TSX, NYSE – HBM 2017 No. 3 Hudbay Announces Fourth Quarter 2016 Results
TSX, NYSE – HBM
2017 No. 3
Hudbay Announces Fourth Quarter 2016 Results
Toronto, Ontario, February 22, 2017 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM)
today released its fourth quarter 2016 financial results. All amounts are in US dollars, unless otherwise noted.
Summary:
Met or exceeded all production and operating cost guidance for 2016
Increased production of all metals year-over-year, reflecting first full year of commercial production at
Constancia and higher throughput levels at Lalor
Achieved cost reduction initiatives in 2016 with c onsolidated cash cost of $0.93 per pound copper, and
consolidated all-in sustaining cash cost of $1.52 per pound copper, lower than 2015 levels by 19% and 30%,
respectively1
Operating cash flow per share of $0.52 in the fourth quarter of 2016 and $1.64 for the full year 20161
Net loss per share of $0.20 in the fourth quarter of 2016, due in part to the call premium and fees paid in
connection with the senior unsecured notes refinancing
Reduced net debt position by $13 6 million during 2016 1 and had t otal liquidity of $ 391 million as at
December 31, 2016, an increase of $114 million during the fourth quarter of 2016
Successfully completed refinancing of senior unsecured notes, resulting in lower interest costs, extended
maturities and more flexible financial covenants
On track to release new technical reports on Rosemont and Lalor during the first quarter of 2017
Operating cash flow before change in non -cash working capital increased to $ 122.3 million in the fourth quarter of
2016 from $117.4 million in the same quarter of 2015. While sales volumes were lower compared to the same quarter
last year, we benefited from lower operating costs and higher realized prices on all metals . Operating cash flow
before change in non -cash working capital increased to $387.9 million in 2016 from $231.8 million in 2015. This
increase reflect s the first full year of commercial production from the Constancia mine in 2016 and the resulting
growth in sales volumes of all metals. The increase in sales volumes and associated economies of scale in 2016
were complemented by lower operating costs and an increase in realized sales prices for zinc and precious metals
compared to last year.
1 Cash cost and all-in sustaining cash cost, net of by-product credits, per pound of copper produced, operating cash flow per share,
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” on page 7 of this news release.
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“In 2016, we focused on generating cost efficiencies at our operations, while maintaining strong production results,
and those efforts paid off with positive free cash flow generation in a year of cyclical low copper prices ,” said Alan
Hair, president and chief executive officer. “We will continue to focus on efficiency improvements and debt reduction
in 2017, in addition to advancing high-return in-house brownfield opportunities, such as increasing the throughput
from the Lalor mine and developing the Pampacancha deposit at Constancia.”
Net loss and loss per share in the fourth quarter of 2016 were $ 47.3 million and $0.20 , respectively, compared to a
net loss and loss per share of $ 255.5 million and $ 1.09, respectively, in the fourth quarter of 2015. While the fourth
quarter of 2016 benefited from an increase in gross profit of $19.4 million compared to the same period last year, this
was offset in part by $49.9 million in costs primarily relating to the call premium paid to facilitate the early redemption
of Hudbay’s $920 million of 9.50% senior unsecured notes due 2020 (the “Redeemed Notes”).
Net loss and loss per share in the fourth quarter of 2016 were affected by, among other things, the following items:
Pre-tax loss After-tax loss Per share
($ millions) ($ millions) ($/share)
Costs on refinancing of 9.50% senior
unsecured notes due 2020 (49.9) (36.5) (0.15)
Net loss on mark-to-market of various items (13.7) (10.9) (0.05)
Non-cash deferred tax adjustments - (20.7) (0.09)
Hudbay’s operations achieved strong quarterly consolidated copper -equivalent production 2 and continued low cash
costs in both Peru and Manitoba. In the fourth quarter of 2016, consolidated cash cost per pound of copper produced,
net of by -product credits, was $0.85, a significant decrease compared to $1.24 in the same period last year.
Incorporating sustaining capital, capitalized exploration, royalties and cor porate selling and administrative expenses,
consolidated all-in sustaining cash cost per pound of copper produced, net of by -product credits, in the fourth quarter
of 2016 declined to $1.46 from $ 2.00 in the fourth quarter of 2015. The decline was driven b y substantial reductions
in sustaining capital expenditures.
The annual cost reduction initiatives announced on February 24, 2016 were achieved as demonstrated through a 4%
and 11% reduction in unit operating costs in Peru and Manitoba, respectively, and a 31% reduction in total sustaining
capital expenditures, year-over-year, in addition to offsite cost reductions . Actual operating and capital costs were at
or below the revised guidance for 2016 provided on February 24, 2016.
