TSX, NYSE – HBM 2019 No. 26 Hudbay Announces Third Quarter 2019 Results
TSX, NYSE – HBM
2019 No. 26
Hudbay Announces Third Quarter 2019 Results
• Delivered a solid operating quarter, which included record quarterly ore throughput at the Constancia mill ,
and increased ore mined at 777 and Lalor by 9% and 23%, respectively, compared to the same period in
2018.
• Strong quarterly cost performance in both Peru and Manitoba, with Peru achieving its lowest unit costs in the
last eight quarters and Manitoba unit costs stabilizing at a lower level following the ramp up of Lalor during
the first half of the year.
• Consolidated copper production of 36,422 tonnes at a cash cost of $0.98 per pound of copper produced, net
of by-product credits.
• Net loss of $274.8 million reflects an after-tax impairment loss of $242.1 million on Hudbay's carrying value
of the Rosemont copper project, following a U.S. District Court decision on July 31, 2019 vacating and
remanding Rosemont's permits. Hudbay intends to appeal and continue s to evaluate next steps for
Rosemont.
• Results are on track to meet production, consolidated sustaining capital expenditures and Peru unit cost
guidance for 2019; Manitoba full year unit costs are expected to be at or slightly above the upper end of the
2019 guidance range.
• Progressed other key strategic initiatives, including engineering and permitting for the New Britannia mill
refurbishment, community negotiations near Constancia, and feasibility and drilling activities on the Snow
Lake exploration properties.
• Cash generated from operating activities decreased to $43.5 million in the third quarter of 2019 from $113.8
million in the same quarter of 201 8, while o perating cash flow before change in non -cash working capital
decreased to $69.9 million in the quarter from $122.1 million in the same quarter of 2018.
• Appointed Stephen A. Lang as Hud bay's Board Chair, and advanced the search for a permanent Ch ief
Executive Officer.
Toronto, Ontario, November 11, 2019 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM)
today released its third quarter 2019 financial results. All amounts are in U.S. dollars, unless otherwise noted.
“In the third quarter, Hudbay continued to deliver solid operating results wit h record quarterly mill throughput at
Constancia and strong cost perform ance in both Peru an d Manitoba,” said Peter Kukielski, Inte rim President and
Chief Executive Officer. “Constancia continues to operate at full capacity despite regional logistical challenges during
the quarter and we are proud of the team’s ability to a dapt and overcome these external issues. Manitoba continues
to maximize production from the 777 mine and the New Britannia mill refur bishment remains on schedule for
completion in late 2021. At Rosemont, we intend to appeal the recent court decision as we evaluate next steps for the
project. We are on track to achieve our full year production guidance and we look forward t o advancing the various
organic growth opportunities within our portfolio.”
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Cash generated from operating activities decreased to $43.5 million in the third quarter of 2019 from $113.8 million in
the same quarter of 2018. Operating cash flow before chang e in non-cash working capital was $69.9 million during
the third quarter of 2019, reflecting a decrease of $ 52.2 million compared to the third quarter of 2018. The decrease
in operating cash flow is primarily the result of lower realized prices and sales volumes compared to the third quarter
of 2018. Sales volumes in the third quarter of 2019 reflected the temporary buildup of copper concentrate inventory in
Peru as a result of previously disclosed community protests against another company's mining project that restricted
access to the port of Matarani in July and August. However, Constancia continued to operate at full capacity during
this period and the team actively managed concentrate logi stics to ov ercome these ch allenges, resulting in only
slightly elevated concentrate inventory levels as of September 30, 2019. Copper-equivalent production in the third
quarter of 2019 decreased by 2% compared to the same period in 2018, primarily as a res ult of lowe r grades at
Constancia, as planned, and the closure of the Reed mine.
Net loss and loss per share in the third quarter of 2019 were $2 74.8 million and $1.05, respectively, compared to a
net profit and earnings per share of $22.8 million and $0.09, respectively, in the third quarter of 2018.
Net loss and loss per share in the third quarter of 2019 were affected by, among other things, the following items:
Pre-tax gain
(loss) After-tax gain
(loss) Per share
gain (loss)
($ millions) ($ millions) ($/share)
Rosemont impairment (322.2) (242.1) (0.93)
Non-cash deferred tax adjustments — (2.2) (0.01)
Dividend withholding tax — (6.9) (0.03)
On July 31, 2019, the U.S District Court for the District of Arizona ("Court") issued a ruling in the lawsuits challenging
the U.S. Forest Service's issuance of the Final Record of Decision ("FROD") for the Rosemont project in Arizona.
