Copper Mountain Mining Corporation (TSX: CMMC) (ASX: C6C) announces first quarter 2023 financial and operating results. All currency is in Canadian dollars, unless otherwise stated. All results are reported on a 100% basis. The Company’s Financial Statements and Management’s Discussion & Analysis are available at www.CuMtn.com and www.sedar.com.

Gil Clausen, Copper Mountain’s President and CEO commented, “We are encouraged with our solid start to the year. We had a strong performance this quarter despite starting the year combating a ransomware attack that impacted our recovery as the plant was operating without its expert system control and without full utilization of the rougher expansion. We also experienced reduced throughput for ten days because of limited fresh water due to a mechanical failure of the reclaim water barge. Even with these setbacks, we recorded the highest production and lowest all-in cost quarter since 2021, which was a record year for the Company. As we finished the first quarter on plan, we remain on track to achieve our 2023 copper production guidance of between 88 to 98 million pounds at our all-in cost guidance of between US$2.45 to US$2.95 per pound.”

Mr. Clausen added, “Following the quarter, we announced an exciting and transformative business combination with Hudbay. We believe the strategic rationale is compelling for all stakeholders who will benefit from being part of a combined company, which will have a diversified portfolio of three long life assets and a leading organic growth pipeline. We see exceptional upside and potential for significant value to be unlocked with this transaction.”

SUMMARY

• Production in Q1 2023 was 18.9 million pounds of copper equivalent, including 15.9 million pounds of copper, 5,616 ounces of gold, and 75,277 ounces of silver.
• Revenue for Q1 2023 was $100.5 million from the sale of 16.1 million pounds of copper, 5,579 ounces of gold, and 78,122 ounces of silver.
• C1 cash cost⁽¹⁾ per pound of copper produced in Q1 2023 was US$3.11, all-in sustaining cost (“AISC”)⁽¹⁾ per pound of copper produced was US$3.36 and all-in cost (“AIC”)⁽¹⁾ per pound of copper produced was US$3.66.
• Net loss for Q1 2023 was $13.0 million, or ($0.06) per-share and adjusted net income⁽¹⁾ was $0.9 million, or $0.00 per-share. The net loss in Q1 2023 was primarily due to one-time items including finance expenses associated with the bond buyback and deferred tax expense on an increase in decommissioning obligation, totaling $13.0 million.
• EBITDA⁽¹⁾ for Q1 2023 was $16.2 million and adjusted EBITDA⁽¹⁾ was $17.1 million.
• Cash flow from operating activities before non-cash working capital items for Q1 2023 was $21.3 million, or $0.10 on a per-share basis⁽¹⁾, and $9.1 million after non-cash working capital items, or $0.04 on a per-share basis⁽¹⁾.
• Cash, cash equivalents and restricted cash as at March 31, 2023 was $71.2 million.
• In January 2023, completed a bond buyback resulting in the repurchase of the total planned aggregate principal amount of US$87 million of bonds, thereby reducing the Company’s total nominal value of bonds outstanding to US$148 million.
• Entered into monthly zero-cost collar option contracts for 3.32 million pounds of copper per month from January to June 2023, with a floor price of US$3.60 per pound and a ceiling price of US$4.40 per pound.
• After quarter end, the Company announced on April 13, 2023, it has entered into a definitive agreement (the “Arrangement Agreement”) by which Hudbay Minerals Inc. (“Hudbay”) will acquire all the issued and outstanding common shares of Copper Mountain. Under the terms of the Arrangement Agreement, each Copper Mountain shareholder will receive 0.381 of a Hudbay common share for each Copper Mountain common share held.
  • The consideration represents approximately C$2.67 per Copper Mountain common share based on Hudbay’s closing share price on April 12, 2023.
  • The consideration represents a 23% premium to Copper Mountain shareholders based on Hudbay’s and Copper Mountain’s 10-day volume-weighted-average share prices on April 12, 2023.
  • Existing Hudbay and Copper Mountain shareholders will own approximately 76% and 24% of Hudbay, respectively.

