Selene operation should
also benefit from a processing margin on ore treated at the expanded Selene mill, which we
estimate will be US$11/t of ore above the cash cost of ore processing.
Figure 26: Pallancata development project
Other prospects
The company also holds rights to eight other targets in Peru, including the San Martin
prospect which lies between Arcata and Selene. Other prospects include La Colorada,
Tincos, Minaspata Azuca, Cerro Blanco, San Andrés, Frontera and Paraíso. There is also
further exploration potential at the companies, with a number of new vein systems
targeted for development.

27
Figure 27: Pallancata – Project assumptions and economic analysis

Mine closure year 2025 Smelting dore $/kg 6.11 Admin $/t 4.7 Discount Rate NPV (US$M)
Recovery silver % 0.91 Refining Ag $/oz 0.75 Gen services $/t 5 5% $ 141
Recovery gold % 0.87 Refining Au $/oz - Plant $/t 18 8% $ 113
Payable gold % 99.75% Total Op Cost $/t 51.7
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Silver production 000's oz 0 784 3,955 3,955 5,477 5,477 5,477 5,477 5,477 5,477 5,477 5,477 5,477
Cash costs $/oz Ag 0.00 12.07 5.62 5.62 4.05 4.05 4.05 4.05 4.05 4.05 4.05 4.05 4.05
Cash costs $/oz Au 0 604 293 294 234 234 234 234 234 234 234 234 234
Net sales $000's 0 11,313 52,565 47,862 56,513 56,512 56,511 56,510 56,510 56,510 56,510 56,510 56,510
Cash operating costs $000's 0 11,309 26,884 26,884 26,884 26,884 26,884 26,884 26,884 26,884 26,884 26,884 26,884
EBITDA $000's 0 4 25,681 20,978 29,629 29,628 29,627 29,626 29,626 29,626 29,626 29,626 29,626
EBIT $000's 0 -4,196 21,901 17,471 26,299 26,414 26,488 26,536 26,567 26,588 26,601 26,610 26,615
Net Profit $000's 0 -2,770 14,457 11,533 17,360 17,436 17,485 17,516 17,537 17,551 17,559 17,565 17,569
Capex $000's 10,500 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Project cash flow $000's -10,500 1,430 18,237 15,040 20,690 20,650 20,624 20,607 20,596 20,589 20,584 20,581 20,579

28
Infrastructure
Establishing and maintaining infrastructure at the Peruvian operations is challenging
owing to the sites’ remoteness, terrain and elevation (~5,000m). However, national grid
power supply is available and sufficient. Selene and Ares run from the grid and both
have standby generation. Arcata is also run from the grid but the operation can
generate only 33% of its required power from its stand by generators– the company is
considering additional generation capacity. In most cases, goods are transported to and
from mine site by a mixture of tarmac and good dirt roads from the nearest main city
and provincial capital, Arequipa. Arequipa is approximately 300km from Arcata, 285km
from Ares and 180km from Selene. The majority of goods (~80%) destined for Selene are
actually sourced from Lima, a distance of 650km.
The undeveloped Pallancatta Project has only basic infrastructure at this time. The
company has budgeted for installation of a new 12.5km transition line to run from
Selene at a cost of US$0.352 million. A new road is also planned at a cost of US$2 million
and this should improve access to Selene. It is expected that the workforce will be based
at Selene and transported to Pallancatta each day.
Fiscal Regime
Corporate tax is payable at a prima facie rate of 30% while royalties are charged on a
sliding scale at the pre-tax level: 1% of profit from US$0-60 million, 2% of profits
between US$60-120 million and 3% of profit thereafter.
Permitting and Environmental Regulation

In Peru, the environmental requirements for operating a mine are detailed in a
government decree and applications are made to the Ministry of Energy and Mines
(MEM). Mines operating prior to 1993 have to compile a “Programa de Adecuacion y
Manejo Ambiental” (PAMA). Mines commissioned post-1993 require an Environmental
Impact Statement (EIS). All the Peruvian mines are operating with the necessary
environmental permits and an application for the Pallancata Project is currently
undergoing the necessary authorisation process.
The company has certain obligations regarding its closed operations in Peru, namely the
Sipán open pit. The mine generates acid mine drainage and this is currently being
treated at liming plants. The cost of water treatment for Sipán is approximately US$1.0
million a year. Environmental liabilities for the Peruvian assets are included in a mine
closure plan prepared by an independent party and approved by the local authority.
All three mining operations have tailings dam facilities, but with varying degrees of
remaining capacity. The mines are all located in high seismic risk areas and so
engineering design and monitoring requirements are strict under guidelines issued by
the Ministry of Energy and Mines and details of the tailings dam are included in the EIA.
At Arcata, the mine is on its sixth tailings dam; Dam No.6 can be lifted a further five
metres giving a remaining life of approximately eight years. The Ares mine tailings
facilities are currently near maximum height and have a life of only three years
remaining.

29
MEXICO
The company has rights over two advanced projects in Mexico via joint venture
partnerships. Hochschild has purchased the Moris silver-gold mine and related
concessions from Exmin and other parties. The company also has an option to acquire a
70% interest in San Felipe polymetallic project in northern Mexico in addition to rights
over several exploration prospects and targets.
Figure 28: Mexico - advanced projects location map

San Felipe
Mina Moris
Mina Moris Project

The Moris mine is located in Chihuahua, along the Sierra Madre. The mine was
operated between 1996-1999 by Minera Manhatten S.A. de C.V. and produced 50,000
ounces of gold and 150,000 ounces of silver from 1.1 million tonnes of ore over this three
year period. The asset is now subject to a joint venture, agreed in June 2006, through
which Hochschild has exercised the option to purchase up to 70% in the project for
US$4.2 million. Hochschild is in the process of developing a business plan for the mine
and expects production to re-commence in July 2007, subject to mine plan approval.
The company also has an option to acquire (at a cost of US$4.8 million plus an
investment of US$0.85 million in Exmin) a 70% interest in 9,889 hectares of concessions
around the Moris Mine.
Moris is an epithermal deposit and mineralisation is predominately gold and silver with
Figure 29: Moris Resources minor lead and zinc sulphides hosted by conglomerates and volcanic breccias. Several
Kt Ag Au vein systems have been identified, but only the “El Creston” has been mined to date.
(g/t) (g/t) Vein thicknesses are up to approximately 10 metres – the average mining width for El
Measured 2,951 4 1.32
Indicated 404 3.7 1.24
Creston was 13 metres. Manhatten Minerals calculated a life of mine reserve of 4.0
Total 3,354 4.0 1.3 million tonnes at 1.9g/t gold and 8.75 g/t silver then following closure in 1999, the
Source: Company data company stated resources of 3.1 million tonnes at 1.9g/t and 6.6 g/t silver. Latest
attributable resource estimates updated by Hochschild are shown in Figure 29.
Mining is by open pit methods; the El Creston ore body, previously mined by Manhattan
was extracted through conventional blast, shovel and haulage techniques. The current
mine plan involves continuation of open pit mining with 5.0 metre benches, strip ratio
1:3.6 (O:W) and haulage utilising 33 tonne trucks. The mine currently has a capacity of
just over one million tonnes per year of ore.

30
The ore will be hauled approximately 2km to the current processing facilities, which
currently has a capacity of 1,095ktpa. Previously ore was crushed, agglomerated and
then heap leached using cyanide solution. From solution, the gold and silver was
recovered through a carbon adsorption, electrowinning and smelting circuit to produce
doré.

