TSX, NYSE – HBM 2018 No. 8 Hudbay Announces First Quarter 2018 Results and Provides Update on the Lalor Gold Zone
TSX, NYSE – HBM
2018 No. 8
Hudbay Announces First Quarter 2018 Results and Provides Update on the Lalor
Gold Zone
Toronto, Ontario, May 2, 2018 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today
released its first quarter 2018 financial results. All amounts are in U.S. dollars, unless otherwise noted.
Summary:
Net profit of $41.4 million and earnings per share of $0.16 in the first quarter of 2018, compared to a net loss
of $10.0 million (restated) and loss per share of $0.04 (restated) in the first quarter of 2017
Operating cash flow 1 of $131.8 million in the first quarter of 201 8, a 64% increase from the first quarter of
2017
Production of copper, gold and silver in concentrate increased by approximately 13%, 50% and 32%,
respectively, in the first quarter of 2018 compared to the first quarter of 2017 as a result of higher milled
throughput at all operations
Reduced net debt2 position by $37.7 million and improved liquidity during the first quarter 2018; as at March
31, 2018, Hudbay had net debt of $585.4 million and total available liquidity of $810 million, including $392.8
million in cash
Consolidated cash cost2, net of by-product credits, of $0.98 per pound of copper, an 11% increase from the
first quarter of 2017
Consolidated all-in sustaining cash cost2, net of by -product credits, of $ 1.45 per pound of copper in the first
quarter of 2018, down slightly from $1.46 in the first quarter of 2017
Peru precious metals production expected to be 15,000 ounces lower than initial guidance as a result of
anticipated delay in mining of Pampacancha , with the majority of the estimated $45 million of Peru growth
capital expected to be deferred to 2019; expected to meet all other production and cost guidance for 2018
Test mining of Lalor gold Zone 25 has confirmed the possibility of utilizing selective methods for the gold
zone to mine fewer tonnes at a higher grade than reported in the current mineral resource estimate; trade-off
studies to assess the mining and processing options for the gold mineral resources at Lalor are ongoing
Net profit and earnings per share in the first quarter of 2018 were $41.4 million and $0.16, respectively, compared to
a net loss and loss per share of $10.0 million (restated) and $0.04 (restated), respectively, in the first quarter of 2017.
1 Operating cash flow before change in non-cash working capital.
2 Net debt, cash cost and all-in sustaining cash cost per pound, net of by-product credits, 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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In the first quarter of 201 8, o perating cash flow before change s in non -cash working capital increased to $131.8
million, compared to $80.6 million in the first quarter of 2017, mainly as a result of higher copper sales volumes and
higher realized prices of all metals.
“We began the first few months of the year much like we ended last year, by continuing to grow our positive free cash
flow and reduce debt,” said Alan Hair, president and chief executive officer. “ In 2018, we will look to further increase
operating cash flow and reduce net debt. We are also focused on completing the ramp -up of base metal ore
production at Lalor and beginning production from the gold zones, both of which progressed well during the first
quarter of 2018, as well as moving Rosemont through the permitting process.”
Net profit and earnings per share in the first quarter of 201 8 were affected by, among other things, the following
items:
Pre-tax gain
(loss) After-tax gain
(loss) Per share
gain (loss)
($ millions) ($ millions) ($/share)
Changes in accounting standards (3.4) (3.8) (0.01)
Foreign exchange gain 4.0 3.4 0.01
Mark-to-market adjustments of various items 10.2 8.5 0.03
Pampacancha delivery obligation (7.2) (7.2) (0.03)
Non-cash deferred tax adjustments - (2.8) (0.01)
Effective January 1, 2018, a new revenue accounting standard issued by the International Accounting Standards
Board was implemented and applied retrospectively. Under the new standard, Hudbay’s stream agreements with
Wheaton Precious Metals now incorporate a significant financing component. The accretion of financing expense on
the deferred revenue balance increases the deferred revenue balance over time and the resulting higher deferred
revenue balance is amortized to revenue, resulting in higher revenue per ounce of metal sold under the stream, and
higher finance expense. The impact to the first quarter of 2018 is an increase to gross margin of $12.8 million, offset
by an increase in finance ex penses of $16.2 million. The net impact to after -tax earnings per share is a loss of
$0.01. All of these changes are non-cash.
