TSX, NYSE – HBM 2021 No. 3 Hudbay Announces Fourth Quarter and Full Year 2020 Results and Provides Annual Guidance
Toronto, Ontario, February 18, 2021 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today released its fourth quarter and full year 2020 financial results and annual production and cost guidance. All amounts are in U.S. dollars, unless otherwise noted.
Fourth Quarter and Full Year Operating and Financial Results
- Achieved 2020 production and unit cost guidance in Peru and Manitoba; Manitoba copper production exceeded the top end of the guidance range and refined zinc metal production was higher than it has been in over ten years.
- Capitalized on higher gold prices as Manitoba annual gold sales volumes increased by 24% in 2020 compared to the prior year.
- Full production resumed at 777 on November 25 following a skip hoist incident in early October; shaft repair activities were completed well ahead of schedule and below expected costs.
- The Lalor mine and Stall concentrator both achieved record quarterly and annual production as 777 employees and equipment were redeployed to Lalor during the 777 shaft repair period.
- Constancia mine achieved excellent operational efficiencies during the quarter with a 10% increase in ore mined compared to the third quarter of 2020.
- Fourth quarter net earnings were $7.4 million or $0.03 per share. Fourth quarter adjusted net lossi per share was $0.06 and adjusted EBITDAi was $106.9 million.
- Operating cash flow before change in non-cash working capital increased to $86.1 million in the fourth quarter of 2020, from $84.4 million in the third quarter, despite the temporary production interruption at 777 during the quarter.
2021 Annual Guidance and Outlook
- Consolidated copper production is forecast to increase by 7%ii in 2021, compared to 2020, with a further increase expected in 2022 with higher grades at the Pampacancha deposit in Peru.
- Consolidated gold production is forecast to increase by 62%ii in 2021, compared to 2020, with a further increase expected in 2022 due to the first full year of production at the New Britannia mill and Pampacancha.
- 2021 unit operating costs are expected to be modestly higher than 2020 with the inclusion of the New Britannia mill in Manitoba and higher input costs in Peru. Introduced new 2021 consolidated cash cost guidance of $0.65 to $0.80 and consolidated sustaining cash cost guidance of $2.05 to $2.30, in each case, per pound of copper produced, net of by-product creditsi.
- Updated mine plans will be issued for each of the company’s Constancia and Snow Lake operations with the annual mineral reserve and resource update at the end of March 2021, incorporating the results from various optimization studies. The company will issue new three-year production guidance once the new mine plans are published.
- Total capital expenditures are expected to decline by 11%ii year-over-year as a majority of the Peru growth spending was completed in 2020, while a portion of Manitoba growth spending was deferred from 2020 to 2021.
- Increased exploration spending in 2021 to drill promising targets in Arizona, Peru and Snow Lake.
Executing on Growth Initiatives
- Advanced the New Britannia gold mill refurbishment project to approximately 73% completion and the project continues to track ahead of the original schedule. Total project capital is tracking approximately $13.0 million over budget due to additions to the project scope and the impact of COVID-related costs. Commissioning of the gold plant is expected in mid-2021, three months earlier than originally planned. The new copper flotation facility is on track for commissioning and ramp-up in the fourth quarter of 2021. Operational readiness activities are progressing as planned with underground development of Lalor’s goldrich lenses well-advanced in preparation for the start-up of New Britannia.
- Successfully completed the Consulta Previa consultation process for Pampacancha and received the final mining permit for the development and operation of the mine. Pre-development activities commenced in early January and pre-stripping activities are expected to begin once the remaining individual land user agreement has been completed.
- Advanced the appeal of the unprecedented Rosemont court decision with oral arguments presented on February 1st and continued to evaluate next steps for the project and advance drilling activities on the company’s land package.
“We achieved all of our production and operating cost targets in 2020, continuing our trend of strong operating and financial performance while executing on our growth initiatives,” said Peter Kukielski, President and Chief Executive Officer. “Our Peru operations continued to perform well despite COVID-19 challenges and the team successfully completed the Consulta Previa process for Pampacancha. Our Manitoba operations demonstrated strength and resilience as they remedied the 777 shaft incident quickly and efficiently, while confirming the opportunity to increase the Lalor mine production rate in the long-term. The New Britannia project remains on track for first gold pour in the third quarter of 2021. While 2021 remains a year of investment for Hudbay, it is also the year in which we expect to start to see the benefits of these high-return investments as we grow our production through Pampacancha and New Britannia, and create significant value for our stakeholders.”
