Of course, we had some benefit also of devaluation in Argentina, the devaluation that took place mostly during the second half of the year. So the effect of the lower revenue and the lower cost of sales kind of net each other out, and we ended up with a gross profit that is very similar to last year's at $172.5 million.

The admin expenses are also very, very stable. The higher number in 2017 has to do with a provision made with personnel expenses related to the performance of the stock price, which was not present in 2018. Selling expenses are -- also appear to be similar between the 2 years. However, as per IFRS regulation, there was a reclassification of certain cost of sales having to do with transportation to the cost of sales, and that was netted off by the reintroduction of export taxes in Argentina that since September 2018, we had to pay again.

Exploration expenses, much higher, almost double. But as we would like to save in exploration with our return, because as already mentioned, there was a huge impact in the resources, especially in the case of Inmaculada.

In the line of others, expect -- especially in other expenses, we're fully provisioning for an uncollected receivable at Republic Metals. That receivable of $5 million is explained around $0.5 million has to do with a pending payment on Inmaculada and $4.5 million is related to a payment due to Minera San Jose. And of course, which we are accountable for half of that.

We're not talking about Republic anymore during the presentation, so let me say that there have been some positive developments. Asahi has purchased the assets of Republic. We know nothing yet about how they're going to deal with the customers, but I guess that is positive news and increases our possibility of eventually recover that receivable.

This brings us to the operating income line at $72.8 million, a difference of $19.5 million with last year, I would say, mostly explained by the higher expenses in exploration. In terms of finance, we can already appreciate a drop in the pre-exceptional number associated with the lower interest expense related to the calling of the senior notes in January of 2018 and replacing that -- partially replacing that with lower cost of debt. There's another important portion of those bonds that were fully repaid.

There is an FX loss for the period of close to $9 million, of course, very largely explained by the high devaluation in Argentina, bringing our profit before taxes to $54.7 million. There is a relatively high tax number of $36.5 million. But after excluding the impact of the FX, again, in Argentina and the royalties that we pay in Peru of $7 million, the effective tax rate was 31%, really, which is very much in line with our statutory tax rates both in Peru and Argentina.

So you see that the attributable net profit is higher than the net profit, again, having to do with the laws that we -- the accounting laws we experienced in Argentina. So that brought the EPS to USD 0.05 compared to USD 0.08 in 2017. And the adjusted EBITDA came at $268 million compared to $300 million in 2017. So that's with the P&L.

We have a reconciliation of the cash balance in the balance sheet. We started the year with $257 million. If you recall, we had prepared in late 2017 with additional debt to call the bonds in early 2018 in January so we started with a relatively high cash balance. Inmaculada generated an impressive $145 million; Pallancata, $40 million; San Jose, $29 million; and Arcata showed a loss of $7 million. That is before exploration expenses, which are all grouped in a whole number, that $44 million. Around $9 million of those $44 million are associated to Arcata. So the overall Arcata loss for the year was around $16 million.

The admin expenses, again, very stable at $44 million. Then comes the debt repayment, again, associated mainly with the repayment of our bonds. Interest paid of $23 million, and I would like to emphasize that, that is a non-recurring item. Right now, we'll show you later, we have around $150 million, $157 million of debt at an interest rate of close to 3%. So the expectation going forward in terms of interest expenses is around $4.5 million to $5 million.

We are announcing, as Ignacio pointed out, a dividend of $20 million to our Hochschild shareholders. We paid $10 million to McEwen out of Argentina during 2018. The tax is really paid. Remember, the income tax shown in the P&L is $36 million, but the real number actually going out of cash during the period was only $13 million, including royalties. And there's anothers that is explained by investment variations in working capital by Republic Metals and collectible, some mine closure advances and other expenses, bringing the total number for the year to $80 million. And that's the cash balance for December 31.

Going to the next slide and talking about all-in sustaining cost. You can see on top of the chart that we came at $12.06 per ounce of silver equivalent for our operations. That is a better number than the revised positive guidance that we gave in our Q3 of $12.7 to $13.1. So we're very, very proud about that accomplishment as the company continues very highly focused in maintaining a low cost position. This number comes also despite the larger number in exploration expenses, and it's a reflection of the efficiencies achieved during the period.

In the case of Inmaculada, we stayed at a very solid $730 per gold equivalent ounce. In the case of Pallancata with higher volumes but, certainly, lower grades as expected, the cost came up to $12.1 per ounce. In San Jose, we had some benefit of the devaluation towards the end part for the year, but we had an important project in the hydraulic backfill plants, which was fully invested during 2018. And Arcata, I would not stay a lot of time there, but you can see that the cost had crept up quite substantially and, consequently, the decision to close it during the year -- sorry, at the ending of this year.

We have also some bars showing the guidance that we have given for 2019. I would just refer to the whole company number. The range that we're giving is $11.8 to $12.3. That lower number, of course, has to do in part with the elimination of Arcata in the calculation, the benefit of a full year's devaluation in Argentina, and important to mention also is that we have adjusted the gold and silver ratio to reflect the average of 2018 at 81x. And that impact -- that also impacts slightly, I would say, in the calculation of the all-in sustaining cost for the group.

