TSX, NYSE – HBM 2018 No. 17 Hudbay Announces Third Quarter 2018 Results
TSX, NYSE – HBM
2018 No. 17
Hudbay Announces Third Quarter 2018 Results
Toronto, Ontario, October 31, 2018 – Hudbay Minerals Inc. (“Hud bay” or the “company”) (TSX, NYSE:HBM)
today released its third quarter 2018 financial results. All amounts are in U.S. dollars, unless otherwise noted.
Summary:
Earnings per share of $0.09 and cash from operating activities of $113.8 million in the third quarter of 2018.
Achieved record mill throughput and copper recoveries at Const ancia.
Trade-off studies have been completed and Hudbay believes the refurbishment of the New Britannia mill is
the optimal processing scenario for the Lalor gold and copper-gold zones.
Entered into a friendly agreement to acquire Mason Resources C orp. (“Mason”), owner of one of the largest
undeveloped copper porphyry resources in North America, for an enterprise value of approximately
$15 million.
“In Q3 we executed well against our strategic priorities and ge nerated strong earnings and cash flow as we continued
to focus on developing and operating our portfolio of high-qual ity assets in mining friendly jurisdictions,” said Alan
Hair, president and chief executive officer. “Record mill throu ghput and record copper recoveries at our Constancia
mine reflected the success of optimization efforts we have been making over the past several years. We are also very
encouraged by the progress we have made at Lalor, where we beli eve we can enhance the long-term value of the
Manitoba business by refurbishing the New Britannia gold mill.”
Hudbay believes the most signifi cant opportunities for long-ter m value creation are through exploration and mine
development. The company’s track record of successful explorati on, industry-leading development and mine ramp-
up, and highly efficient operation of the Constancia mine in Peru, along with its long history of responsible, mining life-
cycle experience in Manitoba provides Hudbay with a competitive advantage to create long-term shareholder value.
Hudbay considers acquisition opportunities against a number of criteria; the company targets copper deposits in
mining-friendly jurisdictions, with the potential to be long-li fe low cost operations once developed. Potential
opportunities should involve a meaningful operating role for Hu dbay and be accretive to NAV/share and/or
reserves/resources per share.
“Hudbay’s acquisition of Mason meets our stringent acquisition criteria and is a unique opportunity to create value
with our proven ‘drill and build’ strategy”, stated Mr. Hair. “ It provides us access to a copper deposit in Nevada with
measured and indicated resources comparable to Constancia and R osemont at a cost of approximately 30% of our
2018 exploration budget. We have followed the Ann Mason project for quite some time as a shareholder and believe
it is an ideal fit for our project pipeline. We’re pleased to a cquire a deposit of this scale at an early stage and we look
forward to applying our exploration, engineering, permitting an d construction expertise to unlock the project’s
potential and maximize value for our shareholders.”
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Net profit and earnings per share in the third quarter of 2018 were $22.8 million and $0.09, respectively, compared to
net profit and earnings per share of $36.3 million and $0.15, respectively, in the third quarter of 2017.
In the third quarter of 2018, cas h generated from operating act ivities was $113.8 million, which decreased from
$167.9 million in the same period of 2017 due to lower realized prices for all commodities , lower sales volumes of
copper and higher operating costs, partially offset by increases in the sales volumes of precious metals and zinc.
Net profit and earnings per share in the third quarter of 2018 were affected by, among other things, the following
items:
Pre-tax gain
(loss) After-tax gain
(loss) Per share
gain (loss)
($ millions) ($ millions) ($/share)
Foreign exchange gain (1.2) (0.8) -
Mark-to-market adjustments of various items 1.3 0.5 -
Non-cash deferred tax adjustments - 1.3 -
Compared to the same quarter of 2017, production of contained copper-equivalent metal in concentrate decreased by
10%, primarily as a result of lower production in Manitoba. The decrease in Manitoba production was partially offset
by higher copper production at Constancia arising from improved mill throughput and recoveries.
