TSX, NYSE – HBM 2018 No. 5 Hudbay Announces Fourth Quarter and Full Year 2017 Results
TSX, NYSE – HBM
2018 No. 5
Hudbay Announces Fourth Quarter and Full Year 2017 Results
Toronto, Ontario, February 21, 2018 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM)
today released its fourth quarter and full year 2017 financial results. All amounts are in U.S. dollars, unless otherwise
noted.
Summary:
On a consolidated basis, full year metals production met or exceeded 2017 guidance ranges
Net profit of $9 9.7 million and basic and diluted earnings per share of $0.3 8 in the fourth quarter of 2017,
compared to a net loss of $47.3 million and loss per share of $0.20 in the fourth quarter of 2016
Operating cash flow1 of $172 million in the fourth quarter of 2017 , a 41% increase from the fourth quarter of
2016, and $531 million for the full year 2017, a 37% increase from 2016
Reduced net debt 2 position by $462 million and improved liquidity during 2017; as at December 31, 2017,
Hudbay had net debt of $623 million and total available liquidity of $778 million, including $356 million in
cash
Consolidated cash cost2, net of by -product credits, of $0 .77 per pound of copper , a 9% decrease from the
fourth quarter of 2016
Consolidated all-in sustaining cash cost2, net of by -product credits, of $1. 49 per pound of copper in the
fourth quarter of 2017, up 2% from $1.46 in the fourth quarter of 2016
Full year c ombined unit operating costs at Manitoba and Peru exceeded 2017 guidance ranges, primarily
due to increased operating costs and lower than expected mill throughput; zinc unit operating costs were
within the guidance range
Net profit and basic and diluted earnings per share in the fourth quarter of 2017 were $ 99.7 million and $0. 38,
respectively, compared to a net loss and loss per share of $47.3 million and $0.20, respectively, in the fourth quarter
of 2016.
In the fourth quarter of 2017, o perating cash flow before change in non -cash working capital was $171.9 million,
compared to $122.3 million in the fourth quarter of 2016 . The increase in operati ng cash flow is the result of higher
realized copper and zinc prices, while higher zinc sales and precious metals sales offset lower copper sales.
“We ended 2017 on a positive note by achieving or exceeding production guidance and continuing to grow positive
free cash flow while reducing debt ,” said Alan Hair, president and chief executive officer. “ Our focus for 2018 is
1 Operating cash flow before change in non-cash working capital.
2 Cash cost and all-in sustaining cash cost per pound, net of by-product credits and net debt are not recognized under IFRS. For a
detailed description of each of these non-IFRS financial performance measures, please see the discussion under “Non-IFRS
Financial Performance Measures” beginning on page 6 of this news release.
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delivering on this year’s operating targets and completing the ramp -up of base metal ore production at Lalor,
commencing production from the Lalor gold zones and Pampacancha, and moving Rosemont through the permitting
process into development.”
Net profit and earnings per share in the fourth quarter of 201 7 were affected by, among other things, the following
items:
Pre-tax gain
(loss) After-tax gain
(loss) Per share
gain (loss)
($ millions) ($ millions) ($/share)
Mark-to-market adjustments of various items (5.6) (4.3) (0.02)
Past service pension costs (10.4) (6.9) (0.03)
Gain on contingent consideration from Balmat sale 6.4 6.4 0.03
Asset impairment (11.3) (7.5) (0.03)
Non-cash deferred tax adjustments - 45.4 0.17
Compared to the fourth quarter of 2016, production of zinc, gold and silver in concentrate increased due to increased
Lalor mine throughput and higher zinc grades at 777, while copper production remained consistent.