Going to the next slide. We have a summary of the capital expenditure. 2018 came at $123 million. It's important to mention that we reclassified around $7 million, $7.2 million of CapEx in Arcata to exploration expenses. So that number is already fully accounted for the all-in sustaining cost. So we have taken it out from the CapEx calculation.

For next year, we're guiding $130 million to $140 million. The increase is primarily explained by the additional developments that we're putting together in Inmaculada to access the newly discovered mines, primarily Millet and Divina. There's also some higher CapEx in Pallancata associated with starting to build a new tailing dam and a new waste rock deposit.

In terms of exploration expenditure on the table on the right, you can see a significant $9 million spent at Arcata. Of course, those were the efforts to defend the mine and try to find new resources to keep it alive. Pallancata, the number is relatively small. Pallancata is more of a 2019 story. I think Ignacio will walk you through the ideas that we're going to be pursuing. Inmaculada, $10 million, and those $10 million are mostly reflected in CapEx. You see at the bottom of the chart, we divide the exploration expenses between OpEx and CapEx, and those $9.1 million is mostly Inmaculada as the money has been used to incorporate new resources to the operation.

San Jose, also a lot of activity, and we're excited particularly about Aguas Vivas zone that Ignacio will also walk you through. Greenfield, we did drill projects in Peru. We drilled projects in Chile and a couple of projects in the U.S. And that explains the $10 million, which are expected to be repeated in 2019. At the bottom of the slide, you see the guidance for exploration for this year, again, the $10 million for greenfield plus $27 million for brownfield.

And finally, the final slide talking about the balance sheet a little bit. You can see the chart on the gross debt. We've brought that number quite substantially down, we're standing at a $157 million of debt at very attractive rates. And as I mentioned, the interest expense is expected to drop quite substantially. And finally, the dividends, as many questions around our dividend policy, we will not have a dividend policy, but certainly, Hochschild does return money to shareholders during profitable years. You can see that 2015 was the last of the years where we felt the full effect of the lower prices and we didn't have yet Inmaculada fully into production. But since 2016, we have been able to increase the dividend all the way to up to $20 million this year, representing a dividend yield of around 1.5%.

With that, thank you very much, and I pass back to Ignacio.

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [3]

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Thank you, Ramón. Okay, so moving on into the presentation. This is a slide that we like a lot because it shows what the company has been doing in the past few years. You can see how we'd gone from 20 million ounces of production in 2012 all the way up to 39 million ounces produced in 2018. And the guidance of 37 million given for 2019, which when we take into account the fact that Arcata has been put into care and maintenance, the 37 million ounces guidance without Arcata is also a record production for the company.

So we're very excited with our production profile. And not only that, but along the same period of time, we have managed to cut our costs, all in sustaining cost, from around $22 in 2012 all the way down to our guidance that we're giving for 2019 of somewhere between $11.8 to $12.3.

Going forward, we want to continue doing that. We want to continue increasing production. We want to continue improving our cost profile. How are we planning on doing that? We have our growth strategy in place. This strategy is based on 4 pillars. The first pillar is based on brownfield. We believe we have a very, very important material prospective -- geological potential in all our operating units, and we're going to continue working to try to capture and materialize those resources into better quality, into increased life of mine and, hopefully, we continue being very successful, into potential capacity increases or usage of our spare capacity available. That is going to continue in the first pillar of our strategy, and we're going to continue putting most of our focus on it because this is where we believe we can continue generating the most value for our shareholders.

The second pillar, which is greenfield. Greenfield, as you know, since 2018 has again become part -- an active part of our strategy. We have attractive projects in Peru and outside of Peru. We have been able to significantly streamline our portfolio of projects. We have taken out the ones that we didn't like too much. We have incorporated ones that we like a lot. And the goal is to drill somewhere between 4 to 5 projects per year in 2 to 3 countries. So the target for this year is around 4 to 5 in Peru, in Chile and in the U.S., in particular, in Nevada. So again, an important part of our strategy and with high expectations due to the quality of the projects that we have managed to acquire.

The third part of the strategy is our early-stage projects. As you know, we have 3 early-stage projects, which are Azuca, Crespo and Volcan. We believe that those projects have some value to be untapped and, hopefully, try to see if one of those or more could be potentially new operations. We believe that through a good mix of innovation and a well-focused exploration we can significantly change the economics of these projects, and that's also going to be an important part of our focus in 2019.

And finally, strategic alliances. As you know, we're actively looking at potential associations or acquisitions. We have a very strict criteria in place, which is that if we're going to acquire something it is to be early stage, we need to have control, it needs to have significant geological potential and we want to have a very good return for our investment. So we want to generate value with those acquisitions or alliances. Go from opportunities that we're permanently evaluating, so hopefully, we can continue further in understanding of those and see if something materializes.

Getting into operations. Very briefly, Inmaculada, it was a very strong year for Inmaculada. Again, record production over 250,000 ounces, all-in cash sustaining cash cost in line. We did our first drilling campaign, which was very successful. It was a huge success. We managed to find 1.3 million ounces of gold, still a lot of potential open that I'm going to be talking in the upcoming slides. So -- and we're also looking forward to a very successful campaign getting into 2019.

