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Hudbay Announces Second Quarter 2021 Results

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Hudbay Announces Second Quarter 2021 Results

 

 

 

 

 

Hudbay Minerals Inc. (TSX:HBM) (NYSE:HBM)  released its second quarter 2021 financial results. All amounts are in U.S. dollars, unless otherwise noted.

 

Second Quarter Operating and Financial Results

 

  • Generated $404.2 million in revenue, $132.8 million of operating cash flow before change in non-cash working capital and $143.2 million of adjusted EBITDA1 in the second quarter of 2021 from higher realized metal prices and higher copper and precious metals sales volumes, partially offset by lower zinc sales volumes.
  • Consolidated copper production in the second quarter was 23,474 tonnes at cash cost and sustaining cash cost per pound of copper produced, net of by-product creditsi, of $0.84 and $2.25, respectively. Consolidated gold production increased to 39,848 ounces in the second quarter, a record for Hudbay.
  • Second quarter Peru production was boosted by higher metal recoveries and initial production from Pampacancha in April 2021. Pampacancha production continues to ramp up in line with the recently published Constancia mine plan, which contemplates an increase in average annual copper production to approximately 102,000 tonnes over the next eight years starting in 2022.
  • Second quarter Manitoba metal production was impacted by lower copper and zinc grades, lower precious metal recoveries and production interruptions.
  • On track to meet annual guidance for copper, zinc and precious metals production, consolidated sustaining capital expenditures, and Manitoba unit operating costs in 2021. After adjusting for unbudgeted COVID-related costs in Peru, full year unit operating costs for Peru are expected to be within the 2021 guidance range.
  • Second quarter net loss and loss per share were $3.4 million and $0.01, respectively. After adjusting for the net mark-to-market loss on financial instruments, amongst other items, second quarter adjusted net earningsi per share were $0.02.
  • Cash and cash equivalents decreased during the second quarter to $294.3 million, as at June 30, 2021, mainly as a result of $100.6 million of capital investments primarily for the construction of the New Britannia refurbishment project and sustaining capital expenditures, partially offset by cash generated from operations.
  • On June 19, a worker employed by a service provider at the Lalor mine was fatally injured from a fall while working at height. The company is undertaking a number of initiatives to learn from this tragic incident.

 

Executing on Growth Initiatives

  • New Britannia project continues to track ahead of the original schedule with approximately 95% of the project completed at the end of July. New Britannia gold circuit commissioning completed in July 2021 and first gold pour is expected in August, ahead of the original schedule. Annual gold production from Lalor and the Snow Lake operations is expected to increase to over 180,000 ounces at average cash cost and sustaining cash cost, net of by-product credits, of $412 and $788 per ounce of gold, respectively, during the first six full years of operation starting in 2022.
  • Due to additional costs and COVID-19 related impacts, approximately $20 million in additional growth capital is expected to be spent this year at New Britannia and 2021 growth capital guidance has been revised accordingly.
  • Following the finalization of the remaining land user agreement for Pampacancha, first production was achieved in April, consistent with the recently published mine plan.
  • Completed 85,000 feet of drilling at the Copper World property in Arizona in the first half of the year and the company remains on track to complete an initial inferred resource estimate before the end of the year and a preliminary economic assessment in the first half of 2022.
  • Released the 18th Annual Sustainability Report in May 2021 discussing Hudbay’s key accomplishments and initiatives in 2020, how the company manages the social, environmental and economic risks, impacts and opportunities associated with its activities, and the importance of continuous improvement in these areas for the company’s long-term success.

 

“We are deeply saddened by the fatality at our Lalor mine in June and we are committed more than ever to our objective of zero harm across the organization,” said Peter Kukielski, President and Chief Executive Officer. “Operationally, our second quarter results benefited from higher production at our Peru operations after the successful ramp up of mining activities at Pampacancha during the quarter. We also expect to achieve our first gold pour at the New Britannia mill this month, ahead of the original schedule, which together with the startup of Pampacancha, is expected to result in increased cash flows from these high-return investments starting in the second half of 2021. COVID-19 continues to have an impact our operations, but we remain focused on managing these impacts while continuing to execute our growth initiatives and focusing on operating safely and efficiently.”

 

Summary of Second Quarter Results

 

Cash generated from operating activities in the second quarter of 2021 increased to $96.4 million compared to $51.8 million in the first quarter of 2021. Operating cash flow before change in non-cash working capital was $132.8 million during the second quarter of 2021, reflecting an increase of $42.1 million compared to the first quarter of 2021. The increase in operating cash flow is primarily the result of higher realized metal prices and higher copper and precious metals sales volumes, partially offset by lower zinc sales volumes.

 

Consolidated copper production in the second quarter of 2021 was 23,474 tonnes, a 4% decrease from the first quarter of 2021, primarily as a result of lower copper grades in Manitoba, partially offset by higher throughput in Peru. Consolidated gold production in the second quarter of 2021 was 39,848 ounces, an increase of 12% versus the first quarter of 2021, due to record gold production in Peru as mining from the high-grade Pampacancha deposit commenced in the quarter. Consolidated zinc production in the quarter decreased by 23% while silver production decreased by 2% versus the first quarter, primarily as a result of lower grades and recoveries.

 

In the second quarter of 2021, consolidated cash cost per pound of copper produced, net of by-product creditsi, was $0.84, compared to $1.04 in the first quarter of 2021. This decrease was mainly a result of higher by-product credits. Sustaining cash cost per pound of copper produced, net of by-product creditsi, increased to $2.25 in the second quarter of 2021, from $2.16 in the same period in 2020 primarily due to higher sustaining capital expenditures, partially offset by higher by-product credits. Hudbay continues to expect consolidated cash cost and sustaining cash cost per pound of copper produced, net of by-product credits, to be within the guidance ranges for 2021.