Summary of Fourth Quarter Results
Consolidated copper production in the fourth quarter of 2020 was 27,278 tonnes, a 7% increase from the third quarter of 2020, primarily as a result of higher mill throughput and recoveries at Constancia and higher copper grades and recoveries in Manitoba, despite the temporary production interruption at 777. Consolidated gold production increased by 11% compared to the third quarter of 2020 due to higher grades at Lalor and higher recoveries at the Stall mill. Consolidated zinc production in the fourth quarter was lower than the third quarter of 2020 due to the 777 shaft incident resulting in the suspension of hoisting operations for six weeks. The production of refined zinc metal increased quarter-over-quarter as the zinc plant continued to process available zinc concentrate inventories during the 777 shaft repair period.
In the fourth quarter of 2020, consolidated cash cost per pound of copper produced, net of by-product creditsi, was $0.43, a decrease compared to $0.65 in the third quarter due to higher copper production and higher by-product revenue, partially offset by higher operating costs. Incorporating cash sustaining capital, capitalized exploration, royalties, selling, administrative and regional costs, consolidated all-in sustaining cash cost per pound of copper produced, net of by-product creditsi, in the fourth quarter of 2020 was $2.24, which was relatively unchanged from the third quarter.
Cash generated from operating activities in the fourth quarter of 2020 increased to $121.1 million compared to $77.9 million in the third quarter of 2020. Operating cash flow before change in non-cash working capital was $86.1 million during the fourth quarter of 2020, reflecting a slight increase from the third quarter. The increase in cash generated from operating activities is primarily the result of higher realized copper and zinc prices and working capital changes during the quarter.
Net earnings and earnings per share in the fourth quarter of 2020 were $7.4 million and $0.03, respectively, compared to a net loss and loss per share of $24.0 million and $0.09, respectively, in the third quarter of 2020. Fourth quarter earnings benefited from higher realized prices for base metals which was partially offset by lower sales volumes of copper. In addition, a $28.0 million mark-to-market net gain on certain financial instruments was recorded, including a $40.3 million non-cash gain on the revaluation of the embedded derivative on the senior notes due in 2025. Partially offsetting these gains was the accounting effect related to the 777 production interruption. This resulted in fixed overhead production costs of $11.7 million, which would normally be capitalized to inventories, being immediately expensed as part of cost of sales with no corresponding revenue benefit.
Adjusted net lossi and adjusted EBITDAi in the fourth quarter of 2020 were $16.4 million, or $0.06 per share, and $106.9 million, respectively, after adjusting for the 777 fixed overhead costs and the net mark-to-market gain on financial instruments, among other items. This compares to an adjusted net lossi and adjusted EBITDAi of $25.4 million, or $0.10 per share, and $96.1 million, respectively, in the third quarter of 2020. The favourable movements in adjusted EBITDAi and adjusted net loss, as compared to the third quarter of 2020, primarily included the same factors that benefited net earnings.
Summary of Full Year Results
On a consolidated basis, Hudbay’s copper, zinc and precious metals production met 2020 guidance ranges. Production of copper in Manitoba exceeded the top end of the guidance range, while copper production in Peru was within the revised guidance range. When compared to 2019 production levels, 2020 copper production in Peru was lower due to lower copper grades, as well as an eight-week suspension of Constancia operations due to a government declared state of emergency at the onset of the COVID-19 pandemic (which caused the company to update Peru’s guidance with the second quarter results). Combined unit costs in Peru and Manitoba were within 2020 guidance ranges. Total capital expenditures were above 2020 guidance in large part due to costs associated with individual land user agreements that were not included in the company's initial growth capital guidance for Peru, as previously disclosed, due to the ongoing nature of the negotiations.
Consolidated cash cost per pound of copper produced, net of by-product credits, was $0.60 in 2020, a decrease compared to $0.83 in 2019, mainly as a result of increased by-product credit revenues, partially offset by lower copper production from lower grades at Constancia and reduced Constancia production from the eight-week suspension of operations. Incorporating cash sustaining capital, capitalized exploration, royalties, selling, administrative and regional costs, consolidated all-in sustaining cash cost per pound of copper produced, net of byproduct credits, in 2020 was $2.16, which increased from $1.86 in 2019, driven mainly by increased cash sustaining capital expenditures and the same factors noted above affecting consolidated cash costs.