In the third quarter of 2018, c onsolidated cash cost per pound of copper produced, net of by-product credits, was
$0.88, a marginal increase compared to $0.86 in the same period last year. Cash costs, by–product credits and
copper production in the third quarter of 2018 were all substantially similar to the equivalent values in the third quarter
of 2017. Incorporating sustaining capital, capitalized explorat ion, royalties and corporate selling and administrative
expenses, consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits, in the
third quarter of 2018 was $1.43, w hich has decreased from $1.64 in the third quarter of 2017, as a result of reduced
sustaining capital spending.
Cash and cash equivalents increased by $103.4 million from Dece mber 31, 2017 to $459.9 million as at
September 30, 2018. This increase was a result of cash generate d from operating activities of $342.2 million. These
inflows were partly offset by $133.5 million of capital investments primarily at Hudbay’s Peru and Manitoba operations
and interest payments of $74.8 million.
Net debt decreased by $106.7 milli on from December 31, 2017 to $516.4 million at Septem ber 30, 2018, primarily
due to free cash flow generation. At September 30, 2018, total liquidity, including cash and available credit facilities,
was $878.4 million, up from $859.2 as at June 30, 2018.
Based on knowledge gained from test mining of the Lalor gold zo nes, infill drilling of the copper-gold zone and
mineral processing trade-off studies on the Lalor gold and copp er-gold zones, Hudbay believes the optimal
processing scenario is to refurbish the New Britannia mill, which is expected to have gold recoveries of approximately
90%, compared to gold recoveries of less than 65% in Hudbay’s existing facilities.
Based on results to date, Hudba y is on track to meet its produc tion and cost guidance expectations, as revised for
Manitoba costs in the second quarter of 2018.
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1
Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please
see page 9 of this news release.
Financial Condition ($000s) Sep. 30, 2018 Dec. 31, 2017
(Restated)
Cash and cash equivalents 459,863 356,499
Total long-term debt 976,252 979,575
Net debt1 516,389 623,076
Working capital 454,290 251,388
Total assets 4,682,172 4,728,016
Equity 2,195,269 2,112,345
Financial Performance Three months ended Nine months ended
($000s except per share and cash cost amounts) Sep. 30 Sep. 30
2018 2017 2018 2017
Revenue 362,649 380,181 1,120,593 977,980
Cost of sales 277,367 260,624 822,079 713,792
Profit before tax 30,287 53,752 153,187 93,326
Profit 22,808 36,304 88,926 45,413
Basic and diluted earnings per share 0.09 0.15 0.34 0.19
Operating cash flow before change in non-cash
working capital 122,097 153,943 385,524 358,662
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Production and Cost Performance Three months ended Three months ended
Sep. 30, 2018 Sep. 30, 2017
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 32,976 7,506 40,482 30,936 9,509 40,445
Gold oz 6,059 22,199 28,258 4,702 23,975 28,677
Silver oz 736,657 274,330 1,010,987 617,959 317,567 935,526
Zinc tonnes - 26,228 26,228 - 36,635 36,635
Molybdenum tonnes 370 - 370 72 - 72
Payable metal in concentrate sold
Copper tonnes 30,222 9,376 35,598 30,128 11,384 41,512
Gold oz 4,486 26,996 31,482 3,103 24,526 27,629
Silver oz 548,782 338,131 886,913 465,251 292,261 757,512
Zinc2 tonnes - 30,969 30,969 - 27,804 27,804
Molybdenum tonnes 237 - 237 159 - 159
Cash cost3 $/lb 1.22 (0.61) 0.88 1.19 (0.20) 0.86
Sustaining cash cost3 $/lb 1.38 1.23 1.80 0.59
All-in sustaining cash cost3 $/lb 1.43 1.64
Nine months ended Nine months ended
Sep. 30, 2018 Sep. 30, 2017
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 91,344 25,968 117,312 87,944 28,073 116,017
Gold oz 16,667 75,164 91,831 12,440 63,625 76,065
Silver oz 1,979,112 960,673 2,939,785 1,703,789 779,978 2,483,767
Zinc tonnes - 88,180 88,180 - 102,101 102,101
Molybdenum tonnes 575 - 575 335 - 335
Payable metal sold
Copper tonnes 85,197 26,376 111,573 77,175 30,001 107,176
Gold oz 13,158 74,078 87,236 8,022 70,527 78,549
Silver oz 1,582,944 879,909 2,462,853 1,407,130 817,653 2,224,783
Zinc2 tonnes - 84,589 84,589 - 84,059 84,059
Molybdenum tonnes 372 - 372 423 - 423
Cash cost3 $/lb 1.38 (0.58) 0.94 1.24 (0.31) 0.86
Sustaining cash cost3 $/lb 1.54 0.82 1.72 0.42
All-in sustaining cash cost3 $/lb 1.45 1.53
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
9 of this news release.
