TSX, NYSE – HBM 2023 No. 2 Hudbay Announces Fourth Quarter and Full Year 2022 Results and Provides Annual Guidance
Toronto, Ontario, February 23, 2023 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today released its fourth quarter and full year 2022 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 2022 consolidated production guidance for all metals and consolidated cash cost and sustaining cash cost guidance.
- Full year consolidated copper production of 104,173 tonnes, consolidated gold production of 219,700 ounces and consolidated silver production of 3,161,294 increased by 5%, 13% and 4%, respectively, in 2022 compared to 2021.
- The Peru operations delivered strong performance in the fourth quarter with a 21% increase in copper production and a 64% increase in gold production, compared to the third quarter of 2022, as grades and recoveries improved. The fourth quarter of 2022 was a record quarter for gold production in Peru. Peru's cash cost per pound of copper produced, net of by-product creditsi, improved to $1.34 in the fourth quarter, representing a 20% decline compared to the third quarter of 2022.
- The Manitoba operations saw a 6% increase in Lalor’s ore production in the fourth quarter compared to the third quarter of 2022, and the Lalor mine continues to ramp up following the transition of Flin Flon employees to Snow Lake. Manitoba’s full year gold cash cost per ounce of gold produced, net of by-product creditsi, was 1% below the low end of the annual guidance range.
- Full year consolidated cash cost and sustaining cash cost per pound of copper produced, net of by-product creditsi, were $0.86 and $2.07, respectively, and similar to 2021 levels, despite inflationary cost pressures which were offset by higher copper production and higher by-product credits.
- Fourth quarter net loss and loss per share were $17.4 million and $0.07, respectively. After adjusting for a non-cash loss of $13.5 million related to a quarterly revaluation of the Flin Flon environmental reclamation provision due to changes in real, long-term risk-free discount rates, and an $8.0 million revaluation loss related to the gold prepayment liability, among other items, fourth quarter adjusted earningsi per share were $0.01.
- Operating cash flow before change in non-cash working capital was $109.1 million and adjusted EBITDAi was $124.7 million in the fourth quarter, an increase of 34% and 26%, respectively, over the third quarter of 2022, benefiting from higher copper sales volumes and higher molybdenum prices and sales volumes, but negatively impacted by a temporary buildup of unsold inventory in Peru.
- Constancia continued to operate throughout nation-wide road blockades in Peru in December, and while the company was successful in completing two port shipments in December, inventory of approximately 25,000 wet metric tonnes of copper concentrate in Peru was unsold at the end of the quarter.
Executing on Growth Initiatives and Disciplined Capital Allocation
- Successful completion of recent brownfield investment program in 2022 with the Pampacancha satellite deposit contributing higher grade feed to Constancia and the New Britannia mill operating at targeted capacity.
- Invested approximately $80 million in 2022 to successfully execute a new strategy at Copper World focused on project de-risking. The pre-feasibility study for Phase I of Copper World is well-advanced with the main facility engineering completed and metallurgical test work being analyzed as part of the concentrate leaching trade off evaluations.
- Reached a community exploration agreement in 2022 to access the Maria Reyna and Caballito satellite properties located north of Constancia in Peru. Completed the surface investigation work needed to support drill permit applications.
- Initiated deep drilling at Lalor in January 2023 to test the down-dip gold and copper extensions and potentially unlock further value in Snow Lake.
- The Stall recovery improvement program is well-advanced and remains on track for completion in early 2023 with higher gold and copper recoveries expected to commence in the second quarter of 2023.
- Reinvigorated focus on free cash flow and delivered on discretionary spending reduction targets by reducing 2022 growth capital and exploration spending by approximately $30 million in Arizona, Manitoba and Peru.
- Reduced 2023 discretionary spending by more than $50 million primarily related to the deferral of the Copper World definitive feasibility study and the pebble crusher in Peru.
- Repaid approximately 50% of the original gold prepayment liability in 2022 and the company remains focused on reducing net debt throughout 2023.
- Prudent approach to capital allocation demonstrated with the introduction of three prerequisites for sanctioning Copper World, including a prudent financing strategy with multi-faceted financial targets focused on a minimum cash balance, a stated maximum leverage, limited non-recourse project level debt and committed financial partners.
“We delivered on our plan for higher copper production in Peru and higher gold production in Manitoba in 2022, as a result of the successful completion of approximately $250 million in brownfield investments,” said Peter Kukielski, President and Chief Executive Officer. “We are proud to have achieved consolidated production guidance as the team successfully managed the regional logistics and supply chain challenges in Peru at the end of the year and we benefitted from the ongoing optimization efforts at our Snow Lake operations. Our focus for 2023 is to generate free cash flow through continued increases in copper and gold production and remain disciplined with capital allocation as we de-risk the Copper World project in Arizona and unlock value from our exciting pipeline of organic growth opportunities.”