Cash generated from operating activities decreased to $239.5 million in 2020 from $310.9 million in 2019. Operating cash flow before change in non‑cash working capital decreased to $241.9 million from $307.3 million in 2019. The decrease is the result of significantly lower copper sales volumes due to an eight-week suspension of Constancia operations in Peru following a government declared state of emergency and a six-week production interruption at the 777 mine in Manitoba. The lower copper sales volumes were only partially offset by higher realized sales prices for copper and precious metals.
Net loss and loss per share for 2020 were $144.6 million and $0.55, respectively, compared to a net loss and loss per share of $343.8 million and $1.32, respectively, in 2019. The 2019 loss was mainly caused by an after-tax impairment charge of $242.1 million recorded in Hudbay’s investment in the Rosemont project. Gross margins declined in 2020 in part due to multi-week operational suspensions at Constancia and 777 causing certain fixed overhead production costs to be immediately expensed as part of cost of sales with no corresponding revenue benefit.
Financial Condition ($000s) Dec. 31, 2020 Dec. 31, 2019
Cash and cash equivalents 396,146
439,135
Total long-term debt 1,135,675 985,255 Net debt1 696,540 589,109 271,284 Working capital 306,888 Total assets 4,461,057
4,666,645
Equity 1,699,806 1,848,123 1 Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
Consolidated Financial Performance Three Months Ended
| Dec 31, 2020 | Sep. 30, 2020 | Dec. 31, 2019 | ||
|---|---|---|---|---|
| Revenue | $000s | 322,290 | 316,108 | 324,485 |
| Cost of sales | $000s | 287,923 | 276,830 | 298,852 |
| Earnings (loss) before tax | $000s | 911 | (23,944) | (42,352) |
| Earnings (loss) | $000s | 7,406 | (23,955) | (1,455) |
| Basic and diluted earnings (loss) per share | $/share | 0.03 | (0.09) | (0.01) |
| Adjusted earnings (loss) per share1 | $/share | (0.06) | (0.10) | (0.09) |
| Operating cash flow before change in non- | $ millions | 86.1 | 84.4 | 69.1 |
cash working capital Adjusted EBITDA1 $ millions 106.9 96.1 82.2
Year Ended Dec 31, 2020 Dec. 31, 2019
| Revenue | $000s | 1,092,418 | 1,237,439 |
| Cost of sales | $000s | 1,053,418 | 1,085,897 |
| Earnings (loss) before tax | $000s | (179,089) | (452,763) |
| Earnings (loss) | $000s | (144,584) | (343,810) |
| Basic and diluted earnings (loss) per share | $/share | (0.55) | (1.32) |
| Adjusted earnings (loss) per share1 | $/share | (0.46) | (0.18) |
| Operating cash flow before change in non- | $ millions | 241.9 | 307.3 |
cash working capital Adjusted EBITDA1 $ millions 306.7 358.5 1 Adjusted loss per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
Consolidated Operational Performance Three Months Ended Dec. 31, 2020 Sep. 30, 2020 Dec. 31, 2019 Contained metal in concentrate produced1
| Copper | tonnes | 27,278 | 25,395 | 32,422 |
| Gold | ounces | 32,376 | 29,277 | 32,712 |
| Silver | ounces | 730,679 | 671,685 | 930,137 |
| Zinc | tonnes | 25,843 | 30,570 | 30,592 |
| Molybdenum | tonnes | 333 | 392 | 372 |
| Precious metals2 | ounces | 40,586 | 36,824 | 46,000 |
Payable metal in concentrate sold
| Copper | tonnes | 22,963 | 25,903 | 33,715 |
| Gold | ounces | 35,179 | 30,605 | 30,344 |
| Silver | ounces | 762,384 | 705,495 | 909,423 |
| Zinc3 | tonnes | 28,431 | 26,520 | 28,001 |
| Molybdenum | tonnes | 457 | 313 | 199 |
| Precious metals2 | ounces | 43,745 | 38,532 | 43,336 |
| Cash cost4 | $/lb | 0.43 | 0.65 | 0.90 |
| Sustaining cash cost4 | $/lb | 1.97 | 2.02 | 2.11 |
| All-in sustaining cash cost4 | $/lb | 2.24 | 2.25 | 2.22 |
Year Ended Dec. 31, 2020 Dec. 31, 2019 Contained metal in concentrate produced1
| Copper | tonnes | 95,333 | 137,179 |
| Gold | ounces | 124,622 | 114,692 |
| Silver | ounces | 2,750,873 | 3,585,330 |
| Zinc | tonnes | 118,130 | 119,106 |
| Molybdenum | tonnes | 1,204 | 1,272 |
| Precious metals2 | ounces | 155,531 | 165,911 |
Payable metal in concentrate sold
| Copper | tonnes | 88,888 | 128,519 |
| Gold | ounces | 122,949 | 108,999 |
| Silver | ounces | 2,585,586 | 3,452,926 |
| Zinc3 | tonnes | 109,347 | 104,319 |
| Molybdenum | tonnes | 1,321 | 1,186 |
| Precious metals2 | ounces | 152,001 | 158,327 |
| Cash cost4 | $/lb | 0.60 | 0.83 |
| Sustaining cash cost4 | $/lb | 1.93 | 1.72 |
| All-in sustaining cash cost4 | $/lb | 2.16 | 1.86 |
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.