2 Production on a copper-equivalent basis is calculated by converting contained metal in concentrate produced at realized prices.
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Cash and cash equivalents increased by $28.6 million in the fourth quarter of 2016 to $146.8 million as at December
31, 2016. This increase was mainly a result of operating cash flow of $140.1 million, partly offset by $ 43.5 million of
capital investments primarily at Hudbay’s Peru and Manitoba operations, and principal repayments under the
revolving credit facilities of $64.0 million during the fourth quarter.
Net debt declined to $1,085 .3 million at December 31, 2016 from $1,105.2 million at September 30, 2016 . Hudbay’s
outstanding senior unsecured debt increased by $80 .0 million upon completion of the refinancing of the Redeemed
Notes in the fourth quarter of 2016 . The US$1.0 billion of New Notes (as defined below) have extended maturity
dates, significantly reduced inte rest costs and a more flexible covenant structure. The increase in debt related to the
New Notes was more than offset by strong cash flow generation from the business, which was utilized in part to repay
debt on the revolving credit facilities.
Financial Condition ($000s) Dec. 31, 2016 Sep. 30, 2016 Dec. 31, 2015
Cash and cash equivalents 146,864 118,258 53,852
Total long-term debt 1,232,164 1,223,427 1,274,880
Net debt1 1,085,300 1,105,169 1,221,028
Working capital 121,539 138,211 57,613
Total assets 4,456,556 4,484,805 4,479,585
Equity 1,763,212 1,797,470 1,787,290
Financial Performance Three months ended Year ended
($000s except per share and cash cost amounts) Dec. 31 Dec. 31
2016 2015 2016 2015
Revenue 316,654 336,641 1,128,678 886,051
Cost of sales 238,449 277,838 905,800 767,687
(Loss) profit before tax (26,065) (325,610) 5,605 (399,041)
Loss (47,273) (255,468) (35,193) (331,428)
Basic and diluted loss per share (0.20) (1.09) (0.15) (1.41)
Operating cash flow before change in non-cash
working capital 122,257 117,408 387,868 231,821
Operating cash flow per share1 0.52 0.50 1.64 0.99
1 Net debt and operating cash flow per share are non-IFRS financial performance measures with no standardized definition under
IFRS. For further information, please see page 7 of this news release.
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Production and Cost Performance Three months ended Three months ended
Dec. 31, 2016 Dec. 31, 2015
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 33,986 9,797 43,783 37,735 10,404 48,139
Gold oz 5,033 22,449 27,482 6,560 20,184 26,744
Silver oz 723,392 269,286 992,678 636,514 229,360 865,874
Zinc tonnes - 29,144 29,144 - 32,362 32,362
Payable metal in concentrate sold
Copper tonnes 35,969 8,223 44,192 48,898 9,816 58,714
Gold oz 6,183 19,158 25,341 7,888 23,996 31,884
Silver oz 701,654 209,671 911,325 511,148 239,967 751,115
Refined zinc tonnes - 28,094 28,094 - 27,064 27,064
Cash cost2 $/lb 1.11 (0.06) 0.85 1.32 0.93 1.24
Sustaining cash cost2 $/lb 1.54 0.58 1.93 1.95
All-in sustaining cash cost2 $/lb 1.46 2.00
Year ended Year ended
Dec. 31, 2016 Dec. 31, 2015
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 133,432 41,059 174,491 105,897 41,383 147,280
Gold oz 26,276 88,020 114,296 18,839 81,338 100,177
Silver oz 2,760,332 995,564 3,755,896 1,989,664 801,872 2,791,536
Zinc tonnes - 110,582 110,582 - 102,919 102,919
Payable metal in concentrate sold
Copper tonnes 132,663 38,788 171,451 94,694 39,906 134,600
Gold oz 24,199 71,328 95,527 15,869 77,910 93,779
Silver oz 2,423,165 758,594 3,181,759 1,159,993 713,183 1,873,176
Refined zinc tonnes - 103,453 103,453 - 101,920 101,920
Cash cost2 $/lb 1.09 0.41 0.93 1.16 1.10 1.15
Sustaining cash cost2 $/lb 1.51 1.16 1.92 2.02
All-in sustaining cash cost2 $/lb 1.52 2.05
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 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
7 of this news release.