31
Figure 30: Mina Moris – Project assumptions and economic analysis

Sale product % conc % 0% Freight & Ins $/kg dore 7 Mine $/t 0 10% $ 73
Concentrate grade oz/t 400 Payable silver % 100% Geology $/t 0 12% $ 66
Payable gold % 100% Total Op Cost $/t 7
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Annual throughput 000's t 0 400 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700
Cash costs $/oz Ag 0.00 11.79 5.56 4.32 4.92 4.92 4.92 4.92 4.92 4.92 4.92 4.92 4.92
Cash costs $/oz Au 0.00 589 290 226 285 285 285 285 285 285 285 285 285
Net sales $000's 0 6,799 49,868 45,581 34,969 34,960 34,966 34,970 34,961 34,954 34,950 34,948 34,946
EBITDA $000's 0 399 25,568 26,681 16,069 16,060 16,066 16,070 16,061 16,054 16,050 16,048 16,046
EBIT $000's 0 -3,801 22,838 24,031 13,472 14,372 13,744 13,336 14,283 14,899 15,299 15,560 15,729
Net Profit $000's 0 -2,509 15,075 15,863 8,893 9,487 9,072 8,803 9,428 9,835 10,099 10,271 10,383
Capex $000's 12,000 0 0 5,000 0 0 7,000 0 0 0 0 0 0

32
San Felipe Project

The San Felipe concession is a small project covering an area of 544 hectares located in
Figure 31: San Felipe Resources northern Sonara, Mexico. The property is currently owned by the Mexican company
Kt Ag Au Grupo Serrana S.A de C.V, but Hochschild has an option to acquire 70% of the full
(g/t) (g/t) mining rights and ownership. The company has paid US$0.2 million with an obligation
Measured 5,160 182 3.60
to invest US$6.5 million over three years. Additionally, the company plans to invest
Indicated 1,938 310 3.55
Total 7,098 217 3.59 US$10 million in Grupo Serrana and US$33.3 million in a Newco for the 70% ownership.
Source: Company presentation We expect the mine to be in production by 2009; the current capacity is 730ktpa but that
is expected to increase to 1,250ktpa. Hochschild will invest approximately US$33 million
for the development, with any excess being equally divided between parties.
The property was previously exploited by Grupo Serrana and between 1974-1991 a
100tpd mill processed around 210,000 tonnes of ore. The deposit is a polymetallic skarn
and mineralisation is associated with the contact between volcanic and metamorphic
rocks. Swedish mining group Boliden carried out exploration in the area in 1997,
defining an attributable resource of 4.5Mt at 69.7 g/t silver a metal content of 6.5% zinc,
12.7% lead and 0.4% copper. Hochschild is currently engaged in verification drilling on
the property with a 10,000 metre program in operation to define an indicated and
measured resource. The company hopes to start an engineering study by early in 2007,
meanwhile exploration at other identified potential targets will continue.
Infrastructure
Having been an operating mine until relatively recently, Moris mine has adequate
infrastructure in place. There is enough power generation capacity at the minesite to be
self sufficient and there is a system in place for re-cycling industrial water supply. Raw
materials are transported to the mine via road from Chihuahua, 260km away and doré is
exported from the minesite to the airport in Chihuahua.
Fiscal Regime
Corporate tax is payable at a prima facie rate of 29% and there are no mineral royalties.
We have assumed straight line depreciation over 10 years.

The environmental requirements in Mexico are relatively standard; an EIA has to be
submitted for approval prior to commissioning. Although in operation until 1999, the
permit for the Moris mine has now expired and an EIA will have to be re-applied prior to
production. Permitting for the San Felipe currently only covers exploration and drilling;
an EIA is yet to be submitted.

33
Figure 32: San Felipe – Project assumptions and economic analysis

Mining Operating Costs Valuation
Mine closure Yr 2025 Pb conc Zn conc Cu conc Admin $/t 0.00 Discount Rate NPV (US$M)
Grades Recov % Transport $/t conc 70 70 70 Plant $/t 0.00 5% $ 270
Zinc (%) 8% 88% Conc grade % 0.7 60% 21% Mine $/t 0.00 8% $ 203
Lead (%) 2% 88% %Payable % 0.95 85% 99% Geology $/t 0.00 10% $ 169
Copper (%) 0% 65% Deduction % 0.04 2% 1% Total $/t 25.00 12% $ 142
Silver (g/t,%) 70 88% Ag Payable % 0.95 0 0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Annual throughput 000's t 0 0 0 650 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
Gold equiv production 000's oz 0 0 0 163 300 300 300 300 300 300 300 300 300
Zinc production 000's t 0 0 0 35.53 65.60 65.60 65.60 65.60 65.60 65.60 65.60 65.60 65.60
Lead production 000's t 0 0 0 10.37 19.15 19.15 19.15 19.15 19.15 19.15 19.15 19.15 19.15
Copper production 000's t 0 0 0 0.83 1.53 1.53 1.53 1.53 1.53 1.53 1.53 1.53 1.53
Cash costs $/oz Ag 0 0 0 4.02 4.32 4.81 4.81 4.81 4.81 4.81 4.81 4.81 4.81
Net sales $000's 0 0 0 80,071 111,368 96,232 96,232 96,232 96,232 96,232 96,232 96,232 96,232
Cash operating costs $000's 0 0 0 16,250 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
EBITDA $000's 0 0 0 63,821 81,368 66,232 66,232 66,232 66,232 66,232 66,232 66,232 66,232
EBIT $000's 0 0 0 43,321 63,368 51,232 53,632 55,552 57,088 58,317 59,300 60,086 60,715
Net Profit $000's 0 0 0 43,321 41,189 33,301 34,861 36,109 37,107 37,906 38,545 39,056 39,465
Capex $000's 0 8,000 88,000 13,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Project cash flow $000's 0 -8,000 -88,000 50,821 56,189 45,301 44,461 43,789 43,251 42,821 42,477 42,202 41,981

34
ARGENTINA
Hochschild has a presence in Argentina through Compania Minera Santa Cruz S.A., a
joint venture company in which the Group holds a 51% stake. The remaining 49% is
owned by Minera Andes S.A. (MASA) which is controlled by Minera Andes Inc., a TSX
listed company. The joint venture company holds a 40,499 hectare concession area in
Patagonia, which includes the San José Project. The company also holds rights to four
other exploration prospects in the country, including Sierra de las Minas, Ambargasta,
Quevar and Puesto Chacon.
Figure 33: Argentina - San José location map
San José
San José Project

The San José silver-gold project is located in the Deseado Massif of the Santa Cruz
Province, Patagonia. Geologically, the deposit is very similar to the epithermal deposits
Figure 34: San José Reserves in Peru, although the volcanic host rock is slightly older. The deposit currently consists
Kt Ag Au Ag eq. of two defined vein systems, Huevos Verdes was discovered by MASA in 1997 and Frea
(g/t) (g/t) Moz discovered in 2004 under Hochschild Mining’s management. Most recently, the
Proved 103 602 8 2 company has developed shaft inclines into both vein systems to better delineate the
Prob 539 383 8 -
Total 642 418 8 10
resources. Current attributable reserves for the San José Project are estimated at 642kt
Meas. 93 675 9.45 2 containing 9.04 million ounces of silver and 168,000 ounces, Figure 34.
Ind 486 434 8.83 8
Total 579 473 9.3 10 The current mine plan involves initial development of a 265ktpa of ore operation,
Source: Company presentation ramping up to 500ktpa after two years producing approximately 118,000 ounces of
silver and 70,000 ounces of gold per year. Mining will be by underground cut and fill
breast stoping methods using timber and steel bolt supports where necessary. Five
stopes will rotate the production cycle and ore will be loaded on to 28t haulage trucks.
Haulage distances form Huevos Verdes and Frea to the plant will be approximately
18km. Metallurgical testwork on the ore has already been carried out; the plant will
incorporate conventional crushing, grinding, flotation and concentration methods. Gold
and silver will be recovered using the Gekco process and then refined to produce doré.
A feasibility study has been completed and the company expects first production to
commence in July 2007 - construction is already in progress. Total capital expenditure
required for the project is approximately US$123 million, of which US$17.8 million has
already been spent and an additional US$52.7 million is committed, plus US$6.6 million
for contingencies.