In the fourth quarter of 2017, consolidated cash cost per pound of copper produced, net of by -product credits, was
$0.77, a decrease compared to $0. 85 in the same period of last year. Incorporating sustaining capital, capitalized
exploration, royalties and corporate se lling and administrative expenses, consolidated all -in sustaining cash cost per
pound of copper produced, net of by -product credits, in the fourth quarter of 2017 was $1. 49, up from $1.4 6 in the
fourth quarter of 2016. The increase in all-in sustaining cas h cost was driven by higher planned sustaining capital
expenditures in Manitoba.
Cash and cash equivalents increased by $27.6 million in the fourth quarter of 2017 to $356.5 million at December 31,
2017. This increase was mainly a result of operating cash flow of $129.4 million, partly offset by $ 88.0 million of
capital expenditures and $9.5 million in expenditures related to financing activities.
Net debt declined to $623.1 million at December 31, 2017 from $649.6 million at September 30, 2017 , as a result of
cash flow from Hudbay’s operations . At December 31, 2017, total liquidity , including cash and available credit
facilities, was $ 777.9 million, up from $ 749.9 million at September 30 , 2017. Over the course of 2017, net debt
declined from $1,085.3 million to $623.1 million.
During the fourth quarter, Hudbay recognized a pre -tax expense of $10.4 million for past servi ce pension costs
arising from new collective bargaining agreement s in the Manitoba business unit. The company also recognized an
asset impairment charge of $11.3 million related to equipment purchased to build a new concentrator in Snow Lake,
Manitoba, that the company no longer expects to be usable in its operations. Hudbay realized a gain of $6.4 million
upon receipt of deferred consideration from the sale of the Balmat mine, which followed the completion of certain
milestones.
1 Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please
see page 6 of this news release.
Financial Condition ($000s) Dec. 31, 2017 Dec. 31, 2016
Cash and cash equivalents 356,499 146,864
Total long-term debt 979,575 1,232,164
Net debt1 623,076 1,085,300
Working capital 308,675 121,539
Total assets 4,648,729 4,456,556
Equity 2,144,255 1,763,212
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Production and Cost Performance Three months ended Three months ended
Dec. 31, 2017 Dec. 31, 2016
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 33,837 9,338 43,175 33,986 9,797 43,783
Gold oz 5,139 27,389 32,528 5,033 22,449 27,482
Silver oz 670,219 333,272 1,003,491 723,392 269,286 992,678
Zinc tonnes - 33,055 33,055 - 29,144 29,144
Payable metal in concentrate sold
Copper tonnes 34,227 7,252 41,479 35,969 8,223 44,192
Gold oz 4,442 26,779 31,221 6,183 19,158 25,341
Silver oz 543,763 291,723 835,486 701,654 209,671 911,325
Zinc2 tonnes - 32,318 32,318 - 28,094 28,094
Cash cost3 $/lb 1.38 (1.42) 0.77 1.11 (0.06) 0.85
Sustaining cash cost3 $/lb 1.81 (0.35) 1.54 0.58
All-in sustaining cash cost3 $/lb 1.49 1.46
Realized copper price4 $/lb 3.13 2.37
Year ended Year ended
Dec. 31, 2017 Dec. 31, 2016
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 121,781 37,411 159,192 133,432 41,059 174,491
Gold oz 17,579 91,014 108,593 26,276 88,020 114,296
Silver oz 2,374,008 1,113,250 3,487,258 2,760,332 995,564 3,755,896
Zinc tonnes - 135,156 135,156 - 110,582 110,582
Payable metal in concentrate sold
Copper tonnes 111,402 37,253 148,655 132,663 38,788 171,451
Gold oz 12,464 97,306 109,770 24,199 71,328 95,527
Silver oz 1,950,893 1,109,376 3,060,269 2,423,165 758,594 3,181,759
Zinc2 tonnes - 116,377 116,377 - 103,453 103,453
Cash cost3 $/lb 1.28 (0.59) 0.84 1.09 0.41 0.93
Sustaining cash cost3 $/lb 1.76 0.23 1.51 1.16
All-in sustaining cash cost3 $/lb 1.52 1.52
Realized copper price4 $/lb 2.82 2.21
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 Includes refined zinc metal sold and payable zinc in concentrate sold.
