TSX, NYSE – HBM 2022 No. 15 Hudbay Announces Second Quarter 2022 Results
Toronto, Ontario, August 8, 2022 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today released its second quarter 2022 financial results. All amounts are in U.S. dollars, unless otherwise noted.
Strong Operating and Financial Results
- Full year 2022 production and operating cost guidance is reaffirmed as second quarter production was in line with expectations and Hudbay achieved strong unit operating cost performance despite inflationary pressures from higher input prices for many services and consumables.
- Second quarter net earnings and earnings per share were $32.1 million and $0.12, respectively. After adjusting for a non-cash gain of $60.7 million primarily related to a quarterly revaluation of the Flin Flon environmental provision given higher long-term risk-free discount rates, and a $95.0 million pre-tax impairment loss related to certain specific capitalized costs and assets associated with the previous standalone development plan for the Rosemont deposit, among other items, second quarter adjusted net earningsi per share were $0.12.
- Operating cash flow before change in non-cash working capital was $123.9 million and adjusted EBITDAi was $141.4 million in the second quarter of 2022, a significant increase from the first quarter of 2022 due to higher copper, zinc and gold sales volumes.
- Consolidated production in the second quarter included 25,668 tonnes of copper and 58,645 ounces of gold, an increase from the first quarter of 2022. Consolidated cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product creditsi, were $0.65 and $1.93, respectively, a significant decrease from the first quarter of 2022.
- Peru delivered strong operating performance in the second quarter with copper production of 20,880 tonnes as mill throughput and copper grades improved over the first quarter of 2022.
- Manitoba achieved second quarter gold production of 44,787 ounces at a cash cost per ounce of gold produced, net of by-product creditsi, of negative $207 as New Britannia achieved higher than targeted throughput rates and gold recoveries continue to improve.
- After 18 years of steady production at Hudbay’s 777 mine in Manitoba, the final reserves were depleted in June 2022, consistent with the mine plan. Closure activities to safely decommission the 777 mine, the Flin Flon concentrator and the zinc plant commenced in the second quarter and are advancing ahead of schedule.
- Cash increased by $45.2 million during the second quarter to $258.6 million as at June 30, 2022, mainly as a result of $165.6 million of cash generated from operations, partially offset by $78.9 million of mostly sustaining capital investments, an $18.6 million payment toward the gold prepayment liability and a $10.0 million scheduled deferred payment related to the acquisition of the former minority partner's interest in Rosemont.
Executing on Growth Initiatives
- Recently released the results of the Copper World Complex preliminary economic assessment ("PEA"), which entails a two-phase mine plan that has an after-tax net present value (10%) of $1,296 million and generates an 18% internal rate of return at $3.50 per pound copper.1
- Advancing a pre-feasibility study for Phase I of the Copper World Complex, which will focus on converting the remaining inferred mineral resources to measured and indicated and evaluating many of the project optimization and upside opportunities.
- Exploration agreement on the Maria Reyna and Caballito satellite properties in Peru is nearing completion.
- Released the company’s 19th Annual Sustainability Report in June 2022 discussing Hudbay's key accomplishments and initiatives in 2021, and the company is currently working toward specific emission reduction targets to align with the global 2030 and 2050 climate change goals.
“Our operating performance was strong during the second quarter with higher consolidated copper and gold production and lower consolidated cash costs,” said Peter Kukielski, President and Chief Executive Officer. “This was a result of a continuous focus on operating efficiencies which has allowed us to reaffirm our production and operating cost guidance for 2022. We have seen steady performance from our operations in Peru and the New Britannia mill in Manitoba achieved higher than expected throughput. We are advancing a pre-feasibility study to evaluate project optimization opportunities on the private land plan at our Copper World Complex, and we have been focused on closure activities in Flin Flon and a smooth transition of our workforce to Snow Lake.”
