TSX, NYSE – HBM 2019 No. 3 Hudbay Announces Fourth Quarter and Full Year 2018 Results and Provides 2019 Guidance
TSX, NYSE – HBM
2019 No. 3
Hudbay Announces Fourth Quarter and Full Year 2018 Results and Provides 2019
Guidance
Toronto, Ontario, February 19, 2019 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM)
today released its fourth quarter and full year 2018 financial results and production and cost guidance for 2019. All
amounts are in U.S. dollars, unless otherwise noted.
Summary
• On a consolidated basis, copper production exceeded the mid-point of 2018 guidance by 14% and
production of zinc and precious metals were within 2018 guidance ranges; copper production at Constancia
exceeded the top end of 2018 guidance and Manitoba copper production was at the top end of the guidance
range
• Constancia achieved record mill throughput, record copper recoveries and record molybdenum production in
2018
• Cash generated from operating activities was $137.3 million in the fourth quarter of 2018 and $479.6 million
in the full year 2018
• Net debt decreased to $465.5 million as at December 31, 2018, including cash and cash equivalents of
$515.5 million
• Updated reserve and resource estimate at Lalor including a 65% increase in gold reserves1
• New Lalor mine plan more than doubles annual gold production from current levels once the New Britannia
mill is operating with average annual gold production of approximately 140,000 ounces over the first five
years at a sustaining cash cost, net of by-product credits, of $450 per ounce, positioning Lalor as one of the
lowest cost gold mines in Canada1
Operating cash flow before change in non cash working capital decreased to $107.9 million in the fourth quarter of
2018 from $171.9 million in the same quarter of 2017. The decrease is due mainly to lower realized prices and sales
volumes for copper and zinc, partially offset by higher molybdenum concentrate sales volumes. In the fourth quarter
of 2018, cash generated from operating activities was $137.3 million, which increased from $129.4 million in the
same period of 2017 as cash flows from changes in non-cash working capital more than offset the factors described
above. Net loss and basic and diluted loss per share in the fourth quarter of 2018 were $3.5 million and $0.01,
respectively, compared to a net profit and earnings per share of $94.3 million and $0.36, respectively, in the fourth
quarter of 2017.
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Net loss and loss per share in the fourth quarter of 2018 were affected by, among other things, the following items:
Pre-tax gain
(loss) After-tax gain
(loss) Per share
gain (loss)
($ millions) ($ millions) ($/share)
Foreign exchange gain 2.6 1.5 0.01
Mark-to-market adjustments of various items (3.9) (2.9) (0.01)
Non-cash accounting loss on pension plan de-
risking transaction (2.2) (1.4) (0.01)
Non-cash deferred tax adjustments - (12.9) (0.05)
“In the fourth quarter, we continued our trend of generating strong operating cash flow as we remained focused on
our strategic priorities of developing and operating our portfolio of high-quality assets in mining friendly jurisdictions,”
said Alan Hair, president and chief executive officer. “We are very pleased to release the next phase of our plan for
the gold-zinc business at Lalor, which we believe will unlock value in the Snow Lake region through the refurbishment
of the New Britannia gold mill and the potential for future resource conversion and further regional exploration
success. We are also pleased with the success we’ve had at optimizing our Constancia mine, which achieved record
mill throughput and copper recoveries in 2018, resulting in the business exceeding copper production guidance in
2018.”
Hudbay’s Board and management remain committed to the company’s disciplined approach to driving long-term and
sustainable value creation. Over the last several years, Hudbay has grown beyond its Manitoba base through
acquisition, exploration and development into a leading mid-tier copper producer with low-cost, long-life assets in
Canada, Peru, Arizona, and most recently in Nevada with the acquisition of the Ann Mason project.
Hudbay’s management team has a proven track record of successful new mine development and expertise in both
open pit and underground mining. In 2015, Hudbay completed the best in -class development and ramp-up of the
Constancia mine in Peru, which is now the lowest cost per tonne open-pit copper mine in South America 2.
Constancia was a greenfield project in a new jurisdiction for Hudbay and the strong community relationships the
company has built provides it with the social license to continue to grow its Peruvian business.