The Court ruled to vacate and remand the FROD thereby delaying th e expected start of construction of Rosemont.
Although Hudbay intends on appealing the Court's decision, the July 31 st ruling and the subse quent impact to the
company's market capitalization gave rise to an indicator of impairment. Following an impairment test conducted as of
September 30, 2019, it was determined that the reco verable amount of the Arizona cash generating unit was lower
than its carrying value, causing the company to recognize an after -tax impairment loss o f $242.1 million related to
these assets.
During the thi rd quarter of 2019, Hudbay incurred $6.9 million i n withholding tax associated with the repatriation of
$137.5 million by way of an inte rcompany dividend. Cash and cash equivalents decreased from $489.5 mil lion at
June 30, 2019 to $39 8.4 million at September 30, 2019, due to seasonally elevated sustaining capital expenditures
and interest payments on long-term debt.
In the third quarter o f 2019, consolidated cash cost per pound of copper pro duced, net of by -product credits1, was
$0.98, an increase compared to $0.88 in the same period last year. This incre ase was a result of lower copper and
precious metal produc tion and lower realized zinc prices. Incorporating sustaining capital, capitalized exploration,
royalties, selling, administra tive and re gional cost s, c onsolidated all-in sustaining cash cost per po und of copper
produced, net of by-product credits1, in the third quarter of 2019 was $1.90, which increased from $1.45 in the same
period last year, driven mainly by increased sustaining capital expenditures.
1 Cash cost, all-in sustaining cash cost per pound of copper produced, net of by -product credits, and net debt are non-IFRS financial
performance measures with no standardlized definition under IFRS. For further information, please see page 8 of this new release.
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2019 No. 26
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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 8 of this news release.
Financial Performance Three months ended Nine months ended
($000s except per share and cash cost amounts) Sep. 30 Sep. 30
2019 2018 2019 2018
Revenue 291,282 362,649 912,953 1,120,593
Cost of sales 260,327 277,367 787,045 822,079
Profit before tax (loss) (348,367) 30,287 (410,409) 153,187
Profit (loss) (274,796) 22,808 (342,355) 88,926
Basic and diluted (loss) earnings per share (1.05) 0.09 (1.31) 0.34
Operating cash flow before change in non-cash
working capital 69,910 122,097 240,649 385,524
Financial Condition ($000s) Sep. 30, 2019 Dec. 31, 2018
Cash and cash equivalents 398,438 515,497
Total long-term debt 976,272 981,030
Net debt1 577,834 465,533
Working capital 367,856 445,228
Total assets 4,386,546 4,685,635
Equity 1,857,481 2,178,856
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2019 No. 26
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Production and Cost Performance Three months ended Three months ended
Sep. 30, 2019 Sep. 30, 2018
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 31,091 5,331 36,422 32,976 7,506 40,482
Gold oz 5,565 22,754 28,319 6,059 22,199 28,258
Silver oz 686,258 237,933 924,191 736,657 274,330 1,010,987
Zinc tonnes — 28,639 28,639 — 26,228 26,228
Molybdenum Tonnes 262 — 262 370 — 370
Payable metal in concentrate sold
Copper tonnes 25,314 4,602 29,916 30,222 9,376 39,598
Gold oz 3,858 21,630 25,488 4,486 26,996 31,482
Silver oz 529,139 227,157 756,296 548,782 338,131 886,913
Zinc2 tonnes — 29,140 29,140 — 30,969 30,969
Molybdenum tonnes 334 — 334 237 — 237
Cash cost3 $/lb 1.26 (0.68) 0.98 1.22 (0.61) 0.88
Sustaining cash cost3 $/lb 1.73 2.40 1.38 1.23
All-in sustaining cash cost3 $/lb 1.90 1.45
Nine months ended Nine months ended
Sep. 30, 2019 Sep. 30, 2018
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 87,166 17,591 104,757 91,344 25,968 117,312
Gold oz 14,716 67,264 81,980 16,667 75,164 91,831
Silver oz 1,872,995 782,198 2,655,193 1,979,112 960,673 2,939,785
Zinc tonnes — 88,514 88,514 — 88,180 88,180
Molybdenum tonnes 900 — 900 575 — 575
Payable metal in concentrate sold
Copper tonnes 77,754 17,050 94,804 85,197 26,376 111,573
Gold oz 14,132 64,523 78,655 13,158 74,078 87,236
Silver oz 1,785,657 757,846 2,543,503 1,582,944 879,909 2,462,853
Zinc2 tonnes — 76,318 76,318 — 84,589 84,589
Molybdenum tonnes 987 — 987 372 — 372
Cash cost3 $/lb 1.33 0.01 1.11 1.38 (0.58) 0.94
Sustaining cash cost3 $/lb 1.71 2.46 1.54 0.82
All-in sustaining cash cost3 $/lb 1.98 1.47
1 Metal reported in concentrate is prior to deductions associated with sme lter 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 meas ures with no standardized definition under IFRS. For further information, please see page 8
of this news release.