35
Figure 35: San José – Project assumptions and economic analysis

Recovery silver % 0.92 Refining Ag $/oz 0.75 Gen services $/t 0 5% $ 297
Recovery gold % 0.88 Refining Au $/oz - Plant $/t 0 8% $ 245
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Silver production 000's oz 0 2,675 7,690 7,690 7,690 7,690 7,690 7,690 7,690 7,690 7,690 7,690 7,690
Cash costs $/oz Ag 0.00 9.22 4.93 4.43 4.21 4.21 4.21 4.21 4.21 4.21 4.21 4.21 4.21
Cash costs $/oz Au 0.00 461 257 231 244 244 244 244 244 244 244 244 244
Net sales $000's 0 44,651 120,311 109,721 97,170 97,170 97,170 97,170 97,170 97,170 97,170 97,170 97,170
EBITDA $000's 0 14,651 80,311 74,721 62,170 62,170 62,170 62,170 62,170 62,170 62,170 62,170 62,170
EBIT $000's 0 9,451 70,631 63,709 51,860 52,491 53,059 53,570 54,030 54,444 54,817 55,152 55,454
Net Profit $000's 0 9,451 70,631 63,709 33,709 34,119 34,488 34,820 35,119 35,389 35,631 35,849 36,045
Capex $000's 23,000 58,000 42,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000

36
Infrastructure
The San José joint venture proposes to install a diesel generator at the plant in order to
supply power to the entire operation and the company is permitted to draw local potable
water for industrial use of up to 1,560m3 a day. The nearest town is Perito Moreno,
35km away, however Comodoro Rivadavia (230km) has the nearest port and airport.
Fiscal Regime
The corporate tax rate in Argentina is 35%; we have assumed a net smelter royalty of
2.5% for Argentina.

Permitting in Argentina is controlled through the regional authorities, which for the San
José project is the General Mining Department DPM, Santa Cruz. At each stage of
exploration, development and production a separate Environmental Impact Assessment
(EIA) is required. The EIA was approved by the Argentine authorities in March 2006.
Under current plans, the majority of tailings waste (85%) is benign and will be disposed
of in a natural basin to the north east of the plant with total capacity of approximately
1.71 million tonnes (the depth is up to 10 metres). The remaining waste (~15%)
containing cyanide will be disposed of in a plastic-lined tailings dam. All tailings will be
stored under water to minimise dust.

37
MARKET POSITION
We have assessed the company against market peers on varying parameters in order to
support our valuation range - firstly to primary silver mining companies and then to gold
producers. Most of the companies we have benchmarked against are listed in North
America and hold assets in the Americas. However, we have also included Peter
Hambro Mining in our analysis as a London-listed gold producer, with substantial
production growth potential.
Production and costs

Hochschild Mining is the world’s fourth largest primary silver producer on an
attributable ounce basis, but the fifteenth largest including those companies that produce
silver as a by-product (Figure 36). Yet, although Hochschild is a primary silver producer,
it also contributes a significant amount of gold as a co-product. Of the primary
producers of silver and on an equivalent ounces basis Hochschild was the biggest
producer during 2005 (Figure 37).
Figure 36: Top 20 Silver producing companies – 2005 (Non-equivalent Moz)
60
50
Si l v e r Pr o d ucti o n (M o z )
40
5 Year Target
30
20
KGHM Polska Miedz
Industrias Peñoles
Grupo Mexico
Coeur d'Alene
Pan American
Buenaventura
10
Falconbridge
Barrick Gold
BHP Billiton
Kazakhmys
Hochschild
Polymetal
Newmont
Rio Tinto
Coldeco
Xstrata
Boliden
Volcan
Zinifex
Gldcrp
0
Pr i m a r y Pr o d uce r s B y - p r o d uct p r o d uce r s
Source: GFMS
We have not included Silver Wheaton in the “Top 20 Producers” (Figure 36) or our peer
group analysis. It is unique in that it is the only mining company with 100% of its
revenue from the sale of silver via purchase contracts. It has agreements with three
separate mines and expects to sell approximately 15Moz of silver in 2006 by purchasing
all silver production from the Goldcorp mines in Mexico, Zinkgruvan mine in Sweden
and a proportion of the silver production from Glencore’s Yauliyacu mine in Peru. We
have also excluded Apex Silver Mines – this company is not currently producing, but is
developing a large silver-lead-zinc mine in Bolivia, with reserves of approximately 470
million ounces of silver. We also note that Coeur d’Alene produced 13.7 million ounces
of silver during 2005, of which approximately 1.0 million ounces were via new purchase
agreements with Perilya and CBH Resources for silver at Broken Hill and Endeavor Zn-
Pb-Ag mines in Australia.

38
Figure 37: Silver producers

Company 2005 Production (Moz) 2006E Total Cash Cost(1) EV/Prod oz
Ag Equiv % Silver Ag Equiv Ag/oz Equiv 2006E
Hochschild 24.4 43% 22.7 $2.47 95
Pan American Silver (2) 23.6 53% 24.0 $2.09 74
Coeur d'Alene Mines3 21.9 63% 22.0 $3.03 54
Hecla Mining3 21.1 28% 22.0 $1.98 36
Average $2.39 65
1) Estimates based on recent quarter cash costs
2) Ag equivalent calculated. 3) First Call, Datastream
Source: Canaccord Adams estimates, company reports.
In terms of cash-cost per ounce of silver equivalent, we believe Hochschild compares

favorably to the industry average, particularly considering the mining method employed.
GFMS calculates that the weighted average total cash cost in 2005 was US$3.28/oz
silver, some 37% higher than the Hochschild average cash cost of US$2.39/oz silver for
the same period, which places the company in the lowest quartile of the cost curve for
the industry. We estimate total cash costs for HOC in 2006 will be US$2.47/oz silver
equivalent.
Currently, the company is producing more equivalent ounces of gold than silver, with an
estimated 46% of total revenue being from gold in 2006. As new projects come into
production, the company should become increasingly more driven by silver revenues.
Figure 38: Gold producers

Company 2005 Production 2006E Total Cash Cost EV/Prod oz
Au Equiv % Silver Au Equiv Au/oz equiv 2006E
Barrick Gold 5.5 na 8.8 $284 3,151
Buenaventura (1) 2.3 10% 2.3 n.a. 1,558
Goldcorp 2.4 5% 1.7 -$8 12,709
Hochschild 0.4 43% 0.4 $142 5,671
Kinross 1.7 3% 1.5 $310 3,078
Meridian 0.4 23% 0.3 -$46 8,783
Yamana Gold 0.1 0% 0.3 $301 13,671
Peter Hambro 0.3 0% 0.3 $146 7,608
Average $161 7,029
1) Canaccord Adams forecast cash costs
Source: Canaccord Adams estimates, company reports
Given the style of the company’s deposits, in our view comparing the company to its
peers on a market capitalisation per/ounce of reserve basis is an inappropriate
benchmark. However, we have made a comparison based on 2006 estimated production
of equivalent ounces of gold, Figure 38. On a market value per annual equivalent ounce
of silver production, our peer group analysis suggests values in the range of US$36-
95/oz.
Financial comparisons
Our financial comparables as at 15 January 2007 indicate that gold and silver companies
in the peer group are currently trading on an average of 15 times and 11 times expected
2007 cash flow respectively.