3 Includes refined zinc metal sold.
4 Cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits, are non- IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
Peru Operations Review
| Peru Operations | Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|---|
| Dec. 31, | Sep. 30, | Dec. 31, | Dec. 31, | Dec. 31, | ||
| 2020 | 2020 | 2019 | 2020 | 2019 | ||
| Ore mined1 | tonnes | 9,313,784 | 8,455,668 | 8,049,063 | 27,529,950 | 33,308,369 |
| Copper | % | 0.31 | 0.31 | 0.41 | 0.32 | 0.43 |
| Gold | g/tonne | 0.03 | 0.03 | 0.04 | 0.03 | 0.04 |
| Silver | g/tonne | 2.61 | 2.55 | 3.87 | 2.75 | 3.76 |
| Molybdenum | 0.01 | 0.02 | 0.02 | 0.02 | 0.02 | |
| Ore milled | tonnes | 7,741,714 | 7,480,655 | 7,474,136 | 26,297,318 | 31,387,281 |
| Copper | % | 0.33 | 0.33 | 0.42 | 0.34 | 0.42 |
| Gold | g/tonne | 0.03 | 0.03 | 0.04 | 0.03 | 0.04 |
| Silver | g/tonne | 2.74 | 2.68 | 3.86 | 2.87 | 3.64 |
| Molybdenum | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | |
| Copper recovery | % | 85.3 | 83.3 | 85.6 | 83.0 | 85.7 |
| Gold recovery | 52.7 | 51.6 | 50.0 | 49.8 | 48.1 |
| Silver recovery | % 70.1 | 66.7 | 68.2 | 66.9 | 68.2 |
| Molybdenum recovery | 28.4 | 30.4 | 30.8 | 29.4 | 26.5 |
%
Contained metal in concentrate
| Copper | tonnes | 21,554 | 20,803 | 26,659 | 73,150 | 113,825 |
| Gold | ounces | 3,689 | 3,333 | 5,007 | 12,395 | 19,723 |
| Silver | ounces | 477,775 | 430,208 | 631,774 | 1,622,972 | 2,504,769 |
| Molybdenum | tonnes | 333 | 392 | 372 | 1,204 | 1,272 |
| Precious metals2 | ounces | 9,058 | 8,167 | 14,033 | 30,630 | 55,506 |
Payable metal sold
| Copper | tonnes | 18,583 | 21,654 | 28,430 | 68,506 | 106,184 |
| Gold | ounces | 3,297 | 3,753 | 4,824 | 10,986 | 18,956 |
| Silver | ounces | 480,843 | 433,595 | 666,839 | 1,518,548 | 2,452,496 |
| Molybdenum | tonnes | 457 | 313 | 199 | 1,321 | 1,186 |
| Combined unit | $/tonne | 10.17 | 9.85 | 10.20 | 9.46 | 9.50 |
operating cost3,4 Cash cost4 $/lb 1.47 1.54 1.36 1.45 1.16 Sustaining cash cost4 2.58 2.29 2.17 2.20 1.65 $/lb 1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled. 2 Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.
3 Reflects combined mine, mill and general and administrative (“G&A”) costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.