3 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 page
6 of this news release.
4 Realized prices exclude refining and treatment charges and are on the sale of finished metal or metal in concentrate. Realized
prices include the effect of provisional pricing adjustments on prior period sales.
Financial Performance Three months ended Year ended
($000s except per share and cash cost amounts) Dec. 31 Dec. 31
2017 2016 2017 2016
Revenue 414,143 316,654 1,362,553 1,128,678
Cost of sales 278,291 238,449 988,608 905,800
Profit (loss) before tax 85,540 (26,065) 198,728 5,605
Profit (loss) 99,676 (47,273) 163,899 (35,193)
Basic and diluted earnings (loss) per share 0.38 (0.20) 0.67 (0.15)
Operating cash flow before change in non-cash
working capital 171,904 122,257 530,561 387,868
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Peru Operations Review
During the fourth quarter of 2017, the Peru operations produced 33,837 tonnes of copper, which was approximately
9% higher than production in the third quarter of 2017 as a result of improved copper head grade and copper
recoveries, and consistent with the same quarter of 2016 as expected grade decline was offset by improved mill
throughput. In 2017, copper production at Constancia exceeded the guidance ranges, while precious metals
production was slightly below the lower end of the guidance range.
Recoveries of copper, gold and silver were higher in the fourth quarter of 2017, compared to the same period in 2016.
Optimization of plant performance continues to be a focus at Constancia.
Combined mine, mill and G&A unit operating costs in the fourth quarter of 2017 were 22% higher than the same
period in 2016 . The higher combined unit costs are mostly related to decreased capitalized st ripping, higher utility
prices and higher overall operating costs due to increased molybdenum production during the period. Additionally,
increased plant maintenance costs were incurred during a significant scheduled plant shutdown. Full year 2017 unit
operating costs were higher than guidance expectations due to lower than expected mill throughput in the first half of
the year combined with factors affecting the fourth quarter costs described above.
Cash cost per pound of copper produced, net of by -product credits, for the three months ended December 31, 2017
was $1.38, an increase of 24% from the same period in 2016 mainly as a result of lower deferred stripping, increased
plant cash costs and profit sharing.
Sustaining cash cost per pound of copper produced, net of by -product credits, for the three months ended December
31, 2017 was $1.81, an increase of 18% from the same period in 2016 as a result of the factors noted above.
Negotiations to secure surface rights over the Pampacancha deposit are ongoing. The community has provided
Hudbay with access to the land to carry out early -works activities and Hudbay expects to begin ore production later
this year. In the event t hat the commencement of mining at Pampacancha is unexpectedly delayed beyond 2018,
Hudbay expects to mine material from the Constancia pit instead, which would not impact copper production
guidance, but would reduce 2018 Peru precious metals production guidance by approximately 25%.
Twin hole drilling in the Constancia pit has indicated that the positive copper grade bias versus resource grades that
has been experienced since the start of Constancia’s production is expected to persist through the life of t he deposit,
although the extent of the bias is expected to be less than what has been experienced to date. 2018 Peru copper
guidance partially reflects the anticipated grade bias; work is ongoing to develop a revised mine plan and updated
reserves, which are expected to be released by April 2018.
Manitoba Operations Review
During the fourth quarter of 2017, the Manitoba operations produced 33,055 tonnes of zinc, 9,338 tonnes of copper
and 32,150 ounces of gold-equivalent precious metals. Production of zinc and precious metals was higher than the
same quarter in 2016 by approximately 13% and 22%, respectively, as a result of higher grades at all mines as well
as higher ore production at Lalor. Production of all metals in Manitoba for full year 2017 was within the guidance
ranges.