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Peru Operations Review
During the fourth quarter of 2016, the Constancia mine produced 33,986 tonnes of copper, 5,033 ounces of gold and
723,392 ounces of silver, which remained relatively consistent with the same period in 2015. Full year production of
copper, gold and silver was 26%, 39% and 39% higher, respectively, than the full year in 2015, reflecting the ramp-up
of Constancia to full production and the improvements in recoveries made in the last year. Production of all metals at
Constancia was above the guidance ranges for 2016.
Ore mined during the fourth quarter of 2016 decreased by 25% compared to the same period in 2015 as ore
production rates were aligned to mill throughput rates. Mined and milled copper grades in the fourth quarter of 2016
were approximately 8% lower than the same period in 2015 as th e mine plan continues to advance to lower levels in
the pit.
Optimization of plant performance remains the primary focus for Constancia. Total copper recovery was 81.6% in the
fourth quarter of 2016, compared to 79.8% in the same period in 2015, as oxidized copper in the ore feed was lower
in the current quarter and the metallurgy associated with the varying o re types is better understood. Gold and silver
recoveries also improved in 2016 compared to 2015. Recoveries of all metals were slightly lower in the fourth quarter
of 2016 compared to the third quarter as mining began on phase two of the Constancia open pit where the initial
near-surface ore contains a greater amount of altered and oxidized mineralization.
Combined mine, mill and general and administrative (“G&A”) unit operating costs were $7.98 per tonne in the fourth
quarter of 2016 and $8.09 per tonne for the full year 2016. Unit operating costs benefitted from lower mining costs
due to ongoing improvement initiatives. Combined unit operating costs were within guidance expectations.
Cash cost per pound of copper produced, net of by -product credits, for the three months and year ended December
31, 2016 were $1.11 and $1.0 9, respectively, a decrease from the same periods in 2015 of 1 6% and 6%,
respectively, as a result of continued cost optimization and maintenance timing.
Sustaining cash cost per pound of copper produced, net of by -product credits, for the three months and year ended
December 31, 2016 were $1.54 and $1.51, respectively, a decrease from the same period in 2015 of 20% and 21%,
respectively, as a result of lower capital costs from tailings impoundment construction.
As is typical with large Peruvian mining operations following startup, some of the employees at Constancia have
formed a labour union. Negotiations to establish an initial collective agreement are ongoing with representatives of
the union.
Manitoba Operations Review
During the fourth quarter of 2016, the Manitoba operations produced 9,797 tonnes of copper and 29,144 tonnes of
zinc, which were lower than the same period in 2015 mainly as a result of lower mill throughput as well as lower
grades at the Lalor mine. However, production of gold and silver was higher than the fourth quarter of 2015 by 11%
and 17%, respectively, as a result of higher gold and silver recoveries. During the full year 2016, production of copper
was consistent with 2015 levels while production of the other metals increased compared to 2015 as a result of
increased production at Lalor and 777. Production of all metals in Manitoba was within guidance ranges for 2016.
Ore mined at Hudbay’s Manitoba mines during the fourth quarter of 2016 decreased by 13% compared to the same
period in 2015 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 to more
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challenging operating conditions as the mine ages. Overall copper and zinc grades were lower in the fourth quarter of
2016 compared to the same period in 2015 by 8% and 4%, respectively, due to lower grades at Lalor and Reed. Full
year ore production at Hudbay’s Manitoba mines in 2016 was 7% higher than in 2015 as a result of increased
production at the Lalor and 777 mines. Copper, zinc and gold grades in 2016 were lower compared with the grades in
2015 by 9%, 3% and 6%, respectively, and silver grades were higher by 7%.
Ore processed in the Flin Flon concentrator in the fourth quarter of 2016 was 3% lower than the same period in 2015
primarily as a result of lower mine production. Zinc and precious metals recoveries were higher in the fourth quarter
of 2016 compared to the same period in 2015 as a result of higher head grades . For the full year, ore processe d in
Flin Flon was 5% higher than in 2015 as a result of higher mine production at the 777 mine, partially offset by
unscheduled maintenance. Copper and zinc recoveries in 2016 were fairly consistent with 2015, while precious
metals recoveries were higher as a result of higher head grades.
Ore processed at the Stall concentrator in the fourth quarter of 2016 was consistent with the same period in 2015. For
the full year, ore processed at Stall was 17% higher than in 2015 as a result of higher production at Lalor.
Manitoba combined mine, mill and G&A unit operating costs in the fourth quarter and full year in 2016 were C$96.38
per tonne and C$92.77 per tonne, respectively, 4% and 11% lower than in the same periods in 2015 as a result of
ongoing cost reduction initiatives. Combined unit operating costs were within guidance expectations.