2023 Annual Guidance and Outlook
- Consolidated copper production is forecast to increase by 10%ii to 114,000ii tonnes in 2023, compared to 2022, with higher grades from the Pampacancha deposit in Peru.
- Consolidated gold production is forecast to increase by 30%ii to 285,500ii ounces, compared to 2022, due to significantly higher gold production in Peru and Manitoba.
- Consolidated copper and gold production is expected to further increase in 2024, similar to the previously issued guidance, and 2025 copper and gold production is expected to benefit from an extension of mining activities at Pampacancha into the first half of 2025.
- Consolidated cash cost, net of by-product creditsi, in 2023 is expected to decline by 30%ii and be within a range of $0.40 and $0.80 per pound of copper as a result of higher copper production and gold by-product credits.
- Approximately $65 million reduction in growth capital expenditures and exploration spending is expected in 2023 compared to 2022.
- Total capital expenditures are expected to decline by 13% year-over-year to $300 million in 2023.
- Exploration expenditures are expected to decline by 61% in 2023 as activities are focused on areas with high potential for new discovery and mineral reserve and resource expansion.
Summary of Fourth Quarter Results
Consolidated copper production in the fourth quarter of 2022 was 29,305 tonnes, an increase of 20% compared to the third quarter of 2022, primarily due to higher copper grades in Peru. Consolidated gold production in the fourth quarter of 2022 was 53,920 ounces, a slight increase from the third quarter of 2022 as higher gold grades in Peru partially offset lower Lalor gold grades in Manitoba.
Consolidated cash cost per pound of copper produced, net of by-product creditsi, was $1.08 in the fourth quarter of 2022, compared to $0.58 in the third quarter of 2022. This increase was a result of lower zinc and precious metal sales volumes and continued inflationary cost pressures, partially offset by higher copper production. Consolidated sustaining cash cost per pound of copper produced, net of by-product creditsi, was $2.21 in the fourth quarter of 2022 compared to $1.91 in the third quarter of 2022. This increase was primarily due to the same reasons outlined above and higher capitalized exploration, slightly offset by lower sustaining capital expenditures. Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product creditsi, was $2.41 in the fourth quarter of 2022, higher than $2.16 in the third quarter of 2022, due to the same reasons outlined above.
Cash generated from operating activities in the fourth quarter of 2022 decreased to $86.4 million compared to $172.5 million in the third quarter of 2022, primarily due to a decrease in changes in non-cash working capital. Peru operations were impacted by increasing social unrest following a change in political leadership in December 2022, which resulted in lower-than-planned grades in the fourth quarter. Constancia continued to operate throughout these disruptions with the continued strong support from the local communities and the company’s local workforce. Operating cash flow before change in non-cash working capital was $109.1 million during the fourth quarter of 2022, reflecting an increase from $81.6 million in the third quarter of 2022, primarily as a result of higher copper, gold and molybdenum prices and higher copper sales volumes.
Net loss and loss per share in the fourth quarter of 2022 were $17.4 million and $0.07, respectively, compared to a net loss and loss per share of $8.1 million and $0.03, respectively, in the third quarter of 2022. The 2022 fourth quarter results were negatively impacted by a non-cash loss of $13.5 million related to the quarterly revaluation of the Flin Flon environmental reclamation provision due to changes in real, long-term discount rates, an $8.0 million revaluation loss related to the gold prepayment liability and a $5.8 million loss on changes to other provisions. These costs were offset by a $2.4 million Manitoba post-employment plan curtailment gain.
Adjusted net earningsi and adjusted net earnings per sharei in the fourth quarter of 2022 were $2.6 million and $0.01 per share, respectively, after adjusting for the non-cash revaluation loss of the environmental reclamation provision and the revaluation loss related to the gold prepayment liability, among other items. This compares to adjusted net lossi and adjusted net loss per sharei of $12.4 million, and $0.05 in the third quarter of 2022. Fourth quarter adjusted EBITDAi was $124.7 million, an increase of 26% from $99.3 million in the third quarter of 2022.
As at December 31, 2022, the company’s liquidity includes $225.7 million in cash as well as undrawn availability of $354.3 million under its revolving credit facilities. Hudbay expects that its current liquidity combined with cash flow from operations, will be sufficient to meet the company’s liquidity needs for the foreseeable future.