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Peru Operations Review
In addition to achieving record mill throughput, copper recoveries reached record levels in the third quarter of 2018 as
a result of several metallurgical initiatives intended to impro ve copper recoveries, while gold recoveries remained
consistent compared to the same period in 2017. While recoverie s vary from quarter to quarter depending on the
complexity of the ore feed, the company is seeing results from recovery improvement initiatives and is on track to
deliver the recoveries anticipated in the 43-101 technical report issued earlier in 2018.
During the third quarter of 2018, the Peru operations produced 32,976 tonnes of copper, which was approximately
7% higher than production in the third quarter of 2017 due to h igher throughput and improved recoveries. The
molybdenum plant continued to operate at higher rates during the quarter, resulting in the production of 370 tonnes of
molybdenum. Production for the first three quarters of 2018 for all commodities increased due to improved mill
throughput and higher recoveries, partially offset by lower cop per grades in accordance with the mine plan.
Production results to date are on track to meet full year guidance.
Combined mine, mill and G&A unit operating costs in the third quarter of 2018 were 16% higher than the same period
in 2017. The higher combined unit operating costs were due to a decrease in capitalized stripping and higher costs
for diesel, steel and power, partially offset by higher mill th roughput. Also, increased utilization of the molybdenum
plant contributed to higher unit costs but reduced Peru cash co sts due to higher by-product revenue. Combined unit
operating costs for the year to date include accruals for signi ng bonuses for the three-year collective bargaining
agreement agreed to earlier in 2018.
Cash cost per pound of copper produced, net of by-product credi ts, for the three and nine months ended September
30, 2018 was $1.22 and $1.38, increasing by 3% and 11%, respect ively, from the same period in 2017. The increase
for the first nine months is mainly as a result of higher consu mable costs and lower capitalized stripping, partially
offset by higher by-product credits. Sustaining cash cost per p ound of copper produced, net of by-product credits, for
the three and nine months ended September 30, 2018 was $1.38 an d $1.54, decreasing by 23% and 12%,
respectively, from the same period in 2017, as a result of redu ced sustaining capital spending on heavy civil works,
which more than offset the factors noted above.
Manitoba Operations Review
During the third quarter of 2018, the Manitoba operations produ ced 26,228 tonnes of zinc, 7,506 tonnes of copper
and 26,118 ounces of gold-equivalent precious metals. Zinc prod uction was 28% lower compared to the same period
in 2017 as a result of lower grades at Lalor and 777, in line w ith the mine plan. The Reed mine closure in August
negatively affected contained copper production compared to the third quarter of 2017.
Ore mined at Hudbay’s Manitoba operations during the third quar ter of 2018 decreased by 15% compared to the
same period in 2017. Increased production at the 777 mine was o ffset by decreased production at the Lalor and
Reed mines. Overall, gold grades were 1% higher, while copper, zinc and silver grades were 23%, 17%, and 7%
lower, respectively, in the third quarter of 2018 compared to t he same period of 2017. Grade variances reflected
anticipated declines in 777 and Lalor grades in accordance with their respective mine plans, together with reduced
high–grade copper production from Reed due to its closure. Unit operating costs for all Manitoba mines for the third
quarter of 2018 increased by 6% compared to the same period in 2017 for the reasons described below.