Ore mined at Hudbay’s Manitoba operations during the fourth quarter of 2017 decreased by 5% compared to the
same period in 2016 primarily as a result of lower production at the 777 mine. Ore mined at the 777 mine declined as
ground conditions necessitated the implementation of a more conservative stope sequence in order to adapt t o more
challenging operating conditions as the mine ages. Lower than planned equipment availability and delays in the mine
sequence resulting from a plugged paste backfill line in the third quarter also impacted fourth quarter 777 production
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rates. Overall copper, zinc, gold and silver grades were higher in the fourth quarter of 2017 compared to the same
period in 2016 by 9%, 17%, 25% and 26%, respectively, as a result of higher grades at all mines. Unit operating costs
in the fourth quarter of 2017 were 44% higher compared to the same period in 2016.
Hudbay ceased capitalizing Reed development costs in the third quarter of 2017 as a result of the mine’s expected
closure in the third quarter of 2018, resulting in higher Reed unit operating costs compared to prior periods. The 777
mine’s unit costs were negatively impacted by lower production as a result of the items noted above. Consistent with
Hudbay’s revised mine plan, Lalor’s unit costs reflect increased cement rock filling costs as well as substantia l
operating and capital development work that was undertaken to increase Lalor’s production rate to 4,500 tonnes per
day by the third quarter of 2018 . The successful ramp up of ore production from the Lalor mine has resulted in the
accumulation of an ore stockpile which exceeds the Stall concentrator’s current milling capacity. With the intention to
take advantage of higher metal prices and increase Hudbay’s revenues, excess Lalor ore was trucked to the Flin Flon
mill for processing, which contributed to the increased unit costs for Lalor.
Ore processed in Flin Flon in the fourth quarter of 2017 was 13% lower than the same period in 2016 primarily as a
result of lower mine production, and challenges in prima ry crushing due to frozen block s of ore feed recovered from
stockpiles. Copper and precious metals recoveries were higher in the fourth quarter of 2017 compared to the same
period in 2016 as a result of higher head grades, and improvements made to the mill . Unit operating costs at the Flin
Flon concentrator were 12% higher in the fourth quarter of 2017 compared to the same period in 2016 as a result of
higher maintenance expenditures and reduced production. Ore processed at the Stall concentrator in the fourth
quarter of 2017 was 4% higher than the same period in 2016. Unit operating costs at the Stall concentrator were 5%
higher in the fourth quarter of 2017 compared to the same peri od in 2016 as a result of higher maintenance
expenditures resulting from unplanned repairs.
Manitoba combined mine, mill and G&A unit operating costs in the fourth quarter and full year in 2017 were 29% and
27% higher, respectively, than in the same perio ds in 2016 due to the factors described above. In addition, the
stockpiling of Lalor ore increased combined mine/mill unit costs , as that metric is expressed as total costs during the
period (irr espective of inventory changes) divided by the tonnes of ore milled. Processing the additional Lalor
production in Flin Flon is expected to drive economies of scale and additional revenues through a faster ramp up.
Combined mine/mill unit operating costs in Manitoba exceeded the guidance range for the reasons noted above. Zinc
plant production and unit operating costs were within the guidance ranges for 2017.
Cash cost per pound of copper produced, net of by -product credits, in the fourth quarter of 2017 and full year were
negative $1.42 and negative $0.59 per pound of copper produced, respectively. These were lower compared to the
same periods in 2016 due primarily to significantly increased by -product credits for all metals, which were partially
offset by expected higher costs at Hudbay’s 777 and Reed mines during this part of their mine lives.
Sustaining cash cost per pound of copper produced, net of by -product credits, in the fourth quarter of 2017 and full
year were negative $0.35 and $0.23 per pound of copper produced, respectively, compared to $0.58 and $1.16 in the
prior year as a result of the same factors described above , which were partially offset by planned increased capital
spending.
Rosemont Developments
Work continues with the U.S. Forest Service on the draft Mine Plan of Operations, which is progre ssing as planned.