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Peru Operations Review
During the quarter, the Constancia mine produced 31,091 tonnes of copper, 15,369 ounces of precious metals and
262 tonnes of molybdenum. Production results were lower than the same period last year mainly due to lower copper
grades, mined and milled , as per the mine plan, partially offset by record mil l throughput and higher c opper
recoveries from recent metallurgical initiatives. However, production results were higher than the second quarter of
2019 due to higher grades, increased recoveries and record quarterly mill throughput. Hudbay expects production of
all metals and costs at Constancia to be in line with the full year guidance for 2019.
Ore mined at the Constancia mine during the third quarter of 2019 w as 4% lower compared to the same period in
2018 due to mining from areas with a higher stripping ratio than the areas mined in the third quarter of 2018, in line
with the mine plan . Milled copper grades in the third quarter were approximately 8% lower than the same period in
2018 as lower grade phases continue to be mined, in line wit h the mine plan. Mill throughput in the third quarter of
2019 was 2% higher compared to the same per iod i n 2018, a quar terly th roughput recor d, d ue to higher plant
availability through the continued successful implementation of optimization initiatives.
Copper recoveries in the third quarter of 2019 improved by 1% compared to the same period in 2018. The increased
copper recoveries were a result of sustained metallurgical improvements initiated in 2018. While recoveries vary from
quarter to quarter dependi ng o n the compl exity and grade of t he o re feed, th e company is seeing results from
ongoing recovery optimization initiatives. Highlights of the initiatives in clude the continued integration of an
automated, advanced process control system in the grinding and bulk flotation circuits, and flotation improvements
such as optimizing the water rec overy in the tailings thickener and the installation of enhanced equipment in the
rougher circuit.
Year-to-date mill throughput, copper grades and copper recoveries are achieving mine plan expectations for 2019.
Combined mine, mill and general and administrative (“G&A”) unit operating costs in the third quarter of 2019 wer e
slightly lower than the same pe riod in 2018, reflecting higher ore throughput and lower expensed s tripping costs
(higher capitalized stripping), offset by higher mine, plant and administrat ive costs. Due to our focus on cost control
and throughput optimization initiatives, combined unit costs in the third quarter of 2019 were the lowest quarterly unit
costs reported in the past eight quarters.
During the fourth quarter of 2019, a four -day regularly scheduled maintenance shutdown of the Constancia mill is
planned, and production and combined unit costs in the fourth quarter of 2019 are expected to reflect correspondingly
lower ore throughput. In addition to regular semi-annual maintenance work, Hudbay plans to install new equipment
relating to the ongoing throughput and recovery optimization initiatives at Constancia. The maintenance shutdown is
consistent with the full year plan for Constancia, and the company continues to expect production and cost guidance
to be met for the full year 2019.
Cash cost per pound of copper produced, net of by -product credits, for the third q uarter of 2019 was $1.26, slightly
higher than the same period in 2018 due to lower c opper production as per the mine plan, partially offset by hig her
by-product credits. Sustaining cash cost per pound of copper produced, net of by -product credits, was $1.73 in the
third quarter of 2019. This represents an increase of 25% from the same period in 2018, due to timing of payments on
long-term community agreements and leases, as well as higher sustaining costs in heavy civil works and capitalized
stripping costs.