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Ore mined at Lalor decreased by 18%, compared to the same period last year. Lower production tonnage is primarily
attributed to the exhaust fan failure in June that constrained ventilation and production from areas of the mine until
mid August. In addition, a fall of ground in August delayed the timing of a production stope, and the mine has been
affected by a shortage of skilled workers. The Lalor paste plan t was commissioned during the quarter, with backfill
voids being managed within normal thresholds. Higher unit opera ting costs reflect the repairs to the exhaust fan
failure and ground rehabilitation work completed in the quarter . The Lalor production ramp up to 4,500 tpd is now
expected in the first quarter of 2019.
The Reed mine produced its last ore in August and processing of Reed ore was completed in early September.
Production volumes and grades exc eeded the company’s expectatio ns over the third quarter. The production costs
were at a lower unit cost because the upfront development and l onghole drilling activities were completed in the first
half of the year. Reed closure costs are included in other oper ating expenses, and site clearing work has been
completed ahead of schedule.
Ore processed in Flin Flon in the third quarter of 2018 was 15% lower than the same period in 2017. Lower
production at the Lalor and Reed mines was offset partially by increased ore from the 777 mine. Copper and zinc
recoveries in the third quarter of 2018 were 1% and 6% lower, r espectively, compared with the same period in 2017
while gold and silver recoveries were each 2% higher. Ore proce ssed was 4% higher and copper recoveries were
consistent at the Stall concentrator in the third quarter of 20 18 compared with the same period in 2017, as a result of
ongoing operational and maintenance improvements and better metallurgical understanding of the Lalor ore.
Production of all metals is expected to be within full year guidance.
Manitoba combined mine, mill and G&A unit operating costs in th e third quarter and year-to-date in 2018 were 3%
and 10% higher, respectively, than in the same periods in 2017 due mainly to higher 777 and Lalor mining costs, Flin
Flon mill maintenance and ore rehandling costs.
Cash cost per pound of copper produced, net of by-product credi ts, in the third quarter of 2018 was negative $0.61
per pound of copper produced. These unit costs were lower compa red to the same period in 2017, primarily as a
result of lower mining and administrative costs, partially offset by lower copper production.
Sustaining cash cost per pound of copper produced, net of by-product credits, in the third quarter of 2018 was $1.23,
which is higher than the prior year period as the lower cash co st was more than offset by higher sustaining capital
expenditures. Sustaining cash cost per pound of copper produced increased by $0.40 year-to-date, compared to the
same period in 2017, as a result of increased capital developme nt expenditures at Lalor and planned increased
sustaining and exploration capital spending.
Lalor Gold
A key area of focus at Lalor this year has been test mining in the gold zones, and additional infill drilling in the gold
and copper-gold zones, both in support of trade-off studies to assess the mining and processing options for Lalor
gold. The trade-off studies have been completed and Hudbay beli eves the optimal processing scenario is to refurbish
the New Britannia gold mill, with significant upside potential from nearby satellite deposits.
Over the past few months, Hudbay has continued drilling and tes t mining in the gold rich Lens 25, confirming the
existence of a continuous high gr ade core of mineralization wit hin the wider lower grade mineral resource estimates
reported in the 2017 NI 43-101 technical report for Lalor. In p arallel, Hudbay has revised its geological model of the
copper-gold rich Lens 27, which better reflects the orientation of the mineralization observed during core logging. This
re-interpretation indicates that there is a simpler and more co nsistent and reliable mineralized envelope that is
expected to result in an increase in tonnage of this high grade mineralization.
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Based on the detailed work compl eted in the last 12 months, Hud bay believes that the refurbishment of the New
Britannia mill, including the addition of a copper flotation ci rcuit, is the optimal processing scenario. The company
believes there is substantial additional upside potential from known mineral resources at nearby satellite deposits and
other promising exploration targets, including the historical estimates of mineral resources at Hudbay’s New Britannia
and Squall Lake deposits as well as the recently acquired Wim d eposit1, and from other promising exploration targets
in the Snow Lake region.