The remaining key federal permit outstanding is the Section 404 Water Permit from the U.S. Army Corps of
Engineers.
On November 27, 2017, opponents of the Rosemont project filed a lawsuit against the U.S. Forest Service
challenging, among other things, the issuance of the Final Record of Decision in respect of Rosemont. This is one of
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two active lawsuits challenging the Final Record of Decision and is one of the many legal challenges that have been
advanced against the Rosemont permitting process. Hudbay is confident that Rosemont’s permits will continue to be
upheld.
Collective Bargaining Agreements
Three-year collective bargaining agreements have been entered into with Hudbay’s unionized workforces at each of
its Manitoba and Peru operations, providing labour stability.
Dividend Declared
Hudbay declared a semi -annual dividend of C$0.01 per share on February 21, 2018 . The dividend will be paid on
March 29, 2018 to shareholders of record as of March 9, 2018.
Outlook
Production, capital expenditure, exploration and unit cost guidance for 2018 remains unchanged from that provided
on January 17, 2018.
Non-IFRS Financial Performance Measures
Net debt is shown in this news release because it is a performance measure used by the company to assess its
financial position. Cash cost, sustaining and all -in sustaining cash cost per pound of copper produced are shown
because the company believes they help investors and management assess the performance of its operations,
including the margin generated by the operations and the company. 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 op erations as determined under IFRS.
Other companies may calculate these measures differently. For further details on these measures, including
reconciliations to the most comparable IFRS measures, please refer to page 39 of Hudbay’s management’s
discussion and analysis for the three months and year ended December 31, 2017 available on SEDAR at
www.sedar.com and EDGAR at www.sec.gov.
Website Links
Hudbay:
www.hudbay.com
Management’s Discussion and Analysis:
http://www.hudbayminerals.com/files/doc_financials/2017/Q4/MDA174.pdf
Financial Statements:
http://www.hudbayminerals.com/files/doc_financials/2017/Q4/FS174.pdf
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Conference Call and Webcast
Date: Thursday, February 22, 2018
Time: 10 a.m. ET
Webcast: www.hudbay.com
Dial in: 416-849-1847 or 1-866-530-1554
Qualified Person
The technical and scientific information in this news release related to the Constancia mine and Rosemont project
has been approved by Cashel Meagher, P. Geo, Hudbay’s Senior Vice President and Chief Operating Officer . The
technical and scientific information related to the Manitoba sites and projects contained in this news release has been
approved by Robert Carter, P. Eng, Hudbay’s General Manager Mining Operations, Manitoba Business Unit. Messrs.
Meagher and Carter are qualified persons pursuant to NI 43 -101. For a description of the key assumptions,
parameters and methods used to estimate mineral reserves and resources, 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.
Forward-Looking Information
This news release contains forward-looking information within the meaning of applicable Canadian and United States
securities legislation. All information contained in this news release, other than statements of current and historical
fact, is forward-looking information. Often, but not always, forward -looking information can be identified by the use of
words such as “plans”, “expects”, “budget”, “guidance”, “scheduled”, “estimates”, “forecasts”, “strategy”, “target”,
“intends”, “objective”, “goal”, “understands”, “anticipates” and “believes” (and variations of these or similar words) and
statements that certain actions, events or results “may”, “could”, “would”, “should”, “might” “occur” or “be achieved” or
“will be taken” (and variations of these or sim ilar expressions). All of the forward -looking information in this news
release is qualified by this cautionary note.