During the first quarter of 2018, Hudbay recognized an obligation to deliver additional precious metal credits to
Wheaton Precious Metals as a result of the company’s expectation that mining at the Pampacancha deposit will not
begin until 2019.
Compared to the first quarter of 2017, production of copper, gold and silver in concentrate in the first quarter of 2018
increased as a r esult of higher milled throughput at all of Hudbay’s operations together with higher grades for
precious metals in Manitoba. Zinc production decreased by 6% as Lalor zinc grades have declined in line with the
mine plan.
In the first quarter of 201 8, consolidated cash cost per pound of copper produced, net of by -product credits, was
$0.98, a n increase compared to $0. 88 in the same period last year. The increase is mainly due to increased
operating costs at Hudbay’s 777 and Reed mines in Manitoba as the mines approach the later stages of their lives
and reduced capitalized stripping at Constancia, resulting in higher operating expense. Incorporating sustaining
capital, capitalized exploration, 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 first quarter of 2018 was $1.45,
down slightly from $1.46 in the first quarter of 2017.
Cash and cash equivalents increased by $ 36.3 million during the first quarter of 2018 to $392.8 million at March 31,
2018. This increase was mainly a result of cash generated from operating activities of $13 1.4 million. This inflow was
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2018 No. 8
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partly offset by $48.7 million of financing expenditures primarily driven by $3 7.4 million in interest paid on outstanding
debt, and $46.0 million of investing activities primarily at Hudbay’s Peru and Manitoba operations.
Net debt declined by $37.7 million from December 31, 2017 to $585.4 million at March 31, 2018, as a result of cash
flow from Hudbay’s operations . At March 31, 2018, total liquidity , including cash and available credit facilities , was
$810.0 million, up from $777.9 million at December 31, 2017.
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 Performance Three months ended
($000s except per share and cash cost amounts) Mar. 31
2018
2017
(Restated)
Revenue 386,656 261,767
Cost of sales 265,885 205,121
Profit before tax 73,103 4,637
Profit (loss) for the period 41,445 (10,029)
Basic and diluted earnings (loss) per share 0.16 (0.04)
Operating cash flow before change in non-cash working capital 131,791 80,595
Production and Cost Performance Three months ended Three months ended
Mar. 31, 2018 Mar. 31, 2017
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 31,551 7,655 39,206 27,211 7,520 34,731
Gold oz 5,418 25,675 31,093 3,935 16,788 20,723
Silver oz 645,886 331,252 977,138 539,534 198,360 737,894
Zinc tonnes - 28,782 28,782 - 30,570 30,570
Payable metal in concentrate sold
Copper tonnes 29,568 6,938 36,506 18,565 7,850 26,415
Gold oz 4,907 21,150 26,057 1,475 23,995 25,470
Silver oz 595,630 290,826 886,456 383,263 293,302 676,565
Refined zinc2 tonnes - 25,452 25,452 - 26,832 26,832
Cash cost3 $/lb 1.32 (0.38) 0.98 1.30 (0.66) 0.88
Sustaining cash cost3 $/lb 1.47 1.03 1.61 0.28
All-in sustaining cash cost3 $/lb 1.45 1.46
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.
Financial Condition ($000s) Mar. 31, 2018
Dec. 31, 2017
(Restated)
Cash and cash equivalents 392,796 356,499
Total long-term debt 978,190 979,575
Net debt1 585,394 623,076
Working capital 335,800 251,388
Total assets 4,690,748 4,728,016
Equity 2,145,321 2,112,345
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Peru Operations Review
During the first quarter of 201 8, the Peru operations produced 31,551 tonnes of copper, which was approximately
16% higher than production in the first quarter of 2017 as a result of improved ore throughput, offset by lower grades
in line with the mine plan . Copper equivalent production in the first quarter of 2018 was higher than in the same
period in 2017 as there were higher gold grades and higher mill throughput, partially offset by lower copper grades.
Recoveries of copper, gold and silver were slightly higher in the first quarter of 2018, compared to the same period in
2017. Improved recoveries were due to continued plant optimization and processing less transitional ore types.
Combined mine, mill and G&A unit operating costs in the first quarter of 2018 were 3% lower than the same period in
2017. The lower combined unit costs are mostly related to higher mill throughput partially offset by higher mining
costs due to a decrease in the mining costs that are capitalized.