4 Combined unit cost, cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
The Constancia team continues to deliver strong operating performance despite the environment of strict ongoing COVID-19 measures and controls. Hudbay continues to work collaboratively with the local health authorities to ensure the company’s workforce and partners adhere to COVID-19 protocols while continuing to operate safely and efficiently. Full year production of all metals and unit operating costs at Constancia achieved the revised guidance ranges for 2020.
During the quarter, the Constancia mine produced 21,554 tonnes of copper, 9,058 ounces of precious metals and 333 tonnes of molybdenum. Production was higher than the third quarter of 2020 as a result of the ramp-up to full production after the temporary suspension of operations. Full year 2020 production of copper, gold and silver were 36%, 37%, and 35% lower, respectively, compared to 2019 due to lower grades, in line with mine plan, and the temporary suspension of operations in the second quarter of 2020.
The Constancia mine achieved excellent operational efficiencies during the quarter with a 10% increase in ore mined compared to the third quarter of 2020. Ore milled during the fourth quarter of 2020 was 3% higher compared to the third quarter due to the deferral of a fourth quarter plant maintenance shutdown to January 2021. Milled grades for all metals in the fourth quarter were relatively consistent with third quarter levels. Recoveries of copper, gold and silver were all higher than the third quarter due to ongoing recovery optimization efforts and actively managing the characteristics of the ore feed.
Combined mine, mill and G&A unit operating costs in the fourth quarter of 2020 were $10.17/lb, and higher than the third quarter of 2020, primarily due to higher mining costs during the quarter. Full year combined unit operating costs were in line with 2019 as lower production, caused by an eight-week suspension of operations, was offset by a corresponding decrease in mine, mill and general and administrative costs.
Peru’s cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2020 was $1.47, lower than the previous quarter primarily due to higher by-product credits and higher copper production. Peru’s sustaining cash cost per pound of copper produced, net of by-product credits, for the fourth quarter 2020 increased compared to the prior quarter due to capitalized exploration related to option payments for properties surrounding Constancia and elevated sustaining capital spending in the fourth quarter.
Peru cash cost per pound of copper produced, net of by-product credits, for the full year 2020 was $1.45, and 25% higher than the full year 2019 primarily due to an eight-week suspension of Constancia operations during the second quarter and lower grades as the company progresses through the mine plan. Peru sustaining cash cost per pound of copper produced, net of by-product credits, was $2.20 for the full year 2020. This represents a 33% increase from 2019 primarily due to the same factors affecting cash costs.
Manitoba Operations Review
| Manitoba Operations | Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|---|
| Dec. 31, | Sep. 30, | Dec. 31, | Dec. 31, | Dec. 31, | ||
| 2020 | 2020 | 2019 | 2020 | 2019 | ||
| Lalor ore mined | tonnes | 468,101 | 357,213 | 390,140 | 1,654,240 | 1,536,780 |
| Copper | % | 0.80 | 0.66 | 0.80 | 0.74 | 0.75 |
| Zinc | % | 5.54 | 5.98 | 6.20 | 5.73 | 6.36 |
| Gold | g/tonne | 2.79 | 2.28 | 2.63 | 2.51 | 2.16 |
| Silver | g/tonne | 24.96 | 21.23 | 28.38 | 25.31 | 25.51 |
| 777 ore mined | tonnes | 164,856 | 264,905 | 269,342 | 991,576 | 1,109,782 |
| Copper | % | 1.89 | 0.98 | 1.17 | 1.40 | 1.37 |
| Zinc | % | 2.98 | 3.95 | 3.33 | 3.88 | 3.22 |
| Gold | g/tonne | 1.85 | 2.01 | 1.52 | 1.90 | 1.61 |