During this time, Hudbay also completed the construction of its Lalor underground mine in Manitoba, a deposit that
was discovered by Hudbay’s exploration team in 2007 and achieved commercial production only seven years after its
discovery. Hudbay continues to further unlock value at Lalor through the plan to refurbish the New Britannia gold mill
by 2022, which is expected to more than double Lalor’s annual gold production over an extended mine life and
establish Lalor as one of the lowest cost gold mines in Canada. Hudbay will continue exploration and infill drilling and
advance engineering studies on both Lalor and the three satellite deposits in the Snow Lake region that could provide
feed for further extensions of the Stall and New Britannia processing facilities. Please refer to Hudbay’s February 19,
2019 press release titled “Hudbay Announces Increased Lalor Mineral Reserves and Resources and Updated Mine
Plan that Confirms Substantial Increase in Gold Production” for further information.
“Our focus for 2019 is to deliver on a number of near-term catalysts, including advancing our new Lalor gold strategy,
developing the high-grade Pampacancha satellite deposit, continuing to maximize throughput and recoveries at
Constancia, advancing both near-mine and greenfield exploration activities, and obtaining the final Section 404 water
permit at Rosemont and moving the project into development,” stated Mr. Hair.
Compared to the same quarter in 2017, copper-equivalent production in the fourth quarter of 2018 decreased by
14%, primarily as a result of lower production in Manitoba following the closure of the Reed mine and lower planned
copper grades at Constancia. In the fourth quarter of 2018, consolidated cash cost per pound of copper produced,
net of by-product credits, was $0.94, an increase compared to $0.77 in the same period last year. Cash costs per
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pound of copper produced, net of by-product credits, increased as a result of lower copper production. 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 fourth quarter of 2018 was
$1.73, which increased from $1.56 in the fourth quarter of 2017, driven mainly by the decrease in copper production.
On a consolidated basis, Hudbay's copper production exceeded 2018 guidance and production of zinc and precious
metals were within 2018 guidance ranges. Combined unit costs at Manitoba were within revised 2018 guidance
ranges. Combined unit costs at Peru were in line with 2018 guidance ranges after reflecting the cost of higher than
expected molybdenum production, and total capital expenditures were in line with expectations.
Cash and cash equivalents increased by $159.0 million from December 31, 2017 to $515.5 million as at December
31, 2018. This increase was a result of cash generated from operating activities of $479.6 million. These inflows were
partly offset by $190.9 million of capital investments primarily at the Peru and Manitoba operations, interest payments
of $74.8 million, finance lease payments of $20.9 million, net financing fees paid of $20.6 million, and $19.1 million of
net cash paid to acquire Mason Resources Corp.
Net debt decreased by $50.9 million from September 30, 2018 to $465.5 million at December 31, 2018, primarily due
to free cash flow generation. At December 31, 2018, total liquidity, including cash and available credit facilities, was
$937.0 million, up from $878.4 million as at September 30, 2018.
During the fourth quarter of 2018, Hudbay completed a pension de-risking transaction whereby certain defined benefit
pension obligations with an estimated solvency liability value of $126.0 million were transferred to a third party insurer
in exchange for a payment from plan assets of $120.0 million. The transaction reduced the overall size and risk
profile of the company’s defined benefit pension obligations, and improved the plans’ solvency funding position, which
is used to determine funding requirements, by approximately $6.0 million. A non-cash accounting pre-tax loss on the
transaction of $2.2 million was recognized in the fourth quarter of 2018.
1
Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please
see page 11 of this news release.
Financial Condition ($000s) Dec. 31, 2018 Dec. 31, 2017
(Restated)
Cash and cash equivalents 515,497 356,499
Total long-term debt 981,030 979,575
Net debt1 465,533 623,076
Working capital 445,228 251,388
Total assets 4,685,635 4,728,016
Equity 2,178,856 2,112,345
Financial Performance Three months ended Year ended
($000s except per share and cash cost amounts) Dec. 31 Dec. 31
2018 2017
(Restated)
2018 2017
(Restated)
Revenue 351,773 424,359 1,472,366 1,402,339
Cost of sales 276,547 279,406 1,098,626 993,198
Profit before tax 17,650 79,585 170,837 172,911
(Loss) profit (3,510) 94,279 85,416 139,692
Basic and diluted (loss) earnings per share (0.01) 0.36 0.33 0.57
Operating cash flow before change in non-cash