Cash cost per pound of copper produced, net of by -product credits, in the fourth quarter of 2016 and full year were
negative $0.06 and $0.41 per pound o f copper produced, respectively. These were lower compared to the same
periods in 2015 due to higher realized zinc prices, decreased purchases of zinc concentrate for processing, and a
decrease in general support costs as a result of cost reduction initiatives. Full year 2016 cash cost was positively
impacted by increased sales of precious metals.
Sustaining cash cost per p ound of copper produced, net of by -product credits, in the fourth quarter of 2016 and full
year were $0.58 and $1.16 per pound of copper produced, respectively, representing a decrease of 70% and 43%
per pound, respectively, compa red to the same periods in 2015. The decrease in sustaining costs resulted from the
same factors impacting results in the fourth quarter described above as well as reduced capital expenditures.
Senior Unsecured Notes Refinancing
On December 12, 2016, Hudbay completed an offering of $1.0 billion aggregate principal amount of senior notes (the
"New Notes") in two series: (i) a series of 7.250% senior notes due 2023 in an aggregate principal amount of $400
million and (ii) a series of 7.625% senior notes due 2025 in an aggregate principal amount of $600 million. The New
Notes are governed by an indenture, dated as o f December 12, 2016, among the c ompany, the subsidiaries of the
company party thereto as guarantors and U.S. Bank National Association, as trustee.
The proceeds from this offering were used to redeem all US$920 million of Hudbay’s outstanding Redeemed Notes
and to pay a call premium of $47.7 million , prepaid interest associated with the redemption of the Redeemed Notes
and transaction costs associated with the New Notes.
Other Recent Developments
Hudbay declared a semi -annual dividend of C$0.01 per share on February 22, 2017. The dividend will be paid on
March 31, 2017 to shareholders of record as of March 10, 2017.
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Non-IFRS Financial Performance Measures
Operating cash flow per share is included in this news release because the company believes it help investors and
management evaluate changes in cash flow generated from the various operations while taking into account changes
in shares outstanding. Net debt is shown because it is a p erformance measure used by the c ompany to assess its
financial po sition. 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 prepar ed 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. For further details on these measures, including
reconciliations to the most comparable IFRS measures, please refer to page 40 of Hudbay’s management’s
discussion and analysis for the three months and year ended December 31, 2016 available on SEDAR at
www.sedar.com and EDGAR at www.sec.gov.
Website Links
Hudbay:
www.hudbayminerals.com
Management’s Discussion and Analysis:
http://www.hudbayminerals.com/files/doc_financials/2016/Q4/MDAY416.pdf
Financial Statements:
http://www.hudbayminerals.com/files/doc_financials/2016/Q4/FSY416.pdf
Conference Call and Webcast
Date: Thursday, February 23, 2017
Time: 10 a.m. ET
Webcast: www.hudbay.com
Dial in: 416-849-1847 or 1-866-530-1554
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Qualified Person
The technical and scientific information in this news release related to the Constancia mine has been approved by
Cashel Meagher, P. Geo, Hudbay’s Senior Vice President and Chief Operating Officer . The technical and scientific
information related to all other sites and projects contained in this news release has been approved by Robert Carter,
P. Eng, Hudbay’s Lalor Mine Manager. 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 informa tion 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”, “fo recasts”, “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 similar 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, productio n, cost and capital and exploration expenditure
guidance, including anticipated capital and operating cost savings and anticipated production at the company’s mines
and processing facilities, the anticipated timing, cost and benefits of developing the Pampacancha deposit and Lalor
paste backfill plant, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of the company’s
financial performance to metal prices, events that may affect its operations and development projects, an ticipated
cash flows from operations and related liquidity requirements, the potential outcome of labour negotiations in Peru,
the anticipated effect of external factors on revenue, such as commodity prices, economic outlook, government
regulation of minin g 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 other things,
opinions, assumptions, estimates and analyses that, while considered reasonable by Hudbay at the date the forward-
looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other
factors that may cause actual results and events to be materially differe nt 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 Hudbay’s processing facilities;
the sustainability and success of Hudbay’s cost reduction initiatives;
the accuracy of geological, mining and metallurgical estimates;
anticipated metals prices and the costs of production;
the supply and demand for metals that Hudbay produces;
the supply and availability of all forms of energy and fuels at reasonable prices;
no significant unanticipated operational or technical difficulties;