 

Net loss and loss per share in the second quarter of 2021 were $3.4 million and $0.01, respectively, compared to a net loss and loss per share of $60.1 million and $0.23, respectively, in the first quarter of 2021. Second quarter earnings benefited from higher realized prices of copper, zinc and gold, combined with higher copper and precious metals sales volumes, which were partially offset by lower zinc sales volumes and higher tax expenses.

 

Adjusted net earningsi and adjusted net earnings per sharei in the second quarter of 2021 were $5.4 million and $0.02 per share after adjusting for the net mark-to-market loss on financial instruments among other items. This compares to an adjusted net loss and adjusted net loss per share of $16.1 million and $0.06 per share in the first quarter of 2021. Second quarter adjusted EBITDAwas $143.2 million, compared to $104.2 million in the first quarter of 2021. As previously disclosed, sales volumes in the first quarter of 2021 were impacted by shipping delays in Peru and Manitoba, resulting in the delayed parcels being recognized as revenue in the second quarter of 2021.

 

As at June 30, 2021, Hudbay’s liquidity includes $294.3 million in cash and cash equivalents as well as undrawn availability of $295.2 million under its credit facilities. The company expects that the current liquidity together with cash flows from operations will be sufficient to meet its liquidity needs for the foreseeable future.

 

Financial Condition ($000s) Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020
Cash and cash equivalents 294,287 310,564 439,135
Total long-term debt 1,181,195 1,180,798 1,135,675
Net debt1 886,908 870,234 696,540
Working capital 219,799 236,281 306,888
Total assets 4,587,827 4,549,196 4,666,645
Equity 1,658,924 1,660,250 1,699,806

 

1 Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.

 

Consolidated Financial Performance

  Three Months Ended
    Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Revenue $000s 404,242 313,624 208,913
Cost of sales $000s 322,060 261,112 221,567
Earnings (loss) before tax $000s 14,819 (69,592) (74,604)
Earnings (loss) $000s (3,395) (60,102) (51,901)
Basic and diluted earnings (loss) per share $/share (0.01) (0.23) (0.20)
Adjusted earnings (loss) per share1 $/share 0.02 (0.06) (0.15)
Operating cash flow before change in non-cash working capital $ millions 132.8 90.7 29.5
Adjusted EBITDA1 $ millions 143.2 104.2 49.1
 

1 Adjusted loss per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.

 

 

 

Consolidated Production and Cost Performance

Three Months Ended
    Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Contained metal in concentrate produced1        
Copper tonnes 23,474 24,553 18,026
Gold ounces 39,848 35,500 32,614
Silver ounces 685,916 696,673 580,817
Zinc tonnes 21,538 27,940 31,222
Molybdenum tonnes 295 294 124
Payable metal in concentrate sold        
Copper tonnes 25,176  20,929 15,951
Gold ounces 38,205  25,383 30,590
Silver ounces 577,507  509,760 541,785
Zinc2 tonnes 25,361  28,343 27,604
Molybdenum tonnes 265  284 120
Consolidated cash cost per pound of copper produced3        
Cash cost $/lb 0.84  1.04 0.29
Peru $/lb 1.85  1.82 1.31
Manitoba $/lb (3.51) (1.04) (1.51)
Sustaining cash cost $/lb 2.25  2.16 1.59
Peru $/lb 2.69  2.36 1.84
Manitoba $/lb 0.36  1.62 1.16
All-in sustaining cash cost $/lb 2.48  2.37 1.91

Metal reported in concentrate is prior to deductions associated with smelter contract terms.
Includes refined zinc metal sold and payable zinc in concentrate sold.
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 the “Non-IFRS Financial Reporting Measures” section of this news release.

 

Peru Operations Review

 

Peru Operations Three Months Ended
    Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Constancia ore mined1 tonnes 8,016,373 7,747,466 2,775,286
Copper % 0.30 0.30 0.34
Gold g/tonne 0.04 0.04 0.04
Silver g/tonne 3.02 2.90 2.90
Molybdenum   0.01 0.01 0.02
Pampacancha ore mined tonnes 982,992
Copper % 0.26
Gold g/tonne 0.27
Silver g/tonne 4.43
Molybdenum   0.01
Ore milled tonnes 7,413,043 6,362,752 4,355,482
Copper % 0.31 0.33 0.34
Gold g/tonne 0.07 0.04 0.04
Silver g/tonne 2.88 2.84 3.04
Molybdenum   0.01 0.01 0.01
Copper recovery % 83.3 84.1 76.6
Gold recovery % 62.2 52.0 43.4
Silver recovery % 68.2 69.9 59.6
Molybdenum recovery   33.3 33.4 19.9
Contained metal in concentrate      
Copper tonnes 19,058 17,827 11,504
Gold ounces 10,220 4,638 2,311
Silver ounces 468,057 405,714 253,687
Molybdenum tonnes 295 294 124
Payable metal sold      
Copper tonnes 19,946 14,836 9,023
Gold ounces 5,638 2,963 1,317
Silver ounces 315,064 337,612 242,519
Molybdenum tonnes 265 284 120
Combined unit operating cost2,3,4 $/tonne 11.25 12.46 7.77
Cash cost4 $/lb 1.85 1.82 1.31
Sustaining cash cost4 $/lb 2.69 2.36 1.84

 

Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.
Reflects combined mine, mill and general and administrative costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.
Includes COVID-related costs of approximately $6.3 million, or $0.85 per tonne, during the three months ended June 30, 2021 and $4.6 million, or $0.72 per tonne, during the first quarter of 2021.
Combined unit cost, cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.