SUMMARY OF OPERATING RESULTS

Production

The Copper Mountain Mine produced 15.9 million pounds of copper, 5,616 ounces of gold, and 75,277 ounces of silver in Q1 2023, compared to 13.2 million pounds of copper, 5,135 ounces of gold, and 55,993 ounces of silver in Q1 2022. The higher production in Q1 2023 was due to higher mill throughput, higher mill feed grades and improved operating time.

Mill feed grade in Q1 2023 was 0.27% Cu compared to 0.25% Cu in Q1 2022. Higher mill feed grade was due to more feed being delivered from the higher-grade Phase 4 area, compared to quarters in 2022. Approximately 55% of the high grade mined was from Phase 4 and approximately 45% from the North Pit. In addition, Phase 4 grades were higher than planned at 0.32% Cu. Grades are expected to continue to improve in the second quarter and third quarter as more ore is sourced from the higher-grade Phase 4 area.

The mill processed a total of 3.4 million tonnes of ore during the quarter compared to 3.0 million tonnes in Q1 2022, with mill availability averaging 88.7% for Q1 2023 compared to 86.3% in Q1 2022. Mill availability was higher than the prior quarter but lower than target due to the ransomware attack in late December 2022, which resulted in the mill being preventatively shut down. Full mill production was restored on January 4th, 2023. In addition, mill throughput was reduced for ten days as a result of limited water available due to a mechanical failure of the reclaim water barge. An alternative process water pumping system was installed in early March. Average throughput continues to increase from 2022 with improving plant performance and better utilization of the ball mill 3 circuit.

Copper recovery was 78.7% in Q1 2023 compared to 82.0% in Q1 2022. The ransomware attack resulted in the plant operating without onstream analysis of the process flows, expert system control, and full utilization of the rougher expansion for much of the quarter, which resulted in the lower recovery experienced. All of these systems were fully restored at quarter end, supporting the 2023 recovery improvement plan.

Costs

C1 cash cost, AISC and AIC per pound of copper produced are non-GAAP financial measures. See “Cautionary Note Regarding Non-GAAP Performance Measures” in this press release.

C1 cash cost per pound of copper produced, net of precious metal credits, for Q1 2023 was US$3.11, compared to US$3.58 in Q1 2022. The decrease in C1 cash costs in Q1 2023 was primarily the result of higher copper production and higher precious metal credits.

AISC per pound of copper produced for Q1 2023 was US$3.36, compared to US$4.45 in Q1 2022. AISC carries forward from C1 cash costs with the addition of $5.3 million in AISC adjustments, which includes: $4.5 million for lease payments and $1.2 million for applicable mine administration costs and net of a $0.4 million credit for sustaining capital. Total sustaining capital expenditures in Q1 2023 was $3.2 million less $3.6 million in funding awarded to the Company through the Clean BC Industry Fund of the Province of British Columbia in support of our greenhouse gas reduction strategy to replace diesel equipment through electrification. This compares to the addition of $14.6 million in AISC adjustments in Q1 2022, which included $10.2 million for sustaining capital, $3.9 million for lease payments, and $0.5 million for applicable mine administration expenditures.

AIC per pound of copper produced for Q1 2023 was US$3.66, compared to US$5.08 in Q1 2022. AIC carries forward from AISC, with the addition of deferred stripping mining costs, which are capitalized, and low-grade stockpile mining costs, which are recorded as inventory. There was $6.4 million of deferred stripping costs in Q1 2023 as compared to $10.5 million deferred stripping costs in Q1 2022. There was no mining of low-grade stockpile material in Q1 2023 or Q1 2022.