39
Our PE comparisons again suggest higher multiples for gold producers than primary
silver producers, although the range is narrower. Silver producers are currently trading
at an average of 22 times 2007 estimated earnings, compared to 25 times earnings for
gold producers, excluding Buenventura. Figure 40 also indicates that although Peter
Hambro Mining is currently trading at much higher PE ratios, on our estimates, when
taking into account growth potential over the next four years of production, their values
implied by PEG ratios look relatively low.
To account for the variance in average cash cost between companies, in addition to
comparing an enterprise value per ounce of production, we have also calculated the
market value as a multiple of operating profit (EV/EBITDA) for each of our peer groups.

40
Figure 39: Financial comparisons - Silver producers

Company TKR Price Mkt Cap EV EPS (US$) CFPS (US$) P/E P/CFPS EV/EBITDA
(US$M) (US$M) 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E
Pan American Silver TSX:PAA CAD 29.02 1,886 1,814 0.77 1.66 1.87 1.05 2.33 2.74 32x 15x 13x 24x 11x 9x 49x 17x 13x
Coeur d'Alene Mines(1) NYSE:CDE USD 4.45 1,237 991 0.12 0.29 0.35 0.13 0.43 0.46 37x 15x 13x 34x 10x 10x 15x 9x 7x
Hecla Mining(1) NYSE:HL USD 6.80 813 731 -0.03 0.24 0.52 -0.01 0.58 0.87 NA 28x 13x NA 12x 8x 31x 9x 6x
Hochschild HOC.L GBP 3.92 2,361 1,934 0.24 0.28 0.35 0.27 0.37 0.49 32x 28x 22x 15x 11x 8x 13x 13x 8x
Average 34x 22x 15x 24x 11x 9x 27x 12x 9x
1) Financial forecasts are based on First Call consensus estimates

Source: Canaccord Adams estimates, 1. Datastream. Pricing data as at January 16th, 2007.
Figure 40: Financial comparisons - Gold producers

Company TKR Price Mkt Cap EV EPS (US$) CFPS (US$) P/E P/CFPS EV/EBITDA
(US$M) (US$M) 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E
Barrick Gold NYSE:ABX USD 29.25 25,243 24,840 1.79 1.70 1.52 2.78 2.58 2.31 16x 17x 19x 11x 11x 13x 13x 9x 7x
Buenaventura (1) NYSE:BVN USD 25.78 3,543 3,374 2.49 3.38 3.24 0.00 3.44 3.68 10x 8x 8x NA 7x 7x 5x 10x 10x
Goldcorp TSX:G CAD 30.90 18,554 18,736 0.90 0.97 1.21 1.74 1.63 1.93 29x 27x 22x 15x 16x 14x 24x 18x 17x
Hochschild HOC.L GBP 3.92 2,361 1,934 0.24 0.28 0.35 0.27 0.37 0.49 32x 28x 22x 15x 11x 8x 13x 13x 8x
Kinross TSX:K CAD 14.17 4,390 4,326 0.41 0.54 0.73 0.77 1.09 1.45 29x 22x 17x 16x 11x 8x 22x 13x 11x
Meridian NYSE:MDG USD 27.00 2,729 2,567 0.54 0.99 1.06 1.01 1.60 1.42 50x 27x 26x 27x 17x 19x 23x 16x 15x
Peter Hambro AIM:POG GBP 9.62 1,530 1,555 0.45 0.49 0.55 0.43 0.60 0.58 42x 38x 34x 44x 31x 33x 13x 13x 8x
Yamana Gold TSX:YRI CAD 15.01 4,375 4,243 0.14 1.14 1.50 0.22 1.34 1.75 105x 11x 9x 57x 10x 7x 182x 50x 8x
Average 39x 26x 20x 26x 14x 14x 37x 18x 11x
1) Financial forecasts are based on First Call consensus estimates

Source: Canaccord Adams estimates, 1. Datastream. Pricing data as at January 16th, 2007.

41
SILVER MARKET OVERVIEW

The silver price has more than doubled over the last two years, from US$6.13/oz in
Figure 44: 10yr Ag price ($/oz) September 2004 reaching a high of US$14.94/oz in May 2006, Figure 44. The Silver
16 Institute, World Silver Survey published by GFMS, suggests this has been driven on the
14
demand side, partly by slight growth in fabrication use but predominantly due to an
12
10
increase in investment demand. GFMS reported mine supply has increased steadily over
8 this same time period, with an 8% increase in output from 596.5 million ounces in 2002
6
to 641.6 million ounces in 2005. Over recent years this has been accompanied by a hike
4
2
in primary silver production over by-product production from base metals or gold.
0
Supply
Source: Datastream
According to the World Silver Study, total global silver mine production in 2005 was
641.6 million ounces, with Peru leading output at 102.6 million ounces or 17% of world
production; Mexico was in close second, producing 92.3 million ounces. GFMS believes
the supply fundamentals are expected to support higher prices over the near-term and
the strong increase in output seen over the last few years is likely to slow into 2007. The
main cause has been lapses in production from established mines which more than
offset the development of near-term projects. Most notably, year-on year production
losses were from Billiton’s Cannington, Barrick’s Eskay Creek and Polymetal’s Lunnoye
contributing to the downturn in output in 2006. It is also worth noting that the world’s
largest silver mine, Cannington, which contributed 48.8Moz of silver to the global market
in 2005, has reserves of 292 million ounces suggesting a remaining mine life of less than
six years.
Looking further forward from 2007-2008 a series of new projects, particularly in South
America, are expected to add production. Most noteworthy are San Bartolome in
Bolivia (6-8Moz per annum), Dolores in Mexico (5.8 million ounces per annum) and the
large San Cristobal project in Bolivia, owned by Apex Silver and expected to produce
over 22 million ounces of silver per year from the second half of 2007.
Figure 45: World silver production

World silver production by country - 2005 World silver production, 1996-2005
700
Peru
Others
Kazakhstan 17%
12% 650
4%
Mexico
Canada
14% 600
5%
United States 550

6%
Moz
500
Poland
6% 450
Australia
Russia 12%
7% China 400
Chile
10%
7%
350
300
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: GFMS

42
Demand
The World Silver Survey indicates that over the last two years the silver price has
become increasingly influenced by investment demand from institutions. There has been
substantial growth in activity in silver futures and in over-the-counter market
instruments. GFMS suggests positive investor sentiment towards silver has been driven
by higher gold prices, higher base metals prices and, more recently, by rallying ahead of
the launch of the first silver Exchange Traded Fund (ETF).
Aside from investor interest, industrial demand has also experienced strong growth.
Consumption of silver in fabrication (namely industrial applications, photography,
jewellery, coins and medals) shows little price elasticity in most end-uses –the jewellery
and silverware market, for example, remains robust and did not collapse in response to
higher prices at the beginning of 2006. Looking forward, most industrial uses of silver
are largely insensitive to price, but sustained long-term prices of over US$10 could begin
to stimulate substitution. The use of silver in photography has declined substantially
since the growth of digital imaging; since a peak level of 228 million ounces in 1999,
demand has declined by 28% to 63.1 million ounces in 2005.
Figure 46: World silver demand
1000
900
800
700
Mi l l i on ounces
600
500
400
300
200
100
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Industrial Photography Jewelry
Coins and Medals De-hedging Investment
Source: GFMS
GFMS reports that over recent years, demand from fabrication has continued to over
stretch mine supply. A supply deficit has been accumulating over the last 20 years and,
according to World Silver Survey figures, fabrication demand currently exceeds mine
production by over 200 million ounces a year. This gap is typically filled by recycling
and above-ground stocks, which have steadily declined since 1996 at a rate of around
7% per annum. This tightening market seems to have contributed to the increase in
price.