Cash cost per pound of copper produced, net of by -product credits, for the three months ended March 31, 2018 was
$1.32, an increase of 2% from the same period in 201 7 mainly as a result of lower capitalized mining costs and
higher freight and treatment and refining costs, partially offset by higher copper production and by-product credits.
Sustaining cash cost per pound of copper produced, net of by-product credits, for the three months ended March 31,
2018 was $1.47, a decrease of 9% from the same period in 201 7 as a result of the factors noted above as well as
reduced sustaining capital expenditures in heavy civil works.
Hudbay completed a twin hole drill program in the fourth quarter of 2017 that confirmed the extent of the positive
grade bias that has existed since the commencement of production at Constancia. The company also constructed a
new resource model that formed the basis for a new mine plan and technical report for Constancia. The 2018
Technical Report includes an updated mine plan showing an increase to the total metal contained in the estimated
mineral reserves. The new mine plan also reflects updated throughput, recoveries and capital and operating cost
assumptions for the remaining life of mine at Constancia.
The 2018 Technical Report assumes that mining of the high -grade Pampacancha satellite deposit will commence in
2019, which is one year later than contemplated by the previous technical report. Although negotiations to secure
surface rights over the Pampacancha deposit continue to progress and Hudbay has been granted access to the land
to carry out early -works activities, the company anticipates a one year delay to mining at Pampacancha. In the
interim, the company will continue to mine higher-grade ore from the main Constancia pit.
Manitoba Operations Review
During the first quarter of 2018, the Manitoba operations produced 28,782 tonnes of zinc, 7,655 tonnes of copper and
30,407 ounces of gold-equivalent precious metals. Production of gold and silver was higher than the same quarter in
2017 by 53% and 67%, respectively, as a result of higher precious metal grades at both Lalor and 777 . Zinc
production was 6% lower compared to the same period of 2017 as a result of lower grades at Lalor in line with the
mine plan. Copper production remained consistent compared to the same period in 2017. Production of all metals in
Manitoba for full year 2018 is forecast to be within the guidance ranges.
Ore mined at Hudbay’s Manitoba operations during the first quarter of 2018 increased by 2% compared to the same
period in 2017 as a result of higher production at the Lalor and Reed mines, partially offset by lower production at the
777 mine. Unit operating costs for all mines for the first quarter of 201 8 increased by 23% compared to the same
period in 201 7. The increase is a function of higher mobile and fixed infrastructure maintenance costs and higher
expensed development costs.
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Ore mined at Lalor increased as the ramp -up of production continue d and the mine transition ed to higher gold and
copper grades w ith lower zinc as outlined in the life of mine plan. Higher unit costs reflect increased cement rock
filling, extensive cable bolting as well as continued operating and capital development that are required to increase
Lalor’s production rate to 4,500 tonn es per day, which is on track to be completed by the third quarter of 2018. The
commissioning of the paste backfill p lant, which is on track for mid -2018, is expected to improve scoop availability
and provide flexibility to the mine planning and sequencing.
The Reed mine maintained consistent production and benefited from higher copper grades as Hudbay mines out
Zone 10 at depth. Hudbay is no longer capitalizing development costs at Reed with the pending closure of the mine in
the third quarter of 2018, resulting in higher unit operating costs compared to prior periods.
Ore mined at 777 declined as ground conditions warranted rehabilitation of headings and a more conservative stope
sequence in order to adapt to more challenging operating conditions as t he mine ages. Higher 777 unit operating
costs were driven by higher mobile and fixed infrastructure maintenance costs and ground rehabilitation work
completed in the quarter, together with the impact of lower production.