 

Despite recent notable improvements in COVID-19-related statistics in Peru, the Constancia team continues to adhere to strict COVID-19 measures and controls to ensure the safety of Hudbay’s workforce, partners and the communities in which it operates. This has allowed Constancia to maintain strong operations, although it has resulted in increased unit operating costs.

 

During the second quarter 2021, the Constancia operations produced 19,058 tonnes of copper, 10,220 ounces of gold, 468,057 ounces of silver and 295 tonnes of molybdenum. Production was higher than the first quarter of 2021 primarily as a result of increased throughput and improved gold grades and recoveries compared to the first quarter. Other than molybdenum, which is expected to fall slightly below the 2021 guidance range but in line with the recently published mine plan, Hudbay expects the production of all remaining metals in Peru to be in line with the 2021 full year guidance.

 

Ore mined during the second quarter of 2021 increased 16% from the first quarter of 2021 as a result of strong operational efficiencies and a smooth ramp up at Pampacancha. Following the finalization of the remaining land user agreement,

Pampacancha achieved first production in April, consistent with the company’s recently published mine plan. Due to its short ramp-up period, Pampacancha also achieved commercial production in April 2021. Ore milled during the second quarter of 2021 was 17% higher than the first quarter of 2021 as the prior period was impacted by a scheduled mill maintenance shutdown, offset slightly by increased ore hardness in the most recent quarter. Milled grades for copper were lower than the prior quarter, in line with the mine plan, and milled gold grades increased by 75% due to higher gold head grades from Pampacancha. During the second quarter of 2021, Constancia achieved record gold recoveries primarily due to significantly higher head grades from Pampacancha.

 

Combined mine, mill and G&A unit operating costs in the second quarter of 2021 were $11.25 per tonne, and lower than the first quarter of 2021, primarily due to a higher volume of ore milled, partially offset by higher costs associated with COVID-19 protocols. COVID-related costs in Peru of $6.3 million in the second quarter were higher than budgeted and are expected to continue at a similar run rate for the remainder of the year. Unit operating costs in the second quarter were $10.40 per tonne excluding these COVID-related costs. Hudbay expects Peru unit operating costs to be in line with the 2021 guidance range after adjusting for unbudgeted COVID-related costs.

 

Peru’s cash cost per pound of copper produced, net of by-product credits, in the second quarter of 2021 was $1.85, relatively unchanged from the previous quarter. Higher mining costs and higher general and administrative costs from enhanced COVID-19 protocols were generally offset by lower milling costs and higher gold by-product credits. Peru’s sustaining cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2021 increased to $2.69, compared to $2.36 in the first quarter of 2021, due to same factors noted above affecting cash costs, offset by higher sustaining capital expenditures.

 

Manitoba Operations Review

 

Manitoba Operations Three Months Ended
    Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Lalor ore mined tonnes 356,951 421,602 407,408
Copper % 0.64 0.57 0.77
Zinc % 3.81 5.20 6.05
Gold g/tonne 3.19 2.67 2.64
Silver g/tonne 22.98 22.75 28.40
777 ore mined tonnes 255,170 275,260 281,890
Copper % 0.82 2.06 1.72
Zinc % 3.57 4.00 4.13
Gold g/tonne 1.97 2.39 1.91
Silver g/tonne 23.35 29.32 25.73
Stall Concentrator:      
Ore milled tonnes 317,484 361,344 334,601
Copper % 0.68 0.60 0.76
Zinc % 4.06 5.53 6.16
Gold g/tonne 3.19 2.57 2.70
Silver g/tonne 22.02 23.40 28.72
Copper recovery % 88.8 85.7 86.6
Zinc recovery % 88.1 91.1 92.4
Gold recovery % 55.5 57.5 62.3
Silver recovery % 55.1 56.2 62.1
Flin Flon Concentrator:      
Ore milled tonnes 329,503 283,386 324,906
Copper % 0.89 1.88 1.52
Zinc % 3.65 4.20 4.41
Gold g/tonne 2.06 2.34 1.99
Silver g/tonne 23.65 28.01 25.56
Copper recovery % 84.8 91.3 87.3
Zinc recovery % 84.8 81.8 84.9
Gold recovery % 52.9 64.0 58.6
Silver recovery % 37.5 54.1 50.7
Total contained metal in concentrate      
Copper tonnes 4,416 6,726 6,522
Zinc tonnes 21,538 27,940 30,303
Gold ounces 29,628 30,862 327,130
Silver ounces 217,859 290,959 31,222
Total payable metal sold      
Copper tonnes 5,230 6,093 6,928
Zinc1 tonnes 25,361 28,343 27,604
Gold ounces 32,567 22,420 29,273
Silver ounces 262,443 172,148 299,266
Combined unit operating cost2,3 C$/tonne 148 151 135
Cash cost3 $/lb (3.51) (1.04) (1.51)
Sustaining cash cost3 $/lb 0.36 1.62 1.16

 

Includes refined zinc metal sold and payable zinc in concentrate sold.
2 Reflects combined mine, mill and G&A costs per tonne of ore milled.
3 Combined unit cost, cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.

 

Overall production at the Manitoba business unit in the second quarter was negatively impacted by COVID-19 related absences and interruptions at Hudbay’s Snow Lake and Flin Flon operations, a scheduled maintenance shutdown at Lalor and a temporary suspension of Lalor operations from June 19 to June 24 following a tragic fatal incident. The incident occurred during underground mining operations on the evening of June 19, 2021, when a worker employed by a service provider was fatally injured from a fall while working at height. Operations were suspended to allow for a thorough investigation by external authorities and a joint investigation by Hudbay and the service provider. Hudbay is committed to preventing similar occurrences and applying the learnings from this incident across its operations.