working capital 107,948 171,904 493,471 530,561
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Production and Cost Performance Three months ended Three months ended
Dec. 31, 2018 Dec. 31, 2017
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 30,834 6,404 37,238 33,837 9,338 43,175
Gold oz 7,522 20,529 28,051 5,139 27,389 32,528
Silver oz 750,747 263,937 1,014,684 670,219 333,272 1,003,491
Zinc tonnes - 27,408 27,408 - 33,055 33,055
Molybdenum tonnes 329 329 119 - 119
Payable metal in concentrate sold
Copper tonnes 31,252 5,098 36,350 34,227 7,252 41,479
Gold oz 7,262 18,599 25,861 4,442 26,779 31,221
Silver oz 672,756 236,744 909,500 543,763 291,723 835,486
Zinc2 tonnes - 31,134 31,134 - 32,318 32,318
Molybdenum tonnes 447 447 68 - 68
Cash cost3 $/lb 1.31 (0.87) 0.94 1.38 (1.42) 0.77
Sustaining cash cost3 $/lb 1.65 1.55 1.90 (0.35)
All-in sustaining cash cost3 $/lb 1.73 1.56
Year ended Year ended
Dec. 31, 2018 Dec. 31, 2017
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced1
Copper tonnes 122,178 32,372 154,550 121,781 37,411 159,192
Gold oz 24,189 95,693 119,882 17,579 91,014 108,593
Silver oz 2,729,859 1,224,610 3,954,469 2,374,008 1,113,250 3,487,258
Zinc tonnes - 115,588 115,588 - 135,156 135,156
Molybdenum tonnes 904 - 904 454 - 454
Payable metal sold
Copper tonnes 116,449 31,474 147,923 111,402 37,253 148,655
Gold oz 20,420 92,677 113,097 12,464 97,306 109,770
Silver oz 2,255,700 1,116,653 3,372,353 1,950,893 1,109,376 3,060,269
Zinc2 tonnes - 115,723 115,723 - 116,377 116,377
Molybdenum tonnes 819 - 819 491 - 491
Cash cost3 $/lb 1.36 (0.64) 0.94 1.28 (0.59) 0.84
Sustaining cash cost3 $/lb 1.57 0.96 1.79 0.23
All-in sustaining cash cost3 $/lb 1.52 1.54 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
11 of this news release.
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Peru Operations Review
In addition to achieving record mill throughput in 2018, Constancia copper recoveries reached record levels in 2018
as a result of several metallurgical initiatives, achieving the recoveries anticipated in the National Instrument (“NI”) 43-
101 Technical Report issued in March 2018.
During the fourth quarter of 2018, the Peru operations produced 30,834 tonnes of copper and 18,247 ounces of
precious metals. The molybdenum plant continued to operate at substantially higher rates during the quarter,
resulting in the production of 329 tonnes and 904 tonnes of molybdenum for the current quarter an d full year,
respectively. Year-over-year copper production increased slightly and exceeded the high end of full year guidance by
6%, due to higher throughput and recoveries more than offsetting lower grade. Production of precious metals and
molybdenum also increased year-over-year due to the same factors, and precious metals were within guidance
expectations.
Combined mine, mill and general and administrative (“G&A”) unit operating costs in the fourth quarter of 2018 were
consistent with the same period in 2017. On a full year basis, including molybdenum plant costs, combined unit
operating costs of $9.44 per tonne in 2018 were 7% higher than 2017 due to a decrease in capitalized stripping,
higher costs for diesel and power, and higher molybdenum production, partially offset by higher mill throughput. Full
year 2018 combined unit operating costs also include the signing bonuses for the three -year collective bargaining
agreement signed earlier in 2018. Excluding molybdenum plant costs, combined unit costs for the full year were
$9.17 per tonne. The molybdenum plant was operated substantially more than expected in 2018 following ongoing
plant optimization initiatives, and the increase in revenue from molybdenum sales of $12.9 million from 2017 to 2018
more than offset the additional molybdenum plant costs of $2.7 million over the same period.
We expect continued high utilization of the Constancia molybdenum plant in 2019, resulting in higher molybdenum
plant costs, which is reflected in the guidance for combined unit costs as well as expected higher molybdenum
production in 2019.
Cash cost per pound of copper produced, net of by-product credits, for the three and twelve months ended December
31, 2018 was $1.31 and $1.36, decreasing by 5% and increasing by 6%, respectively, from the same periods in 2017.
The decrease in the quarter is primarily due to higher by-product credits partially offset by lower copper production.
The increase for the full year is mainly as a result of higher consumable costs and lower capitalized stripping, partially
offset by higher by-product credits. Sustaining cash cost per pound of copper produced, net of by-product credits, for
the three and twelve months ended December 31, 2018 was $1.65 and $1.57 , respectively. This represents a
decrease of 13% and 12% respectively, from the same periods in 2017, as a result of reduced sustaining capital
spending on heavy civil works in Peru, which more than offset the factors noted above.