43
Damien Hackett
HOCHSCHILD MINING PLC HOC.L Source: Company data, Canaccord Capital estimates 44 207 050 6641
SWOT Analysis Segmental Analysis
Strengths Weaknesses 2007 Sales Breakdown 2007 EBIT Breakdown
Excellence in all technical Relatively short-life proven
aspects of operation from reserve compared to most other
exploration to tailings mining investments.
management. Moris San Filipe Arcata San Filipe
San Jose San Jose Moris Arcata
High cost of on-going exploration 2% 0% Pall'a 2% 0%
17% 22% 5% 20%
Responsibility of a professional, Pall'a 2%
required for reserve replacement.
experienced and trustworthy 4% Selene Selene
management. Limited free float at 25% may 11% 10%
leave the stock without corporate
Strong organic growth at 25%pa interest and take-over premium.
plus expansion opportunities via Ares
acquisition. Ares
Time required for market to 44%
61%
accept perfect alignment of
Profitability with target cash costs interest between majority and
of $2.5/oz Ag eq and a capital minority shareholders.
cost of $1.0/oz
Opportunities Threats Investment Case

The 25+ prospects across four Latin American political risk albeit Hochschild Mining offers at least 25%pa production growth over the next three years
countries in Latin America. limited to the posturing of a small from high quality assets in a sector with limited appropriate alternatives. The
minority. company is one of the world’s lowest cash-cost producers of precious metals and
Core competence in narrow vein does not hedge the price of its commodities. Nor does it “high- grade” its reserve in
underground mining in an industry Potential loss of successful the early years of mine development.
with an aversion to deep, management culture with regional
underground mining. diversification and expansion. The company has 40 years of experience in mining precious metals from narrow-vein
underground workings while its expansion plans will see it move from 100% of
Strong political connections production in Peru to approximately 50%. Expansion will also see some
across Latin America to assist diversification away from precious metals.
deal flow.
We estimate operations can generate approximately $100m pa of net cash flow after
Repeat of the Latam model in financing and tax from a gold price of $550/oz and silver at $9.50/oz and we expect
other geological environments the company to return 30% of after tax income to shareholders from day 1.
world wide.
The stock joined the FTSE 250 from January 1 2007.
Source: Canaccord Adams estimates company reports.
23 January 2007 Hochschild Mining Plc

44
HOCHSCHILD MINING PLC HOC.L

Profit & Loss Balance Sheet
In USD millions unless otherwise stated In USD millions unless otherwise stated
Year to December 2003 2004 2005 2006E 2007E 2008E 2009E 2010E As at 31-Dec 2003 2004 2005 2006E 2007E 2008E 2009E 2010E
Sales Revenue 93.8 159.1 151.3 253.9 301.7 461.3 507.7 507.1 Cash & equivalents 4.2 5.6 2.5 518.0 696.3 829.1 1,019.6 1,241.6
Other income 5.5 7.4 29.4 0.0 0.0 0.0 0.0 0.0 Other current assets 59.5 78.0 118.5 128.2 138.0 179.5 220.7 229.9
Gross costs 60.5 117.0 117.2 121.3 154.9 216.1 233.6 275.0 Property, plant & equip. 84.1 55.5 59.4 88.2 113.7 178.8 151.9 118.2
EBITDA 38.8 49.5 63.5 132.6 146.8 245.2 274.1 232.2 Exploration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deprec'n & Amort'n 14.1 23.0 16.6 19.3 34.0 37.2 57.3 52.1 Other assets 17.2 56.3 51.1 51.1 51.1 51.1 51.1 51.1
EBIT 24.7 26.5 46.9 113.3 112.8 208.0 216.8 180.0 Total assets 165.1 195.5 231.5 785.5 999.2 1,238.6 1,443.3 1,640.8
Net Interest cost 4.1 5.1 6.5 5.9 -15.9 -15.0 -14.5 -18.4
Profit Before Tax 20.6 21.4 40.4 107.4 128.6 222.9 231.3 198.4 Current creditors 67.7 85.2 109.3 85.8 78.8 139.5 163.4 183.9
Income Tax 9.1 10.5 11.0 34.4 41.2 71.3 74.0 63.5 Non-current creditors 38.4 66.7 34.3 39.8 198.4 257.5 312.2 383.2
Minorities -2.1 -4.3 -3.9 0.0 2.8 44.9 53.6 38.5 Other liabilities 56.3 44.2 41.1 41.1 41.1 41.1 41.1 41.1
Minorities 1.8 -2.5 -3.2 -3.2 -3.2 -3.2 -3.2 -3.2
Adjusted net income 13.7 15.2 33.2 73.0 84.7 106.7 103.7 96.4
Adjusted EPS (US$) 0.04 0.05 0.15 0.24 0.28 0.35 0.34 0.31 Net assets 0.9 1.9 50.1 622.1 684.2 803.8 929.9 1,035.9
Dividend (US$) na na na na 0.08 0.10 0.10 0.09 Shareholders' equity 0.9 1.9 50.1 622.1 684.2 803.8 929.9 1,035.9
Adjusted net income 13.7 15.2 33.2 73.0 84.7 106.7 103.7 96.4 Gearing (nd/nd+e) % 98.8 98.2 66.3 -233.2 -209.6 -147.4 -176.1 -233.4
Exceptional profit after tax -1.4 -0.7 12.2 0.0 0.0 0.0 0.0 0.0 Working capital 23.3 38.5 16.5 26.3 33.8 44.2 54.5 56.8
Reported profit after tax 12.3 14.5 45.4 73.0 84.7 106.7 103.7 96.4 Net debt 72.5 104.2 98.4 -435.4 -463.2 -478.9 -593.1 -725.2
Source: Company data, Canaccord Capital estimates Source: Company data, Canaccord Capital estimates
Cash Flow Ratios