 

Production during the quarter included 21,538 tonnes of zinc, 4,416 tonnes of copper, 29,628 ounces of gold and 217,859 ounces of silver. Production results of all metals were lower than the previous quarter primarily due to the aforementioned production interruptions, lower grades, lower recoveries and ore stockpiling for the New Britannia mill.

 

Ore mined at the Manitoba operations during the second quarter of 2021 was lower than the first quarter of 2021 due to the factors outlined above. Gold grades were higher compared to the previous quarter, consistent with the life of mine production schedule at Lalor. Copper, zinc and silver grades were lower in part due to remnant mining at 777, which results in higher quarter-over-quarter variation as 777 nears the end of its mine life, and the mining sequence at Lalor. The 777 mine is now within one year of closure, and the focus continues to be mining out the remaining reserves by executing the mine production sequence and completing the necessary ground rehabilitation in order to access old workings and remnant stopes.

 

Development and underground construction activities continue in the lower part of the Lalor mine to support the start-up and ongoing operation of the New Britannia mill. At the end of the second quarter, approximately 47,000 tonnes of gold ore had been stockpiled as initial feed for the New Britannia mill, an increase of 21,000 tonnes from the end of the first quarter of 2021. The incremental mining activity associated with growing the gold ore stockpile has contributed to elevated combined mine, mill and G&A unit operating costs during the first and second quarters of 2021.

 

The Stall concentrator processed all available ore during the second quarter of 2021, which was 12% lower than the first quarter of 2021. Stall recoveries during the second quarter of 2021 were higher for copper and lower for zinc and precious metals versus the previous quarter but were consistent with the metallurgical model. Ore processed at the Flin Flon concentrator in the second quarter of 2021 increased by 16% compared to the first quarter as a result of processing available ore stockpiles. Recoveries of copper, gold and silver at the Flin Flon concentrator during the second quarter of 2021 were lower than the previous quarter mostly due to lower head grades from the 777 mine, but were consistent with the metallurgical model.

 

Combined mine, mill and G&A unit operating costs in the second quarter of 2021 slightly decreased compared to the first quarter of 2021 and remained within the annual guidance range.

 

Manitoba’s cash cost per pound of copper produced, net of by-product credits, for the second quarter of 2021 was negative $3.51, lower than the prior quarter primarily due to higher by-product revenues and lower copper production. Manitoba’s sustaining cash cost per pound of copper produced, net of by-product credits, in the second quarter of 2021 was $0.36 compared to $1.62 in the first quarter, primarily due to the reasons listed above.

 

Full year production of all metals and unit operating costs in Manitoba are on track to achieve the guidance ranges for 2021.

 

COVID-19 Business Update

 

The COVID-19 pandemic continues to have a persistent and protracted financial impact on Hudbay’s operations as the company continues to maintain strict COVID-19 measures to ensure the safety of its workforce and the communities in which it operates.

 

Although there has been a notable reduction in the number of new cases of COVID-19 in Canada and Peru along with increased vaccine availability throughout the company’s operating regions, Hudbay continues to incur COVID-19 related expenditures beyond levels originally budgeted, including rapid diagnostic test kits, personal protective equipment, temporary accommodation for employees awaiting test results, transportation costs as well as additional cleaning and sanitation expenses related to unscheduled COVID-19 related interruptions at the company’s operations. These COVID-related challenges have also had a negative financial impact on the refurbishment of the New Britannia mill and Peru unit costs. The company continues to manage the impact and monitor the risks of the pandemic at each of its locations, and its focus remains on continuing to operate safely and efficiently.

 

New Britannia Mill Progress and Manitoba Growth Capital Update

 

Refurbishment activities at the New Britannia gold mill were completed in June 2021 and commissioning and startup activities occurred in July. The mill is expected to achieve first gold production in August, in line with the timelines assumed in the company’s production guidance. These timelines are ahead of the original schedule to produce first gold before the end of 2021. Annual gold production from Lalor and the Snow Lake operations is expected to increase to over 180,000 ounces at an average cash cost and sustaining cash cost, net of by-product credits, of $412 and $788 per ounce of gold, respectively, during the first six full years of New Britannia’s operation.

 

The construction of a new copper flotation facility is on track for commissioning and ramp up in the fourth quarter of 2021. The overall project is approximately 95% complete as of the end of July. As noted last quarter, Hudbay has observed COVID-related cost pressures on the project capital estimate at New Britannia and there have been areas of cost escalation with industry cost inflationary pressures as the project nears completion. As a result, the company expects approximately $20 million in additional growth capital to be spent this year at New Britannia. The company also expects an additional $10 million to be spent in 2021 on the advancement of the Stall mill recovery improvement program, early works for the Lalor mine expansion to 5,300 tonnes per day and the impacts of foreign exchange movements. As such, Manitoba’s total growth capital guidance in 2021 has increased to $105 million from $75 million.

 

Exploration Update

 

Copper World Exploration

 

Hudbay’s 2020 drill program at its Copper World property in Arizona confirmed the discovery of the Broad Top Butte, Copper World, Peach and Elgin deposits, with a combined strike length of over five kilometres and opportunities to discover additional mineralization between the deposits. The program intersected significant volumes of high-grade copper sulphide and oxide mineralization starting, in most cases, near surface or at shallow depth. Drilling at Broad Top Butte included intersections of 440 feet of 1.38% copper and 246 feet of 0.70% copper starting at surface. Drilling at the Peach and Eglin deposits included intersections of 500 feet of 0.82% copper and 300 feet of 0.64% copper, both starting from surface. The mineralization at the Copper World deposits is located closer to surface than at Rosemont and remains open at depth.