Summary of Second Quarter Results
Consolidated copper production in the second quarter of 2022 was 25,668 tonnes, an increase of 4% compared to the first quarter of 2022 and in line with expected quarterly cadence for the year. Consolidated gold production was 58,645 ounces, an increase of 9% compared to the previous quarter due to higher gold grades in Peru and higher gold output from New Britannia. Consolidated zinc production in the second quarter was 23% lower than the first quarter primarily due to lower tonnes and grades at 777 as the mine approached the end of its mine life and the continued transition toward mining the gold lenses at Lalor with a corresponding decrease of production from the base metal zones.
Consolidated cash cost per pound of copper produced, net of by-product creditsi, in the second quarter of 2022 was $0.65, compared to $1.11 in first quarter of 2022. This improvement was a result of higher zinc and gold by-product credits and higher copper production. Consolidated sustaining cash cost per pound of copper produced, net of byproduct creditsi, was $1.87 in the second quarter of 2022 compared to $2.29 in the first quarter. This decrease was primarily due to the same reasons affecting consolidated cash cost. Both measures were within the 2022 guidance ranges and the company is reaffirming its full year consolidated cash cost guidance. Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product creditsi, was $1.93 in the second quarter of 2022, lower than $2.54 in the first quarter of 2022, due to the same reasons outlined above along with lower corporate selling and administrative expenses.
Cash generated from operating activities in the second quarter of 2022 increased to $165.6 million compared to $63.3 million in the first quarter of 2022. The increase is primarily the result of an increase in non-cash working capital, higher realized zinc metal prices and higher copper, gold and zinc sales volumes. Operating cash flow before change in non-cash working capital increased to $123.9 million during the second quarter of 2022, compared to $77.1 million in the first quarter of 2022, primarily due to the same factors above.
1 The preliminary economic assessment for the Copper World Complex is preliminary in nature, includes inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty the preliminary economic assessment will be realized.
Net earnings and earnings per share in the second quarter of 2022 were $32.1 million and $0.12, respectively, compared to net earnings and earnings per share of $63.8 million and $0.24, respectively, in the first quarter. Second quarter earnings benefited from a non-cash gain of $60.7 million mostly related to the quarterly revaluation of the Flin Flon environmental provision, which was impacted by rising long term risk-free discount rates. Given the long-term nature of the reclamation cash flows, the related environmental provision is highly sensitive to changes in long-term risk-free discount rates and, as such, Hudbay may continue to experience quarterly environmental provision revaluations. The quarterly financial results were also negatively impacted by $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.
Adjusted net earningsi and adjusted net earnings per sharei in the second quarter of 2022 were $30.5 million and $0.12 per share, respectively, after adjusting for the non-cash gain related to the revaluation of the environmental provision and the specific asset impairment loss, among other items. This compares to an adjusted net earnings and adjusted net earnings per share of $5.2 million, and $0.02 per share in first quarter of 2022. Second quarter adjusted EBITDAi was $141.4 million, compared to $110.2 million in the first quarter of 2022, primarily as a result of the same factors affecting operating cash flow noted above.
As at June 30, 2022, the company’s liquidity includes $258.6 million in cash as well as undrawn availability of $363.6 million under its revolving credit facilities. The company expects that current liquidity combined with cash flow from operations, particularly in the fourth quarter when production in Peru is expected to benefit from higher grades, will be sufficient to meet its liquidity needs for the foreseeable future. As such, Hudbay is well positioned to weather the volatility in commodity prices experienced during the second quarter.