Summary of Full Year Results
Hudbay achieved its 2022 consolidated production guidance for all metals. However, production of copper and gold was at the lower end of the guidance range primarily due to lower-than-planned grades in the fourth quarter in Peru caused by short-term mine plan changes that were implemented to mitigate the risks associated with logistical and supply chain disruptions in Peru.
Consolidated cash costs per pound of copper produced, net of by-product creditsi, in 2022 was $0.86 compared to $0.74 in 2021 and consolidated sustaining cash cost per pound of copper produced, net of by-product creditsi, in 2022 remained substantially unchanged from 2021 at $2.07. Both measures remained in line with the 2022 guidance ranges.
Cash generated from operating activities increased to $487.8 million in 2022 from $385.1 million in 2021. A portion of the increase is due to changes in non-cash working capital caused primarily by timing and changes in provisionally priced receivables and changes to other financial assets, liabilities and inventories. Operating cash flow before changes in non‑cash working capital decreased to $391.7 million from $483.9 million in 2021. The decrease is the result of lower copper prices, lower zinc sales volumes and inflationary cost pressures on mine operating costs, partially offset by higher zinc prices and higher gold sales volumes. Zinc sales volumes were lower than the prior year due to the planned closure of the company’s 777 mine in June 2022.
Net earnings and earnings per share for 2022 were $70.4 million and $0.27, respectively, compared to a net loss and loss per share of $244.4 million and $0.93, respectively, in 2021. The prior period results were negatively impacted by a $193.5 million revaluation of the Flin Flon environmental reclamation provision resulting in an impairment charge of the same amount as well as a $66.7 million in mark-to-market loss mostly from $49.8 million of write-offs for a noncash embedded derivative on the early redemption option associated with the company’s extinguished senior unsecured notes. Full year 2022 net earnings benefited from a non-cash gain of $133.5 million related to the revaluation of the Flin Flon environmental reclamation provision. The full year 2022 financial results were negatively impacted by a $95.0 million pre-tax impairment loss related to certain specific capitalized costs and assets associated with the previous stand-alone development plan for the Rosemont deposit, which were determined to no longer be recoverable.
Financial Condition ($000s) Dec. 31, 2022 Sep. 30, 2022 Dec. 31, 2021
225,665 286,117 270,989 Cash and cash equivalents Total long-term debt 1,180,274 1,184,162 1,183,237 Net debt1 909,285 958,497 897,120
| Working capital2 | 76,534 | 99,807 | 147,512 |
| Total assets | 4,325,943 | 4,287,794 | 4,616,231 |
| Equity | 1,571,809 | 1,570,889 | 1,476,828 |
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.
2 Working capital is determined as total current assets less total current liabilities as defined under IFRS and disclosed on the consolidated financial statements.
Financial Performance Three Months Ended
| Dec. 31, 2022 | Sep. 30, 2022 | Dec. 31, 2021 | ||
|---|---|---|---|---|
| Revenue | $000s | 321,196 | 346,171 | 425,170 |
| Cost of sales | $000s | 251,520 | 313,741 | 343,426 |
| (Loss) earnings before tax | $000s | (14,287) | (263) | (149) |
| Net (loss) earnings | $000s | (17,441) | (8,135) | (10,453) |
| Basic and diluted (loss) earnings per share | $/share | (0.07) | (0.03) | (0.04) |
| Adjusted earnings (loss) per share1 | $/share | 0.01 | (0.05) | 0.13 |
| Operating cash flow before change in non- | $ millions | 109.1 | 81.6 | 156.9 |
cash working capital Adjusted EBITDA1 $ millions 124.7 99.3 180.8
Year Ended Dec. 31, 2022 Dec. 31, 2021
| Revenue | $000s | 1,461,440 | 1,501,998 |
| Cost of sales | $000s | 1,184,552 | 1,370,979 |
| Earnings (loss) before tax | $000s | 95,815 | (202,751) |
| Net earnings (loss) | $000s | 70,382 | (244,358) |
| Basic and diluted (loss) earnings per share | $/share | 0.27 | (0.93) |
| Adjusted earnings per share1 | $/share | 0.10 | 0.09 |