 

The expanded 2021 exploration program at Copper World is well-advanced with 85,000 feet of drilling completed in the first half of the year and four drill rigs currently turning at site. Hudbay expects to publish an update once the majority of assays have been received for the holes drilled during the first half of 2021. The hydrogeological, geotechnical, mineralogical and metallurgical studies are underway. The company is also evaluating several targets identified through geophysical surveys on Hudbay’s extensive regional land package. Hudbay continues to expect to complete an initial inferred resource estimate before the end of the year and a preliminary economic assessment in the first half of 2022.

 

Peru Regional Exploration

 

Hudbay continues to progress discussions with the community of Uchucarcco on the Maria Reyna and Caballito properties, both of which are located within ten kilometres of Constancia.

 

At the end of June, the company commenced drilling at the Llaguen copper porphyry target located in northern Peru, near the city of Trujillo and in close proximity to existing infrastructure. The initial confirmatory phase of the drill program consists of 5,000 metres with two drill rigs presently turning at site. Pending positive results from this initial drilling phase, a second phase aimed at defining an initial mineral resource for Llaguen is expected to follow either later this year or in the second quarter of 2022 after the rainy season.

 

A scouting eight-hole drill program was completed at the Quehuincha North target near Constancia. Copper sulphides and oxides were intercepted but at tenors too low to be of economic merit.

 

Snow Lake Regional Exploration

 

The company’s regional exploration efforts in the Snow Lake area continue, following on its success from the 2021 winter drill program in the Chisel Basin where the copper-gold rich feeder of the 1901 deposit was discovered and high grade zinc and gold mineralization was confirmed through infill and extension drilling. Hudbay’s summer program includes surface mapping and ground geophysics to identify both base metal and gold targets as well as a follow-up limited drill program on a new target identified immediately north of the Lalor mine from a borehole survey completed in February 2021. The results from Hudbay’s 2021 drill program in Snow Lake are expected to be incorporated into the annual mineral reserve and resource estimates to be published at the end of March 2022.

 

18th Annual Sustainability Report

 

In May 2021, Hudbay released its integrated annual and sustainability report. The Annual Sustainability Report provides transparency and progress on key accomplishments and initiatives in 2020. The company believes that continuously improving how it manages the social, environmental and economic risks, impacts and opportunities associated with its activities is critical for its long-term success.

 

  • Hudbay’s 2020 Annual Sustainability Report disclosures were mapped to the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) Metals & Mining industry standard and the Task Force on Climate-related Financial Disclosures (TCFD). The company also provides disclosure through the CDP Climate, Water and Forests questionnaires.
  • To inform Hudbay’s sustainability programs and improve its performance, the company applies and voluntarily supports several international best practice standards, including ISO 14001, ISO 45001, ISO 9001, Towards Sustainable Mining, the Voluntary Principles on Security and Human Rights and International Finance Corporation (IFC) Performance Standards.
  • As a member of the Mining Association of Canada, Hudbay implements the Towards Sustainable Mining (TSM) Protocols at all of its operations, with the goal to maintain a score of “A” or higher for all protocols. The implementation of the TSM Tailings protocol and the company’s commitment to ensuring that its Tailings Storage Facilities are constructed following the Canadian Dam Safety Guidelines represents substantial alignment to the new Global Tailings Standard released in 2020.
  • Over 50% of Hudbay’s total energy consumption in 2020 was from renewable sources. All electricity at Hudbay’s operations is supplied by third parties via regional grids. Nearly all of the electricity produced in Manitoba is through renewable hydropower and, in Peru, over 50% is from renewable sources.
  • The Peru business unit continued its leading safety track record among Peruvian copper mines and was the first mine in Peru to obtain the SafeGuard certification, recognizing full compliance with all COVID-19 safety protocols.
  • The Manitoba business unit achieved its annual safety targets and continuous operations in an environment of enhanced COVID-19 safety protocols and controls, while working closely with the local health authorities.
  • Hudbay recognizes the opportunity that the mining industry has to positively contribute to the 17 UN Sustainable Development Goals (SDGs) that are a part of the UN’s 2030 Agenda for Sustainable Development.

 

Details of Hudbay’s sustainability performance data can be found in the Disclosure Centre on the company’s website, which includes updated greenhouse gas emissions data revised in August to incorporate International Energy Agency scope 2 emissions factors.

 

Collective Bargaining Agreements

 

Hudbay signed a new collective bargaining agreement with the union at its Peru operations for three years, effective November 10, 2020. The company also reached new three-and-a-half year collective bargaining agreements with four of its six unions in Manitoba, effective July 1, 2021. The company continues its efforts to advance the collective bargaining process with the remaining two unions in Manitoba.

 

Dividend Declared

 

A semi-annual dividend of C$0.01 per share was declared on August 9, 2021. The dividend will be paid out on September 24, 2021 to shareholders of record as of September 3, 2021.

 

Qualified Person and NI 43-101

 

The technical and scientific information in this news release related to the Rosemont project has been approved by Cashel Meagher, P. Geo, Hudbay’s Senior Vice President and Chief Operating Officer. The technical and scientific information related to the company’s other material mineral projects contained in this news release has been approved by Olivier Tavchandjian, P. Geo, Hudbay’s Vice President, Exploration and Geology. Messrs. Meagher and Tavchandjian 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 at Hudbay’s material properties, as well as data verification procedures and a general discussion of the extent to which the estimates of scientific and technical information 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.

 

Non-IFRS Financial Performance Measures

 

Adjusted net earnings (loss), adjusted net earnings (loss) per share, adjusted EBITDA, net debt, cash cost, sustaining and all-in sustaining cash cost per pound of copper produced and per ounce of gold produced, and combined unit cost are non-IFRS performance measures. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. 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.