| Consolidated Financial Condition ($000s) | Jun. 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 |
|---|---|---|---|
| Cash | 258,556 | 213,359 | 270,989 |
| Total long-term debt | 1,182,143 | 1,181,119 | 1,180,274 |
| Net debt1 | 923,587 | 967,760 | 909,285 |
| Working capital2 | 180,371 | 161,846 | 147,512 |
| Total assets | 4,382,727 | 4,538,214 | 4,616,231 |
| Equity | 1,601,123 | 1,561,978 | 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
Consolidated Financial Performance Three Months Ended
| Jun. 30, 2022 | Mar. 31, 2022 | Jun. 30, 2021 | ||
|---|---|---|---|---|
| Revenue | $000s | 415,454 | 378,619 | 404,242 |
| Cost of sales | $000s | 325,940 | 293,351 | 322,060 |
| Earnings (loss) before tax | $000s | 21,504 | 88,861 | 14,819 |
| Earnings (loss) | $000s | 32,143 | 63,815 | (3,395) |
| Basic and diluted earnings (loss) per share | $/share | 0.12 | 0.24 | (0.01) |
| Adjusted earnings (loss) per share1 | $/share | 0.12 | 0.02 | 0.02 |
| Operating cash flow before change in non- | $ millions | 123.9 | 77.1 | 132.8 |
cash working capital Adjusted EBITDA1 $ millions 141.4 110.2 143.2 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 Jun. 30, 2022 Mar. 31, 2022 Jun. 30, 2021 Contained metal in concentrate and doré produced1
| Copper | tonnes | 25,668 | 24,702 | 23,474 |
| Gold | ounces | 58,645 | 53,956 | 39,848 |
| Silver | ounces | 864,853 | 784,357 | 685,916 |
| Zinc | tonnes | 17,053 | 22,252 | 21,538 |
| Molybdenum | tonnes | 390 | 207 | 295 |
Payable metal sold
| Copper | tonnes | 23,650 | 20,609 | 25,176 |
| Gold2 | ounces | 50,884 | 48,343 | 38,205 |
| Silver2 | ounces | 738,171 | 864,591 | 577,507 |
| Zinc3 | tonnes | 20,793 | 17,306 | 25,361 |
| Molybdenum | tonnes | 208 | 213 | 265 |
Consolidated cash cost per pound of copper produced4
| Cash cost | $/lb | 0.65 | 1.11 | 0.84 |
| Peru | $/lb | 1.82 | 1.54 | 1.85 |
| Manitoba | $/lb | (4.48) | (0.40) | (3.51) |
| Sustaining cash cost | $/lb | 1.87 | 2.29 | 2.25 |
| Peru | $/lb | 2.62 | 2.27 | 2.69 |
| Manitoba | $/lb | (1.40) | 2.33 | 0.36 |
| All-in sustaining cash cost | $/lb | 1.93 | 2.54 | 2.48 |
Manitoba gold cash cost per ounce of gold produced4,5
Cash cost $/oz (207) 416 — Sustaining cash cost $/oz 519 1,187 — 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 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.
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.
Peru Operations Review
Peru Operations Three Months Ended
| Jun. 30, 2022 | Mar. 31, 2022 | Jun. 30, 2021 | ||
|---|---|---|---|---|
| Constancia ore mined1 | tonnes | 7,017,114 | 6,908,151 | 8,016,373 |
| Copper | % | 0.33 | 0.32 | 0.30 |
| Gold | g/tonne | 0.04 | 0.04 | 0.04 |
| Silver | g/tonne | 3.53 | 3.22 | 3.02 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 |
| Pampacancha ore mined1 | tonnes | 1,211,387 | 847,306 | 982,992 |
| Copper | % | 0.29 | 0.27 | 0.26 |
| Gold | g/tonne | 0.28 | 0.43 | 0.27 |
| Silver | g/tonne | 4.25 | 4.06 | 4.43 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 |
| Total ore mined | tonnes | 8,228,501 | 7,755,457 | 8,999,365 |
| Strip ratio2 | 1.22 | 1.10 | 0.83 | |
| Ore milled | tonnes | 7,770,706 | 7,213,833 | 7,413,043 |
| Copper | % | 0.32 | 0.31 | 0.31 |
| Gold | g/tonne | 0.09 | 0.08 | 0.07 |
| Silver | g/tonne | 3.64 | 3.26 | 2.88 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 |