Pallancata was also a very -- had also a very, very strong year. Production was up 22%. Pablo vein is already fully ramped up. So we finished the year with a vein fully ramped up. We're going to see the benefit of the full production of Pablo getting into 2019. All-in sustaining cash was better than expected and better than guided. And most importantly, in Pallancata, we also have probably the most encouraging geological targets that we have within the company in the case of Palca, Cochaloma, et cetera, that we're going to start drilling getting into the end of Q2, beginning of Q3 2019. So very exciting year ahead for Pallancata.

San Jose behaved exactly as expected: production in line, costs in line. We finished the hydraulic backfill and the water treatment plant so we should be now in a position to have the full advantage of 100% of availability of these 2 projects getting into 2019. And also, we attracted targets that we're going to be showing later on.

And finally, Arcata. Arcata, as you know, we announced last week that we have decided to put it under temporary care and maintenance. However, we do believe that it still has interesting geological potential as we have mentioned in the past. Even though the mine is going to get into care and maintenance or is getting into care and maintenance, we're going to continue exploring the asset with a certain particular interest in Quadrant IV as we will show in a slide later on as well.

Talking about resources. As you know, the focus for 2018 was to increase the resources in Inmaculada in particular, and we managed to achieve that very successfully. Our resources in total grew, in terms of silver equivalent ounces, grew from 134 million and finished the year with 212 million ounces of silver equivalent material, which allows us to have a life of mine of over 12 years for Inmaculada alone with significant potential still open. So we're in the right track to continue taking this asset to an even larger life of mine. So very excited with the results.

And in Pallancata, right underneath that, as you know, we did not target to do any major exploration work because we're still waiting for the community permits, which we already have in place, so it was more a 2019 story. Having said that, still, we managed to find some extensions of current veins that allowed us to have some additions that somehow -- somewhat offset part of the production that we obtained for the year.

In San Jose, we also managed to increase our resource base from 141 million to 148 million because we managed to find very interesting new veins and continued extensions of veins in the areas close to our current operations and also because we got new information and we had a remodeling benefit that also helped improve -- increase the capacity -- the amount of ounces in the deposit.

And finally, in Arcata, there was a decrease, but that was mostly resulting from adjustment due to the fact that the mine has been put under temporary care and maintenance.

So now getting into the exploration detail. You're going to see here these 2 charts. The first one, let me just move here, you're going to see this is what we did in 2018. So you can see here in blue, this is the Angela vein, where most of the resources were located prior to last year's exploration campaign. And these are all the new structures that we're able to find, all of them to the east of Angela vein, okay. Most of these structures are still open, okay. So all the 1.3 million ounces or the 102 million ounces are coming from here.

So what are we going to do in 2019? First of all, we're going to be -- if this is the Angela vein here, we're going to be doing some long drill holes to the west to understand the potential of the Angela vein to the west to see if these structures continue on the other side of Angela vein. We're also going to be looking to some drill holes here on the southern part of the Angela vein. And we're also going to be looking at some of the extensions here of the Angela vein; of the Keyla, Barbara, which are the latest veins that we found that were giving us the best grades; and also do some work into trying to understand the continuation of the veins that already gave us resources in 2018. So it should be a very, very interesting year for Inmaculada. Lots of potential, lots of targets to drill, and we're going to be allocating an important part of resources to try to see if we can continue increasing materially our resource base in Inmaculada.

And this is something that is even more important, which is, this is a total footprint of our property in Inmaculada. This is where the current works are, and these are all the potentials that we have, in Inmaculada and in all the other systems surrounding Inmaculada that we haven't even started exploring. So that's why we see Arcata -- Inmaculada as such a long of life-of-mine asset because it has lot of potential that we're still starting to understand. And this year, the goal is that, in addition to focusing on the things that I just mentioned surrounding Inmaculada, we're going to start to do some work, some geological work in the other systems to try to see if we can start accelerating and evaluating the potential of those other sites to try to have an even better idea of the full potential of this area. So lots of progress to come in Inmaculada, getting into 2019.

Moving to Pallancata. This is Pallancata. Inmaculada is somewhere around here. We have Selene here, which is where the plant processes material. So Pallancata, as I mentioned, has one of the best exploration targets that we have within the company. All this area here within Cochaloma, Palca, et cetera, has shown a lot of prospectivity. In the case of Palca alone, we have found over 14 kilometers of structures, outcropping with grades on the surface that we have not been able drill yet because of the lack of permit. We already secured the community permits. We're in the process of getting the government permits. We expect those to be achieved at the end of Q2, beginning of Q3 of this year. And once that happens, we're going to start drilling as much as we can on this area. That is looking very encouraging. Also, we have the south of the Pablo vein that is looking encouraging. Also in the same situation with permits. Targets for it to be drilled end of Q2, beginning of Q3. So these 3 areas are showing really, really encouraging prospectivity. We're very excited and looking forward to drilling it.

But in addition to this, we are also going to be doing some additional geological work close to the Selene plant in the old mine that we used to have there. There are certain indications of certain areas that may have been overlooked in the past by the previous geological teams so it's also going to be part of the geological focus this year.