Ore processed in Flin Flon in the first quarter of 201 8 was 5% higher than the same period in 201 7 as a result of
increased ore availability due to the transfer of excess Lalor ore to the Flin Flon concentrator . Copper and precious
metals recoveries were higher in the f irst quarter of 201 8 compared to the first quarter in 2017 as a result of higher
head grades. Unit operating costs at the Flin Flon concentrator were 9% higher in the first quarter of 2018 compared
to the same period in 201 7 as a result of increased material handling costs dr iven by the management of large
stockpiles, and initial difficulties in processing Lalor ore through the Flin F lon concentrator crushing plant due to the
impact of cold winter weather . Ore processed at the Stall concentrator in the f irst quarter of 201 8 was 5% higher
compared to the same period in 201 7 as a result of improved mechanical reliability. Unit operating costs at the Stall
concentrator were 24% lower in the first quarter of 2018 compared to the first quarter of 2017 as damage to the
crusher in D ecember 2016 had necessitated the use of higher -cost temporary crushing facilities during the first
quarter of 2017.
Manitoba combined mine, mill and G&A unit operating costs in the first quarter of 2018 were 16% higher than in the
same period in 2017 as a result of higher costs at Hudbay’s mines and the Flin Flon concentrator. Combined unit
costs are expected to be within the guidance range for 2018, as the higher costs in the first quarter were caused in
part by the colder than normal winter.
Cash cost per pound of copper produced, net of by -product credits, in the first quarter of 201 8 was negative $0.38.
This was higher compared to the same period in 201 7, primarily as a result of the factors affecting unit operating
costs described above . Sustaining cash cost per pound of copper produced, net of by -product credits, in the first
quarter of 201 8 was $1.03, compared to $0. 28 in the prior year period as a result of the same factors described
above and planned increased sustaining and exploration capital spending.
Lalor Gold Zone Update
The Lalor mine plan for 2018 includes some mining of the gold zone for processing at Flin Flon, which was included
in Hudbay’s precious metals guidance issued in January. Trade -off studies have been ongoing in ord er to assess the
mining and processing options for the gold mineral resources at Lalor. Test mining of Zone 25 began in February
2018 in order to better understand the characteristics of the gold zone and to inform the evaluation of options for its
processing. The test mining has confirmed the possibility of utilizing selective methods to mine fewer tonnes at a
higher grade than reported in the current mineral resource estimate. Year to date, Hudbay has mined 4,500 tonnes at
14.5 g/t, confirming the opportu nity to operate successfully at a higher cut -off grade. A batch sample of gold -rich ore
sent to the Flin Flon concentrator in late 2017 achieved gold recoveries of 65%. Currently, the gold ore is being
shipped to Flin Flon for processing.
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In parallel, Hudbay is continuing exploration in an attempt to further extend gold - and copper-rich veins down plunge
from the existing resources and targeting possible extensions of the base metals lenses both up and down plunge
from known resources. Highlights from t he drill program that focused on extensions of gold - and copper-rich veins,
each of which is outside of the current reserve, are provided in the below table.
Hole ID From
(m)
To
(m)
Intercept
(m)
Depth
(m)
Estimated true
width(m)1
Cu
(%)2
Au
(g/t)2
189W01 1197.0 1205.0 8.0 1154 7.1 0.1 9.3
193W01 1041.2 1046.5 5.4 1028 4.1 1.1 2.8
267W01 1120.8 1127.2 6.3 1098 4.5 2.7 11.3
273 1211.8 1215.8 4 1202 2.9 1.9 1.2
283 1242.7 1249.0 6.3 1240 4.2 7.8 5.9
283W02 1270.8 1276.3 5.5 1263 4.1 7.8 2.5
296 1227.5 1233.0 5.5 1184 4.2 5.2 5.6
296W01 1220.5 1228.3 7.8 1175 6.1 3.7 5.4
1 True widths are estimated based on drill angle and interpreted geometry of mineralization.
2 All gold and copper values are uncut.
In 2018, Hudbay will continue to conduct test mining of the gold lenses, which will support continued trade-off studies
to assess the mining and processing options for Lalor gold and advance the permitting process for the potential
refurbishment of the New Britannia mill. Ongoing exploration is targeted at converting gold mineral resources to
mineral reserves at Lalor and greenfield gold exploration efforts in Snow Lake.
Rosemont Developments
Work continues with the U.S. Forest Service on the draft Mine Plan of Operations, which is progressing as planned.
The remaining key federal permit outstanding is the Section 404 Water Permit from the U.S. Army Corps of
Engineers.