| Silver | g/tonne | 21.64 | 24.25 | 18.52 | 24.13 | 18.67 |
Stall Concentrator:
| Ore milled | tonnes | 372,624 | 335,739 | 310,622 | 1,412,751 | 1,290,300 |
| Copper | % | 0.79 | 0.68 | 0.80 | 0.73 | 0.73 |
| Zinc | % | 5.47 | 6.11 | 6.24 | 5.76 | 6.39 |
| Gold | g/tonne | 2.88 | 2.35 | 2.60 | 2.55 | 2.13 |
| Silver | g/tonne | 24.43 | 22.08 | 28.12 | 25.37 | 25.48 |
| Copper recovery | % | 87.1 | 84.0 | 85.9 | 86.2 | 85.9 |
| Zinc recovery | % | 90.9 | 92.7 | 90.7 | 91.9 | 91.1 |
| Gold recovery | % | 59.5 | 57.4 | 61.1 | 60.0 | 56.8 |
| Silver recovery | % | 60.3 | 57.5 | 62.9 | 60.4 | 60.4 |
Flin Flon Concentrator:
| Ore milled | tonnes | 225,663 | 322,156 | 374,529 | 1,205,314 | 1,362,006 |
| Copper | % | 1.59 | 0.99 | 1.11 | 1.28 | 1.27 |
| Zinc | % | 3.87 | 4.07 | 4.05 | 4.21 | 3.78 |
| Gold | g/tonne | 1.99 | 1.99 | 1.75 | 1.96 | 1.72 |
| Silver | g/tonne | 22.65 | 24.01 | 20.56 | 24.26 | 19.84 |
| Copper recovery | % | 88.1 | 83.9 | 86.9 | 86.0 | 88.0 |
| Zinc recovery | % | 83.9 | 87.9 | 85.8 | 85.5 | 85.5 |
| Gold recovery | % | 56.6 | 55.3 | 56.1 | 56.0 | 59.4 |
| Silver recovery | % | 46.5 | 42.0 | 49.2 | 45.9 | 50.8 |
Total contained metal in concentrate
| Copper | tonnes | 5,724 | 4,592 | 5,763 | 22,183 | 23,354 |
| Zinc | tonnes | 25,843 | 30,570 | 30,592 | 118,130 | 119,106 |
| Gold | ounces | 28,687 | 25,994 | 27,705 | 112,227 | 94,969 |
| Silver | ounces | 252,904 | 241,477 | 298,363 | 1,127,901 | 1,080,561 |
| Precious metals1 | ounces | 31,529 | 28,657 | 31,967 | 124,900 | 110,406 |
Total payable metal sold
| Copper | tonnes | 4,380 | 4,249 | 5,285 | 20,382 | 22,335 |
| Zinc2 | tonnes | 28,431 | 26,520 | 28,001 | 109,347 | 104,319 |
| Gold | ounces | 31,882 | 26,852 | 25,520 | 111,963 | 90,043 |
| Silver | ounces | 281,541 | 271,900 | 242,584 | 1,067,038 | 1,000,430 |
| Combined unit | C$/tonne | 140 | 126 | 128 | 132 | 134 |
operating cost3,4 Cash cost4 $/lb (3.48) (3.41) (1.26) (2.20) (0.75)
Sustaining cash cost4 $/lb (0.36) 0.83 1.83 1.02 2.07 1 Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.
2 Includes refined zinc metal sold and payable zinc in concentrate sold.
3 Reflects combined mine, mill and G&A costs per tonne of ore milled.
4 Combined unit cost, cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
The Manitoba business unit had strong operating performance across the mines, mills and zinc plant during the fourth quarter despite the 777 shaft incident, which resulted in the suspension of hoisting operations for six weeks. Despite the fourth quarter production interruption at the 777 mine, annual guidance for all metals and unit costs was achieved in Manitoba, with copper production exceeding the upper end of the guidance range.
In the face of the growing COVID-19 pandemic, new controls were added at the Snow Lake camp by introducing point of care PCR testing while maintaining the existing controls that were developed in the early part of the year. The company’s health and safety committees have continued to work collaboratively with local health units with a focus on keeping Hudbay’s employees and communities safe.
The coordinated business unit response to the 777 shaft incident focused on mitigating production losses by efficiently completing the repairs in the shaft, allowing the mine to return to normal operations quicker than expected. A business continuity plan was established that relocated employees and equipment from 777 to Lalor and utilized Lalor’s ramp to truck additional ore to surface from the upper parts of the mine at a rate of approximately 650 tonnes per day. This plan was successfully executed allowing Lalor to achieve record quarterly production, averaging over 5,000 tonnes per day in the quarter. Lalor continued to produce at a higher tonnage rate through the month of December mainly due to ongoing continuous improvement initiatives.