And getting into little bit more of a macro scale, which have -- doesn't show up here, but we have Corina, we have Selene, we have here Pallancata, we have Inmaculada, and we have all this area in the middle which is encouraging one I was just referring to with Palca and Cochaloma. So in the past, we have been very successful finding $0.5 billion structure in Selene, $1 billion structure in Pallancata, $1 billion structure here in Angela vein. And we believe this area has a potential to continue offering this type of structures. So hopefully, here, Corina, we can continue finding these billion dollars structures in an area that is so prospective.

Getting into San Jose. In San Jose, this is our entire property. This is Goldcorp's Cerro Negro that you know that -- has 7 million ounces acquired in 2010 for over $3.6 billion, invested over $2 billion. It's a huge deposit here, and we're located very close to it with a lot of prospectivity around Cerro Negro as well. So last year, as I mentioned, we were successful. We managed to increase our resource base, which is very positive. But this year, the focus is going to be mainly in 2 areas: one which is this area of the Aguas Vivas area that is located somewhere around 40 kilometers from our current operations that is showing encouraging results. It's different. It's -- the mineralogy that we're finding there is different from the one in San Jose.

The one in San Jose is mostly gold and silver. [Here also is] important contents of lead and zinc. And so far, we are finding inferred resources -- sorry, potential resources but still not to the point that a grand conversion into an inferred resource.

So the goal for this year is take the first half of 2019, try to find more potential resources and try to simply get the scale to shoot for a conversion of inferred resources later on during the year. But so far, the results are encouraging.

And the same with the current areas, close to our operations, we're finding also continuations of structures or some new structures that continue giving us the good quality of material that we have historically mined in San Jose. So again, with the 2 prospects, we believe that it's going to be an interesting and encouraging year in San Jose in 2019 as well.

And finally, Arcata. Arcata, as we mentioned, was put under care and maintenance last week, but that doesn't mean that doesn't have geological potential. What happens here is that we did manage to get successful from an exploration standpoint and found this area called Quadrant IV that has the potential to be an important territory, to be a new mine for Arcata. However, we're still early on. So the resources that we are finding are still in the potential category. So the goal now is to take those potential resources, continue testing certain other potential, then once we have a critical mass, try to look for the conversion of those potential resources into inferred resource, look for the permitting and then develop the mine to access that new area and, with that, be put in to operation again if -- assuming that we are successful in all these stages.

Doing that is going to take us somewhere between 24 to 30 months or so or sometimes, depending on worst-case scenario, it could be could be even all the way up to 36 months, so all the way up to 3 years. So we've decided to put it under care and maintenance, which was the most economical thing to do, and take that time to evaluate these resources further. And if we're successful and it contains the amount of material that we think that it can contain, then permit it, develop it and then look for potential reopening later on. But still, a very exciting potential here in Arcata.

Then we have this area that we call the Southern Peru Cluster. We have Arcata here, and you can see that very close to Arcata we have Condor, Ares, Crespo and Azuca. So in addition to the prospectivity that Arcata have, there are certain other areas that could either be independent operations, could be feed to Arcata, but there's a lot of optionality around Arcata as well.

Let me start with Condor. Condor is a project that we secured last year. It's a project that is located very close to or relatively close to Arcata. You can take a look at the type of things that we're finding: 6 grams of gold, 150 grams of silver, 2% zinc, 1% zinc (sic) [lead]. In -- that is currently being mined by small miners. So now we have all the access to that property, and we're going to do a $5 million drilling campaign in the next 5 years. Hopefully, the most intensive part is going to be in 2019 with the goal of coming up with, hopefully, a resource -- an attractive resource in Condor that, as I mentioned, could either be a standalone operation or potential feed for Arcata.

But in this case, we have identified also over 40 kilometers of a structure. So this is a very, very hot area and an area that has been, as I mentioned, managed by informal miners that have not been able to invest any kind of money in understanding the resource. So we like it, and it's going to be one of our main focus of attention in 2019 as well.

Then we have Azuca. Azuca has been always an asset that have a lot of ounces, a lot, over 100 million ounces of silver. But so far, those ounces are still not profitable. So there are 2 hypotheses that we're evaluating here: one is the possibility of having better mineralization going upper into the surface, and we're in the process of testing that; and the other one is that, right next to Azuca, there is a target called Huacullo that is showing some interesting indications of mineralization. We have just obtained the permit. So once the rainy season finishes in March or April, the goal is to drill Huacullo as well and, with the information in Huacullo and the new geological interpretation in Azuca, try to see if we can significantly improve our resource.

Then we have Ares. Ares, as you know, is a mine that stopped operating about 4, 5 years ago -- 5 years ago but still has a few new targets that we have identified, that we want to test. Particularly, we went do it from underground using long drill hole strategy and try to see from the most important vein, the Victoria vein, try to come up with potential new structures that could be sitting there. So it's going to be also an important part of focus in 2019.

And finally, Crespo, which Crespo right now is a profitable project. Even at current prices, even with lower prices, it is a profitable project. But the situation with Crespo is that it's a little bit small to us. It's targeted to produce a little bit less than 3 million ounces per year. So for us, it's less -- about 7%, 8% of our production, so it's not too much. So we're trying to see if we can increase its scale. And we're looking at also 2 targets here: one is Queshca, which is another formation right next to Crespo that could provide for additional potential; and the other one is that we believe that there are certain areas that, over centuries and with the pass of time, the material could have been eroded and settled in certain areas very close to Crespo that were overlooked in the past by the previous geological team. So we believe between Queshca and these other areas, there could be some potential that could increase the volume of the project and put it into a nicer scale. So again, that's another thing that we're going to be relating into 2019.