Opponents of the Rosemont project have filed lawsuits agains t the U.S. Forest Service challenging, among other
things, the issuance of the Final Record of Decision in respect of Rosemont. Hudbay is confident that Rosemont’s
permits will continue to be upheld.
Outlook
Given our expectation that mining at Pampaca ncha will not begin until 2019, we expect that Peru precious metals
production will be 50,000 to 70,000 ounces in 2018, a decrease of 20% compared to our initial 2018 guidance issued
on January 17, 2018 and consistent with the 25% sensitivity noted in our initial guidance.3 The majority of the
estimated $45 million of Peru growth capital, which includes expenditures for developing the Pampacancha deposit
and acquiring surface rights from the local community, is expected to be deferred to 2019. Based on results to date,
we expect to meet all other production and cost guidance for 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 t he 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.
3 Precious metals production includes gold and silver production on a gold-equivalent basis. Silver converted to gold at a ratio of
70:1. Initial guidance for precious metals production, issued on January 17, 2018, was 65,000 to 85,000 ounces.
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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. For further details on these measures, including
reconciliations to the most comparable IFRS measures, please refer to page 27 of Hudbay’s management’s
discussion and analysis for the three months ended March 31, 2018 available on SED AR 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/2018/Q1/MDA181.pdf
Financial Statements:
http://www.hudbayminerals.com/files/doc_financials/2018/Q1/FS181.pdf
Conference Call and Webcast
Date: Thursday, May 3, 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 Pre sident and Chief Operating Officer. The
technical and scientific information related to the Manitoba sites and projects (including the Lalor gold zone)
contained in this news release has been approved by Robert Carter, P. Eng, Hudbay’s General Manager Mini ng
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 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.
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Additional Information – Lalor Gold Zone Exploration Data
Information on the data verification performed on the exploration data related to the Lalor gold zone is contained in
Hudbay’s most recently filed annual information form, dated March 29, 2018, and t he current technical report for
Lalor, dated March 30, 2017, each of which is filed on SEDAR at www.sedar.com. Quality Assurance/Quality Control
procedures for the Lalor exploration program include the systematic insertion of blanks, standards and duplica tes into
the core sample strings. The results of the control samples are evaluated on a regular basis with batches and are re -
analysed and/or resubmitted as needed. There are no drilling, sampling, recovery or other factors that could
materially affect the accuracy or reliability of the preliminary results.
Due to the length of the Lalor gold zone drillholes and the numerous downhole deviations in azimuth and dip, the
azimuth and dip of the drill hole locations has not been reported. Instead, the table bel ow provides the coordinates,
azimuth and dip of the mineralized intercepts that have been reported in this news release.
From To Azimuth at
intercept
Dip at
intercept
Core
Size Hole ID Easting Northing Elevation Easting Northing Elevation
189W01 426,663 6,081,675 4,149 426,660 6,081,675 4,142 272 -63 NQ
193W01 427,051 6,081,272 4,273 427,051 6,081,270 4,268 185 -76 NQ
267W01 427,185 6,081,266 4,204 427,183 6,081,266 4,197 242 -79 NQ
273 427,163 6,081,570 4,101 427,162 6,081,570 4,098 206 -79 NQ
283 427,223 6,081,530 4,064 427,222 6,081,530 4,057 248 -83 NQ
283W02 427,263 6,081,461 4,040 427,263 6,081,460 4,035 186 -77 NQ
296 427,251 6,081,311 4,121 427,251 6,081,310 4,115 154 -76 NQ
296W01 427,243 6,081,301 4,130 427,244 6,081,299 4,123 163 -73 NQ
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 hi storical
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 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, production, cost and capital and exploration expen diture
guidance, anticipated production at Hudbay’s mines and processing facilities, the anticipated timing, cost and benefits
of developing the Rosemont project and Pampacancha deposit, the anticipated impact of any delays to the start of
mining the Pampacancha deposit, the anticipated results of litigation challenging the Rosemont permitting process,
anticipated exploration plans , including the planned exploration and development strateg y for the Lalor gold zones,
the exploration potential at Lalor, including the possibility of converting inferred mineral resources to higher
confidence categories and establishing additional mineral resources through testing the continuity of the mineraliz ed
zones, the anticipated continued success of utilizing a selective mining method to mine the high grade gold zones ,
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, reclamation costs,