 

Hudbay believes adjusted net earnings (loss) and adjusted net earnings (loss) per share better reflect the company’s performance for the current period and are better indications of its expected performance in future periods. These measures are used internally by the company to evaluate the performance of its underlying operations and to assist with its planning and forecasting of future operating results. As such, the company believes these measures are useful to investors in assessing the company’s underlying performance. The company provides adjusted EBITDA to help users analyze its results and to provide additional information about the company’s ongoing cash generating potential in order to assess its capacity to service and repay debt, carry out investments and cover working capital needs. Net debt is shown 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 and per ounce of gold produced are shown because the company believes they help investors and management assess the performance of its current and future operations, including the margin generated by the operations and the company. Combined unit cost is shown because the company believes it helps investors and management assess the cost structure and margins that are not impacted by variability in by-product commodity prices.

 

The following tables provide detailed reconciliations to the most comparable IFRS measures.

 

Adjusted Net Earnings (Loss) Reconciliation

 

  Three Months Ended
(in $ millions) Jun. 30, 2021   Mar. 31, 2021   Jun. 30, 2020  
Profit (loss) for the period (3.4 ) (60.1 ) (51.9 )
Tax expense (recovery) 18.2   (9.5 ) (22.7 )
Profit (loss) before tax 14.8   (69.6 ) (74.6 )
Adjusting items:      
Mark-to-market adjustments1 10.9   40.8   8.3  
Peru inventory (reversal)/write-down (0.7 ) (0.7 ) (8.2 )
Peru cost of sales direct charge from temporary shutdown     25.6  
Variable consideration adjustment – stream revenue and accretion   (1.0 )  
Foreign exchange loss 1.7   1.7   1.8  
Write-down of unamortized transaction costs   2.5    
Premium paid on redemption of notes   22.9    
Adjusted earnings (loss) before income taxes 26.7   (3.4 ) (47.1 )
Tax (expense) recovery (18.2 ) 9.5   22.7  
Tax impact of adjusting items (2.3 ) (18.9 ) (9.9 )
Non-cash deferred tax adjustments (0.8 ) (3.3 ) (5.4 )
Adjusted net earnings (loss) 5.4   (16.1 ) (39.7 )
Adjusted net earnings (loss) ($/share) 0.02   (0.06 ) (0.15 )
Basic weighted average number of common shares outstanding (millions) 261.5   261.3   261.3  

Adjusted EBITDA Reconciliation

 

  Three Months Ended
(in $ millions) Jun. 30, 2021   Mar. 31, 2021   Jun. 30, 2020  
Profit (loss) for the period (3.4 ) (60.1 ) (51.9 )
Add back: Tax expense (recovery) 18.2   (9.5 ) (22.7 )
Add back: Net finance expense 43.7   108.5   47.8  
Add back: Other expenses (income) 1.0   (3.3 ) 1.3  
Add back: Depreciation and amortization1 99.3   82.7   80.8  
Less: Amortization of deferred revenue and variable consideration adjustment (17.1 ) (15.2 ) (13.9 )
  141.7   103.1   41.4  
Adjusting items (pre-tax):        
Peru inventory (reversal) / write-down (0.7 ) (0.7 ) (8.2 )
Cash portion of Peru cost of sales direct charge from temporary shutdown     12.4  
Share-based compensation expenses2 2.2   1.8   3.5  
Adjusted EBITDA 143.2   104.2   49.1  

 

Includes the non-cash portion of the Peru cost of sales direct charge from the temporary shutdown of $13.2 million for the three months ended June 30, 2020.
Share-based compensation expenses reflected in cost of sales and selling and administrative expenses.

 

 

Net Debt Reconciliation

(in $ thousands)  
  Jun. 30, 2021   Mar. 31, 2021   Dec. 31, 2020  
Total long-term debt 1,181,195   1,180.798   1,135,675  
Cash and cash equivalents (294,287 ) (310,564 ) (439,135 )
Net debt 886,908   870,234   696,540  

Cash Cost Reconciliation

Consolidated Three Months Ended
Net pounds of copper produced      
(in thousands) Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Peru 42,015 39,302 25,361
Manitoba 9,736 14,828 14,379
Net pounds of copper produced 51,751 54,130 39,740

 

 

Consolidated

Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Cash cost per pound of copper produced $000s   $/lb1   $000s   $/lb1   $000s   $/lb1  
Cash cost, before by-product credits 218,899   4.23   209,866   3.88   141,374   4.05  
By-product credits (175,470 ) (3.39 ) (153,515 ) (2.84 ) (129,939 ) (3.11 )
Cash cost, net of by-product credits 43,429   0.84   56,351   0.94   99,781   0.94  

 

 

Consolidated

Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Supplementary cash cost information $000s   $/lb 1 $000s   $/lb 1 $000s   $/lb 1
By-product credits2:            
Zinc 77,707   1.50 82,315   1.52 60,094   1.51
Gold 3 68,880   1.33 45,134   0.83 54,163   1.56
Silver 3 15,443   0.30 15,135   0.28 13,108   0.33
Molybdenum & other 13,440   0.26 10,931   0.20 2,574   0.06
Total by-product credits 175,470   3.39 153,515   2.84 129,939   3.27
Reconciliation to IFRS:            
Cash cost, net of by-product credits 43,429     56,351     11,435    
By-product credits 175,470     153,515     129,939    
Treatment and refining charges (15,243 )   (11,936 )   (11,464 )  
Share-based compensation expense 274     184     284    
Inventory adjustments (723 )   (723 )   (8,155 )  
Change in product inventory 15,260     (22,864 )   4,000    
Royalties 4,288     3,903     2,363    
Overhead costs related to suspension of activities (cash) – Peru         12,358    
Depreciation and amortization4 99,305     82,682     80,807    
Cost of sales5 322,060     261,112     221,587    

 

Per pound of copper produced.
By-product credits are computed as revenue per financial statements, amortization of deferred revenue and pricing and volume adjustments
3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements. Variable consideration adjustments are cumulative adjustments to gold and silver stream deferred revenue primarily associated with the net change in mineral reserves and resources or amendments to the mine plan that would change the total expected deliverable ounces under the precious metal streaming arrangement. For the three months ended March 31, 2021 the variable consideration adjustments amounted to net income of $1,617.
Depreciation is based on concentrate sold.
As per IFRS financial statements.