| Copper recovery | % | 85.0 | 85.3 | 83.3 |
| Gold recovery | % | 60.3 | 59.8 | 62.2 |
| Silver recovery | % | 64.2 | 66.9 | 68.2 |
| Molybdenum recovery | % | 38.8 | 21.1 | 33.3 |
Contained metal in concentrate
| Copper | tonnes | 20,880 | 19,166 | 19,058 |
| Gold | ounces | 13,858 | 10,789 | 10,220 |
| Silver | ounces | 584,228 | 505,568 | 468,057 |
| Molybdenum | tonnes | 390 | 207 | 295 |
Payable metal sold
| Copper | tonnes | 18,473 | 16,825 | 19,946 |
| Gold | ounces | 8,430 | 14,452 | 5,638 |
| Silver | ounces | 484,946 | 636,133 | 315,064 |
| Molybdenum | tonnes | 208 | 213 | 265 |
| Combined unit operating | $/tonne | 12.02 | 12.37 | 10.40 |
cost3,4,5 Cash cost5 $/lb 1.82 1.54 1.85 Sustaining cash cost5 $/lb 2.62 2.27 2.69 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 Excludes approximately $1.3 million, or $0.16 per tonne, of COVID-related costs during the three months ended June 30, 2022, $2.3 million, or $0.32 per tonne, of COVID-related costs during the three months ended March 31, 2022 and $6.3 million, or $0.85 per tonne, during the three months ended June 30, 2021.
5 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, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
During the first quarter of 2022, the Constancia operations produced 20,880 tonnes of copper, 13,858 ounces of gold, 584,228 ounces of silver and 390 tonnes of molybdenum. Production of all metals was higher than the first quarter of 2022 due to an increase in throughput and milled grades. As previously disclosed, full year production in Peru is expected to benefit from higher grades in the fourth quarter of 2022. As such, full year production of all metals remains on track to achieve guidance ranges for 2022.
Total ore mined slightly declined in the second quarter of 2022 compared to the first quarter of 2022 due to higher amounts of waste being mined. Ore mined from Pampacancha increased in the second quarter as mining rates in the pit returned to normal productivity levels following heavy rains and delays in the water management system earlier in the year. Ore milled during the second quarter of 2022 was higher compared to the previous quarter and copper, gold and silver grades increased over the first quarter of 2022.
Combined mine, mill and G&A unit operating costsi in the second quarter of 2022 were $12.02 per tonne, lower than the first quarter of 2022 primarily due to lower milling costs and higher throughput.
Peru’s cash cost per pound of copper produced, net of by-product creditsi, in the second quarter of 2022 was $1.82, higher than the previous quarter primarily due to higher mining and general and administrative costs and lower byproduct credits, partially offset by lower milling costs. Cash cost per pound of copper produced, net of by-product creditsi, is expected to decline with higher expected copper production and contributions from precious metal byproduct credits in the fourth quarter. However, full year cash cost is expected to trend towards the upper end of the 2022 guidance range, reflecting the current inflationary cost environment.
Peru’s sustaining cash cost per pound of copper produced, net of by-product creditsi, in the second quarter of 2022 increased to $2.62, compared to $2.27 in the first quarter, mainly due to the same factors affecting cash cost, and slightly higher sustaining capital expenditures.