Production during the quarter included 25,843 tonnes of zinc, 5,724 tonnes of copper and 31,529 ounces of precious metals. Copper and gold production results were higher than the previous quarter primarily due to higher head grades and recoveries. Zinc production for the fourth quarter 2020 was lower compared to the third quarter primarily as a result of the 777 production interruption, lower head grades and recoveries. Full year gold and silver production increased by 18% and 4%, respectively, due to higher gold and silver head grades and higher recoveries at Stall compared to prior year. Full year copper production decreased by 5% as reduced production at 777 was not fully offset by the higher throughput at Stall.
The Stall concentrator achieved record throughput of 4,050 tonnes per day during the fourth quarter and approximately 3,870 tonnes per day on an annual basis. Ore processed during the fourth quarter of 2020 was higher than the third quarter of 2020 as additional resources from 777 were deployed to Lalor and incremental ore mined was sent to Stall. Full year ore processed at Stall increased by 9% as a result of ongoing continuous improvement initiatives and higher ore availability from the Lalor mine as indicated above. Although Stall recoveries were generally below levels experienced during the first half of 2020, the trend of improving gold recoveries has continued when compared to the same periods in 2019 due to improved ore characteristics and numerous operational improvement projects implemented at the Stall mill. Ore processed at the Flin Flon concentrator in the fourth quarter of 2020 decreased compared to the previous quarter due to the production interruption at 777. Full year ore processed at the Flin Flon concentrator was 12% lower than 2019 primarily for the same reason as noted above.
Combined mine, mill and G&A unit operating costs in the fourth quarter increased by 11% compared to the third quarter of 2020, but remained within the annual guidance range despite the 777 production interruption. The increase was primarily due to less ore milled in Flin Flon during the fourth quarter. Full year combined mine, mill and G&A unit operating costs in 2020 were slightly lower than 2019 levels as the mines and mills continued to deliver efficient results despite the production interruption at 777.
Manitoba’s cash cost per pound of copper produced, net of by-product credits, for the fourth quarter of 2020 was negative $3.48 and relatively in line with the prior quarter. Manitoba’s sustaining cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2020 was negative $0.36, lower than the previous quarter due to higher copper production and lower cash sustaining capital expenditures and royalties.
Manitoba’s cash cost per pound of copper produced, net of by-product credits was lower in 2020 compared to 2019 due to lower mining costs and higher by-product credits, partially offset by lower copper production. Sustaining cash cost per pound of copper produced, net of by-product credits, were lower in 2020 compared to 2019, primarily due to the same factors affecting cash costs, partially offset by higher cash sustaining capital expenditures.
2021 Key Objectives and Annual Guidance
Hudbay’s annual production and operating cost guidance, along with its annual capital and exploration expenditure forecasts are discussed in detail below. As a result of the COVID-19 global pandemic, Hudbay has experienced operational, supply chain, travel, labour and shipping disruptions, and may continue to experience similar disruptions in the future. Given the uncertainty of the duration and magnitude of the impact of COVID-19, including its impact on the development timeline for Pampacancha, the company’s 2021 production and cost guidance are subject to a higher-than-normal degree of uncertainty. The guidance below does not reflect any potential for additional suspensions or other significant disruption to operations or delays to development activities.
Hudbay’s key objectives for 2021 are to:
- Focus on operational efficiencies and maintain the company’s low-costs of production to continue to generate positive cash flow and strong returns on invested capital;
- Execute development and commence mining activities at the high-grade Pampacancha satellite deposit, further enhancing Constancia’s production and cost profile;
- Deliver the refurbishment of the New Britannia gold mill to significantly increase gold production from Lalor, completing the second phase of the Snow Lake gold strategy;
- Advance the appeals process and alternative options to unlock value at Rosemont;
- Progress the third phase of our Snow Lake gold strategy to further increase annual production scale by advancing studies to optimize recoveries, throughput, resource conversion and exploration;
- Maintain Constancia's industry-leading efficiency metrics by identifying areas of upside through continuous improvement initiatives at the mill and ongoing near-mine exploration;
- Drill regional copper exploration targets near Constancia, in northern Peru, and at Rosemont while continuing to advance exploration programs in the Snow Lake region, Peru and Nevada;
- Support Hudbay’s workforce, their families and the communities in which the company operates through continuing to make health and safety a priority and providing ongoing COVID-19 support; and,
- Evaluate exploration, organic growth and acquisition opportunities that meet Hudbay’s stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the company and its stakeholders.