 

 

Peru Three Months Ended
(in thousands) Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Net pounds of copper produced1 42,015 39,302 25, 361

Contained copper in concentrate.

 

Peru

Three Months Ended
  Q2 2021 Q1 2021 Q2 2020
Cash cost per pound of copper produced $000s   $/lb   $000s   $/lb   $000s   $/lb  
Mining 26,133   0.62   21,539   0.55   7,595   0.30  
Milling 40,286   0.96   43,320   1.10   18,703   0.74  
G&A 16,910   0.40   14,420   0.37   7,493   0.30  
Onsite costs 83,329   1.98   79,279   2.02   33,791   1.33  
Treatment & refining 9,824   0.23   6,614   0.17   5,165   0.20  
Freight & other 11,555   0.29   8,688   0.22   4,817   0.19  
Cash cost, before by-product credits 104,708   2.50   94,581   2.41   43,773   1.73  
By-product credits (27,137 ) (0.65 ) (22,864 ) (0.58 ) (10,575 ) (0.42 )
Cash cost, net of by-product credits 77,571   1.85   71,717   1.82   33,198   1.31  

 

 

 

Peru Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Supplementary cash cost information $000s   $/lb $000s   $/lb $000s   $/lb
By-product credits2:            
Gold3 8,835   0.21 4,155   0.11 2,129   0.08
Silver3 7,466   0.18 9,337   0.24 6,827   0.27
Molybdenum 10,836   0.26 9,372   0.24 1,619   0.06
Total by-product credits 27,137   0.65 22,864   0.58 10,575   0.42
Reconciliation to IFRS:            
Cash cost, net of by-product credits 77,571     71,717     33,198    
By-product credits 27,137     22,864     10,575    
Treatment and refining charges (9,824 )   (6,614 )   (5,165 )  
Inventory adjustments (723 )   (723 )   (8,155 )  
Share-based compensation expenses 52     19     49    
Change in product inventory 4,465     (10,575 )   (1,916 )  
Royalties 578     1,165     578    
Overhead costs related to suspension of activities (cash)         12,358    
Depreciation and amortization4 52,710     40,435     33,152    
Cost of sales5 151,966     118,288     74,674    

 

Per pound of copper produced.
By-product credits are computed as revenue per financial statements, amortization of deferred revenue and pricing and volume adjustments.
Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.
Depreciation is based on concentrate sold.
As per IFRS financial statements.

 

 

Manitoba Three Months Ended
(in thousands) Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Net pounds of copper produced1 9,736 14,828 14,379

Contained copper in concentrate.

 

Manitoba

Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Cash cost per pound of copper produced $000s   $/lb   $000s   $/lb   $000s   $/lb  
Mining 54,714   5.62   54,420   3.67   44,820   3.12  
Milling 13,655   1.40   12,662   0.85   11,466   0.80  
Refining (Zinc) 17,908   1.84   19,607   1.32   16,617   1.16  
G&A 14,749   1.51   15,787   1.06   11,042   0.77  
Onsite costs 101,026   10.38   102,476   6.91   83,945   5.85  
Treatment & refining 5,419   0.56   5,322   0.36   6,299   0.44  
Freight & other 7,746   0.80   7,487   0.50   7,357   0.51  
Cash cost, before by-product credits 114,191   11.73   115,285   7.77   97,601   6.80  
By-product credits (148,333 ) (15.24 ) (130,651 ) (8.81 ) (119,364 ) (8.31 )
Cash cost, net of by-product credits (34,142 ) (3.51 ) (15,366 ) (1.04 ) (21,763 ) (1.51 )

 

 

Manitoba

Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Supplementary cash cost information $000s   $/lb $000s   $/lb $000s   $/lb
By-product credits2:            
Zinc 77,707   7.98 82,315   5.55 60,094   4.18
Gold3 60,045   6.17 40,979   2.76 52,034   3.62
Silver3 7,977   0.82 5,798   0.39 6,281   0.44
Other 2,604   0.27 1,559   0.11 955   0.07
Total by-product credits 148,333   15.24 130,651   8.81 119,364   8.31
Reconciliation to IFRS:            
Cash cost, net of by-product credits (34,142 )   (15,366 )   (21,763 )  
By-product credits 148,333     130,651     119,364    
Treatment and refining charges (5,419 )   (5,322 )   (6,299 )  
Share-based compensation expenses 222     165     235    
Change in product inventory 10,795     (12,289 )   5,916    
Royalties 3,710     2,738     1,785    
Depreciation and amortization4 46,595     42,247     47,655    
Cost of sales5 170,094     142,824     146,893    

 

Per pound of copper produced.
By-product credits are computed as revenue per financial statements, amortization of deferred revenue and pricing and volume adjustments.
Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.
Depreciation is based on concentrate sold.
5 As per IFRS financial statements.