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The southern Per u copper minin g corr idor continued to se e heightened political activity around other companies’
mining projects and operations during the quarter. This inclu ded large protests against the grant ing of a permit for
another company’s mining project. These protests blocked the entrance to the port o f Matarani in July an d August
and, while unrelated to Constancia, they impacted the company’s ability to ship copper co ncentrates. Constancia
continued t o o perate at full capacity during this period and the team actively managed conc entrate logistics to
overcome these challenges, drawing down inventory levels at a higher rate than normal once access to the port was
restored. As a result, concentrate inventory levels remained only slightly elevated at September 30, 2019. Since the
end of Oct ober, these protests have reinitiated bu t haven’t affected access to the port of Matarani. Hudbay will
continue to monitor the situation and actively manage logistics around any potential impacts.
Manitoba Operations Review
Ore mined at the Manitoba operations during the third quarter of 2019 increased by 4% compared to the same period
in 2018. This increase is due to higher production volumes at both 777 and Lalor, partially offset by the closure of the
Reed mine in Augu st 2018. The combined Manitoba operations produced 28,639 tonnes o f zinc, 5,331 tonnes of
copper and 26,153 ounces of gold-equivalent precious metals. Total copper and silver production were 29% and 13%
lower, respectively, co mpared to the same period in 2 018 due t o the clo sure of R eed m ine, partially offset by
increased production at 777 and Lalor. Gold production was consistent over the peri od, while zinc pro duction
increased by 9%. Full year production of all metals is expected to be within the annual guidance ranges.
Overall, copper, zinc, and silv er grades were 21%, 3%, and 10%, lower, respectively, in the third quarter of 2019
compared to the same period of 2018 while gold grades were 4% higher. Lower copper grades reflect the cessation
of high-grade copper production from Reed following its closure, while grade variances for zinc and silver were due to
planned stope sequencing based on life of mine production schedules at 777 and Lalor.
Ore mined at 777 in the third quar ter of 2019 increased by 9%, c ompared to the same period last year. The higher
production is att ributable to implementation of management systems designed to improve mobi le e quipment
availability and key performance indicators for drilling, blasting and ba ckfilling processes. Ore mined at Lalor in the
third quarter of 2019 increased by 23% compared to the same period last year. The higher production is attributable
to a nu mber of initiatives implemented as pa rt of the p roduction ramp up to 4,500 tonnes per day, including mine
design changes, contract strategies, asset integrity and work management programs.
Ore processed in Flin Flon in the third quarter of 2019 was consistent with the same period of 2018 as the Reed mine
closure in August 2018 was offset by increased production from the 777 mine and zinc ore feed from Lalor. Copper,
gold and silver recoveries in the third quarter of 2019 were 4%, 8%, and 22% lower, respectively, compared with the
same period in 2018 du e to lower he ad grades. Zinc recoverie s were 6% higher quarter -over-quarter. Th e Stall
concentrator ore throughput was 9% higher t han the same period in 2018 due to ongoing operational and
maintenance improvements.
Manitoba combined mine, mill and G&A unit operating costs in the third quarter of 2019 were 6% higher than i n the
same period in 2018 mainly due to the Reed closure and higher mining costs at 777 and Lalor. However, combined
unit cost s have been trending lower following Lalor’s ramp up, with thi rd quarter unit costs well below the levels
reported in the f irst half of 2019. Manitoba combined unit costs are expected to be at or sligh tly above the upper
range of guidance for the full year 2019.
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Cash cost per pound of copper produced, net of by -product credits, in the third quarter of 2 019 was negative $0.68.
These costs were lower compared to the same period in 2018, primarily as a result of lower treatment, refining and
freight costs and higher by-product credits on a per pound of copper basis. Sustaining cash cost per pound of copper
produced, net of by-product credits, in the third quarter of 2019 was $2.40, which is higher than the prior year period
due to increas ed capital development expenditures at Lalor and lower copper production. Copper produced in the
third quarter of 2019 was 29% lower than the same quarter in 2018 as a result of the closure of Reed mine, partially
offset by increased production at 777 and Lalor.
Appointment of Chair of the Board of Directors
On October 3, 2019, Stephen A. Lang was appointed as Chair of Hudbay's Board of Directors. Mr. Lang has over 40
years of experience in the mining industry, including engineering, development and production at gold, copper, coal
and platinum group metals operations. In connection with the appointment, Alan Hibben has stepped down as Chair
of Hudbay's Board of Directors.
The Board continues to advance its search for a permanent CEO, whi ch includes internal and external candidates.
Peter Kukielski was appointed Interim CEO on July 10, 2019 a fter Alan Hair stepped dow n as Hudbay's Pr esident
and CEO and as a director of the company.