Operating cash flow before change in non- $ millions 391.7 483.9 cash working capital Adjusted EBITDA1 $ millions 475.9 547.8 1 Adjusted earnings (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 Production and Cost Performance Three Months Ended Dec. 31, 2022 Sep. 30, 2022 Dec. 31, 2021 Contained metal in concentrate and doré produced1
| Copper | tonnes | 29,305 | 24,498 | 28,198 |
| Gold | ounces | 53,920 | 53,179 | 64,159 |
| Silver | ounces | 795,015 | 717,069 | 899,713 |
| Zinc | tonnes | 6,326 | 9,750 | 23,207 |
| Molybdenum | tonnes | 344 | 437 | 275 |
Payable metal sold
| Copper | tonnes | 25,415 | 24,799 | 24,959 |
| Gold2 | ounces | 47,256 | 66,932 | 56,927 |
| Silver2 | ounces | 559,306 | 816,416 | 638,640 |
| Zinc3 | tonnes | 8,230 | 12,714 | 21,112 |
| Molybdenum | tonnes | 421 | 511 | 245 |
Consolidated cash cost per pound of copper produced4
| Cash cost | $/lb | 1.08 | 0.58 | 0.51 |
| Sustaining cash cost | $/lb | 2.21 | 1.91 | 1.95 |
| All-in sustaining cash cost | $/lb | 2.41 | 2.16 | 2.20 |
Year Ended Dec. 31, 2022 Dec. 31, 2021 Contained metal in concentrate and doré produced1
| Copper | tonnes | 104,173 | 99,470 |
| Gold | ounces | 219,700 | 193,783 |
| Silver | ounces | 3,161,294 | 3,045,481 |
| Zinc | tonnes | 55,381 | 93,529 |
| Molybdenum | tonnes | 1,377 | 1,146 |
Payable metal sold
| Copper | tonnes | 94,473 | 92,200 |
| Gold2 | ounces | 213,415 | 168,358 |
| Silver2 | ounces | 2,978,485 | 2,427,508 |
| Zinc3 | tonnes | 59,043 | 96,435 |
| Molybdenum | tonnes | 1,352 | 1,098 |
Consolidated cash cost per pound of copper produced4
| Cash cost | $/lb | 0.86 | 0.74 |
| Sustaining cash cost | $/lb | 2.07 | 2.07 |
| All-in sustaining cash cost | $/lb | 2.26 | 2.30 |
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 Includes total payable gold and silver in concentrate and in doré sold.
3 Includes refined zinc metal sold and payable zinc in concentrate 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, | ||
| 2022 | 2022 | 2021 | 2022 | 2021 | ||
| Constancia ore mined1 | tonnes | 5,614,918 | 6,300,252 | 7,742,469 | 25,840,435 | 29,714,327 |
| Copper | % | 0.40 | 0.36 | 0.33 | 0.35 | 0.31 |
| Gold | g/tonne | 0.04 | 0.05 | 0.04 | 0.04 | 0.04 |
| Silver | g/tonne | 3.48 | 3.38 | 2.81 | 3.40 | 2.88 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Pampacancha ore mined1 | tonnes | 3,771,629 | 2,488,928 | 2,107,196 | 8,319,250 | 5,141,001 |
| Copper | % | 0.37 | 0.29 | 0.27 | 0.33 | 0.27 |
| Gold | g/tonne | 0.29 | 0.23 | 0.34 | 0.29 | 0.30 |
| Silver | g/tonne | 3.84 | 4.30 | 4.26 | 4.06 | 4.02 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Total ore mined | tonnes | 9,386,547 | 8,789,180 | 9,849,665 | 34,159,685 | 34,855,328 |
| Strip Ratio2 | 0.97 | 1.26 | 0.95 | 1.13 | 1.02 | |
| Ore milled | tonnes | 7,795,735 | 7,742,020 | 8,048,925 | 30,522,294 | 28,809,755 |
| Copper | % | 0.41 | 0.34 | 0.33 | 0.34 | 0.32 |
| Gold | g/tonne | 0.12 | 0.08 | 0.11 | 0.09 | 0.08 |
| Silver | g/tonne | 3.93 | 3.48 | 3.67 | 3.58 | 3.35 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Copper recovery | % | 85.1 | 84.5 | 86.0 | 85.0 | 84.6 |
| Gold recovery | % | 69.6 | 61.9 | 63.6 | 63.6 | 64.6 |
| Silver recovery | % | 66.5 | 65.2 | 60.8 | 65.7 | 63.7 |
| Molybdenum recovery | % | 37.7 | 41.0 | 26.7 | 34.8 | 31.5 |
Contained metal in concentrate
| Copper | tonnes | 27,047 | 22,302 | 22,856 | 89,395 | 77,813 |
| Gold | ounces | 20,860 | 12,722 | 17,917 | 58,229 | 50,306 |
| Silver | ounces | 655,257 | 564,299 | 578,140 | 2,309,352 | 1,972,949 |
| Molybdenum | tonnes | 344 | 437 | 275 | 1,377 | 1,146 |
Payable metal sold
| Copper | tonnes | 23,789 | 20,718 | 20,551 | 79,805 | 71,398 |
| Gold | ounces | 15,116 | 11,970 | 16,304 | 49,968 | 41,807 |
| Silver | ounces | 411,129 | 513,470 | 380,712 | 2,045,678 | 1,490,651 |
| Molybdenum | tonnes | 421 | 511 | 245 | 1,352 | 1,098 |
| Combined unit operating | $/tonne | 13.64 | 13.06 | 9.96 | 12.78 | 10.70 |
cost3,4,5 Cash cost4,5 $/lb 1.34 1.68 1.28 1.58 1.54 Sustaining cash cost4,5 $/lb 2.09 2.46 2.46 2.35 2.46 1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled. 2 Strip ratio is calculated as waste mined divided by ore mined.