SUMMARY OF FINANCIAL RESULTS

In Q1 2023, revenue was $100.5 million, net of pricing adjustments and treatment charges, compared to $93.9 million in Q1 2022. Revenue in Q1 2023 is based on the sale of 16.1 million pounds of copper, 5,616 ounces of gold, and 75,277 ounces of silver. This compares to 13.5 million pounds of copper, 5,076 ounces of gold and 60,038 ounces of silver sold in Q1 2022. As noted above, the increase in revenue was due to higher quantities of all metal sold which was marginally offset by a smaller positive mark to market and final adjustment on concentrate sales of $2.0 million for Q1 2023 as compared to a positive mark to market and final adjustment of $7.1 million for Q1 2022. Higher copper production and sales in the quarter was due to higher grades and improved mill throughput in Q1 2023 as compared to Q1 2022.

Cost of sales in Q1 2023 was $80.3 million as compared to $75.3 million for Q1 2022. The increase in cost of sales is primarily due to less mining costs capitalized to deferred stripping with $6.9 million of mining costs capitalized to deferred stripping in Q1 2023 compared to $11.1 million in Q1 2022. The increase in cost of sales is also a result of the payment of safety bonuses to mine site employees in Q1 2023 and higher transportation costs due to the timing of concentrate shipments and related shipping and port costs.

The Company generated gross profit of $20.2 million in Q1 2023 as compared to a gross profit of $18.6 million for Q1 2022. The Company reported a net loss of $13.0 million for Q1 2023 as compared to a net loss of $4.2 million for Q1 2022. The variance in net income for Q1 2023, as compared to Q1 2022, was due to several items, including:

• Q1 2023 included a $2.0 million positive mark to market and final adjustments from provisional pricing on concentrate sales, as compared to a $7.1 million positive adjustment in Q1 2022.
• Higher cost of sales primarily due to less mining costs being capitalized to deferred stripping in Q1 2023 as compared to Q1 2022.
• Higher finance expenditures due to costs related to the repurchase of US$87.0 million of bonds and amortization of finance fees related to the repaid amount.
• Q1 2023 included a non-cash deferred tax expense of $13.8 million compared to $1.4 million in Q1 2022.

The Company recorded adjusted net income⁽¹⁾ of $0.9 million in Q1 2023, or $0.00 per share⁽¹⁾, compared to adjusted net loss⁽¹⁾ of $8.8 million in Q1 2022, or $(0.04) per share⁽¹⁾.

PROJECT DEVELOPMENT UPDATE

Copper Mountain Mine, Canada

All major capital projects including ball mill 3, the rougher circuit expansion, cleaner circuit expansion, and filter press expansion were completed in 2022. The focus for 2023 is utilization and optimization of these circuits to support production. These projects will continue to add value and support processing higher grades while maintaining target throughput.

Exploration Update

The Copper Mountain Mine is a large alkalic porphyry deposit with known copper-gold mineralization occurring over a 5 x 2 kilometre area. A 61 km drilling program was completed during 2021 and 2022 and supported an updated resource model resulting in a 70% increase in the Measured and Indicated Mineral Resource at Copper Mountain. The deposit, however, remains open both laterally and at depth, providing further resource expansion potential. Multiple historical drill holes end in copper-gold mineralization and geophysical data suggest that the mineralizing system extends well below the current known resource.

The 2023 exploration program will focus in particular on the identification of areas with the potential to host high-grade “root zones”, analogous to the deeper parts of the Red Chris porphyry in British Columbia (also an alkalic porphyry and of similar age), and the deposits in the Cadia-Ridgeway alkalic porphyry district in Australia. Drill testing of targets began in February 2023 with approximately 8000 metres of diamond drilling planned in Phase 1 of the program. A 3D induced polarization (“IP”) and resistivity survey is also underway at New Ingerbelle and will be completed in the second quarter. Drilling results from Phase 1 are expected mid-year.