Getting into greenfields. As I mentioned, greenfield is again going to be an important part of our strategy, which have interesting projects in Peru. The most important ones are Condor that I just mentioned. Corina, that is very close to Selene that I just mentioned. And we have these other projects: Alto Ruri, Casma and Cueva Blanca. We also have also secured very interesting projects in Chile and Nevada. And our goal is to drill, as I mentioned, 4 to 5 of these projects in 2019. The priorities are going to be given to the ones that have the best mix of good geological potential and permitting. And hopefully, we can continue updating the market with news as the year moves on.

And finally, we have Volcan. Volcan, as you know, that deposit has over 9 million ounces of gold, huge deposit. But still we need to do some work in to a -- trying to see if we can obtain the metallurgy, and if we can improve access to water to try to put it into value. So some work that is going to be done into -- in this year into Volcan, not too much. We're not going to be investing much, but we do believe that there are certain things that we can do to continue improving the economics of this asset.

Moving to next slide, we have innovation. Innovation is very important for the company. It's now the center of our purpose. As you may recall, the purpose that we announced was a innovate and responsible mining committed to a better world. So innovation is at the heart of the company. And our goal is to try to do innovation at all different levels of the company, during the entire value chain. So we have initiatives that we have done or that we are doing under exploration, such as a Goldspot, which is artificial intelligence to come up with better aspiration targets.

Long-drill holes are a directional drilling for our new drilling campaigns. We have -- in mine planning, we have a new software, which is Deswik, which is already into operation and giving us very positive results. In the case of mining, we are starting to look at initiatives to use Internet of Things to help with -- come up with real-time data to make better informed decisions in the mine itself.

And in the mineral processing that we have initiated such a ore sorting, micro bubbles that are already into operation in Arcata with very positive results as well, improvement in weather-recording technology et cetera, as well as in certain support areas, such as cost management, such as community relations management, administrative systems, et cetera. So this is the type of things that worked -- that we have done that we are currently working on. And we want to continue bringing new initiatives to use innovation and technology to our favor and continue improving the economics and the productivity of the -- of our operations. So we're very excited with the initiatives. And we expect also to continue updating the market, as this innovation initiatives start or continue materializing or new ones come into the scene.

Talking briefly about valuation. You can see here, in terms of price to earnings, you can see how a number of our peers are forecasted to be in the negative ground or negative grounds this year and next year. So we are here strongly producing our profits. In terms of enterprise value to EBITDA, you can see, that we continue ranking much better than most of our peers as well. Same with free cash flow yield, and same with dividend yields. So all in all, we believe that the current cost evaluation offers a very compelling argument to further -- to continue to see further a price appreciation.

And finally, in terms of the key conclusions. We have the key Inmaculada asset that has delivered a very material increase in life of mine. All of our assets, including Inmaculada, Pallancata, San Jose, Arcata continue to offer significant geographical potential, and that's going to be the most important source of our focus getting into 2019. We're on track to achieve the 10 years life-of-mine by 2021.

Cost control, as you have seen in the presentation, continues to be our top priority for the company. And we're going to continue making sure that we continue growing production and decreasing our all-in sustaining cash cost base. We want to continue being as productive as possible, and that's also the center of the company. We believe that we offer very attractive optionality in greenfield early-stage projects and M&A strategy, as we have mentioned as well. We have this innovation program that is place that is delivering operational and project upside. We do believe that the robust cash flow generation and strong balance sheet that the company has and as Ramón has clearly presented in his financial results review. It enables the company to have very strong grounds to execute our strategy. And finally, we believe that all these things that we have talked today offer significant opportunity for share -- for further shareholder return going forward.

So with this, we're just finishing again with the purpose of the company, which is responsible and innovative mining committed to a better world.

And with that, I would like to open up to any questions that you may have.

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Questions and Answers

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [1]

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Yes, James -- Sorry.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [2]

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Dan Major from UBS. Couple of questions. Firstly, can you give us a reminder on the closure costs and the ongoing care and maintenance at Arcata? I'll start with that one.

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [3]

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The guidance that we have given remains at the same level. It's going to be around $18 million for the closing costs, which is mostly going to be the cost of termination of employees. And the total annual cost for current maintenance is going to be around $3 million per year.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [4]

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And is that accounted to the CapEx line? How is it accounting?

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Ramón Barúa, Hochschild Mining plc - CFO [5]

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No, the $18 million is going to be fully expensed. And the current maintenance is also fully expensed.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [6]

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Okay. So that's expensed as coming through as other expenditure? Where will it come?

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Ramón Barúa, Hochschild Mining plc - CFO [7]

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It will come from -- I mean, the $18 million, I don't know. And the $3 million is going to be other expenses.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [8]

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So will it come to EBITDA? The $18 million, this year?