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 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 and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this news release.
5 Excludes approximately $0.7 million, or $0.09 per tonne, of COVID-19 related costs during the three months ended December 31, 2022, $0.9 million, or $0.12 per tonne, of COVID-19 related costs during the three months ended September 30, 2022 and $4.1 million, or $0.51 per tonne, during the three months ended December 31, 2021.Excludes approximately $5.2 million, or $0.17 per tonne, of COVID-19 related costs during the twelve months ended December 31, 2022 and $19.8 million or $0.69 per tonne, of COVID-19 related costs during the twelve months ended December 31, 2021.
During the fourth quarter of 2022, the Constancia operations produced 27,047 tonnes of copper, 20,860 ounces of gold, 655,257 ounces of silver and 344 tonnes of molybdenum. Production of copper, gold and silver was 21%, 64% and 16% higher than the third quarter of 2022 due to higher grades and recoveries, partially offset by a planned mill maintenance shutdown in November. The fourth quarter of 2022 was a record quarter for gold production in Peru.
Full year 2022 production of copper increased by 15% year-over-year to 89,395 tonnes, within the guidance range. Similarly, full year 2022 production of gold, silver and molybdenum increased by 16%, 17% and 20%, respectively, compared to 2021 due to higher throughput, higher copper and precious metal grades and higher copper, silver and molybdenum recoveries. Molybdenum production was in line with annual guidance range, whereas silver production exceeded the top end of the annual guidance range by 10%. Gold production fell short of the annual guidance range primarily due to lower-than-planned grades from the Pampacancha pit in the fourth quarter of 2022 as a result of short-term changes in the mine plan, as described below.
Total ore mined in the fourth quarter of 2022 increased by 7% compared to the third quarter of 2022, despite a shortterm change in the mine plan that prioritized the processing of lower grade stockpiles and shorter haulage distance ore from the Constancia pit. These changes were implemented to ration fuel during a period of nation-wide social unrest and road blockades following a change in Peru's political leadership in early December 2022, and ensured the plant continued to operate uninterrupted. Despite impacts on the ability to steadily receive fuel and transport concentrates, the Constancia mill continued to operate throughout these disruptions as the company implemented plans to mitigate the risk to its operations with strong support from the local communities, the company’s local workforce and the community-owned concentrate transportation companies.
Ore milled during the fourth quarter of 2022 was slightly higher than the third quarter of 2022 despite the impact of the planned mill maintenance program in November. Milled copper grades increased by 21% in the fourth quarter of 2022 compared to the third quarter due to higher head grades from both Pampacancha and Constancia. Copper, gold and silver recoveries in the fourth quarter of 2022 were higher than the third quarter of 2022 due to higher milled grades, and the fourth quarter achieved a record quarterly gold recovery rate of 70%.
Combined mine, mill and G&A unit operating costsi in the fourth quarter of 2022 were 4% higher than the third quarter of 2022, primarily due to higher mining costs from continued inflationary pressures. Full year combined mine, mill and G&A unit operating costs for 2022 were 19% higher than the same period in 2021 due to a higher strip ratio, higher mining costs and inflationary pressures on fuel, consumables and energy costs, partially offset by higher ore milled.
Peru’s cash cost per pound of copper produced, net of by-product creditsi, in the fourth quarter of 2022 declined by 20% to $1.34, compared to $1.68 in the third quarter, primarily due to higher copper production and higher by-product credits resulting from higher grades in the fourth quarter. Peru’s full year cash cost per pound of copper produced, net of by-product creditsi, was $1.58, a slight increase of 3% compared to the same period of 2021. This exceeded the upper end of the 2022 guidance range primarily due to higher mining and milling costs from input cost inflation and lower than expected by-product credits due to lower-than-expected gold grades from Pampacancha in the fourth quarter of 2022, as described above.