Manitoba Operations Review
During the fourth quarter of 2018, the Manitoba operations produced 27,408 tonnes of zinc, 6,404 tonnes of copper
and 24,300 ounces of gold-equivalent precious metals. Zinc production was 17% lower compared to the same period
in 2017 as a result of lower grades at Lalor and 777, in line with their respective mine plans. The Reed mine closure
in August 2018 affected contained copper production compared to the fourth quarter of 2017. Production of copper
and zinc metals met full year 2018 guidance. Precious metals production reflected Hudbay’s updated strategy of
mining the Lalor gold zones at a later date to achieve higher recoveries with the New Britannia gold mill, as previously
announced.
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Ore mined at the Manitoba operations during the fourth quarter of 2018 decreased by 12% compared to the same
period in 2017. Decreased production at Lalor and the closure of the Reed mine was partially offset by increased
production at 777. Overall, copper, gold, zinc and silver grades were 21%, 8%, 4% and 4% lower, respectively, in the
fourth quarter of 2018 compared to the same period of 2017. Grade variances reflected anticipated declines in 777
and Lalor grades in accordance with their respective mine plans, together with the cessation of high-grade copper
production from Reed following its closure.
Total ore mined at the Manitoba operations during the full year was 8% lower than 2017. Copper and zinc grades for
the full year in 2018 were lower than 2017 by 12% and 13%, respectively, while gold and silver grades were 7% and
10% higher, respectively, which is in line with mine plan expectations.
Ore processed in Flin Flon in the fourth quarter of 2018 was 35% lower than the same period in 2017. The lower
processing volumes are a result of the Reed mine closure, and sustained improvements at the Stall concentrator
resulting in less ore transported to Flin Flon for processing, partially offset by increased ore from the 777 mine. Ore
processed was 17% higher and copper recoveries were 5% higher at the Stall concentrator in the fourth quarter of
2018 compared with the same period in 2017, as a result of ongoing operational and maintenance improvements and
better metallurgical understanding of the Lalor ore.
Ore processed for the full year in 2018 in Flin Flon was 11% lower than 2017 as a result of combined mine output.
Full year unit operating costs at the Flin Flon concentrator were 31% higher than 2017 as a result of higher overall
maintenance costs driven by aging infrastructure and equipment, increased material handling costs realized in the
first half of 2018 related to colder than typical weather, and lower volumes from the mines. Ore processed for the full
year in 2018 at Stall was 9% higher, and recoveries for all metals at the Stall concentrator were higher than 2017.
Full year unit operating costs at the Stall concentrator were 10% lower than 2017, primarily as a result of higher
production and improved mill reliability.
Manitoba combined mine, mill and G&A unit operating costs in the fourth quarter and full year in 2018 were 14% and
10% higher, respectively, than in the same periods in 2017 due mainly to the Reed mine closure, higher 777 and
Lalor mining costs and Flin Flon mill maintenance.
Cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2018 was negative $0.87
per pound of copper produced. These costs were higher compared to the same period in 2017, primarily as a result
of lower production due to the Reed mine closure. Cash cost per pound of copper produced, net of by -product
credits, slightly increased to negative $0.64 for the full year 2018, compared to 2017, also as a result of lower
production.
Sustaining cash cost per pound of copper produced, net of by -product credits, in the fourth quarter of 2018 was
$1.55, which is higher than the prior year period due to higher cash costs and higher sustaining capital expenditures.
Sustaining cash cost per pound of copper produced, net of by-product credits, increased by $0.73 for the full year
2018, compared to 2017, as a result of increased capital development expenditures at Lalor and planned increased
sustaining and exploration capital spending.
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2019 Annual Guidance
Hudbay’s production and operating cost guidance, along with its capital and exploration expenditure forecasts for
2019 are discussed in detail below.
Production Guidance
Contained Metal in Concentrate1 2019 Guidance Year ended
Dec. 31, 2018
2018 Guidance
Manitoba2
Copper tonnes 22,000 – 25,000 32,372 27,500 – 32,500
Zinc tonnes 100,000 – 115,000 115,588 105,000 – 130,000
Precious metals3 oz 105,000 – 125,000 113,188 120,000 – 145,000
Peru
Copper tonnes 100,000 – 125,000 122,178 95,000 – 115,000
Precious metals3 oz 45,000 – 55,000 63,187 50,000 – 70,0004
Molybdenum tonnes 1,100 – 1,200 904 –
Total
Copper tonnes 122,000 – 150,000 154,550 122,500 – 147,500
Zinc tonnes 100,000 – 115,000 115,588 105,000 – 130,000
Precious metals3 oz 150,000 – 180,000 176,375 170,000 – 215,000
Molybdenum tonnes 1,100 – 1,200 904 –
1
Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms. 2
2018 figures include 100% of Reed mine production; Hudbay owned a 70% interest in the Reed mine. 3
Precious metals production includes gold and silver production on a gold-equivalent basis. Silver converted to gold at a ratio of 70:1. 4
Initial 2018 guidance for Peru precious metals production was 65,000 to 85,000 ounces.