Forward-looking information includes, but is not limited to, production, cost and capital and exploration expenditure
guidance, anticipated production at Hudbay’s mines and processing facilities, the anticipated timing, cost and benefits
of developing the Rosemont project, Pampacancha deposit and Lalor growth projects, the anticipated impact of any
delays to the start of mining the Pampacanc ha deposit, the anticipated results of litigation challenging the Rosemont
permitting process, Hudbay’s expectations regarding the persistence of the positive grade reconciliation at
Constancia and a restatement of the mineral reserves , anticipated explora tion plans, anticipated mine plans,
anticipated metals prices and the anticipated sensitivity of the company’s financial performance to metals prices,
events that may affect its operations and development projects, the permitting, development and financing of the
Rosemont project, the potential to optimize the scale of production at Lalor and to efficiently process the excess base
metals ore and initial gold zone ore production at the Flin Flon mill, anticipated cash flows from operations and related
liquidity requirements, the anticipated effect of external factors on revenue, such as commodity prices, estimation of
mineral reserves and resources, mine life projections, reclamati on costs, economic outlook, government regulation of
mining operations, and business and acquisition strategies. Forward -looking information is not, and cannot be, a
guarantee of future results or events. Forward -looking information is based on, among othe r things, opinions,
assumptions, estimates and analyses that, while considered reasonable by the company at the date the forward -
looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other
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factors that may cause actual results and events to be materially different from those expressed or implied by the
forward-looking information.
The material factors or assumptions that Hudbay identified and were applied by the company in drawing conclusions
or making forecasts or projections set out in the forward-looking information include, but are not limited to:
the success of mining, processing, exploration and development activities;
the scheduled maintenance and availability of the processing facilities;
the accuracy of geological, mining and metallurgical estimates;
anticipated metals prices and the costs of production;
the supply and demand for metals the company produces;
the supply and availability of all forms of energy and fuels at reasonable prices;
no significant unanticipated operational or technical difficulties;
the execution of Hudbay’s business and growth strategies, including the success of its strategic investments
and initiatives;
the availability of additional financing, if needed;
the ability to complete project targets on time and on budget and other events that may affect the company’s
ability to develop its projects;
the timing and receipt of various regulatory, governmental and joint venture partner approvals;
the availability of personnel for the exploration, development and operational projects and ongoing employee
relations;
the ability to secure required land rights to develop the Pampacancha deposit;
maintaining good relations with the communities in which the company operates, including the communities
surrounding the Constancia mine and Rosemont project and First Nations communities surrounding the
Lalor and Reed mines;
no significant unanticipated challenges with stakeholders at the company’s various projects;
no significant unant icipated events or changes relating to regulatory, environmental, health and safety
matters;
no contests over title to the company’s properties, including as a result of rights or claimed rights of
aboriginal peoples;
the timing and possible outcome of pending litigation and no significant unanticipated litigation;
certain tax matters, including, but not limited to current tax laws and regulations and the refund of certain
value added taxes from the Canadian and Peruvian governments; and
no significant and continuing adverse changes in general economic conditions or conditions in the financial
markets (including commodity prices and foreign exchange rates).
The risks, uncertainties, contingencies and other factors that may cause actual results to differ mat erially from those
expressed or implied by the forward-looking information may include, but are not limited to, risks generally associated
with the mining industry, such as economic factors (including future commodity prices, currency fluctuations, energy
prices and general cost escalation), uncertainties related to the development and operation of the company’s projects
(including risks associated with the permitting, development and economics of the Rosemont project and related legal
challenges), risks related to the maturing nature of the 777 mine and the pending closure of the Reed mine and their
impact on the related Flin Flon metallurgical complex, dependence on key personnel and employee and union
relations, risks related to the schedule for mining the Pampacancha deposit (including the timing and cost of acquiring
the required surface rights and the impact of any schedule delays), risks related to the cost, schedule and economics
of the capital projects intended to increase processing capacity for Lal or ore, risks related to political or social unrest
or change, risks in respect of aboriginal and community relations, rights and title claims, operational risks and
hazards, including unanticipated environmental, industrial and geological events and devel opments and the inability
to insure against all risks, failure of plant, equipment, processes, transportation and other infrastructure to operate as
anticipated, compliance with government and environmental regulations, including permitting requirements an d anti-