Peru’s sustaining cash cost per pound of copper produced, net of by-product creditsi, in the fourth quarter of 2022 declined by 15% to $2.09, compared to $2.46 in the third quarter, primarily due to the same factors affecting cash cost and lower sustaining capital expenditures, partially offset by higher capitalized exploration. Peru’s full year sustaining cash cost per pound of copper produced, net of by-product creditsi, declined by 4% compared to 2021, due to lower sustaining capital expenditures and higher copper and gold production, offset, in part, by higher mining and milling costs from input cost inflation.
While Hudbay was able to complete two copper concentrate shipments from the Matarani port during December, Peru's copper, gold and silver sales in the fourth quarter of 2022 were impacted by higher-than-normal unsold copper concentrate inventory levels of approximately 25,000 wet metric tonnes as at December 31, 2022, due to the nationwide road blockades in early December. Hudbay has been able to steadily operate the Constancia mill throughout the recent road blockades, and despite completing three copper concentrate shipments from the port in January, Peru’s copper concentrate inventory levels at site reached a peak of approximately 47,000 wet metric tonnes in mid- February when transportation of concentrate resumed with the assistance of the community-based concentrate trucking companies. Hudbay expects concentrate inventory levels to normalize over the next several months.
Manitoba Operations Review
| Manitoba Operations | Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|---|
| Dec. 31, | Sep. 30, | Dec. 31, | Dec. 31, | Dec. 31, | ||
| 2022 | 2022 | 2021 | 2022 | 2021 | ||
| Lalor ore mined | tonnes | 369,453 | 347,345 | 422,208 | 1,516,203 | 1,593,141 |
| Copper | % | 0.73 | 0.71 | 0.78 | 0.73 | 0.71 |
| Zinc | % | 2.17 | 3.27 | 4.19 | 3.14 | 4.23 |
| Gold | g/tonne | 4.00 | 4.57 | 3.92 | 4.00 | 3.41 |
| Silver | g/tonne | 19.37 | 21.27 | 30.35 | 21.96 | 24.66 |
| 777 ore mined | tonnes | — | — | 266,744 | 484,355 | 1,053,710 |
| Copper | % | — | — | 1.13 | 1.12 | 1.28 |
| Zinc | % | — | — | 4.16 | 3.83 | 3.91 |
| Gold | g/tonne | — | — | 1.80 | 1.66 | 2.03 |
| Silver | g/tonne | — | — | 25.02 | 20.85 | 25.25 |
Stall Concentrator & New Britannia Mill:
| Ore milled | tonnes | 345,492 | 362,108 | 419,727 | 1,510,907 | 1,506,756 |
| Copper | % | 0.73 | 0.69 | 0.75 | 0.75 | 0.72 |
| Zinc | % | 2.31 | 3.33 | 4.12 | 3.30 | 4.30 |
| Gold | g/tonne | 3.98 | 4.60 | 3.90 | 4.08 | 3.42 |
| Silver | g/tonne | 20.40 | 20.66 | 30.07 | 22.15 | 24.95 |
| Copper recovery - concentrate | % | 89.2 | 88.3 | 88.7 | 88.6 | 86.8 |
| Zinc recovery - concentrate (Stall) | % | 90.1 | 88.0 | 87.4 | 86.6 | 88.9 |
| Gold recovery - concentrate | % | 58.8 | 60.9 | 54.6 | 59.2 | 54.9 |
| Silver recovery - concentrate | % | 56.1 | 57.6 | 53.9 | 58.1 | 54.4 |
Flin Flon Concentrator:
| Ore milled | tonnes | — | — | 262,565 | 497,344 | 1,133,516 |
| Copper | % | — | — | 1.12 | 1.11 | 1.23 |
| Zinc | % | — | — | 4.16 | 3.87 | 3.95 |
| Gold | g/tonne | — | — | 1.78 | 1.67 | 2.04 |
| Silver | g/tonne | — | — | 25.04 | 21.00 | 24.90 |
| Copper recovery | % | — | — | 86.7 | 86.7 | 87.7 |
| Zinc recovery | % | — | — | 83.1 | 83.0 | 83.0 |
| Gold recovery | % | — | — | 59.2 | 57.1 | 58.5 |
| Silver recovery | % | — | — | 45.6 | 51.8 | 45.1 |
Total contained metal in concentrate and doré
| Copper | tonnes | 2,258 | 2,196 | 5,342 | 14,778 | 21,657 |
| Zinc | tonnes | 6,326 | 9,750 | 23,207 | 55,381 | 93,529 |
| Gold | ounces | 33,060 | 40,457 | 46,242 | 161,471 | 143,477 |
| Silver | ounces | 139,758 | 152,770 | 321,573 | 851,942 | 1,072,532 |
Total payable metal sold
| Copper | tonnes | 1,626 | 4,081 | 4,408 | 14,668 | 20,802 |
| Zinc1 | tonnes | 8,230 | 12,714 | 21,112 | 59,043 | 96,435 |
| Gold2 | ounces | 32,140 | 54,962 | 40,623 | 163,447 | 126,551 |
| Silver2 | ounces | 148,177 | 302,946 | 257,928 | 932,807 | 936,857 |
| Combined unit operating cost3,4 | C$/tonne | 241 | 235 | 168 | 195 | 154 |
| Gold cash cost4,5 | $/oz | 922 | 216 | — | 297 | — |
| Gold sustaining cash cost4,5 | $/oz | 1,795 | 1,045 | — | 1,091 | — |
1 Includes refined zinc metal sold and payable zinc in concentrate sold.
2 Includes total payable precious metals in concentrate and in doré sold.
3 Reflects combined mine, mill and G&A costs per tonne of ore milled.
4 Combined unit cost, cash cost, sustaining cash cost per ounce of gold 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.
5 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits, were introduced in 2022 and do not have a published comparative for 2021.
During the fourth quarter of 2022, the Manitoba operations produced 33,060 ounces of gold, 2,258 tonnes of copper, 6,326 tonnes of zinc and 139,758 ounces of silver. Gold, zinc and silver production was lower than the third quarter of 2022 primarily as a result of lower grades at Lalor, in line with the mine plan. Year-over-year metal production was impacted by the planned closure of 777 in June 2022, resulting in a decrease in copper, zinc and silver production, while full year gold production increased by 13%, compared to the prior year, as New Britannia ramped up to full production. Full year production of all metals in Manitoba achieved the 2022 annual guidance ranges.
During the fourth quarter of 2022, the Manitoba team continued to focus on integrating the Flin Flon employees and equipment into the Snow Lake operations and reducing reliance on higher cost contractors. Lalor's ore production during the quarter was impacted by a planned maintenance program to replace surface ore chutes as well as various other pre-winter maintenance activities including the muck circuit, hoist drive and electrical maintenance. The company continues to advance several key initiatives to support higher production levels at Lalor, including building longhole inventory, improving stope muck fragmentation, optimizing the development drift size and focusing on shaft availability improvements to enable more ore to be hoisted to surface while reducing inefficient trucking of ore via the ramp.
Ore mined at Lalor increased by 6% in the fourth quarter of 2022, compared to the third quarter of 2022, mainly due to the higher production initiatives and the integration of the Flin Flon employees and equipment, partially offset by the planned maintenance program mentioned above. Gold, zinc and silver grades mined during the fourth quarter of 2022 were lower than the third quarter and copper grades were higher.
The combined Snow Lake mills processed 5% less ore in the fourth quarter of 2022 compared to the third quarter of 2022, mainly due to the above noted transition and planned maintenance program impacting Lalor and the milling operations. Stall recoveries were consistent with the metallurgical model for the head grades delivered. The New Britannia mill continued to achieve consistent production in the fourth quarter, averaging approximately 1,530 tonnes per day. Metal recoveries have now stabilized near targeted levels for the mill. Additional improvement initiatives will continue to be advanced in the upcoming quarters with a focus on reducing reagent and grinding media consumption, which has contributed to higher operating costs than planned. These initiatives require minimal capital expenditures and will further improve overall metal recoveries and copper concentrate grades.
Combined mine, mill and G&A unit operating costsi in the fourth quarter of 2022 were at similar levels compared to the third quarter of 2022. Full year 2022 combined unit operating costs increased by 27% compared to 2021, reflecting the standalone higher cost structure of Snow Lake after the closure of the 777 mine and the Flin Flon operations in mid-2022. As previously disclosed, combined unit operating costs for 2022 have exceeded the upper end of the guidance range by 5% due to ongoing inflationary cost pressures and the Snow Lake transition.
Manitoba’s cash cost per ounce of gold produced, net of by-product creditsi, in the fourth quarter of 2022 was $922, higher than the third quarter of 2022, primarily due to lower by-product credits and lower gold production. This was partially offset by lower mining, milling and general and administrative costs as well as lower treatment, refining and freight costs. However, full year 2022 cash cost per ounce of gold produced, net of by-product creditsi, was $297, 1% below the low end of the 2022 guidance range.
Manitoba’s sustaining cash cost per ounce of gold produced, net of by-product creditsi, in the fourth quarter was $1,795, higher than the third quarter of 2022, primarily due to the same factors affecting cash cost, partially offset by lower sustaining capital expenditures.
Commitment to Climate Change Initiatives
On December 12, 2022, Hudbay announced its commitment to achieve net zero greenhouse gas ("GHG") emissions by 2050 and the adoption of interim 2030 GHG reduction targets to support this commitment. The company initiated a roadmap to further identify and manage risks associated with climate change, and opportunities to reduce GHG emissions in alignment with global decarbonization goals.