 

Sustaining and All-in Sustaining Cash Cost Reconciliation

 

Consolidated Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
All-in sustaining cash cost per pound of copper produced $000s   $/lb $000s   $/lb $000s   $/lb
Cash cost, net of by-product credits 43,429   0.84 56,351   1.04 11,435   0.29
Cash sustaining capital expenditures 68,803   1.33 56,456   1.04 49,467   1.24
Royalties 4,288   0.08 3,903   0.07 2,363   0.06
Sustaining cash cost, net of by-product credits 116,520   2.25 116,710   2.16 63,265   1.59
Corporate selling and administrative expenses & regional costs 10,995   0.22 10,765   0.20 11,608   0.29
Accretion and amortization of decommissioning and community agreements1 705   0.01 579   0.01 1,049   0.03
All-in sustaining cash cost, net of by-product credits 128,220   2.48 128,054   2.37 75,922   1.91
Reconciliation to property, plant and equipment additions:            
Property, plant and equipment additions 96,090     82,378     31,719    
Capitalized stripping net additions 22,506     18,625     18,969    
Decommissioning and restoration obligation net additions 11,039     (64,504 )   16,690    
Total accrued capital additions 129,635     36,499     67,378    
Less other non-sustaining capital costs2 63,694     2,655     33,527    
Total sustaining capital costs 65,941     33,844     33,851    
Right of use leased assets (9,101 )   (1,321 )   (4,716 )  
Capitalized lease cash payments – operating sites 8,331     9,188     7,609    
Community agreement cash payments 108     235     546    
Accretion and amortization of decommissioning and restoration obligations 3,524     14,510     12,177    
Cash sustaining capital expenditures 68,803     56,456     49,467    

 

 

 

Peru Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Sustaining cash cost per pound of copper produced $000s $/lb $000s $/lb $000s $/lb
Cash cost, net of by-product credits 77,571 1.85  71,717 1.82 33,198 1.31
Cash sustaining capital expenditures 34,898 0.83  19,802 0.50 12,855 0.51
Royalties 578 0.01  1,165 0.03 578 0.02
Sustaining cash cost per pound of copper produced 113,047 2.69  92,684 2.36 46,631 1.84

 

 

Manitoba

Three Months Ended
  Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Sustaining cash cost per pound of copper produced $000s   $/lb   $000s   $/lb   $000s   $/lb  
Cash cost, net of by-product credits (34,142 ) (3.51 ) (15,366 ) (1.04 ) (21,763 ) (1.51 )
Cash sustaining capital expenditures 33,905   3.49   36,654   2.47   36,612   2.55  
Royalties 3,710   0.38   2,738   0.18   1,785   0.12  
Sustaining cash cost per pound of copper produced 3,473   0.36   24,026   1.62   16,634   1.16  

Combined Unit Cost Reconciliation

 

 

Peru

Three Months Ended
(in thousands except ore tonnes milled and unit cost per tonne)      
Combined unit cost per tonne processed Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Mining 26,133   21,539   7,595  
Milling 40,286   43,320   18,703  
G&A 1 16,910   14,420   7,493  
Other G&A 2 52   19   49  
Unit cost 83,381   79,298   33,840  
Tonnes ore milled 7,413   6,363   4,355  
Combined unit cost per tonne 11.25   12.46   7.77  
Reconciliation to IFRS:      
Unit cost 83,381   79,298   33,840  
Freight & other 11,555   8,688   4,817  
Other G&A (52 ) (19 ) (49 )
Share-based compensation expenses 52   19   49  
Inventory adjustments (723 ) (723 ) (8,155 )
Change in product inventory 4,465   (10,575 ) (1,916 )
Royalties 578   1,165   578  
Overhead costs related to suspension of activities (cash)     12,358  
Depreciation and amortization 52,710   40,435   33,152  
Cost of sales3 151,966   118,288   74,674  

G&A as per cash cost reconciliation above.
Other G&A primarily includes profit sharing costs.
As per IFRS financial statements.

 

Manitoba

Three Months Ended
(in thousands except tonnes ore milled and unit cost per tonne)      
Combined unit cost per tonne processed Jun. 30, 2021 Mar. 31, 2021 Jun. 30, 2020
Mining 54,714   54,420   44,820  
Milling 13,655   12,662   11,466  
G&A 1 14,749   15,787   11,042  
Less: G&A allocated to zinc metal production (3,724 ) (3,818 ) (3,264 )
Less: Other G&A related to profit sharing costs (1,274 ) (2,179 )  
Unit cost 78,120   76,872   64,064  
USD/CAD implicit exchange rate 1.23   1.27   1.39  
Unit cost – C$ 95,927   97,341   88,753  
Tonnes ore milled 646,987   644,730   659,507  
Combined unit cost per tonne – C$ 148   151   135  
Reconciliation to IFRS:      
Unit cost 78,120   76,872   64,064  
Freight & other 7,746   7,487   7,357  
Refined (zinc) 17,908   19,607   16,617  
G&A allocated to zinc metal production 3,724   3,818   3,264  
Other G&A related to profit sharing 1,274   2,179    
Share-based compensation expenses 222   165   235  
Change in product inventory 10,795   (12,289 ) 5,916  
Royalties 3,710   2,738   1,785  
Depreciation and amortization 46,595   42,247   47,655  
Cost of sales2 170,094   142,824   146,893  

G&A as per cash cost reconciliation above.
As per IFRS financial statements.

 

 

 

About Hudbay

 

Hudbay is a diversified mining company primarily producing copper concentrate (containing copper, gold and silver) and zinc metal. Directly and through its subsidiaries, Hudbay owns three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru), and copper projects in Arizona and Nevada (United States). The company’s growth strategy is focused on the exploration, development, operation and optimization of properties it already controls, as well as other mineral assets it may acquire that fit its strategic criteria. Hudbay’s vision is to be a responsible, top-tier operator of long-life, low-cost mines in the Americas. Hudbay’s mission is to create sustainable value through the acquisition, development and operation of high-quality, long-life deposits with exploration potential in jurisdictions that support responsible mining, and to see the regions and communities in which the company operates benefit from its presence. The company is governed by the Canada Business Corporations Act and its shares are listed on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima.

 

Posted August 10, 2021

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