Rosemont Developments
On July 31, 2019, the Court issued a ruling in th e lawsuits challenging the U.S. Forest Service’s issuance of the
FROD for the Rosemont proj ect in Arizona. The Court ruled to vacate and remand the F ROD such that R osemont
cannot proceed with construction at this time. Hudbay strongly believes that the Cou rt has misinterpreted federal
mining laws and Forest Service regulations as they apply to R osemont. As such , the company filed a moti on for
reconsideration of certain issues in the Court's decision, which has since been denied. Hudbay intends to appeal the
Court's decision to the U.S. Ninth Circuit Court of Appeals as the company evaluates next steps for the project. The
company has deferred the previously announced process to identify a joint venture partner for Rosemont.
As announced in Au gust, Hudbay has suspended most of its early works activities at Rosemont and, at that time,
expected a decrease of its Rosemont project capital spending in 2019 to $30 million. The company now expects
Rosemont project spending to further be reduced to $20 million in 2019, including costs to d emobilize engineering
work and complete committed procurement. These costs are in addition to $20 million of Rosemont non-project costs
that are expected to be incurred in 2019, for a total of $40 million expected to be spent at Rosemont in 2019.
Other Key Strategic Initiatives
Hudbay continues to advance di scussions with the community of Ch illoroya on a land access agreement f or the
Pampacancha satellite de posit. The discussions are progressing and the company expects to be mining or e at
Pampacancha in 2020.
New Britanni a mill refurbishment activi ties are p rogressing in line with the develo pment schedule laid out in the
February 2 019 mi ne pl an. Detailed en gineering is on track to b e completed in the first quarter of 2020 and
environmental permits are expected in the second quarter of 2020. Construction activities are expected to commence
mid-2020 and continue until the third quarter of 2021, with plant commissioning and ramp-up during the fourth quarter
of 2021. Once the New Britannia mill is commissioned, average annual gold production from Snow Lake is expected
to be approximately 140,000 ounces during the first five years at a sustaining cash cost, net of by-product credits, of
approximately $450 per ounce of gold.
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Exploration activities on the regional deposits in Snow Lake continue to progress, including feasibility studies on the
recently discovered 1901 Deposit, which contains an initial inferred resource of 2.1 million tonnes at 9.67% zinc, as
announced in August 2019. Drilling on the 1901 Deposit continues to test the size of the deposit, with the intention to
confirm the presence of gold a nd copper-gold mineralization and upgrade the mineral resource estimate to a higher
category. Exploration and engineering studi es are also progressing at Lalor in-mine exploration tar gets and other
100%-owned deposits in the Snow Lake area, with results expected to be incorporated in the annual mineral reserve
and resource estimate in March 2020.
Non-IFRS Financial Performance Measures
Net debt i s shown in this news r elease because it is a perfo rmance measure used by the co mpany to assess its
financial position. Cash cost, sustaining a nd all-in sustaining cash cost per pound of co pper produced are shown
because the company believes they help inves tors and ma nagement as sess the performance of its operations,
including the mar gin g enerated by the op erations and the company. Combined unit operating cost s are shown
because the measures are used by the company as a key performance indicator to assess th e performance of its
mining and milling operations. These measures do not have a meaning prescribed by IFRS and are therefore unlikely
to be c omparable to similar measures presented by oth er issuers. These measures should not be considered in
isolation or as a substitute for me asures prepared in accordanc e with IFRS and are not necessarily i ndicative of
operating profit o r cash flow from operati ons as determined under IFRS. Other companies may ca lculate these
measures differently. For further details on the se measures, including reconciliations to the most comparable IFRS
measures, please refer to page 31 of Hudbay’s management’s discussion and analysis for the three and nine months
ended September 30, 2019 available on SEDAR at www.sedar.com.
Website Links
Hudbay:
www.hudbay.com
Management’s Discussion and Analysis:
http://www.hudbayminerals.com/files/doc_financials/2019/Q3/MDA193.pdf
Financial Statements:
http://www.hudbayminerals.com/files/doc_financials/2019/Q3/FS193.pdf
Conference Call and Webcast
Date: Tuesday, November 12, 2019
Time: 10:00 a.m. ET
Webcast: http://services.choruscall.ca/links/hudbay20191112.html
Dial in: 1-416-915-3293 or 1-800-319-4610