Manitoba Operations Review
Manitoba Operations Three Months Ended
| Jun. 30, 2022 | Mar. 31, 2021 | Jun. 30, 2021 | ||
|---|---|---|---|---|
| Lalor ore mined | tonnes | 412,653 | 386,752 | 356,951 |
| Copper | % | 0.70 | 0.80 | 0.64 |
| Zinc | % | 3.06 | 4.06 | 3.81 |
| Gold | g/tonne | 3.73 | 3.76 | 3.19 |
| Silver | g/tonne | 23.95 | 22.94 | 22.98 |
| 777 ore mined | tonnes | 226,286 | 258,069 | 255,170 |
| Copper | % | 1.03 | 1.19 | 0.82 |
| Zinc | % | 3.51 | 4.12 | 3.57 |
| Gold | g/tonne | 1.62 | 1.69 | 1.97 |
| Silver | g/tonne | 20.63 | 21.05 | 23.35 |
Stall Concentrator & New Britannia Mill:
| Ore milled | tonnes | 406,006 | 397,301 | 317,484 |
| Copper | % | 0.73 | 0.82 | 0.68 |
| Zinc | % | 3.20 | 4.24 | 4.06 |
| Gold | g/tonne | 3.93 | 3.87 | 3.19 |
| Silver | g/tonne | 23.98 | 23.16 | 22.02 |
| Copper recovery - concentrate | % | 89.5 | 87.5 | 88.8 |
| Zinc recovery – concentrate (Stall) | % | 84.3 | 85.7 | 88.1 |
| Gold recovery - concentrate | % | 58.8 | 58.4 | 55.5 |
| Silver recovery - concentrate | % | 58.1 | 60.0 | 55.1 |
Flin Flon Concentrator:
| Ore milled | tonnes | 243,312 | 254,032 | 329,503 |
| Copper | % | 1.02 | 1.20 | 0.89 |
| Zinc | % | 3.60 | 4.13 | 3.65 |
| Gold | g/tonne | 1.64 | 1.70 | 2.06 |
| Silver | g/tonne | 20.76 | 21.23 | 23.65 |
| Copper recovery | % | 85.5 | 87.6 | 84.8 |
| Zinc recovery | % | 82.9 | 83.2 | 84.8 |
| Gold recovery | % | 56.4 | 57.7 | 52.9 |
| Silver recovery | % | 51.0 | 52.5 | 37.5 |
Total contained metal in concentrate and doré
| Copper | tonnes | 4,788 | 5,536 | 4,416 |
| Zinc | tonnes | 17,053 | 22,252 | 21,538 |
| Gold | ounces | 44,787 | 43,167 | 29,628 |
| Silver | ounces | 280,625 | 278,789 | 217,859 |
Total payable metal sold
| Copper | tonnes | 5,177 | 3,784 | 5,230 |
| Zinc1 | tonnes | 20,793 | 17,306 | 25,361 |
| Gold2 | ounces | 42,454 | 33,891 | 32,567 |
| Silver2 | ounces | 253,225 | 228,458 | 262,443 |
| Combined unit operating cost3,4 | C$/tonne | 168 | 176 | 148 |
| Gold cash cost4,5 | $/oz | (207) | 416 | — |
| Gold sustaining cash cost4,5 | $/oz | 519 | 1,187 | — |
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 and 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 were introduced in 2022 and do not have a published comparative.
During the second quarter of 2022, the Manitoba operations produced 44,787 ounces of gold, 17,053 tonnes of zinc, 4,788 tonnes of copper and 280,625 ounces of silver. Gold and silver production increased by 4% and 1%, respectively, while copper and zinc production decreased by approximately 14% and 23%, respectively, compared to the first quarter of 2022. Copper and zinc production declined due to lower grades at Lalor and 777, and precious metals production increased due to higher throughput and recoveries at the New Britannia mill. Full year production of all metals in Manitoba are on track to achieve guidance ranges for 2022.
After 18 years of steady production at the 777 mine in Manitoba, the final reserves were depleted with the last ore hoisted on June 17, 2022, consistent with the mine plan. Closure activities to safely decommission the mine commenced in the second quarter and are advancing ahead of schedule. As 777 mining activities wound down, Hudbay employees and equipment transitioned from 777 to Lalor to support Lalor's ramp-up strategy.
The company continued to advance the Lalor ramp-up strategy and remains on track to achieve 5,300 tonnes per day by the end of 2022. Hudbay also further refined the processes to separate gold and base metal ores from Lalor to optimize feed for the New Britannia and Stall mills. Metal grades form the basis of separating higher gold content ore for processing at New Britannia from base metal ore which is directed towards Stall. Lalor successfully completed planned maintenance in the second quarter to allow for increased availability in the third quarter.