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Ramón Barúa, Hochschild Mining plc - CFO [9]

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Absolutely, yes.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [10]

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Yes, okay. And the second sort of financial question, tax is being somewhat volatile. Obviously, you're guiding to a statutory tax rate to the P&L of 30%. Can you give us any guidance on the cash tax rate expectations for 2019 so now there are some offsets elsewhere?

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Ramón Barúa, Hochschild Mining plc - CFO [11]

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We are not giving any special guidance on tax. But what I can tell you is that we, in the case of Peru, in 2018, we mostly ran out of our tax shield associated with the investment in Inmaculada. So there's the expectation of us paying slightly higher tax in Peru going forward. The royalties I think it will be safe to assume that we paid this year -- sorry, in 2018, like, $7 million. It will be safe to assume that the number is going to be similar in 2019 and the same case is -- and the same for Argentina. [With Argentina] we paid around $8 million -- $7 million, $8 million in taxes, and I would assume, of course, that maintaining the prices constant, that the number is going to be quite similar.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [12]

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Okay. So your statutory tax rate guidance is around 30% through the P&L, we should expect a similar level of flow through in the cash flow statement?

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Ramón Barúa, Hochschild Mining plc - CFO [13]

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Correct.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [14]

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Okay. Great. And then the second question is perhaps a broader strategy question. You've obviously got a lot of potential early-stage projects. You put Arcata on care and maintenance with a view that you could bring it back at some point. I think the question is, what is your sort of cost threshold on lots of these options, and particularly bringing back Arcata because I think the market doesn't necessarily reward companies for sort of chasing marginal ounces. And if the price goes up, and you bring back Arcata you put some CapEx in and then the price goes down, and it burns cash for a while and you close it again. I am not sure, necessarily, having lots and lots of options, which you state have got a return requirement and then the price goes up, and you run that return requirement at that price. How are you viewing that risk management, specifically I think to Arcata? And the second part of that is, if the price rises, would you like to sell some of these options and monetize them?

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Ramón Barúa, Hochschild Mining plc - CFO [15]

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I mean, ideally, our goal is to have assets that are long-term assets and that -- our assets that are able to operate profitably in all different cycle -- price cycles. Also, ideally we'd like all our assets to be in the first half of the cash flows curve. If possibly, even in the first quarter of the cash flows curves as it gets with Inmaculada and by Arcata now. So ideally, I would say, that would be the case. So what does it mean? Probably, somewhere around $12 to $13 all-in sustaining cash costs is something we believe our assets that could navigate in different price cycles going forward. What I can tell you is that if you were to find at Arcata require a price of around $16, $17 to be profitable, probably that would not be our top priority, as you may imagine. Same as with our other properties such as Azuca, Crespo as well. So we want assets that are long-term assets, and assets that could navigate profitably in all cycle times.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [16]

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Okay. So to summarize is that fair to assume you would only look to develop assets or redeem assets with sub-$14 an ounce all-in sustaining costs?

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Ramón Barúa, Hochschild Mining plc - CFO [17]

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Absolutely.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [18]

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James Bell, RBC Capital Markets. Just firstly on Inmaculada, can you give us some more color on the timing of when we might expect to see those resource updates coming through, particularly, building on that -- the numbers that you delivered in '18? And then secondly, can you talk about where you are in terms of looking at potential expansion, I know at the Capital Markets Day you were talking about all sorting, maybe meaning there is no need for expansion. You're spending capital developing towards these things, when could we start to see that potentially coming through in production? Is that something to expect in 2020?

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [19]

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Sure. So the first one -- let me divide this. We have here, the Angela vein. Okay? It's in here. So all the long-drill holes, they take some time because they are very long, 1.5, 2 kilometers, so they take time. So I would say these ones are probably going to take some time before we have any good indications or results. As we move along, we might find some intersections that are going to be good. But in terms of potential resources, so the most likely scenario is that the additional inferred resources are going to be coming from, the extensions of this area, the extensions of the Angela vein or this Keyla, Barbara areas. That is something that we're going to be drilling as of now. So those are drill resources that we expect to permanently update the market, in every quarterly production report, okay? So we should get results very soon. And then in terms of potential capacity increases, the first -- I mean the quicker parts here that we are evaluating now is research and technology. Research and technology we are a -- I would say, still in a relatively early stage in which we are evaluating different technologies, different sensors where we are talking with 2 providers of technology to see which one is the best one. So I would say, 2019 is going to be a year that is going to be mostly used for research purposes and try to understand whether we have a project here. And that's going to take us time because you need to collect the samples and you need to send them to Germany, do all the testing, come up with results, make some adjustments, check different sensors. So it's a process that takes time. So we expect that 2019 is a year in which we're going to, hopefully, by the end of the year, have a clear decision of whether the technology works and what's the best way to proceed going forward is. I will say it's -- we are still early on to decide on capacity increases.