While Hudbay’s operations are well-positioned in the lower half of the global GHG emissions curve for copper operations, the company recognizes its role in mitigating climate change. Hudbay’s GHG emissions reduction plan includes the following initiatives:
- Pursuing a 50% reduction in absolute Scope 1 and Scope 2 emissions from existing operations by 2030 (compared to 2021)
- Achieving net zero total emissions by 2050
- Reporting on material Scope 3 emissions in the near-term
- Assessing acquisitions and new projects against corporate emissions targets
- Continuing to be transparent with GHG performance data disclosure, including reporting total GHG emissions and GHG intensity
Hudbay's efforts have been focused on improving operating efficiencies to reduce the GHG emissions intensity at its mines through initiatives such as ore sorting and recovery improvement programs. The company has identified multiple opportunities to achieve further reductions in emissions, including grid decarbonization in Peru, fleet and heating electrification and fuel switching in mobile equipment. Hudbay will continue to monitor and evaluate existing and new technologies as they become financially viable to implement at the company’s operations. The company will also consider emissions reduction opportunities in the design of its brownfield and greenfield growth projects. All initiatives will balance emissions and economic targets as part of the company’s disciplined capital allocation strategy.
Advancing Activities to Prudently De-risk Copper World
In 2022, Hudbay invested approximately $80 million at Copper World to successfully execute a new strategy focused on a two-phase mine plan with the first phase located on private land claims. This strategy involved significant drilling campaigns to delineate seven newly discovered deposits adjacent to the known East deposit, the expansion of the company’s private land package to over 4,500 acres, and the completion of a robust preliminary economic assessment for Copper World demonstrating a 16-year mine plan for Phase I, requiring only state level permits, and an expansion to a 44-year operation in Phase II with the utilization of federal lands.
Hudbay continues to advance pre-feasibility activities for Phase I of the Copper World project, which is expected to support the conversion of mineral resources to mineral reserves and optimize the layout and sequencing of the mineral processing facilities, in addition to evaluating other upside opportunities. Pre-feasibility level engineering of the main processing facility was completed by year-end together with geotechnical and hydrogeological site investigation activities. Metallurgical test work activities continued into 2023 and the results are being analyzed as part of concentrate leaching trade off evaluations. A pre-feasibility study for Phase I of the Copper World project is expected to be released in the second quarter of 2023.
In late 2022, Hudbay submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the Arizona Department of Environmental Quality ("ADEQ"). Hudbay continues to expect to receive these two remaining state permits in 2023. The other key state permit, the Mined Land Reclamation Plan, was received in 2022. In January 2023, Hudbay received an approved right-of-way from the State Land Department that will allow for infrastructure, such as roads, pipelines and powerlines, to connect between the properties in the company’s private land package at Copper World.
Upon receipt of the state level permits, the company expects to conduct a bulk sampling program at Copper World to continue to de-risk the project by testing grade continuity, variable cut-off effectiveness and metallurgical strategies. Hudbay also intends to initiate a minority joint venture partner process following receipt of permits, which will allow the potential joint venture partner to participate in and help fund the definitive feasibility study activities in 2024.
Continued Focus on Cost Reductions and Capital Discipline
With a focus on generating positive cash flow, Hudbay delivered on its discretionary spending reduction targets by reducing 2022 growth capital and exploration spending by approximately $30 million in Arizona, Manitoba and Peru. The company also reduced planned 2023 discretionary spending by more than $50 million primarily related to the deferral of the Copper World definitive feasibility study and the pebble crusher in Peru. Furthermore, planned 2023 growth and exploration expenditures are expected to be approximately $65 million lower than 2022 levels.
As an additional prudent measure intended to ensure positive cash flow generation and continued financial discipline, Hudbay expects to extend its existing quotational period hedging program to cover approximately 13,000 tonnes of contained copper in the unsold concentrate inventory in Peru to lock in current copper prices.
The company expects spending on its Copper World project in 2023 will be limited to de-risking activities, including the completion of the pre-feasibility study and state level permitting. The opportunity to sanction Copper World is not expected until 2025 based on current estimated timelines. This, together with the company’s 2023 discretionary spending reductions, reflects a conservative approach to capital spending at Copper World over the next two years. As part of Hudbay’s disciplined financial planning approach to Copper World, the company identified three specific prerequisites that would need to be achieved prior to making an investment decision in the project:
1. Permits – receipt of all state level permits required for Phase I;
2. Plan – completion of a definitive feasibility study with an internal rate of return of greater than 15%; and