In 2019, production of copper contained in concentrate is forecast to decrease by approximately 12%3 compared to
2018 production, primarily due to the closure of the Reed mine in 2018 and slightly lower copper grades at
Constancia in line with the mine plan. Production of zinc contained in concentrate in 2019 is forecast to decrease by
approximately 7%3 compared to 2018 production, due to lower zinc grades at the 777 and Lalor mines, in line with
the respective mine plans. Lalor mine ramp-up is on track to reach a nominal 4,500 tonnes per day in 2019 as a
result of several recent initiatives including increased drill inventory, improved paste backfill availability, engagement
of third party contractors and higher planned equipment utilization.
Production of precious metals contained in concentrate in 2019 is forecast to slightly decrease by approximately 6%3
compared to 2018 production, primarily due to marginally lower precious metals grades at Constancia. Manitoba
precious metals production reflects the optimization of the Lalor mine plan to prioritize base metal ore in the near term
and defer certain areas of high-grade gold and copper-gold ore until the planned restart of the New Britannia mill in
2022, as recently announced.
Peru precious metals production has the potential to be higher than the stated guidance levels in 2019 if the land
access agreement related to the Pampacancha deposit is in place by the end of May 2019. Negotiations with the
community to secure surface rights over the Pampacancha deposit are progressing, following the election of a new
community council in the fourth quarter of 2018.
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Capital Expenditure Guidance
Capital Expenditures1
(in $ millions)
2019 Guidance Year ended
Dec. 31, 2018
2018 Guidance
Sustaining capital
Manitoba 100.0 104.4 85.0
Peru2 95.0 40.0 50.0
Total sustaining capital 195.0 144.4 135.0
Growth capital
Manitoba 10.0 18.1 20.0
Peru3 45.0 2.3 0.0
Arizona 20.0 19.7 35.0
Total growth capital 75.0 40.1 55.0
Capitalized exploration 15.0 11.7 10.0
Total capital expenditures 285.0 196.2 200.0
1
Excludes capitalized interest. 2
Includes capitalized stripping costs. 3
Initial 2018 guidance for Peru growth capital expenditures was $45.0 million. This included expenditures for developing the
Pampacancha deposit and acquiring surface rights, which, as previously announced, was deferred to 2019.
Total planned sustaining capital expenditures in 2019 are expected to increase by approximately 35% from 2018
levels. The increase is mainly due to an approximate $55 million increase in spending in Peru from 2018 levels, as a
major raise of the Constancia tailings management facility is expected in 2019, in line with the NI 43-101 Technical
Report filed in March 2018. Planned sustaining capital expenditures in Manitoba include continued drilling of the gold
and copper-gold zones at Lalor and elevated spending on tailings management facilities in 2019 to implement
upgrades and provide increased storage capacity.
Manitoba growth capital spending of $10 million includes a feasibility study and early works to advance the
refurbishment of the New Britannia gold mill and the Lalor gold strategy.
Peru growth capital of $45 million includes initial expenditures for developing the Pampacancha deposit and acquiring
surface rights from the local community. This spending is expected to be reduced if a land access agreement related
to the Pampacancha deposit is not in place by the end of May 2019. Arizona spending of $20 million on the
Rosemont project is intended to support ongoing permitting, legal and mitigation efforts, and would increase
significantly if permitting is completed and early works on the project commence during 2019.
Exploration Guidance
Exploration Expenditures
(in $ millions)
2019 Guidance Year ended
Dec. 31, 2018
2018 Guidance
Peru 20.0 15.6 20.0
Manitoba 10.0 14.1 15.0
Generative and other 10.0 10.6 15.0
Total exploration expenditures 40.0 40.3 50.0
Capitalized spending1 (15.0) (11.7) (10.0)
Total exploration expense1 25.0 28.6 40.0
1
2019 guidance assumes exploration expenditures of $5 million and $10 million for Manitoba and Peru, respectively, will be
capitalized.