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Ramón Barúa, Hochschild Mining plc - CFO [20]

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If I may add, Ignacio, to that, in the case of Millet and Divina, 2 new veins that we have discovered, we are doing something that I think is very professional. Same as we did with the Angela vein, which is we are doing very detailed engineering on those 2 veins. So 2019 is mostly going to be spent during the engineering. From a process standpoint, we have the Angela vein for the next 3 or 4 years, so we will need to put those resources on the back. But as you have already noticed, we have build the accesses, we're already there. So for the ore sorting, the collection of samples are being taken directly from the vein. So it's a combination of having the engineering, the traditional engineering and new engineering for the -- that fits the ore sorting process, the research on the ore sorting, and we have some time. So ideally, at the end of 2019, we should have a little bit more color both on ore sorting and engineering of those new resources.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [21]

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Okay. That's great. And I think, I know the answer here, but I do think I have to ask. In light of the tragic events in Brazil, in terms of the tailing situation across your portfolio and if you're expecting or hearing any potential changes in terms of permitting of tailings, et cetera, with -- in Peru, I guess?

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [22]

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No, that's a very sensible question. The answer here is not necessarily because we do believe that the situation in Brazil in terms of the permitting requirements and policies for building tailing dams is different from the ones that we have in our operations. You can see, we have a chart here at the end. As you can see, the different methodologies that are called the downstream, which is the conventional technology and this upstream technology, which is one -- why they use in Brazil. In Peru, Peruvian regulations will not allow you to build tailing dams using the upstream technology or methodology. So all our tailing dams are using this system which is -- it's more expensive, it takes more time but it's significantly safer. So we're in a very different situation. We have around 14 tailing dams, 9 that are still operational, and we have done the evaluations on those tailing dams using third-party advisers also. Last year, everything was in good shape. We are planning on doing again. As third-party, we will review this year. And in the meantime, we continue doing all our own monitors and controls, et cetera. So we do not anticipate necessarily that there are going to be changes in terms of requirements or permits to build the tailing dam because they were already complying to the best international standards. But what might change is the level of supervision and concern around that. And fortunately, [this and the work] that we have done with -- that's something that we feel very comfortable with the work that we are doing.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [23]

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Okay. And just one very quick one, if I may. Just on the permitting for exploration drilling, obviously, that's been a headwind to you guys getting results out to the market. Do you feel that when you look at your pipeline of what you want to drill over the next, let's call it, 1.5 year, 2 years, you're ahead of the game here with getting permit applications in and that we'll see no further delays?

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Ramón Barúa, Hochschild Mining plc - CFO [24]

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Yes. I would say a lot of the issues that we have with the permitting was the material -- sudden and material change in regulations. That takes you some time to anticipate. We believe that we have been able to already to anticipate a lot of that, okay? And we do believe that for all the things that we want to drill in 2019 and '20, we are in very good shape. But having said that, since the permitting process takes much longer now, this year, we need to focus also on where we're going to be drilling in 2021, 2022 or we will not make it. So permitting continues to be the thing, but we believe that now we're caught up and play into the timing of the system.

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Timothy Alan Huff, Peel Hunt LLP, Research Division - Analyst [25]

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It's Tim Huff from Peel Hunt. I just wanted to ask a -- I guess a question on capital allocation priorities. You mentioned it in the Capital Markets Day, which was really helpful. But when you look forward a year, as you're reporting 2019, you've got a higher silver, average silver and gold price right now. Costs look like, you want to contain them below the line. Debt is coming down a bit. And obviously, you were expecting slightly higher taxes, but your CapEx on the cash flow statement is also pretty contained in the coming year. From a free cash perspective, how are you looking at your net debt versus your div? And on the balance sheet, I guess, in a year or 2's time, where do you really want to get to? Is it back to a substantial net cash position? So a lot of questions in there. I apologize, but just trying to get an idea of the overall picture.

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [26]

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Look the -- starting from the debt. The debt was quite substantially in recent years for Hochschild as we invested in Inmaculada. The number not only has come down substantially, but the cost of that debt has also come down in an important way. So I would say at this point, in terms of what we're getting on our excess cash and the cost of the debt, that the amount is relatively not as important as in the past, okay? So yes, we want to repay debt, but we don't feel that a strong urge as we had in recent years, especially after taking out the bonds. We believe that we have all the cash necessary to pursue our growth strategy. Given that on top of that priority or the top priorities is brownfield exploration, which is relatively cheap compared to the results that we have been able to obtain. In Inmaculada, we have spent $10 million, and we added more than 1 million ounces of gold. If we can do that, we should be doing that all the time. And then what we're looking for as expressed in our strategy, is for early stage opportunities. So we have the money necessary or the capacity -- the debt capacity to pursue building mines, probably similar -- even similar to Inmaculada, if we choose to do so. We need to find our deposits either through exploration or through joint ventures. But we don't have necessarily the money for us to do very aggressive M&A and paying large premiums where also we will not be able to make returns on that money. So we are very careful about that. I'm not saying that there are not opportunities, opportunities present themselves every day but they're harder to pursue. Remember that we don't have equity also as an alternative because of Eduardo Hochschild, he has 51% and he would like to keep it that way. So we are limited in a way. So the cash is good enough for debt reduction. It's good enough for pursuing our growth strategy. It could increase if we have a nice investment, but we will not increase it just to lever more of the capital structure, if you wish. We'll probably not do that. And in general, we like to keep a relatively conservative position. We like high cash balance. We like low debt and that's part of the reason also why we don't have a dividend policy also. You saw the dividends, whenever we're making money, we do share, we take returns to shareholders as a top priority, and we worry a lot about the share price and dividends, but we won't necessarily take on debt to pursue that.