In USD millions unless otherwise stated In percentage points unless otherwise stated
Year to December 2003 2004 2005 2006E 2007E 2008E 2009E 2010E Year to December 2003 2004 2005 2006E 2007E 2008E 2009E 2010E
Cashflow from operations 32.1 47.9 66.7 149.7 164.4 232.9 261.7 251.0 Profitability
Dividend from JV & Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Return on equity 1578.8 784.9 127.6 21.7 13.0 14.3 12.0 9.8
Exploration expensed -11.8 -23.1 -28.1 -26.5 -26.5 -26.5 -26.5 -26.5 Return on assets 7.0 6.0 13.7 14.4 9.8 13.5 11.7 8.7
Maintenance capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Return on invested capital nmf 8.3 26.1 62.6 54.3 67.6 59.6 54.8
Net interest -3.1 -5.2 -8.1 -5.9 15.9 15.0 14.5 18.4 Return on capital employed nmf 10.2 23.1 17.8 9.8 12.6 10.9 8.0
Tax paid -9.2 -14.3 -13.9 -34.4 -41.2 -71.3 -74.0 -63.5
Other operating c-flow -1.1 -1.8 -5.2 0.0 0.0 0.0 0.0 0.0 EBITDA margin 41.3 31.1 42.0 52.2 48.6 53.2 54.0 45.8
Operating cashflow 6.9 3.6 11.4 83.0 112.7 150.1 175.7 179.4 EBIT margin 26.3 16.7 31.0 44.6 37.4 45.1 42.7 35.5
Net profit margin 14.6 9.5 21.9 28.8 28.1 23.1 20.4 19.0
Expansion capex -18.8 -12.4 -18.9 -48.1 -59.5 -102.3 -30.4 -18.4 Effective tax rate 44.2 49.1 27.3 32.0 32.0 32.0 32.0 32.0
Net acquisitions -11.0 -1.2 12.6 0.0 0.0 0.0 0.0 0.0
Exploration capitalised 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other investing cash flow 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 Leverage
Investment c-flow -29.9 -13.6 -6.1 -48.1 -59.5 -102.3 -30.4 -18.4 Net Interest Cover (times) 9.5 9.7 9.7 22.5 -9.3 -16.4 -18.9 -12.6
Current Ratio (times) 0.9 1.0 1.1 7.5 10.6 7.2 7.6 8.0
Net capital raisings -2.2 -1.0 0.6 499.0 0.0 0.0 0.0 0.0
Net borrowings 28.6 33.1 -9.0 -18.3 150.5 117.1 76.2 90.0 Other
Dividends paid -4.2 -20.7 -0.1 0.0 -25.4 -32.0 -31.1 -28.9 Shares on issue average 307.35 307.35 307.35 307.35 307.35 307.35 307.35 307.35
Other financing cash flow 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Free Cashflow ($ / share) 0.02 0.01 0.04 0.27 0.37 0.49 0.57 0.58
Financing c-flow 22.3 11.4 -8.5 480.7 125.1 85.1 45.1 61.0 Cashflow - capex ($ / share) -0.04 -0.03 -0.02 0.11 0.17 0.16 0.47 0.52
Net Cash Flow -0.8 1.4 -3.2 515.5 178.3 132.8 190.4 222.0 Payout ratio na na na na na 30.0% 30.0% 30.0%
Source: Company data, Canaccord Capital estimates Source: Company data, Canaccord Capital estimates

45
Hochschild Mining Plc Sales EBIT EBIT Margin

Key Products and Markets 2007E 2007E 2007E
Arcata Arcata is located in the Arequipa region of Peru, 800km from Lima, at an altitude of 4,400 65 34 52.0%
metres and is 100% owned by Hochschild. The mine commenced production in 1964 and
production has averaged 4.3 million ounces of silver and 6.5 thousand ounces of gold per
Gross Sales Revenue
year since 2003.
Three vein systems (The Mariana, Ramal 2 and Macarena) are currently being mined by
conventional, trackless cut-and-fill breast or overhand stoping methods with timber
supports. The veins have a minimum mining width of 0.8 metres and maximum of 3.0
metres. Each orebody has been accessed via discrete inclines and ramps to a depth of
500 metres. Ore is loaded from passes in to 22t haulage trucks – distances to the plant
are between 4.5km and 5km depending on the system.
The processing facilities at Arcata have a capacity of 350ktpa of ore following an
expansion from 280ktpa in 1980. Two further expansions are planned, with throughput
expected by the company to increase to 420ktpa in January 2007 for a minimum of
capital, perhaps as little as US$200,000 and then expand by a further 25% to
Silver Gold
approximately 530ktpa in 2009 for a cost of US$10 million. Processing consists of a
conventional crushing, grinding and flotation circuit which produces a silver concentrate,
containing approximately 400oz/t of silver and gold in concentrate. Processing recoveries
are relatively low compared to the other two operations (~88.5% Ag and 83.5% Au) due to
arsenic in the ore. We estimate ongoing sustaining development of approximately US$6.0
million per annum but full operating costs are expected to fall from US$55/t at current 12 5
throughput of 350ktpa to US$48/t when fully developed at 530ktpa.
10 4
8
3
6
2
4
2 1
0 0
2003 2004 2005 2006 2007 2008 2009 2010
Equiv Silver Production (koz) - LHS


46
Hochschild Mining Plc Sales EBIT EBIT Margin

Selene The Selene mine is 100% owned by the company and is located in Cotanuse District, 33 16 49.3%
650km from Lima and at an altitude of 4,600 metres above sea-level. Operations
commenced in November 2003.
Gross Sales Revenue
The deposit is associated with a 5-6km geological structure interpreted as a collapsed
caldera and the concession area itself covers an area of 19,540 hectares. The regional
structure hosts the Explorador-Tumiri-Aycha vein system and these mineralised zones are
currently the focus of mining and development. The mining method at Selene is similar to
the other Peruvian underground operations, utilising standard cut-and-fill overhand
stoping. Current workings are at a depth of 350km below surface and haulage distances
from stope to plant are approximately 1.3km.
Mineralized veins are relatively thin; in the Explorador system, thicknesses range from 0.8-
5.0 metres and average around 2.0 metres. However, the ore body benefits from a
relatively competent host rock, reducing the risk of excessive dilution and based on
historical mining, a dilution factor of 10% is a reasonable assumption. Silver Gold
The processing plant is similar to that at Arcarta, following a standard crushing, screening,
grinding and flotation route to produce a silver-gold bulk concentrate. Since October 2006
concentrate from Selene has been treated at Ares to produce doré. As such the company
has gained access to more of the value chain from its metal production but is benefiting
from a reduction in working capital by virtue of the reduced metal in inventory. 7 6
The Selene mine and concentrator currently have capacity of 350ktpa, however the 6 5
company plans to expand the plant to 700ktpa by 2007 so as to be able to treat 350ktpa of 5 4
ore from the nearby Pallancata project due for production from 2007. The plant will then
4
be expanded a further 180ktpa to 880ktpa so as to accommodate an expansion of the 3
Selene mining operation from 350ktpa to 530ktpa. We estimate the total cost of the plant 3
2
expansion at US$10 million, half of which will be allocated to the development cost of 2
Pallancata. 1 1
We estimate sustaining development at the Selene mine will be approximately US$3.0 0 0

million per annum while we expect operating costs will fall 13% from US$44/t of mill feed 2003 2004 2005 2006 2007 2008 2009 2010
in the current configuration to US$38.6/t when fully developed in 2010. Further detail is
shown in Figure 23. Equiv Silver Production (koz) - LHS
The Selene mine pays a 2% NSR royalty as a carried-interest royalty to its previous Total Cash Cost ($/oz Ag - RHS
owners but will benefit from the economies of scale through the plant when Pallancata
comes on stream from 2007.