Ore mined at Lalor increased by 7% in the second quarter of 2022, while production at 777 decreased as the mine approached closure in June 2022, resulting in an overall 1% decline in total ore mined in Manitoba compared to the first quarter. Mined zinc and copper grades were lower compared to the first quarter, in line with the mine plan, while precious metal grades remained relatively constant.
The New Britannia mill achieved higher than targeted throughput in the second quarter of 2022, averaging approximately 1,590 tonnes per day, due to a number of improvement initiatives aimed at increasing throughput and further improving recoveries. With the inclusion of doré, the gold and silver recoveries at the New Britannia mill have also improved significantly in relation to previous quarters. Additional improvement initiatives will continue to be advanced in the second half of 2022 to further improve gold and silver recoveries.
The combined Snow Lake mills processed 2% more ore in the second quarter compared to the first quarter of 2022, tracking the increase in Lalor's production over the same period. Stall mill recoveries were consistent with the metallurgical model for the head grades delivered. The Flin Flon concentrator consumed all available ore feed from the 777 mine in the second quarter of 2022. Last ore from 777 was processed on June 21, 2022 and closure activities to safely place the Flin Flon concentrator on long-term care and maintenance are ahead of schedule. Flin Flon mill recoveries were consistent with the metallurgical model for the head grades delivered.
Combined mine, mill and G&A unit operating costsi in the second quarter of 2022 decreased by 5% compared to the first quarter of 2022, mainly due to lower costs at 777 as the mine ceased operations during the quarter, partially offset by higher inflationary cost pressures for bulk commodities, fuel, and Lalor contractor costs. Looking ahead to the second half of 2022, the company expects combined unit operating costs to increase due to ongoing inflationary cost pressures and the removal of the lower-cost Flin Flon operations. As such, Hudbay expects the full year combined unit costs to trend towards the upper end of the 2022 guidance range.
Cash cost per ounce of gold produced, net of by-product creditsi, in the second quarter of 2022 was negative $207, lower than the first quarter of 2022 and well below the 2022 guidance range as the operations benefited from higher zinc by-product credits, lower operating costs and higher gold production.
Robust Preliminary Economic Assessment Released for Copper World
In June, Hudbay released the results of the PEA of its 100%-owned Copper World Complex in Arizona, which includes the recently discovered Copper World deposits along with the Rosemont deposit. Highlights of the PEA include:
- Two-phase mine plan has an after-tax net present value (10%) of $1,296 million and generates an 18% internal rate of return at $3.50 per pound copper2.
- The processing facilities are planned to have annual production capacity of 100,000 tonnes of copper cathode during Phase I and 125,000 tonnes of copper cathode during Phase II, and have been designed to reduce the project's carbon footprint to produce "Made in America" copper.
- Supports U.S. copper supply through onshore production of copper cathode expected to be sold entirely to domestic customers and eliminates greenhouse gas ("GHG") and sulfur emissions associated with overseas shipping and processing.
- Phase I reflects a standalone operation on private land and patented mining claims over a 16-year mine life with average annual copper production of approximately 86,000 tonnes from mined resources at cash costs and sustaining cash costs of $1.15 and $1.44 per pound of copperi, respectively, generating an after-tax net present value (10%) of $741 million and an internal rate of return of 17%2.
- Phase I of the Copper World Complex includes a 60,000 ton per day sulfide concentrator, a 20,000 ton per day oxide heap leach, an SX/EW facility and a concentrate leach facility with an initial capital cost estimate of approximately $1.9 billion. The concentrator is intended to expand to 90,000 tons per day in Phase II.
- Phase II expands mining activities onto federal land and extends the mine life to 44 years with average annual copper production of approximately 101,000 tonnes from mined resources at cash costs and sustaining cash costs of $1.11 and $1.42 per pound of copperi, respectively. Phase II provides additional optionality with an after-tax net present value (10%) of $555 million and an internal rate of return of 49% (and a projected after-tax net present value (10%) of $2,806 million at the time of Phase II sanctioning)2.