CORPORATE UPDATE

Transactions

On April 13, 2023, Hudbay and Copper Mountain announced the Arrangement Agreement, pursuant to which, Hudbay will acquire all of the issued and outstanding common shares of Copper Mountain, pursuant to a court approved plan of arrangement (the “Transaction”).

The Transaction will create a premier Americas-focused copper mining company that is well-positioned to deliver sustainable cash flows from an operating portfolio of three long-life mines, as well as compelling organic growth from a world-class pipeline of copper expansion and development projects. All assets in the combined portfolio are located in tier-one mining-friendly jurisdictions of Canada, Peru and the United States. The combined company represents the third largest copper producer in Canada based on 2023 estimated copper production.

Under the terms of the Arrangement Agreement, each Copper Mountain shareholder will receive 0.381 of a Hudbay common share for each Copper Mountain common share held.

The Transaction consideration represents approximately C$2.67 per Copper Mountain common share and a US$439 million equity value based on Hudbay’s closing share price on April 12, 2023. The Transaction consideration represents a 23% premium to Copper Mountain shareholders based on Hudbay’s and Copper Mountain’s 10-day volume-weighted-average share prices on April 12, 2023. Existing Hudbay and Copper Mountain shareholders will own approximately 76% and 24% of Hudbay, respectively.

Following the closing of the Transaction, the Board of Directors of Hudbay will include two directors from the Board of Directors of Copper Mountain, and the management team of Hudbay will include select members from the management team of Copper Mountain.

In light of the Transaction, Gil Clausen has postponed his retirement and will remain as President and Chief Executive Officer of Copper Mountain until closing.

The Transaction is subject to shareholder approval, the satisfaction of certain other closing conditions customary in transactions of this nature, including clearance under the Competition Act (Canada), B.C. court approval and applicable stock exchange approvals.

The Transaction is expected to be completed late in the second quarter or early in the third quarter of 2023. Following completion of the Transaction, the shares of Copper Mountain will be de-listed from the Toronto Stock Exchange and the Australian Securities Exchange.

For more information on the Transaction see Copper Mountain’s press release “Hudbay and Copper Mountain Combine to Create a Premier Americas-Focused Copper Producer” dated April 13, 2023.

Ransomware Attack

The Company was subject to a ransomware attack late on December 27, 2022 that affected the Company’s internal IT systems at the Copper Mountain Mine and corporate office. As a result, the Company isolated operations, switched to manual processes, where possible, and the mill was preventatively shutdown to determine the effect on its control system. On January 1, 2023, the Company resumed operations of the primary crusher and on January 4, 2023 the mill was at full production. The Company has now returned to full business functionality in a safe and secure manner. Throughout the outage, all environmental management systems at the Copper Mountain Mine were operational, and there were no environmental incidents or injuries to personnel.

The Company has since enhanced its security and monitoring tools with additional protection and continues to work with external advisors to review and evaluate additional security measures that could be implemented to further protect the Company’s systems. Ensuring the safety and security of the Company’s systems remain one of the Company’s top priorities.

OUTLOOK

This section of the press release provides management’s production and cost estimates for 2023. See “Cautionary Note Regarding Forward-Looking Statements” in this press release. C1 cash costs, AISC and AIC per pound of copper produced are non-GAAP financial measures. See “Cautionary Note Regarding Non-GAAP Financial Measures” in this press release.

With a solid first quarter, the Company is on track to achieve 2023 production guidance of 88 to 98 million pounds of copper. The Company forecasts production and grade to increase sequentially through the first three quarters of the year.

Costs across all metrics have significantly improved in the first quarter of 2023, and are expected to continue to trend lower, driven by higher production, lower mining costs and lower sustaining capital and deferred stripping. The Company is on track to achieve its 2023 cost guidance.

About Copper Mountain Mining Corporation

Copper Mountain owns 75% of the Copper Mountain Mine, which is located in southern British Columbia near the town of Princeton. The Copper Mountain Mine produces approximately 100 million pounds of copper equivalent on average per year.