Hudbay is currently working on an updated mineral reserve and r esource estimate and related technical work to
confirm its assumptions and det ermine an optimal configuration of the New Britannia mill. The company expects to
provide more details in the first quarter of 2019 as it advances the engineering and mine planning work.
Acquisition of Mason
On October 31, 2018, Hudbay enter ed into an agreement pursuant to which it will acquire the remaining 86% of the
issued and outstanding common s hares of Mason that it does not already own. Under the agreement, Mason
shareholders will receive Cdn. $0.40 in cash for each Mason common share owned. The transaction is e xpected to
close in December 2018, subject to the approval of Mason’s shar eholders, court approval of a plan of arrangement
and other customary conditions.
Mason’s Ann Mason project is a large greenfield copper deposit located in the historic Ye rington District of Nevada
and is one of the largest undeveloped copper porphyry deposits in North America. Mason’s measured and indicated
resources are comparable in size to Constancia and Rosemont, an d Hudbay is acquiring the asset for an enterprise
value (net of its current ownership) of approximately $15 milli on, a cost that is approximately 30% of its 2018
exploration budget.
1
Refer to “Historical Estimates of Mineral Resources” at the end of this news release.
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Table 1-1: Mineral Resource1 Statement for the Ann Mason Deposit based on a 0.20% Cu Cut-off
Classification
Tonnage Grade Contained Metal
(Mt) Cu (%) Mo (%) Au (g/t) Ag (g/t) Cu (Mlb) Mo (Mlb) Au (Moz) Ag(Moz)
Measured 412 0.33 0.006 0.03 0.64 3,037.6 58.1 0.37 8.46
Indicated 988 0.31 0.006 0.03 0.66 6,853.3 128. 5 0.97 21.00
Measured and
Indicated 1,400 0.32 0.006 0.03 0.65 9,890.9 186.6 1.33 29.46
Inferred 623 0.29 0.007 0.03 0. 66 3,897.2 96.2 0.58 13.16
1 For additional information, refer to the technical report dated March 3, 2017 filed by Mason on SEDAR at www.sedar.com.
Table 1-2: Blue Hill Deposit1 Inferred Mineral Resources (effective date March 3, 2017)
Zone
Cu Cut-off Tonnes Grade Contained Cu Mo Au Ag
(%) (Mt) Cu (%) (Mlb) (%) (g/t) (g/t)
Oxide Zone 0.10 47.44 0.17 179.37 — — —
Mixed Zone 0.10 24.69 0.18 98.20 — — —
Oxide + Mixed Zone 0.10 72.13 0.17 277.49 — — —
Sulphide Zone 0.15 49.86 0.23 253.46 0.005 0.01 0.3
1 For additional information, refer to the technical report dated March 3, 2017 filed by Mason on SEDAR at www.sedar.com
Hudbay views Mason as a long-term option for potential future d evelopment after Rosemont, and a strong addition to
the company’s pipeline of long-term growth opportunities. The A nn Mason project will become one of Hudbay’s high
priority exploration projects in North America. Hudbay plans to conduct geological mapping, geochemical sampling
and geophysical surveys in 2019, as well as diamond drilling to identify potential sources of high grade mineralization
that could enhance the feed grade in the early years of a futur e milling operation. High priority exploration targets
include near-surface skarn showings as well as untested induced polarization (IP) anomalies. Hudbay is pleased to
acquire a deposit of this scale at an early stage where the com pany can apply its experience in exploration,
engineering, construction and permitting to unlock the project’ s potential and maximize value for Hudbay’s
shareholders.
Other Matters
A requisition for a meeting of Hudbay’s common shareholders has been submitted by a shareholder for the purpose
of considering an advisory resolution with respect to certain p otential transactions. Per the Company’s October 23
press release, Hudbay’s Board is considering the requisition and will respond in due course.