- Significant increase in copper contained in all mineral resource categories.
- Hudbay is evaluating several opportunities to optimize the project, including processing and initial capital optimizations, the potential to expand Phase I beyond 16 years with additions to the company's private land package for tailings and waste rock storage and the potential to accelerate Phase II if federal permits are received earlier than as outlined in the PEA.
The preliminary economic assessment for the Copper World Complex is preliminary in nature, includes inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty the preliminary economic assessment will be realized. For additional details on the Copper World Complex PEA, please refer to the news release dated June 8, 2022 and the NI 43-101 technical report filed on July 14, 2022.
Hudbay is advancing a pre-feasibility study for Phase I of the Copper World Complex during the second half of 2022, which will focus on converting the remaining inferred mineral resources to measured and indicated and evaluating many of the project optimization and upside opportunities.
2 The valuation metrics are based on a preliminary economic assessment that includes an economic analysis of the potential viability of mineral resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Arizona Permitting and Litigation Update
The permitting process for the Copper World Complex is expected to require state and local permits for Phase I and federal permits for Phase II. On May 23, 2022, the U.S. District Court for the District of Arizona issued a favourable ruling effectively stating that there is no obligation for the Army Corps of Engineers (“ACOE”) to include Phase I of the project as part its NEPA federal review of the previous standalone Rosemont project design. Furthermore, on May 12, 2022, a decision from the 9th Circuit Court of Appeals clarified the permitting path for Phase II, including the requirements to receive federal permits for the second phase under existing mining regulations. Hudbay expects it will be able to pursue and obtain federal permits for Phase II within the constraints imposed by the Court’s decision.
On July 27, 2022, Hudbay received approval from the Arizona State Mine Inspector for its amended Mined Land Reclamation Plan (“MLRP”) for the Copper World Complex. The MLRP was initially approved in October 2021 and was subsequently amended to reflect a larger private land project footprint. Hudbay expects to submit applications for the other key state-level permits for Phase I of the Copper World Complex in the second half of 2022.
777 Mine Closure
On June 17, 2022, mining activities at Hudbay’s 777 mine in Flin Flon, Manitoba concluded after the reserves were depleted following 18 years of steady production. The 777 deposit was a large and rich orebody and for many years was the flagship mine of Hudbay’s Manitoba operations. The mine commenced production in 2004 with an initial tenyear mine life, operated steadily and successfully expanded reserves by an additional eight years. After extensive drilling in and around the mine in recent years, no new deposits were identified. The company’s hydrometallurgical zinc facility in Flin Flon will also be closed after more than 25 years of successful operations. The 777 mine and the zinc plant are scheduled to be safely decommissioned by September 2022. The Flin Flon concentrator and tailings impoundment area will be shifted to care and maintenance to provide optionality should another mineral discovery occur in the Flin Flon area. Hudbay strives to achieve closure practices that align with leading standards and has developed stringent and detailed environmental plans to manage water and the remaining infrastructure and processing plants in Flin Flon.
Closure activities at the 777 mine and zinc plant have commenced and employees and equipment are transitioning to Hudbay’s operations in Snow Lake, Manitoba as part of Lalor’s mine ramp-up strategy.
19th Annual Sustainability Report
In June, Hudbay released its annual sustainability report, which provides transparency and progress on key accomplishments and initiatives in 2021 along with goals for the upcoming year and long-term future. Hudbay believes global demand for the metals that it mines will continue to rise alongside the need for green technology that will play an essential role in meeting the challenge of climate change.