47
` Sales EBIT EBIT Margin

Ares The 100% owned Ares concession was discovered in 1988 following interpretation of 133 104 78.0%
aerial photography and covers over 22,700 hectares. In the early 1990s, geological
mapping, geochemical mapping, surface drilling and subsequent underground drilling was
undertaken. By 1995, at least two vein systems had been defined, including the Victoria Gross Sales Revenue
Vein, now being mined, and the Tanis Vein.
Mineralogy of the Ares ore is significantly different from both Arcata and Selene in that it
contains a much higher abundance of gold relative to silver. The operation was
commissioned in 1998 and produced 3.1 million ounces of contained metal in doré during
2005 (2.9 million ounces of silver and 199 thousand ounces of gold).
The Victoria Vein system has a minimum designed mining width of 0.8 metres, a maximum
width of 15 metres and averages 2.13 metres in thickness. As with Arcata, each system is
accessed via discrete inclines which are connected underground to a depth of 275 metres
below surface. A conventional trackless cut-and-fill breast or overhand stoping mining
method is utilised. The ore is loaded from ore passes in to 22t trucks and hauled 4km and Silver Gold
5km depending on the system. Dilution at Ares is comparatively low at 10% or less owing
to the competent wall-rock.
Ore is delivered to an on-site cyanide leaching plant which feeds pregnant solution to
Merril Crowe plant to produce doré; recoveries being achieved are approximately 93% for
silver and 96% for gold. The plant is currently operating at 280ktpa of ore, however the
300 350
company plans to increase throughput to 325ktpa in 2007, little more than a de-
bottlenecking exercise. We expect production to decrease slightly from current levels as 250 300
silver grades fall from around 410g/t to below 250g/t over the long-term, Figure 21. 250
200
We estimate sustaining development at this mine will be approximately US$3.5 milion per 200
150
annum while we expect operating costs to remain relatively constant around current levels 150
of US$68/t of mill feed. 100
100
50 50
0 0
2003 2004 2005 2006 2007 2008 2009 2010
Equiv Gold Production (oz) - LHS

48

Pallancatta In June 2006, Hochschild signed a joint venture agreement with International Minerals 12 -4 -34.5%
Corporation (a TSX listed company) for 60% ownership of the Pallancata project – with
Hochschild as the operator. The deposit is located approximately 17km from the Selene
mine and is considered to be part of the same mineralised structure. Old colonial Gross Sales Revenue - 2010E
workings are found in the concession area and current reserves of 643,267 tonnes at
263g/t silver and 1.09g/t gold are associated with a mineralised vein system stretching
over 2km along strike. Beyond the current resource, hosted by the “West Breccia”
structure, surface sampling programmes at more workings to the north have returned
promising results and constitute future exploration targets. The company intends to use
Pallancata ore to supplement feed to the Selene concentrator as the plant undergoes
expansion. The current mine plan envisages mining methods similar to the other
Peruvian operations; trackless cut-and-fill and overhand stoping. Mining widths will range
between 0.8-25 metres, averaging five metres. Three stopes are scheduled to rotate in
the production cycle and ore will be loaded on to 22t trucks and transported directly to the Silver Gold
primary crusher at Selene mine.
Initial construction permits were granted in August 2006 with first production scheduled to
commence in 2007. The total capital expenditure requirement will be US$10.5 million bein
the JV share of the plant expansion at Selene plus approximately US$3.0 million per annum
for ongoing development. Costs for transporting ore from the mine to the plant at Selene
8.0 14.0
are estimated by us to be US$5/t of ore and this is included in the total estimated operating
7.0 12.0
cost of US$52/t of ore milled, which includes a management fee for the JV operation of 10%
6.0 10.0
of all generating costs to Hochschild Mining. The Selene operation will also benefit from a
5.0
processing margin on ore treated at the expanded Selene mill which we estimate will be 8.0
4.0
US$11/t of ore above the cash cost of ore processing. 6.0
3.0
2.0 4.0
1.0 2.0
0.0 0.0
2003 2004 2005 2006 2007 2008 2009 2010

49

Mina Moris The Moris mine is located in Chihuahua, along the Sierra Madre. The mine was operated 7 -4 -53.9%
between 1996-1999 by Minera Manhatten S.A. de C.V. and produced 50,000 ounces of
gold and 150,000 ounces of silver from 1.1 million tonnes of ore over this three year Gross Sales Revenue - 2010E
period. The asset is now subject to a joint venture, agreed in June 2006, through which
Hochschild has the option to purchase up to 70% in the project for US$4.2 million.
Hochschild is in the process of developing a business plan for the mine and expects
production to re-commence in July 2007, subject to mine plan approval. The company
also has an option to acquire (at a cost of US$4.8 million plus an investment of US$0.85
million in Exmin) a 70% interest in 9,889 hectares of concessions around the Moris Mine.
Moris is an epithermal deposit and mineralisation is predominately gold a silver with minor
lead and zinc sulphides hosted by conglomerates and volcanic breccias. Several vein
Silver Gold
systems have been identified, but only the “El Creston” has been mined to date. Vein
thicknesses are up to approximately 10 metres – the average mining width for El Creston
was 13 metres. Manhatten Minerals calculated a life of mine reserve of 4.0 million tonnes
at 1.9g/t gold and 8.75 g/t silver then following closure in 1999, the company stated
resources of 3.1 million tonnes at 1.9g/t and 6.6 g/t silver.
Mining is by open pit methods; the El Creston ore body, previously mined by Manhattan
was extracted through conventional blast, shovel and haulage techniques. The current 100 1000
mine plan involves continuation of open pit mining with 5.0 metre benches, strip ratio 1:3.6
80 800
(O:W) and haulage utilising 33 tonne trucks. The mine currently has a capacity of just over
one million tonnes per year of ore. 60 600
The ore will be hauled approximately 2km to the current processing facilities, 40 400
which currently has a capacity of 1,095ktpa. Previously ore was crushed,
20 200
agglomerated and then heap leached using cyanide solution. From solution, the
gold and silver was recovered through a carbon adsorption, electrowinning and 0 0
smelting circuit to produce doré. 2003 2004 2005 2006 2007 2008 2009 2010
Equiv Gold Production (koz) - LHS

50

San Filipe The San Felipe concession is a small project covering an area of 544 hectares located in 0 0 #DIV/0!
northern Sonara, Mexico. The property is currently owned by the Mexican company
Grupo Serrana S.A de C.V, but Hochschild has an option to acquire 70% of the full mining
rights and ownership. The company has paid US$0.2 million with an obligation to invest Gross Sales Revenue - 2010E
US$6.5 million over three years. Additionally, the company plans to invest US$10 million
Copper Silver Lead
in Grup Serrana and US$33.3 million in a Newco for the 70% ownership. We expect the
mine to be in production by 2009; the current capacity is 730ktpa but that is expected to
increase to 1,250ktpa. Hochschild will invest approximately US$33 million for the
development, with any excess being equally divided between parties.
The property was previously exploited by Grupo Serrana and between 1974-1991 a
100tpd mill processed around 210,000 tonnes of ore. The deposit is a polymetallic skarn
Zinc
and mineralisation is associated with the contact between volcanic and metamorphic
rocks. Swedish mining group Boliden carried out exploration in the area in 1997, defining
an attributable resource of 4.5Mt at 69.7 g/t silver a metal content of 6.5% zinc, 12.7%
lead and 0.4% copper. Hochschild is currently engaged in verification drilling on the
property with a 10,000 metre program in operation to define an indicated and measured
resource. The company hopes to start an engineering study by the beginning of 2007,
meanwhile exploration at other identified potential targets will continue.
20 5.0
18 4.5
16 4.0
14 3.5
12 3.0
10 2.5
8 2.0
6 1.5
4 1.0
2 0.5
0 0.0
2003 2004 2005 2006 2007 2008 2009 2010