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Timothy Alan Huff, Peel Hunt LLP, Research Division - Analyst [27]

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Okay. That's perfect. And then I guess on the operations side, Ignacio, you already touched on the ore sorting, but when you say 2019 is the research year with respect to that, are you thinking more trying to implement that in 2020? Or are you thinking match it up here -- yes, match it up with the life of mine extension at Inmaculada in '21, like you alluded to the Capital Markets Day?

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [28]

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If it's a research year and it's a project that turns out to be what we were expecting. The idea would be to start 2020 with the project, put it into operation and capture the benefits. Any more questions? Yes, Justin?

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Justin Chan, Numis Securities Limited, Research Division - Analyst [29]

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[There's a theory] that you could increase the capacity or the throughput of the plant. But now I think, you're also saying that you're just going to get capacity utilization up. Can you give us the latest on what the capacity utilization of the plants are? And secondly, a sort of depreciation question. If you achieve your 10-year life in 2021, what happens to the depreciation? Will it come down considerably as it has done in this year?

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [30]

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Well, in the case of capacity utilization, we have talked in the past about the possibility of increasing the capacity in Inmaculada. We have these 2 alternatives, increase it by 10% or by 40%. But the reality is that if this sort of technology works, there may not be a need to use, to grow, to invest the money in the capacity increase. Because it would allow us to streamline the feed to the plant and be able to put more ounces without having to increase the capacity. So that will be ideal. But we're going to see if it works or not. And those alternatives continue to play, so we could take Inmaculada from 3,850 to 4,200 tons per day, roughly at an investment of $10 million or take it to 5,000 tons per day with an investment of around $40 million to $50 million. So that continues being the case. In terms of other exploring capacity that we have. Well, we have Ares, fully spread with 1,000 tons per day. We have the Arcata plant now fully spread with 2,500 tons per day. And the Pallancata plant is fully utilized now with [Paulo] at a full speed. So the exploring capacity that we have already to produce from day 1 are in Ares and in Arcata. 3,500 tons per day so pretty much the same size as Inmaculada plant.

Yes, so we're finding things, there's a lot of optionality that we have as well that could be put into production quickly. And in terms of depreciation, yes, I mean, in Inmaculada, where we have 12 years, but the expectation would be to continue increasing that. If we're able to do that, yes, I mean, that will be the highest impact on depreciation. Because, again, most of the amounts that we depreciate are the investments done in Inmaculada. If we were to depreciate, for example, our CapEx is no longer there, but in Arcata, the Arcata has a much lower impact because it has already experienced a huge depreciation already. So the biggest impact will be adding resources in Inmaculada. And of course, there's -- this year, it was -- the impact was around $40 million. If we were to add the same amount in the next year, the impact is going to be lower than $40 million. I don't have that calculation. So there's a decreasing impact through time, but certainly, again, Inmaculada is the most important one for us.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [31]

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Dan from UBS. A couple of quick follow-ups. Just following on Tim's question. Just to sort of clarify. Obviously, your clear priority is investing in the various growth options you've got. Is it fair to assume you'll move to a net cash position if you can't deploy that capital because you're obviously fairly close to that, is that the right assessment? Rather than lifting the dividend to maintain the small net debt.

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [32]

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Well, again, if at some point we're in a net cash position, and we will have investment alternatives. We have to consider the dividend. But again, remember that for us to fund our growth, we depend on our cash position and on our debt capacity. So that is very real. So we need to make sure that we conserve enough cash to fund our growth going forward.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [33]

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And the second question, you're, obviously, cash generative and got lots of options. And in Inmaculada, you highlighted the broader area with lots of potential. What's the limitation to increasing spend on exploration in Inmaculada? I mean, you've got the cash flow to fund this, is this permitting or...

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Ignacio Bustamante, Hochschild Mining plc - CEO & Director [34]

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Yes, it's geological work and permitting. What happens is that, this -- I would say the biggest change that we've had in the success of our exploration plan is it falls in the fact that there is significantly much more being done in understanding the actual nature of deposits, the potential continuations, the formations. So there's a lot of work that is put before a drill is being put in place. So right now, the bottleneck, the big bottleneck is the team and the priorities of the team to apply that same knowledge and metallurgy to other areas. So that's why we decided to focus on the key priority which is Inmaculada, which is 75% of our free cash flow, all successful, et cetera. So now the team is moving, we have had time to work also at the same level of detailing by Arcata and the bottlenecking by Arcata, were the community permits and other [working] permits, but we're on the right track. But as of now, in order to take a look at all the areas and invest more money in brownfield, the key thing is to have that same team focusing on these sort of areas, which is what he's starting to do now, not only in Inmaculada, but, again, more of a regional look in the area. So we're on the right track. But the first thing -- the know-how, the mentality of the people then the permitting and then the execution. More than actually financial resources.

Any more questions? Okay. Well, thank you very much. And should you have any other questions, we're still here, trying to hear. So thank you very much for coming and look forward to seeing you soon.

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Ramón Barúa, Hochschild Mining plc - CFO [35]

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Thank you.