Hudbay is committed to a reduced GHG emissions future and is currently working toward specific emissions reduction targets to align with the global 2030 and 2050 climate change goals. The company is also designing the Copper World Complex in Arizona in compliance with 2030 and 2050 GHG objectives. In 2021, to better understand the nature of the company’s GHG footprint and the best options for approaching and achieving sustainable GHG reductions, it began work on a 10-year Greenhouse Gas Reduction Roadmap. The roadmap will identify key sources of emissions, including Scope 3 emissions, and the nature of the changes – operational or technical – that will be required to make full or significant changes in each source area.
As a member of the Mining Association of Canada, Hudbay implements the Towards Sustainable Mining ("TSM") Protocols at all of its operations, with the goal to maintain a score of “A” or higher for all protocols. In 2021, the company achieved a rating of “AA” across all TSM tailings management protocol indicators in both Manitoba and Peru. Hudbay also saw a 7% decrease in energy intensity per tonne of ore processed, and over 50% of its indirect energy consumption was from renewable sources.
Exploration Update
Peru Regional Exploration
Hudbay controls a large, contiguous block of mineral rights with the potential to host mineral deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. Discussions with the community of Uchucarcco related to a surface rights exploration agreement on the Maria Reyna and Caballito properties are progressing well. The company expects to finalize an agreement in the coming weeks before commencing field exploration activities. Finalization of the Uchucarcco agreement is expected to increase community investment costs in the second half of 2022.
The company is compiling results from recent drilling at the Llaguen copper porphyry target in northern Peru and remains on track to complete an initial inferred mineral resource estimate in the third quarter of 2022.
Manitoba Regional Exploration
Hudbay has been actively conducting drilling activities in Manitoba with success in identifying extensions of the copper-gold rich feeder zone at the 1901 deposit and compiling results from ongoing infill drilling at Lalor.
Arizona Regional Exploration
A majority of the infill drilling to support the pre-feasibility study for the Copper World Complex has been completed, and in July, Hudbay reduced the number of drill rigs at site to three. Ongoing drilling will focus on continued confirmatory drilling in support of future feasibility studies.
Nevada Regional Exploration
A conductivity-resistivity IP ground survey will be conducted in the second half of 2022 at the Mason Valley properties located on private land claims near the Mason project. This work, in combination with a re-interpretation of geological data from past operating mines and previous exploration data, will be used to finalize a drill plan to test high grade skarn targets. The drilling program initially planned for late 2022 has been postponed to a later date considering the recent changes in the metal price environment.
Dividend Declared
A semi-annual dividend of C$0.01 per share was declared on August 8, 2022. The dividend will be paid out on September 23, 2022 to shareholders of record as of September 2, 2022.
Website Links
Hudbay:
www.hudbay.com
Management’s Discussion and Analysis:
http://www.hudbayminerals.com/files/doc_financials/2022/Q2/MDA222.pdf
Financial Statements:
http://www.hudbayminerals.com/files/doc_financials/2022/Q2/FS222.pdf
Conference Call and Webcast
Date: Tuesday, August 9 2022
Time: 8:30 a.m. ET
Webcast: www.hudbay.com
Dial in: 1-416-915-3239 or 1-800-319-4610
Qualified Person and NI 43-101
The technical and scientific information in this news release related to the company’s material mineral projects has been approved by Olivier Tavchandjian, P. Geo, Vice President, Exploration and Technical Services. Mr. Tavchandjian is a qualified person pursuant to NI 43‑101.
Mineral resources that are not mineral reserves do not have demonstrated economic viability. The Copper World Complex PEA is preliminary in nature, includes inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty the PEA will be realized.
For a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources at Hudbay's material properties, as well as data verification procedures and a general discussion of the extent to which the estimates of scientific and technical information may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for the company’s material properties as filed by Hudbay on SEDAR at www.sedar.com.
Non-IFRS Financial Performance Measures
Adjusted net earnings (loss), adjusted net earnings (loss) per share, adjusted EBITDA, net debt, cash cost, sustaining and all-in sustaining cash cost per pound of copper produced, cash cost and sustaining cash cost per ounce of gold produced and combined unit cost are non-IFRS performance measures. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.