Production Guidance
Contained Metal in Concentrate1 2021 Guidance Year Ended 2020 Guidance2 Dec. 31, 2020
Peru
| Copper | tonnes | 72,000 - 88,000 | 73,150 | 65,000 - 75,000 | |
| Gold3 | oz | 40,000 - 50,000 | 12,395 | - | |
| Silver3 | oz | 1,800,000 - 2,170,000 | 1,622,972 | - | |
| Molybdenum | tonnes | 1,400 - 1,700 | 1,204 | 1,100 - 1,300 | |
| Precious metals3 | oz | - | 30,630 | 25,000 - 35,000 |
Manitoba
| Zinc | tonnes | 96,000 - 107,000 | 118,130 | 105,000 - 125,000 | |
| Gold3 | oz | 150,000 - 165,000 | 112,227 | - | |
| Copper | tonnes | 20,000 - 24,000 | 22,183 | 18,000 - 22,000 | |
| Silver3 | oz | 1,200,000 - 1,400,000 | 1,127,901 | - | |
| Precious metals3 | oz | - | 124,900 | 110,000 - 135,000 |
Total
Copper tonnes 92,000 - 112,000 95,333 83,000 - 97,000 Gold3 oz 190,000 - 215,000 124,622 -
| Zinc | tonnes | 96,000 - 107,000 | 118,130 | 105,000 - 125,000 |
| Silver3 | oz | 3,000,000 - 3,570,000 | 2,750,873 | - |
| Molybdenum | tonnes | 1,400 - 1,700 | 1,204 | 1,100 - 1,300 |
| Precious metals3 | oz | - | 155,530 | 135,000 - 170,000 |
1 Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.
2 Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure. 3 Precious metals production includes gold and silver production on a gold-equivalent basis and is only reported for 2020 since separate guidance for each of gold and silver was introduced in 2021. For 2020, silver is converted to gold at a ratio of 89:1.
On a consolidated basis, the company met 2020 production guidance for all metals, and copper production exceeded the guidance range in Manitoba. Consolidated copper production was 6% higher than the mid-point of the guidance range due to strong performance at the Constancia operations in the second half of the year and the mining of higher copper grade stopes at 777.
In 2021, consolidated copper production is forecast to increase by 7%ii compared to 2020 production primarily as a result of higher expected copper production in Peru, given 2020 production was impacted by an eight-week temporary mine interruption related to a government-declared state of emergency. Consolidated gold production in 2021 is expected to increase by 62%ii year-over-year due to higher gold production in both Manitoba and Peru. In Manitoba, gold production is expected to increase by 40%ii in 2021 due to the planned early startup of the New Britannia gold mill. In Peru, gold production is expected to more than triple in 2021 as the company expects to see the benefits from the higher grades at the Pampacancha satellite deposit. Zinc production is expected to decline by 14%ii year-over-year as a result of prioritizing the mining of the gold-rich zones at Lalor in connection with the early startup of the New Britannia mill, which will result in mining less of the zinc-rich base metal zones at Lalor.
Peru’s 2021 production guidance assumes mining of Pampacancha will begin in the second quarter, with the initial phase of lower copper grades, but higher gold grades, expected to continue for the balance of the year before higher copper grades are forecast to enter the mine plan in 2022. Manitoba’s 2021 production guidance reflects an increase in Lalor’s mine throughput to 4,650 tonnes per day, from the previous 4,500 tonnes per day, as the recent trend of stronger production from the mine is expected to continue.
Hudbay expects to publish updated mine plans for each of its Constancia and Snow Lake operations with its annual mineral reserve and resource update at the end of March 2021, as discussed in the “Other Key Strategic Initiatives” section in this news release. The new Constancia mine plan is expected to reflect an increase in copper and gold production from 2022 to 2025 as the higher grades from the Pampacancha deposit enter the mine plan. This is expected to offset the lost copper production from the 777 closure in mid-2022 and enable a steady state in Hudbay’s consolidated copper production. The new Constancia mine plan will incorporate new reserves from the Constancia North property, which will extend the Constancia pit. The new mine plan will also include updated unit cost assumptions based on recent operational and business activities. The new Snow Lake mine plan is expected to reflect an increase in Lalor’s mine production rate beyond 4,650 tonnes per day, and incorporate the results of the 1901 prefeasibility study and the Stall mill recovery improvement study. Given the pending mine plan updates, the company expects to issue its new three-year production outlook once the updated mine plans have been released.