51

San Jose 50 9 18.8%
The San José silver-gold project is located in the Deseado Massif of the Santa Cruz
Province, Patagonia. Geologically, the deposit is very similar to the epithermal deposits in
Peru, although the volcanic host rock is slightly older. The deposit currently consists of
Gross Sales Revenue - 2010E
two defined vein systems, Huevos Verdes was discovered by MASA in 1997 and Frea
discovered in 2004 under Hochschild Mining’s management. Most recently, the company
has developed shaft inclines into both vein systems to better delineate the resources.
Current attributable reserves for the San José Project are estimated at 642kt containing
9.04 million ounces of silver and 168,000 ounces of gold, Figure 32.
The current mine plan involves initial development of a 265ktpa of ore operation, ramping
up to 500ktpa after two years producing approximately 118,000 ounces of silver and
70,000 ounces of gold per year. Mining will be by underground cut and fill breast stoping Silver Gold
methods using timber and steel bolt supports where necessary. Five stopes will rotate the
production cycle and ore will be loaded on to 28t haulage trucks. Haulage distances form
Huevos Verdes and Frea to the plant will be approximately 18km. Metallurgical testwork
on the ore has already been carried out; the plant will incorporate conventional crushing,
grinding, flotation and concentration methods. Gold and silver will be recovered using the
Gekco process and then refined to produce doré.
250 500
A feasibility study has been completed and the company expects first production to
commence in July 2007 - construction is already in progress. Total capital expenditure 200 400
required for the project is approximately US$123 million, of which US$17.8 million has
already been spent and an additional US$52.7 million is committed, plus US$6.6 million 150 300
for contingencies.
100 200
50 100
0 0
2003 2004 2005 2006 2007 2008 2009 2010
Equiv Gold Production (koz) - LHS

52
Hochschild Mining Plc

Key Products and Markets
Exploration Hochschild controls interests in at least 25 prospects
and defined targets which are expected to provide the
basis of growth beyond the three mines and four projects
that underpin our valuation. W e have assigned a
nominal value to these prospects of 20% of the value of
m ines and projects.
It is worth noting that defined targets have been
delineated by at least 3 core-drilled intersections that
show m inable grades over m inable widths. Resources
are m easured at 50% of in-situ m ineralisation.
Over the last 15 years conversion to reserves from this
50% of in situ m ineralisation has been at the rate of
90%.
Country Exploration Offices
Advanced Development
Argentina Projects
San José
Chile
Mexico
Pallancata
Peru
Feasibility
Early stage development
Moris
projects
San Felipe
El Gachi Target definition

La Colorada San Martín
Moctezuma
San Luís del
Cordero
Sierra Mojina Sierra de
Minaspata
Tincos Calderón Pozos Las Minas
Azuca
Cerro Blanco Paraíso La Enramada El Pino Ambargasta Quevar Tignamar Julia Prospect
San Andrés Frontera El Pocito Las Tortugas Puesto Chacon Cerro Blanco Paracoya

53
NOTES

54
NOTES

55
NOTES

56
APPENDIX: IMPORTANT DISCLOSURES

Analyst Certification: Each authoring analyst of Canaccord Adams whose name appears on the front page of this investment research
hereby certifies that (i) the recommendations and opinions expressed in this investment research accurately
reflect the authoring analyst’s personal, independent and objective views about any and all of the designated
investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and
(ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by the authoring analyst in the investment research.
Site Visit: HOC: An analyst has visited the issuer's operations in Peru. No payment or reimbursement was received from
the issuer for the related travel costs.
POG: An analyst has visited the issuer's operations. Partial payment or reimbursement was received from the
issuer for the related travel costs.
AUY: An analyst has visited several of the issuer's material operations in Brazil. Partial payment or
reimbursement was received from the issuer for the related travel costs.
Price Chart:*
Hochschild Mining Plc 23 January 2007

57
* Price charts assume event 1 indicates initiation of coverage or the beginning of the measurement period.
Distribution of Ratings: Coverage Universe IB Clients
Global Stock Ratings Rating # % %
(as of 1 January 2007) Buy 292 55.6% 43.2%
Speculative Buy 64 12.2% 65.6%
Hold 147 28.0% 30.6%
Sell 22 4.2% 9.1%
525 100.0%
Canaccord Ratings BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
System: HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
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Canaccord Research Disclosures as of 22 January 2007

Company Disclosure
Hochschild Mining Plc 1A, 2, 3, 4, 5, 7
Peter Hambro Mining 1A, 2, 3, 4, 5, 7
Yamana Gold Inc. 1A, 2, 3, 4, 5, 7
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58
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Hochschild Mining Plc 23 January 2007

59
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Damien Hackett Metals and Mining -- Precious Metals and Minerals

Hochschild Mining Plc

EBITDA and Cash Flow (US$M)

23 January 2007 2007-010

Company Statistics Price Chart

52-week Range: £3.50-4.04 400

Avg. Daily Vol. (000): 1000

Shares Out (M) (fully diluted) 307.3

HOC.L GBp FTSE 350 Mining

Earnings Summary Company Description

The Group was the fourth largest producer of primary silver

1. Operating cash flow before investment and financing.

Hochschild Mining plc 23 January 2007

Figure 2: Summary of company assets

23 January 2007 Hochschild Mining plc

The company follows three important and differentiating pillars of management

• RESPONSIBILITY – for safety, the environment and social relationships in the

• EXCELLENCE – in all technical aspects of operation from exploration to tailings

Reserves and resources

Figure 3: Attributable reserves and resources as at November 2006

Hochschild Mining plc 23 January 2007

through various commodity price cycles, is an approach best suited to preserving

Hochschild’s approach is to focus on precious metals, in particular deposits with high

Figure 4: Group production summary

EBITDA $000's 132,561 146,778 245,189 274,081 232,176 211,221 208,069

The company appears to us to understand an age-old practice in narrow vein mining

23 January 2007 Hochschild Mining plc

Figure 5: Group financial summary

Payout ratio % nmf 30% 30% 30% 30% 30% 30%

Hochschild Mining plc 23 January 2007

Figure 6: Hochschild Mining net asset value estimate

Group level and other:

Cash raised US$M 514 514 514

23 January 2007 Hochschild Mining plc

Figure 7: Canaccord price assumptions metal prices

Market pricing on sector-average comparables

• We price production at US$65/oz for an estimate of EV, after consideration of other

• We price earnings at 25 times as an estimate of market capitalisation with 25 being

We suggest it is appropriate to include multiples of EBITDA and earnings for gold

Hochschild Mining plc 23 January 2007

Figure 8: Market valuation of Hochschild Mining

Figure 9: Value growth in Hochschild Mining (2006E-2012E)

Source: Canaccord Adams estimates

23 January 2007 Hochschild Mining plc

Pricing for growth

Figure 10: Growth ratio analysis for silver producers

Figure 11: Growth ratio analysis for gold producers

Hochschild Mining plc 23 January 2007

Cash flow valuation

Figure 12: Net cash flow and projected share price

Net cash flow US$000 (LHS) £/share FD (RHS) 8x 12x

Source: Canaccord Adams estimates

Figure 13: Net cash flow and projected share price

23 January 2007 Hochschild Mining plc

Hochschild Mining plc 23 January 2007

Figure 14: Use of proceeds

Growth of Project Pipeline US$M 250

Repayment of Debt US$M 40

Acquisitions & Additional Growth Remainder

23 January 2007 Hochschild Mining plc

Reserve and resource risk

Hochschild Mining plc 23 January 2007

Figure 15: Company structure Post-IPO

100% 100% 100% 100% 100%